As Joan Gaspart, the newly-elected president of Barcelona, celebrated the decision of Brazilian international Rivaldo to stay at the club in return for a hefty pay rise, he admitted what everybody else had gathered after a summer of unbridled lunacy in football.

"Barcelona," he sighed "has gone a little mad to pay all this money but we have done so only because other clubs have gone mad too."

The extent of Barca's madness could be judged by its decision to pay its Brazilian star around £105,000 per week (#133,320), a figure that makes him the best-paid player in the world. The club also spent £37.5 million bringing Arsenal stars Emmanuel Petit and Marc Overmars to the Nou Camp and after Gaspart's election, scarcely a day passed without the club being linked to some multi-million pound deal or other.

Much of the money had been provided by the record-breaking sale of Luis Figo to arch-rivals Real Madrid for £45 million, where he had been promised a weekly salary of £100,000.

What was more important than money, though, in all of the many deals undertaken by the two Spanish giants during the summer was club politics. At Barca, Gaspart had promised members that he would keep Rivaldo at the club and sign Overmars if elected to the presidency.

In Madrid, Florentino Perez had outpolled Lorenzo Sanz in Real's presidential election by promising to refund all season ticket-holders' money if Figo didn't arrive by the start of the new season.

As it happened the club was - and is - on the verge of financial collapse. Perez won the election, but before he could complete the Figo deal he had to sort out a series of new bank loans worth more than £60 million, some of which was used by the European champions to pay players who hadn't received their wages since the end of last season.

The club now has debts of around £250 million and Perez admits that it is in deep trouble. Few analysts can see any way back into the black for the club despite its new leader, rather optimistically, raising the possibility of a flotation.

Part of the problem facing Real and Barca is that their increasing success at generating revenue off the pitch and securing deals that provide guaranteed future income has led to them being able to borrow the kind of money that previously would have been entirely unthinkable.

Spanish clubs generate half their earnings from television rights. With each club marketing its own rights, the figures have grown rapidly. Barcelona has already concluded a deal due to run from 2003 to 2008 that will bring in around £62 million per season. Even the annual retainer it receives now as part of the deal is, at £8 million, worth more than all but a couple of English premiership clubs received last year from BSkyB.

Elsewhere, income from broadcasting rights brings in 42 per cent of turnover for top division clubs in France, 35 per cent in Italy and 29 per cent in England. In every case the figure is rising, but the French and English figures are, in particular, set to jump considerably as new deals take effect.

In England there are important differences in how the leading clubs generate their income. Manchester United, for instance, made around £25 million sterling from merchandising during the 1998/99 season, which is close to 10 times the figure generated in the same area by France's biggest club, Marseille. A further £9 million came from conferences and match-day catering, areas of operation that would contribute virtually nothing to a big Italian club. And gate receipts, although slipping as a percentage of overall revenue, still brought in 38 per cent of United's £132 million turnover for their Champions League winning season.

In contrast, a club like Lazio, which only has half the turnover and half the gate receipts of United, makes far more from television and commercial sponsorship - both of which entail much lower costs to the club than selling shirts or feeding corporate guests, and therefore far larger profits.

The biggest clubs in Italy earned around £39 million from their domestic television rights last year, with income from European games adding considerably to the figure. And the close ties between their high-profile presidents and some of Italy's largest commercial enterprises tend to have the effect of boosting the size of sponsorship deals.

At Lazio, club president and majority shareholder Sergio Cragnotti has backed the club's ambitious rise with substantial resources from his food processing empire but he still sees the Italian champions as being potentially his biggest money-spinner in the long term.

"In Italy football is still seen as the plaything of the rich and not as part of the entertainment industry," he said earlier this year. "But football is the most global business of the lot. You tell me the name of any other product that is bought off the shelf by three billion customers. Not even Coca-Cola comes close."

Nobody is more keenly aware of that fact than the people who run Manchester United, long the pacesetters when it comes to marketing a football brand name. These days revenue from merchandising is declining but the club recently signed a sponsorship deal worth £38 million with Vodafone and its broadcasting revenue will move closer to the kind of figures generated by the big continental clubs next season because of a new four-year package of television deals worth £2 billion.

Unlike its main European rivals, however, United is under pressure from shareholders to generate a return on investment. Therefore, the club needs to be more imaginative than others if it is to compete for players in what will soon - with the expected abolition of transfer fees and long-term contracts - be an even more competitive marketplace.

"We are not trying to compete with the private pockets of some of the European club owners," argues United's new chief executive, Peter Kenyon. "We have to think smarter in order to invest in our youth policy, the stadium and the players themselves."

And it is the players who are the key factor - with wages at United now set to spiral as the club's biggest stars seek parity with their counterparts in Italy and Spain.

"The challenge for English clubs over the next four years," insists the head of Deloitte and Touche's football industry team, Gerry Boon, "is to manage their money sensibly and ensure that some it goes on strengthening their business infrastructure rather than straight into their players' pockets".

If recent events in Spain are anything to go by then it may well be a challenge that many clubs cannot meet.