Real Madrid has been announced as one of three teams to compete in the International Champions Cup in Melbourne in July.

The European champions, starring an assortment of stars including Cristiano Ronaldo, Gareth Bale and Sergio Ramos, will take on two other teams in the friendly preseason tournament at the MCG from July 18-24.

The two other teams will be drawn from the English Premier League and Italy's Serie A, with Manchester City and Inter Milan reportedly earmarked to take part in the competition.

The long-rumoured event was confirmed on Monday morning by the Victorian Sports Minister Damien Drum.

Drum said he expected the three fixtures would generate around $50 million to the local economy.

He thanked AFL chief executive Gillon McLachlan, which has rights to the MCG during the winter, for scheduling their season around the tournament.

"It has taken some negotiations but the goodwill in which these negotiations have taken place deserves credit," he said.

The three teams will play in a round-robin tournament, which has been staged predominantly in North America for the last two years.

The tournament was last year held in the United States, with Manchester United beating Liverpool 3-1 in the final, but the competition has been expanded to include three teams facing off in Melbourne.

The announcement follows recent blockbuster tours that saw Manchester United play in Sydney and Liverpool feature in front of a packed-out MCG.

ABC/AAP