Well I don't want to imply that I think the squad is in "bad shape". I don't feel at all qualified to make a blanket statement like that about Real Madrid because I'm not a fan of them nor of any Spanish team in general. But I think that they recognize a potential downward trend in their success in the face of a very powerful Barcelona rival that has them worried.

Real Madrid is a team that buys absolute top quality players and fits them into a system that most closely represents their chance for success. This is generally effective, but you can see that there are small cracks in the veneer. Without Luka Modric in the side they look completely different, and less threatening. Gareth Bale is most likely gone in my opinion so they're need to get a replacement. I think Kroos can perform better, and probably will as he gets more acclimated to the team. Casillas has had his spats with the fans as he sometimes does. Ramos has had some very questionable appearances this season. Examples like that are easy to come by, and I'm not trying to single out Real specifically, but their litmus test for success is Barcelona, and I don't see these problems there.

So again, I don't think the squad is in a bad spot necessarily but it is definitely different compared to Barcelona's. They seem to be a team that will be a powerhouse for several years yet, and while Real have similar quality across their squad, it doesn't feel as cohesive a unit as Barcelona.

Now how much of this is on Ancelotti's hands is up interesting, because a lot of signings weren't his and thus he should not be blamed for them. On the other hand, a lot of people will argue that anybody given a galactico-laden squad like that should win more than he has.