What impact should we expect UEFA’s Financial Fair Play (FFP) regulations to have on business conducted during player transfer windows such as the one that closes today?
You might think the break-even requirement enshrined in the rules would have a chilling effect, dissuading clubs from splashing the cash on these costly assets.
Actually though I think this will be far from the case. Why? Because of the lop-sided way player valuations are dealt with in corporate accounts, at least in England, where a high proportion of the world’s biggest clubs, measured by turnover, are based.
The source of this lopsidedness is as follows. When a club sells a player, the gain, or loss, that it realises against the value of that player carried in its books is normally included in full in that year’s accounts. When a player is bought, by contrast, the transfer fee is normally amortised over the length of that player’s contract. If a player signs for five years, therefore, at most a fifth of the fee would be included in the amortisation charge in that year’s accounts.
In practice, and bearing in mind that home-grown players by definition required no transfer fee to bring to the club and thus have a book value of zero, this way of doing things makes it rather difficult for Premier League clubs not to make a net profit on player sales in any given year. Only two – Liverpool and Sunderland – failed to do so in 2012.
When I did the number crunching, based on data contained in consecutive editions of Deloitte’s Annual Review of Football Finance, I found that the aggregate amount of net profit booked by Premier League clubs on the sale of player registrations between 2008 and 2012 reached well over £1 billion.
So I think transfer trading will be a help, not a hindrance, for most clubs in their efforts not to fall foul of FFP.
By way of illustration, I have tried to estimate the likely impact of Chelsea’s dealings in this January transfer window on their 2013-14 results. It is only an estimate, but I have come up with a net benefit of over £30 million.
I have taken into account five players:
● Juan Mata, sold to Manchester United for some £37 million in this window’s highest-profile transfer, was bought from Valencia in 2011 for a reported £23.5 million. Two-and-a-half years of amortisation should have reduced the Spaniard’s book value to somewhere in the region of £12 million. That suggests a gain for the west London club on the latest deal of a tidy £25 million.
● Kevin de Bruyne was sold to Germany’s Wolfsburg for a reported £17 million. This deal was done a fraction less than two years after he signed from Genk for a rumoured £7 million. I estimate that something like £2.5 million of this will have been amortised, which would leave some £4.5 million still on the Londoners’ books. That implies another gain of a far from negligible £12.5 million.
● Ghana’s Michael Essien recently left for AC Milan for an undisclosed fee. While this must surely have been far less than the £24.4 million for which he arrived from Lyon, that deal was done so long ago – in 2005 – that it seems safe to assume the midfielder’s fee will have been fully amortised, giving him a book value to Chelsea of zero. Any fee at all received from the rossoneri would thus amount to another net gain.
● Turning to new arrivals, Nemanja Matić has been signed from Benfica for a reported £21 million, and Mohamed Salah from Basel for what is said to be £11 million. Both players are said to have agreed five and a half-year contracts.
If those details are accurate, it suggests that the combined fees would be amortised at the rate of just under £6 million a year; so let’s allow £3 million for the remaining months of the current year to June 2014.
That gives us broadly £25 million + £12.5 million – £3 million = £34.5 million, plus any fee received for Essien.
In the context of a recently-reported £49.4 million loss for the year to June 2013, that sort of number could be highly significant, even if it is only an order of magnitude. What is more, you would be hard-pressed to argue that José Mourinho’s squad was weaker as a result.
With such on- and off-field benefits available to skilful practitioners, and with a particularly lucrative new set of Premier League TV deals in place, there seems to me, in conclusion, no reason why FFP should have a dampening effect on the mercato.
David Owen worked for 20 years for the Financial Times in the United States, Canada, France and the UK. He ended his FT career as sports editor after the 2006 World Cup and is now freelancing, including covering the 2008 Beijing Olympics, the 2010 World Cup and London 2012. Owen’s Twitter feed can be accessed at www.twitter.com/dodo938.