Big spenders take risks with new rules

Two conflicting forces, both emanating from Uefa’s tranquil HQ on the banks of Lake Geneva, have been affecting the English Premier League’s biggest clubs during this transfer window.

On the one hand are the financial fair play (FFP) rules supposed to usher in a new era of restraint. On the other, a desperate fear of missing out on the Champions League, and not only the guaranteed financial windfall (Manchester United banked £53.2-million last season) but its importance in the global brand-building arms race that the clubs hope will help them boost revenues and compete in the new FFP landscape.

A cursory glance at the back pages this summer—detailing a longer than ever list of big-money transfer sagas—and the running total of cash spent will indicate that fear of not making the Champions League is winning out over reining in spending.

Overall spend is significantly up on last year, although it is unlikely to rival the high point of the summer of 2009 when Manchester City’s unprecedented spending spree began in earnest. But with more than usual already spent in January, the overall gross spend for the calendar year could rival the 2009 figure of £675-million.

Gianni Infantino, Uefa’s general secretary, was right to point out last week that this was hardly a case of one last splurge before the new break-even rules kick in.
Transfer outlay will be amortised over the length of the players’ contracts and contract commitments will obviously figure for years to come, so everything spent in this window will have to be accounted for under the new regulations.

But it is also true that clubs hauled before Uefa’s financial control panel will get some credit for reporting a “positive trend in the annual break-even results”, meaning that if clubs feel the need for one last spree it makes sense to do it now.

Since first Tottenham Hostpur and then Manchester City shattered the hegemony of the big four, thoughts of parsimony have gone out of the window. The fear is that financial fair play will, over time, lock in a natural order. That is what has driven Manchester City, Manchester United, Chelsea and Liverpool to spend this summer and motivated Arsenal’s last-ditch trolley dash.

But although the total outlay by English clubs remains large, the overall net spend is down as a result of a swing towards shopping domestically. In 2010 top-flight clubs spent £356-million on players of which £99-million (28%) went to other English league clubs. In 2011 well over half of total expenditure was on players from other English clubs.

Players such as Jordan Henderson, Phil Jones, Stewart Downing and Ashley Young have moved between Premier League clubs. Connor Wickham and Alex Oxlade-Chamberlain moved from the Football League for big fees. Although there has been an increase in trickle down to the Championship, most of that money has remained within the Premier League.

“It would seem that the Premier League’s squad composition rules are beginning to have an effect,” said Geoff Mesher, a forensic accounting partner in Grant Thornton’s Sport Advisory Group.

“This has the added benefit of retaining a greater proportion of wealth within English football. However, examples of lower-league clubs being the beneficiaries of such investment are rare.”

The trend has been driven by a combination of Uefa and Premier League regulations, introduced last summer and requiring every 25-man squad to have eight “home-grown” players as well as allowing an unlimited number of players under 21, and financial logic.

Even at higher prices the fact that transfer fees can be amortised over the course of a four- or five-year contract and that wages are often lower than overseas alternatives means that buying young and British still makes sense.

One other area where the Premier League rules introduced last summer, and the prospect of FFP, has influenced thinking is in the imperative to trim high-earning fringe players. The new rules have also put an even higher premium on youth: younger players tend to be cheaper in terms of wages, have more resale value and are encouraged under the new rules.

In this window Premier League clubs have spent more than £130-million on players under 21. That compares with £60-million in 2010 and just £21-million in 2009.

During 2010-11 there was a 28% increase on the previous year in the number of on-pitch appearances by English players under 21.

And it is not only domestically that big spending continued unabated. “The other thing that’s quite noticeable is the pace of spending increasing faster in continental Europe than in England,” said Deloitte Sports Business Group partner Dan Jones, noting the outlay by Qatari-owned Paris St-Germain in particular.

So the new rules are having some effect—if not always in the way intended—and profligate clubs, Manchester City and Chelsea foremost among them, will continue to insist they can balance their books and spend big.

Eventually, something will have to give—just not quite yet.—

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