Mercato – The accounting tricks of the Premier League

How can the Premier League afford to spend more than 1.2 billion euros net in this summer transfer window, when almost all of its clubs posted record losses during the two seasons affected by the pandemic? This net 1.2 billion is a new world record. No need to specify that this record already belonged to him. La Liga is only a distant second in this arms race, with 85 million net expenditure, or 5% of what Premier League clubs have taken out of their bank accounts for three months.

It’s not just the giants of English football who got their hands dirty. In fact, Liverpool only spent around fifteen million, with the sales of Mané, Neco Williams and Takumi Minamino more or less balancing out the outlay to bring in Darwin Nuñez from Benfica. Manchester City has been even more virtuous: the Cityzens have a positive balance of more than twenty million in this transfer window. Erling Haaland and Kalvin Phillips arrived well, but the transfers of Raheem Sterling, Gabriel Jesus, Oleksandr Zinchenko and a few other less impressive names (Porro, Itakura, Muric) more than compensated for the effort made by the champion of England.

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The madness is other than them who succumbed to it, such as the promoted Nottingham Forest, which saw the arrival of twenty-one new players in the off-season, which will have cost 154 million euros (net, of course) to their owner Evangelos Marinakis, seventeen times what he spent on his other club, Olimpiacos, of which he says he is a lifelong fan. Forest had however recorded operating losses of 36.8 and 39.2 million over the last two seasons for which we have up-to-date accounts, 2019-20 and 2020-21. This has in no way dampened the enthusiasm of the controversial billionaire from Piraeus.

Compared to Chelsea, we will also say that these 75 million and some are almost nothing, since the Blues had ended the 2020-21 financial year with a deficit of 177 million euros. Roman Abramovich had closed the breach, as usual. Abramovich is no longer there, but nothing has changed: Clearlake Capital, Todd Boehly and their associates have taken over, and have remained faithful to the house spirit by spending 228 million this summer. Yes – neat. How is it possible ?

What’s the biggest crush of the summer?

Seven years of contract? It’s possible

And how Manchester United, whose last title dates back to 2017, and which is now overtaken by Manchester City, Real Madrid, Bayern and FC Barcelona (and closely followed by PSG) in the Rich List of the accounting firm Deloitte, can can he afford to spend almost 230 million euros net on this summer transfer window too? How can this be compatible with financial fair play regulations, whether at English or European level?

The answer to these questions is partly in another: why did Wesley Fofana just sign a seven-year contract with Chelsea?

Seven years, yes, it is possible. FIFA’s player status regulations specify that « a contract is established for a minimum period from the date of its entry into force until the end of the season and for a maximum of five years ».

Chelsea and Fofana have nevertheless opted for an extension of two seasons on this “maximum”. This is because FIFA regulations stipulate: « contracts of a different duration [..] are allowed […] if they comply with the national law in force ». However, as English national law sees no reason to oppose a seven-year term in this area, the young French defender will therefore be a « Blues » until June 2029. In principle.

Wesley Fofana before training with Chelsea.

Credit: Getty Images

In principle, because Chelsea were not only aiming to hang on to their rookie for as long as the law allowed them, and thus protect his market value for longer. Chelsea also intended to stay in the nails of financial fair play by using an accounting sleight of hand without which almost no club – English or not – could present balanced accounts to the controllers of their league or UEFA: depreciation.

Fofana will have cost Chelsea 80 million euros. This does not mean that 80 million will be a liability of the club, which has the right to amortize the cost of the transfer over the total duration of the contract signed by the player and which, in the case of Fofana, is seven years. 80 divided by 7 equals 11.43; it will therefore be 11.43 million that will be charged to Chelsea’s expenditure account in 2022, 23, 24… and so on until 2029, when this contract will have come to an end and will no longer be worth a penny.

The key is depreciation

Presented in this way, the thing makes a certain sense, the problem being that the income received by the club, when it sells a player, can be immediately credited to it, and in full, even though most of these payments are made in installments, usually over three years.

By selling Billy Gilmour at the same time for just over 10 million to Brighton, Chelsea had therefore almost absorbed the liabilities generated by the recruitment of Fofana, at least for one season. Clever, right?

Considered in this way, the a priori exorbitant transfers from Manchester United will not have been so expensive in the eyes of accountants.

  • Antony, 95 million, five years of contract: 19 million per year.
  • Casemiro, 70 million, four years: 17.5 million per year.
  • Lisandro Martinez, 53.4 million, five years: 10.7 million per year.
  • Tyrell Malacia, 15 million, four years: 3.75 million a year.

If you add it up, it’s just under 51 million taking into account the amortization over the contract periods, and as Manchester United recovered 11 million for the sale of Andreas Pereira to Fulham and the paying loan of ‘Eric Bailly at OM, it’s ‘only’ forty million that burden the club’s accounts; and considering that, at the same time, MU have parted ways with Paul Pogba, Edinson Cavani, Jesse Lingard, Nemanja Matić and Juan Mata, and will no longer have to pay their salaries… well, it is likely that the financial situation of the club will have improved, 230 million net disbursements or not. Stay in the nails of financial fair play? Easy!

The problem is that this accounting mechanism primarily benefits the rich, in that they have much more to gain by using it. These rich are the Premier League clubs, ten of which are among the thirteen biggest spenders in the world this summer.

These rich people also know that, if all of Europe tightens its belts and tries to prepare for the worst, and despite inflation which, in the United Kingdom, is already over 10% (and could reach 22% in January, according to analysts at Goldman-Sachs), plus a pound sterling which falls again on the foreign exchange markets, the Premier League will be spared. More popular than ever, it will receive 12 billion euros in TV rights (now, and for the first time, more profitable abroad than in Great Britain) for the 2022/2025 financial year, an increase 16% over the previous triennium.

She doesn’t just have the best players. It also has the best salespeople, and the best accountants.

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