Against a backdrop of huge financial uncertainty, the transfer window has again thrilled and disappointed supporters in equal measure across the land. Perhaps, never before have the ambitions and the ability or willingness of club owners to pay for those ambitions become so apparent and laid bare as in this window and the complexities of Covid-19 football economics.
The headline figures show that Premier League clubs completed 396 transactions with a combined value of £1.45 billion. That compares to an average of £2.47 billion spent in the previous 4 years.
Although the Premier League window and most of the major European leagues have closed, the window with the English Football League remains open for domestic transfers up to 23.00 hours on 16th October, so it is possible that these figures may change.
Reduction in squad sizes
Whilst the headlines will be on what clubs have spent on players, the reality of the parlous state of football finances is that almost all clubs have looked to reduce their squad sizes. Of the 20 Premier League clubs, 17 have reduced the number of playing staff. Only Crystal Palace and two of the promoted teams, Fulham and Leeds United have increased numbers. Some of the reductions are quite startling:
|In||Out||Change in squad size|
|Brighton Hove Albion||10||22||-12|
|West Bromwich Albion||8||10||-2|
|West Ham United||3||16||-13|
In most cases the reductions have come about through use of the loan market rather than sales. One of the features of this transfer market is the almost complete absence of sales of ordinary (journeyman for want of a better description) professionals and older players. I consider that there are two factors at play here – the absence of willing buyers even at reduced values and the inability of the moving players to maintain current earnings. The solution has been a number of loans with both clubs contributing to wages in line with the players’ existing contract.
The market for younger players, for established and influential players remained largely intact albeit with some evidence of reduced transfer fees. As a result a small number of clubs with significant backing from their owners have taken advantage as witnessed above in the Summer spend graphic. Chelsea in particular, have taken advantage of market conditions whilst Aston Villa, Leeds United and Sheffield United have received strong backing from their current owners. Everton I will cover later in the article.
Player trading profits
In recent years clubs have increasingly relied on player trading profits to support operating losses and provide funds for further player acquisitions. In an era of increasing revenues driven by inflationary broadcasting rights packages, player values have spiralled upwards. Whilst ultimately this leads to increased costs for the clubs (putting pressure on their profit and loss accounts), as long as trading volumes and values continue to increase then this presents no problem. Only if volume and values drop does it become an issue.
As we have seen above volume and arguably value have dropped this summer. Thus player trading profits across the Premier League drop accordingly. By way of comparison with the figures below, average player trading profits for selected clubs over the last five years are as follows (per annum): Chelsea £66 million, Liverpool £61 million, Arsenal £34 million, Everton £33.9 million, Leicester and Manchester City £29 million respectively.
The financial year for most clubs ends on 30 June, so clearly with the winter window and the beginning of the summer 2021 window still to come, the figures below are not final, but they do demonstrate the different financial climate and challenges all clubs face:
|Player trading profit this summer||£m|
|Brighton Hove Albion||13.8|
|West Bromwich Albion||4.2|
|West Ham United||10.2|
Regular readers will be familiar with my view that without increased debt, player sales or a significant contribution from Moshiri we would not be very active in the transfer market despite the arrival of Ancelotti and the clear need for strengthening the squad in key areas.
As the figures show there was little by way of contribution from player sales, but with the conclusion of several player contracts, two sales and several loans there was a significant reduction in wages through 12 senior players leaving the club permanently or on loan.
In terms of providing the capital for purchases, I am confident the 2019/20 accounts will show Moshiri’s further financial support (both before the financial year end and beyond it). For the all the justifiable criticisms of previous transfer windows and management selections, his continued financial commitment has been outstanding. Add to that the small matter of having Ancelotti and Brands heading recruitment and at last we perform in line with fan’s expectations and more than match the recruitment of all the leading clubs in the country. It has been an exceptional window so far.
A large concern for Everton is compliance with the Premier League profit and sustainability rules and in the event of European qualification, Financial Fair Play. I say that in the full knowledge that both are currently suspended. They will however, in more normal times, return and given the retrospective nature of the regulations will once more become relevant.
Additionally, if as we hope, we remain competitive for Champions League qualification or higher, I suspect the attitude of our competitors, particularly Tottenham and Liverpool (who appear to have the greatest influence at PL meetings) towards our compliance (or lack of it) will harden. It’s one thing overspending and not competing, but if we represent serious competition to the established order some form of kick back is in my opinion inevitable.
So I’ve looked at those that have come in and gone in terms of how does it impact our profit and loss account – by what degree will our transfer activity have added to existing losses? (Figures from multiple sources)
|£ millions||Fee||Contract length||Amortisation||Estimated wages||Total|
|Net annual cost (£m)||7.31|
The result is remarkable and a true testament to the negotiating and juggling skills of Marcel Brands plus of course, the pulling power of Carlo Ancelotti.
To achieve such a turn around in the overall levels of the squad with such relatively small increase in costs is remarkable. Those costs should easily be met by improved league positioning (each place being worth £2 million approximately), greater number of tv appearances, and the genuine prospect of European football in the future. Added to that the greater commercial attraction of a team with a strong South American presence and it is clear that the increased costs should be met through increased revenues.
Football continues to face many challenges ahead. Everton are not immune from those challenges of course, and still have to address major issues relating to costs, but with a much stronger squad, a world class manager and Director of Football plus an owner totally committed we are in a strong position to catch up on the pitch with those above us, and then to catch up financially.
It has been a tremendous summer for us, despite the difficulties arising from Covid-19.
Categories: Everton finances