Money and the Game: Transfers, Part I

Money and the Game: Transfers, Part I

August 29, 2019 0 By Kevin Omondi

There’s little to no on-the-pitch action in the months between the end of a football season to the next. The offseason corresponds to the major transfer window, when professional players can relocate clubs. The idea of player transfers is anything but simple, highlighting the complicated nature of the football ecosystem and the global marketplace that the beautiful game is.

Not many lovers of the game will admit ignorance of some of its facets, especially, its off-the-pitch dealings. Why did Manchester United pay £80 Million for Harry Maguire? Why can’t Real Madrid get rid of Gareth Bale (and James Rodriguez)? Is Neymar ‘finished’ at PSG? How did Juventus sign Matthjis de Ligt? How is Arsenal the second largest spender in the Premier League transfer window? Why is Chelsea on a transfer ban? What role do agents play and just how powerful are they? How important is a fax machine to transfer dealings? What is a fax machine?

The simple and truest answer to these, and to as many other questions on transfers is: it’s complicated. Every transfer is unique, lends itself to secrecy and/or conditions of confidentiality (unless Barcelona is involved) and involves production lines of club officials churning out volumes upon volumes of legalese. To help fit the jigsaw puzzle on player valuations, transfer fee negotiations, agents, contract negotiations, this article, in cognizance of its own limitations, primarily its eternal absence of privity to these contracts and without making a claim to being the final authority on such dealings, employs: DONE DEAL An Insider’s Guide to Football Contracts, Multi-million Pound Transfers and Premier League Big Business by Daniel Geey, in a attempt to set the record straight and dispel some of the misconceptions associated with player transfers.

An Insider’s Guide to Football Contracts, Multi-million Pound Transfers and Premier League Big Business

Preliminaries

About the Author

Daniel Geey is a sports and football lawyer who has worked on Premier League and Football League club takeovers; international transfers and player contract negotiations, player image rights, boot and commercial deals; players’ and agents’ disputes and disciplinary matters; broadcasting agreements; and proves legal support on sports regulations including the Financial Fair Play rules, third-party investment, the international FIFA transfer rules and the intermediaries regulations.

He has written or appeared for various sports, media and entertainment legal journals and media outlets including Sky Sports, Sky News, the BBC, ITV, CNN, Bloomberg, the Daily Telegraph, The Times, the Independent, the Financial Times, CityAm and TalkSport. He supports Liverpool with Virgil van Dijk’s transfer to Liverpool being his favourite transfer of all time.

Where do you get yours news?

Capitalist media sources are almost always sensational with the transfer season bringing out the worst of scribes and reporters regurgitating then reaffirming rumours of transfers across borders. Their motivations are often centered around the pursuit of a leading headline, but today, the manipulative whims of some agents and/or players, acting in the own interests cannot be ignored. The recommended ITK¹ sources (in decreasing order of reliability) are:

  • Official Club Communication
  • Reports from some correspondents, usually one or two at every club, who have known, well established links with ITKs in the club
  • Media reports from some (foreign) journalists who have known, close ties to some agents privy to a particular transfer deal

The Transfer

Every transfer is unique and a little less straightforward than an alleged transfer fee as a headline followed by a photo of the manager shaking the player’s hand.

{photo of headline and photo}

Generally, there are two agreements that need to be reached: one between the buying and selling clubs and two between the buying club and player involved.

Player transfers are premised on the fact that clubs need to register ‘professional’ players to their teams. Players may be free agents- without a professional contract with a club; or might be under contract with a club, with a certain time period left before the end of the contract. Clubs normally identify a potential transfer target and are required to approach the selling club directly before speaking with a particular player.

The Transfer Fee

The transfer fee, effectively, is paid to compensate the selling club for the termination of the player’s (target’s) contract and facilitate the registration of the player. The amount of the fee depends whether there is a buyout or release clause (typical of La Liga contracts); an amount a selling club is willing to accept; the age, current contract terms, international status of the player, length of remaining contract, nationality of the player and playing position (forwards will be typically more expensive than defenders) and add-ons in relation to:

  • the club achieving promotion or the UEFA champions league;
  • the club winning trophies;
  • the club avoiding relegation;
  • player achievements such as international team appearances and/or goals; and/or
  • a sell-on clause to benefit the club when selling.

Aaron Wan Bissaka’s £50M price tag, it is reported, has great a sum of it, contingent on Manchester United, qualifying for the Champions League when the player is under contract with the club with Crystal Palace set to benefit even more if Manchester United were to win the Champions League. Similar contracts have seen increased player sell-ons for Arsenal, in the latter years of Arsene Wenger‘s tenure with trophies earned by the former players, like Cesc Fabregas at their new clubs

Transfer Contract

A transfer contract is formed when the buying club and the selling club reach an agreement, which will involve:

  • the transfer fee (likely to be paid in installments);
  • a sell-on clause if the player transfers again in the future; and
  • any ‘add-on’ compensation

A transfer fee is usually paid in instalments: for example 50% once the transfer has been completed, 25% on the first anniversary of the completed transfer, and 25% on the second anniversary.

Philippe Coutinho. In the summer of 2017 transfer figure of £118m from Barcelona made headline news. Of this, only £82m was reportedly guaranteed, payable in four annual instalments. The remaining £36m fee was contingent on, for example, Barcelona winning the Champions League and the player winning the Balon d’Or. This meant that a transfer bid of £118m translated into an initial payment by Barcelona of only £20.5m. When the Coutinho transfer eventually happened, for a reported £146m transfer fee, it was unclear how much of this was guaranteed by Barcelona.

The cost of a transfer

Such headlines are often different from the actual amounts paid to a club. Many fans would be forgiven for thinking that a buying club transfers the transfer fee to the selling club on the day the agreement is reached. DONE DEAL gives a typical example:

Let’s suggest that Liverpool pay £35m for a Brazilian international player. The transfer agreement may state that Liverpool pay:

  • £15M up front
  • £5M on both the first and second anniversaries of the player’s transfer;
  • £5M if the player makes 50 appearances for Liverpool; and
  • £5M if the player wins the Champions League and the Premier League with Liverpool (£2.5M per win)


Therefore, on the first anniversary of the transfer, Liverpool will only have paid £20M; without performance bonuses.

It is quite possible that a headline transfer figure is often never fully attained. Liverpool will never have to pay £5M if the player doesn’t make 50 appearances or fails to win the Premier League and Champions League with them. The £35M transfer fee is only one element of a much larger package. Usually a player’s salary over the length of a contract will be a significant investment by the buying club.

The average salary of a Premier League player in 2017 was £2.6M per year, or just over £50K a week. An elite international at a top Premier League club could be conservatively earning £5M per year, or around £100K per week. This means that a player earning £100K on a five-year deal will add an additional £26M in wages over the lifetime of the player’s first contract (£100K × 52 weeks × 5 years = £26M).

It is important to be aware that the headline transfer fee quoted never usually refers to the investment that a club will have to make in paying significant wages over a long-term contract. A transfer fee of £35M, coupled with a salary of £26M, means a lot of money is required. Not only will a basic wage be negotiated but clubs will incentivize players to sign for them by paying additional amounts called signing-on fees and loyalty bonuses, usually paid in instalments over the length of a player’s contract. Signing-on fees are usually paid on the anniversaries of signing the contract and loyalty bonuses at the end of one season or the beginning of the following season. These figures can be significant and may conservatively add £2–3M for an elite player over the length of their deal.

The extra expense of the signing-on and loyalty bonuses need to be factored into the calculations of a buying club to ensure they have wriggle room in their overall budget.

Performance Based Bonuses

Players will receive many different types of bonus, depending on their individual performance as well as the collective success of the team. Various success bonuses – including for an appearance, a win, a goal, an assist and even a ‘second’ assist² (in MLS) and a clean sheet – will significantly top up a player’s basic wage and can add as much as 20–30% extra on top of what a player is guaranteed to earn. That could mean an additional £1M that a club has to pay to particularly important players when the team is successful. It is therefore important to note that a club with a number of significant performance-related bonuses will have a larger bonus liability if the team performs well on the pitch.

Image Rights

It is common for top Premier League teams to enter into image rights contracts with their elite players who have a significant commercial value to their commercial partners. Sometimes those payments can be as much as 20% of the total basic salary of the player. A club will therefore have a potential image rights payment of £1m per year to make. Clubs may recoup significant amounts through higher sponsorship deals, using particular players in adverts and endorsement campaigns, but they will still pay the player for the privilege.

Agent’s Commission

A player’s agent will be entitled to commission on a transfer. In large Premier League transfers, the buying club will usually pay the commission to the agent on behalf of the player. This may be 5% of the player’s basic wages, and is usually paid in instalments, In the example of the £35M transfer fee to Liverpool described below and overleaf, the club will potentially pay the player’s agent £1.3M in instalments over the length of the five-year deal. From a headline £35M transfer fee, the total investment that Liverpool may need to pay could therefore reach as high as £71.3M over the length of the player’s first contract.

Done Deal- Summary of player transfer fee


References

D. G. (2019). Player Transfers and Contracts. In Done Deal (1st ed., pp. 26–41). London: Bloomsbury Sport.
¹”in the know” – being savvy about a topic. (Urban Dictionary)
²Secondary assist; at its simplest the pass before an assist because Americans play ‘soccer’.

Further Reading

The Club: How the Premier League Became the Richest, Most Disruptive Business in Sport by Jonathan Clegg , Joshua Robinson

Soccernomics by Simon Kuper, Stefan Szymanski

Leading Alex Ferguson, Michael Moritz and others


For Steve and Sam.