true faith : SPENDING POWER

by • July 21, 2017 • tf blogsComments (4)1076

I don’t think we should all be so fascinated by transfer fees.  Not because I think the subject of transfer economics is dull, but because fees alone offer no way to compare the value of Paul Pogba and Alan Shearer.  Obviously Manchester United breaking the world record transfer fee to buy Pogba at six times the price Newcastle paid to buy Shearer doesn’t make Pogba six times the player. Even accounting for inflation, Shearer’s £15m fee would ‘only’ be £27m today.  The premier league has it’s own inflationary factor completely disconnected from reality, it’s tied solely to the amount of media income clubs receive.

The ever increasing TV deals (the current deal is over 70% more than the last) lead to a struggle for those of us trying to follow the market and make sense of the prices being paid.  No matter that we have known for a long time that the increase was coming, when fees and wages rocket by 70% in line with TV income it comes as a shock and we naturally blanche at such gauche sums being thrown about.  How can we compare the valuation clubs are putting on players today with the value clubs previously put on players.  It doesn’t make sense to use fees, but if we look at fees as a percentage of turnover and compare those then we have a better method of quantifying the cost of a player to a club and relating it to historical prices.  It tells us the proportion of the money the club could spend elsewhere that they are willing to invest on a player instead.

When Newcastle paid £15m for Alan Shearer Newcastle’s total turnover was less than £50m.  That means we spent over 30% of all income on a single player. A third of earnings is a massive amount to invest in one player, but with Shearer, there’s not many that would argue it wasn’t a price worth paying.  Pogba at £90m looks an outrageous expense today, but at only 17% of Man U’s current £515m turnover, he’s had almost half as much of the value we placed on Shearer placed on him by Man U.

Everton have grabbed attention this summer as one of the clubs outside of the top 6 keen to spend big sums. But are they over-extending themselves at all?  Everton’s biggest signing this summer has been £25m but their turnover last year was over £120m, so they’re only valuing their costliest signing at 20% of turnover.  In reality, Everton haven’t had to touch a penny of their media, season ticket or commercial income to fund any of the £80m plus they’ve spent so far.  By selling Lukaku, Deulofeu and Cleverly they have a £10m profit after the acquisition of Pickford, Keane, Klassen, Onyekuru and Ramírez.  No wonder they’ve got £6m left in their back pocket to poach Lewis Gibson from Newcastle. Still, 5% of their income for a 17 year old without a senior appearance looks a big investment in potential.

Outside of the Premier League, many have expressed incredulity at the likes of Middlesbrough and Wolves spending £15m on players.  It’s strange to see the about turn in mood from one where Newcastle fans resolutely argued against charges of buying the championship because of our capacity to spend 8 figures on multiple signings to one where seemingly, as a whole, we’re astounded that other clubs might match that ambition.  Boro will earn more with a parachute payment this year than Newcastle earned the year Shearer signed.  Why shouldn’t they spend as much as we did on a striker to chase a return to the top flight?

The astonishment at the amounts  clubs are willing to pay seems misdirected to me.  Clubs are doing their duty by reinvesting the money that they earn where it counts, on the pitch.  The clubs we should raise an eyebrow towards are those stuffing the money under the mattress, unwilling to embrace the new reality of the market and match the sums that, as ever, will only continue to rise.

Unfortunately, Newcastle haven’t got anything under the mattress.  Mike Ashley loaned the club another £15m in the championship just to cover costs, taking debt to £144m.  Once promoted, we’d have to await monthly payments from the Premier league to arrive and  for the next instalments from the Sissoko and Wijnaldum sales.  Season ticket income comes largely from monthly direct debits too.  Spending big this summer might require extending the overdraft or further loans if players can’t be sold that will fund it.  It’ll be in subsequent seasons when we should better match the majority of top flight clubs.

CHRIS HOLT – Follow Chris on @bigchrisholt

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4 Responses to true faith : SPENDING POWER

  1. Colin Mccabe says:

    Good read Chris, ta.
    Your dead right about the proportion of turnover to spend, the danger surely has to be if the arse falls out of the TV deal and surely with the viewing figures in decline all over this is a real danger. Maybe this can be made up for in TV deals with Asia etc but who knows. We saw what happened with the ITV collapse in 2002

  2. shaun says:

    In todays inflated market Shearer would be worth £100m+ because of the way he scored goals
    Beardsley would be worth £60m+
    Gazza would be worth £60m and a 100 boxes of smarties+.
    Pogba is not worth £20M, What has he achieved? NOWT

    • Rob Y says:

      Not sure if that last line is meant to be satirical but Pogba has 4 Serie A titles, 2 Italian cups, UEFA cup and a League cup and is a Champions League runner-up. He did have a disappointing season given his price tag but to suggest he hasn’t achieved anything ….

  3. Wallace says:

    Very illuminating Chris. Looking forward to your explanation of the Neymar transfer😏