More than just a business deal: Football's Transfer Market demystified

©Getty Images | Manchester United sign Bruno Fernandes

Ah the football transfer window, the only way football fans keep themselves from getting bored during the summer football break. From long drawn out transfer sagas to surprise deadline day signings, every year’s transfer window has something entertaining to offer.

Gary Neville once said, “The trouble with the transfer window is it creates a window where transfers have to be done.” Even though I find the transfer market entertaining, I agree with him to some extent because every new window people come up with new myths. There are various myths that many believe to be true, especial regarding the financial & business aspects and contract situations. This might be largely due to the fact that Football Clubs are not obligated to publish any of the statements in the public domain, unlike regular organizations. The popularity of these myths on Social Media doesn’t help the cause.

As this year’s delayed transfer window comes to end, let’s take a look at some of the myths and misconceptions regarding the transfer market that pop-up every summer.

Myth: Clubs can recoup transfer spend via Shirt Sales

©Tumblr | Juventus sign Ronaldo for £100m

Hands down one of the most popular football myths that appear on comments sections of the football Twitter and Instagram community.

This is however not true at all. No club has ever recouped transfer fee of the player via shirt sales. Even though we might want shirt sales to directly correspond with the clubs’ spending, it is more complex than that.

The kit supplier logo on the jersey is more than just a simple marketing tactic, it is a merchandising deal. These licensing deals are used by the kit manufacturers to sell their apparel under the clubs’ brand name. Global Clubs such as Manchester United, Real Madrid, Barcelona etc give them the opportunity to tap into global markets and earn huge revenues by selling Club shirts and merchandise.

In exchange, clubs receive an annual fee, Manchester United having one of the largest football kit deals in the world, receiving £750m from Adidas over the course of 10 Years. Adidas has estimated to earn £1.5b in sales revenue by the end of the deal. This benefits the club as well, as they are assured a stable source of income and avoid operating a global logistics network for merchandise sales. Clubs also receive anything between 10-15% of the total sales revenue depending on the deal.

Myth: Every club has a Fixed Transfer Budget and Net Spend

©Talkin’ Smack

There are many more costs to consider than just the transfer fee which many fail to consider. Especially, the wages are a bigger cost to the club and other costs such as agent fees, image rights etc are also ignored in this scenario. Therefore, having a separate transfer budget wouldn’t make much financial sense.

Similarly, viewing net spend as an important transfer metric does not make much sense either as it too does not consider other important costs. Therefore, wages paid to football players should be considered more important over net spend when comparing the financial performance of football clubs because in many cases costs of a players’ wages far exceed their transfer fee.

For example, Aaron Ramsey’s switch to Italian champions Juventus in the summer of 2019 as a free agent. Many viewed it as a genius signing due to t it being free, but Juventus are going to effectively pay an eye-watering £83.2 million due to his £400K/week wage for a 4-year contract

Myth: No negotiations needed if Release Clause is met

©Bayern Munich | Lewandowski signs contract extension

The release clause is an agreement fee in a player’s contract, which the buying club has to pay to the selling club. But after meeting this fee, the transfer does not go through. You may wonder why?

The concept of skipping negotiations if the release clause is met was made popular by popular football video games such as FIFA and Football Manager. Although this might be true to a certain extent, it is not entirely true. There are still other terms and conditions to be met that are discussed between the clubs. We saw this in the case of Manchester United’s failed bid for Ander Herrera.

There might be also the case of a “good faith” clause that only obliges the club to consider the bid. This happened in Luis Suarez’s failed transfer to Arsenal in 2013.

Myth: FFP regulations stop clubs from spending big

©MakeAGif.com

The Financial Fair Play (FFP) Regulations were established by UEFA to prevent professional football clubs from spending more than they as it can get them into financial problems which might threaten their long-term survival.

Yet some people perceive at UEFA preventing clubs from spending while it is only there to prevent spending in excess of the revenue. Recently, Manchester City found itself in hot waters when UEFA found it breaching the FFP regulations. Now, one might ask why Manchester United did not come under questioning for their high-profile buys in the last couple of years.

The answer is that Manchester United earn greater revenue than what they pay to buy a player. The commercial might the club exercises across the globe, enables it to spend heavily on players while making almost the entire amount back in revenue.

Meanwhile, clubs such as Manchester City, Chelsea, PSG rely on heavy cash inflow by their respective owners to balance their financials, which is not a sustainable financial model under the FFP Regulations.

Myth: Use of a First Refusal and a Buy Back Clause synonymously

©talkSPORT | Even Raheen Sterling doesn’t know the difference

These terms are wrongly used interchangeably for referring to the situation of the selling club repurchasing their player from the purchasing club.

A first refusal clause gives the club who has the benefit of the clause the opportunity to be informed of any deal that the selling club is willing to accept for the transfer of the player. This is different from a buy-back clause because a buy-back clause automatically triggers the transfer of the player should specific contractual conditions be met by the club in-benefit. In practice, the selling club will not have any way of refusing the buy-back offer from the club in-benefit.

Even though there are several misconceptions and inconsistencies in the football world, at the end of the day….

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