Out-Law Analysis | 02 Feb 2018 | 10:09 am | 5 min. read
This year's January 'transfer window' in England was the biggest yet in terms of the value of deals concluded. On Wednesday – the final day for dealings – clubs in England spent £150 million alone. This marks a shift from the typical pattern seen in previous seasons where the January transfer window has been somewhat quieter than the main transfer window in the summer.
The bulk of the spending came from Premier League clubs. This is not surprising given the economic market in which they operate – the revenues they generate from media rights packages, sponsorship, prize money and, for some, participation in pan-European football competitions, dwarfs those generated by clubs in the lower divisions.
There are obvious financial rewards that stem from participation in the Premier League in England. Conversely, the prospect of relegation out of the Premier League is a significant risk to many clubs in the top league.
Currently, at least half the clubs in the Premier League could be said to be at risk of relegation. Just five points separate AFC Bournemouth in tenth place in the table from Swansea City in nineteenth, with the bottom three in the 20-team division at the end of the season automatically relegated to the Championship.
This year's January transfer window witnessed many of those clubs in the bottom half of the division make significant investments in their playing staff in a bid to ensure they remain in the top flight for next season. Others such as AFC Bournemouth chose to place their trust in the current squad.
However, it is not just in the Premier League that the impact of the inflated transfer market is being felt. Top clubs across Europe are increasingly losing out on talent to clubs in England, while clubs in the English Championship are also facing stark choices over how to satisfy the ambitions of their investors, players and fans.
There have been a number of changes in ownership at Championship clubs in recent times. This is reflective of the growing number of international investors attracted to the high-profile world of running a major football club and the prospect of gaining a return on their investment through participation in the Premier League and associated financial rewards that brings.
There is no lack of willingness among these club owners to invest in new players and facilities to realise their ambitions. However, rules in place in the Championship restrict the losses that clubs can run up before they become subject to stiffer financial regulation.
With the 'going rate' for acquiring players on the rise, it would not be surprising if certain clubs in the Championship seek to ease the restrictions that currently apply in the coming months as they look to attract and invest in the talent to propel them to Premier League. However, not every club can win promotion. A change in the rules could leave many more owners nursing significantly increased outflows of their cash.
A strategy of over-investment is not a guarantee of success. There are many big clubs in the Championship and further down the football pyramid in England with ambitions of competing in the Premier League, but only three clubs each season can win promotion to the top division. Even clubs with wealthy benefactors must acknowledge the possibility that short-term investment in the playing squad may not have the desired effect.
Another potential route to the top can be achieved through smart use of technology.
Data analytics can help clubs provide for the right blend of players in their team and to identify up-and-coming players that will typically cost less to acquire and nurture than more proven, mature talent that other clubs are attracted to.
The strategy offers clubs that are perhaps not blessed with huge financial backing a financially sustainable route to the top. Clubs can 'sell' themselves to young players as the right club to progress with, with the prospect of money-spinning moves to bigger clubs if they perform well. The clubs themselves can reinvest the money they receive for player transfers by enhancing their own pool of players. Alternatively, with focused investment, the rise of the 'smaller' clubs is demonstrating that it is possible to acquire, retain and develop talent to obtain success rather than spend big and risk considerable failure and penury.
This approach has served a number of clubs well in recent times, perhaps most notably AFC Bournemouth. They have achieved what arguably bigger clubs operating in the lower leagues have failed to do in the same period – reach, and remain in, the Premier League.
Technology is playing an increasing role in the transfer market itself as clubs seek to make the process of buying and selling players as seamless as possible. We have already seen the pioneering use of artificial intelligence (AI) in automating some of the central processes involved: something we have pioneered within our firm by developing the software systems to do this.
For team managers and directors of football charged with recruiting players, data analytics can also be a vital tool for demonstrating the value of investing in particular players to those within the club who hold the purse strings. It is the companies that understand technology and the mindset of the manager/head coach/director of football and further translate the raw data into meaningful, impactful information that we see as having the greatest value – they are currently few and far between.
This year's January transfer window also served as a pointer to the greater collaboration we can expect to see between clubs in relation to the buying and selling of players in future.
The transfer 'triangle' involving players at Arsenal, Chelsea and German club Borussia Dortmund showed that clubs will be willing to work together to facilitate transfer deals for others where they can derive a benefit for themselves.
In this case, Arsenal managed to conclude the reported £56 million transfer of Dortmund striker Pierre-Emerick Aubameyang after helping the German club to obtain a replacement – Chelsea forward Michy Batshuayi joined Dortmund on loan for the remainder of this season. However, both deals hinged on Chelsea finding a replacement for Batshuayi. To ensure they got Aubameyang, Arsenal therefore sold French striker Olivier Giroud to their London rivals.
In many respects, those deals highlight that football is no different to the real estate market, where one deal for the transfer of ownership of property can hinge on another going through, and where a series of transactions can fail if one link in the chain breaks. While clubs will always seek to ensure they get the best deal they can for themselves, we can expect the collaborative approach taken by Arsenal, Chelsea and Dortmund to become the norm in future.
As the football market in England, and across the world, grows, so too does the interest in it from stakeholders who would not previously have looked at the market for opportunity.
Football is increasingly mainstream and attracting international investors to the game. Similarly, a growing number of agents, brokers and intermediaries are being attracted to the market by the rising sums of money being brought into the game by such investors. Currently, these individuals are effectively able to operate unregulated. This window and the number of potential investments in clubs and leagues is, in my view, going to prompt significantly improved regulation and governance.
There are, however, growing concerns about the proportion of money generated in the football market that is leaving the game. To address this, and to increase transparency over the roles intermediaries play and the fees they receive for their work, we can expect football's governing bodies to pursue changes to existing regulations. Against all of this, there are only two more transfer windows before Brexit becomes a reality. A sobering thought.
Trevor Watkins of Pinsent Masons, the law firm behind Out-Law.com, specialises in investment and advising across the business and regulation of sport.