Flexibility in financial control rules mean record football transfer spend could be broken, says expert

Out-Law News | 04 Sep 2013 | 9:30 am | 3 min. read

English Premier League football clubs could set new records for spending on player transfers in the years to come despite being subject to new financial controls, an expert has said.

According to data compiled by accountancy firm Deloitte, Premier League clubs spent a record £630 million between them on transfers during the summer 'transfer window', up 29% from the £490m spent by the top flight teams during the same period last year.

The net spending of Premier League clubs this summer was £400m, with the gross expenditure at Champions League participants Arsenal, Chelsea, Manchester City and Manchester United totalling £230m alone.

Sports law expert Trevor Watkins of Pinsent Masons, the law firm behind Out-Law.com, said that the Premier League clubs could match or even beat that record £630m total over the next few seasons as they find new ways to exploit their brand and grow their revenues. This is despite the clubs being subject to new financial control rules created by the Premier League, he said.

"The Premier League this season introduced new financial controls designed to curb unsustainable growths in player wages and in the losses made by clubs," Watkins said. "However, the rules provide sufficient flexibility to clubs to increase their levels of spending whilst simultaneously increasing their commercial revenues. With this season bringing the Premier League's new lucrative broadcasting deal with Sky and BT Sport, it is no surprise to see record spending in the transfer market."

"In much the same way as applies to the housing market, if there are buyers and sellers and there is demand values will increase so long as the underlying economy dictates that the money is there," he said. "The new financial controls are intended to ensure that we do not see clubs imperilled by the nature of transfer dealings, but the top clubs will certainly be comfortable committing more money on players where that expenditure is covered by commercial revenues. While the market for commercial rights is stable, secure and continues to grow we could yet see total transfer spending in England exceed the record totals of this summer and the advent of the first £100m player in forthcoming seasons."

Watkins warned, though, that the increase in spending could lead to there being a greater gulf between the Premier League clubs and those operating in the lower leagues.

"The Deloitte figures highlight that of the £400m net outlay by Premier League clubs this summer, only £30m was spent on players from the lower leagues in England, with the remainder of that money flowing to overseas clubs," Watkins said. "With money being recycled among the top clubs in the top leagues in Europe, there is a danger that clubs operating at lower levels in England will be increasingly hampered from competing with clubs in the divisions above them, and undermine the fundamental system of promotion and relegation entrenched in the game."

"Smaller Premier League clubs, and those with aspirations of gaining promotion from the Championship, will need to become increasingly adept at managing their spending, exploiting their brand and growing their revenues, which will increasing mean looking to foreign markets such as the US, Asia and South America. A separate framework of financial rules is in the place in the Football League so there will be a complex balancing act for finance directors at clubs that traditionally operate between the top two divisions to ensure that they can compete on the pitch and still comply with the different rules. There are also the separate Financial Fair Play rules set by UEFA which clubs hoping to play in European competition must adhere to," he added.

Watkins said that increasing financial disparity between the biggest clubs and smaller clubs could lead to calls for greater redistribution of wealth throughout the game. However, this could place Premier League clubs at a disadvantage compared with European counterparts, he added.

“Any enhanced redistribution of wealth to lower divisions may have the effect of disadvantaging the Premier League clubs by reducing their capacity to compete with rival teams across Europe for the signing of the best players. This in turn could hamper the attractiveness of the league and affect commercial rights values. Already Premier League clubs are facing a number of disadvantages compared to European rivals, including the fact they cannot sign a player that is owned in whole or in part by a third party unless they buy out that interest on signing. Clubs in other leagues don’t have that restriction, aside from those based in France and Poland,” he said.

Watkins predicted that there would be a further rise in commercial rights values for football as the sport continues to catch up with the glitz, sponsorship attractiveness and spending in Formula One. He stressed that as the value of rights rises, it would be important for Premier League bosses to conduct proper due diligence on prospective rights holders in order to prevent the "South Sea Bubble" bursting.

"It is important, with the collapse of ITV Digital a decade old but still relatively fresh in mind, that there are appropriate checks put in place to give reassurance to Premier League clubs that those that buy broadcasting rights, or obtain other commercial rights, can afford to pay for them, particularly given the increasing reliance on overseas rights values and those from outside of broadcasting," Watkins said. "Stable conditions in a competitive market for commercial rights should help ensure that spending on player transfer fees continues to grow. In turn we are likely to see increasing investment in top clubs by individuals, funds and those looking for growth opportunities."