Thursday, 2 February 2012

Emptor caveats

The general state of the economy, together with the paucity of big money transfers during the Premier League transfer window, is being interpreted by Goonerholic and others as evidence that January was a buyer's market. In other words, we could have afforded to pick up a spare striker, among other goodies, relatively cheap.

While I do think we're light up front, and thus only an RVP ankle away from a serious problem, I'm not sure the characterisation of the market is correct. First of all, the market in top-class players is always a seller's market because of the scarce product, which is why they cost so much in the first place.

Unless you want to take a hit on the cost of current players, you'll still want to sell at a reasonable price even in a so-called buyer's market. Even Man City are refusing to let Tevez go cheap, and there is no evidence that clubs are seeking to liquidate their player assets. The number of transfers in January 2012 was much the same as a year ago.

The headline news is that January transfer spending at £60 million is down 70% on last year, however that is largely due to 2011 being bloated by the combined £108m of business done for Torres, Carroll and Suarez, which was almost half the total of £225m. For comparison, January 2010 saw only £30m spent, although that was atypically low as the following chart shows.

The inter-relationship of those three players indicates that gross spending is an unreliable guide as the same money can be counted multiple times. The £50m for Torres was recycled into £35m for Carroll and £23m for Suarez, so a net spend of £58m on a turnover of £108m.

Deloitte's method is also questionable because they combine transfer windows based on the calendar year rather than the season. Thus 2011 looks much bigger than 2010. In fact, if you redraw the chart by season, it makes more intuitive sense: a noticeable drop in 2009-10 (after the 2008 financial crisis) and less volatility since then. 2011-12 has seen a reduction in spending on the previous year of 7.6%, which is a bit more boring than a 70% year-on-year decline for the January window alone.

A better way of looking at the market is to consider net spending, i.e. a club's purchases less its sales. Over the 5 seasons from 2006 to 2011, the total of gross sales for the 20 current league clubs was £2.7 billion (a little less than the £2.9b in the above chart due to relegation/promotion), but just £1.1 billion net (41% of gross), giving an average per season of £219 million.

What's undeniable is that Arsenal are top of the league (or bottom, depending on your perspective) in terms of financial husbandry, achieving a net profit of £31m on a turnover (sold + bought) of £202m. What this implies is that the supposed £50m war-chest is mainly the product of player trading, not the fruits of the new stadium. Alternatively, it may mean the war-chest actually stands at £80m. Perhaps we're building up a bid for Lionel Messi.

In contrast, Man City are bottom (or top) of the league over the same period having spent a net £434m on a turnover of £538m, most of it since the Abu Dhabi takeover in 2008. In other words, their project to win the title has so far cost them not far short of half a billion in player transfers. If you add on the other costs (salaries, agent fees, management, backoffice etc), they've probably spent over a billion to date. Their current income will come nowhere near matching this, which ultimately UEFA's Financial Fair Play rules will require. No wonder they won't offload Tevez for buttons.

Gary Cahill's transfer to Chelsea, for a reported fee of £7m, is also being put forward as evidence of a buyer's market. This is little more than the £6m Arsenal supposedly bid last summer. At the time, the belief was that Bolton were looking for £12m, for a player with one year on his contract and a £17m buy-out clause. The drop in their asking price is more likely to reflect the fact that Cahill could walk for free this summer. It also suggests that Arsenal's "parsimonious" offer was probably a fair one. Bolton will have lost a further million or so on wages since then.

Arsenal's problem is that even in a supposed buyer's market, there simply aren't enough top-quality players available, particularly in January. The 31 year old Bobby Zamora has just cost QPR £5.1m, having cost Fulham £3.6m at the market peak in 2008. We could easily have afforded Zamora, but it is questionable as to whether that would have improved the squad in terms of quality.

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