Transfer window spending blizzard not quite what it seemed

03 February 2009 19:35
When the transfer window closed in typically frenetic fashion on Monday evening, aggregate spending by Premier League clubs is estimated by KPMG to have reached £171.2 million, excluding the £12 million Arsenal have set aside for Andrei Arshavin. [LNB]That is more than was spent in January 2008, when around £150 million changed hands, and more than the combined spending of the Italian, French, German and Spanish top divisions last month. [LNB]If nothing else, the bare figures demonstrate that in England pockets are deeper and the stakes consequently higher than elsewhere in Europe, but scratch below the headline numbers and a less reassuring picture emerges. [LNB]It may look like another orgy of spending by cash-rich clubs, but the reality is very different. [LNB]With the recession tempering expectations of revenue in future seasons, the outcome of the next television deal still uncertain – the first round of bids for live rights were lodged with the Premier League yesterday – and relative cash-flows tighter than at any time in the last five years, clubs are having to be far more creative in the way they do business. [LNB]Fittingly for a game increasingly reliant on credit, the transfer window has been marked by the increased use of bespoke loan facilities and debt trades to make deals happen. [LNB]Loans, meanwhile, are more popular than ever with clubs desperate to share some of the cost of spiralling wages. [LNB]More by luck than judgment, Tottenham have been the primary beneficiaries of "debt forgiveness", with their net spending closer to £20 million than the total reported figure of £49 million lavished on Jermain Defoe, Robbie Keane, Wilson Palacios, Pascal Chimbonda and Carlo Cudicini. [LNB]Of these deals only two, Palacios and Chimbonda, required the club commit to the entire fee in cash, albeit in instalments. Cudicini was a free, and in re-signing Keane and Defoe they were able to take advantage of the straitened circumstances of both Liverpool and Portsmouth to lure the players back. [LNB]In Keane's case Liverpool still owed Tottenham around £11 million of the initial £19 million fee they agreed last summer, meaning his £12 million return to White Hart Lane was completed with less than £1 million in cash travelling in the other direction. [LNB]Liverpool may have taken a £7 million hit (plus wages) for Keane's six-month stay, but in the wider context of a club already under pressure to service the American owners' £350 million acquisition loan, erasing an £11 million debt repayable this summer may prove helpful. [LNB]Defoe's return did have a net cost to Tottenham, who notionally paid £15.75 million for a player they sold for £9.2 million last January, but with Portsmouth still owing outstanding fees for Defoe, Younes Kaboul and Pedro Mendes, only £6 million in cash changes hands. [LNB]While Tottenham have benefited from specific circumstances, the now-commonplace payment of transfer fees in instalments has seen an increase in the use of football-specific loan facilities to keep the wheels turning. [LNB]These niche products have boomed in the last year, driven by changes in the way that transfer deals are done and the pressure on cash-flows. [LNB]Where once deals were done on fairly straightforward cash terms, the size of modern transfer fees – there were six worth more than £10 million in January alone – have left even the largest clubs having to pay in tranches. [LNB]With selling clubs keen to get their hands on all the money up front, a small number of banks, specialist football finance houses and at least one player agency have developed bespoke loan products that helped keep the merry-go-round turning this year. [LNB]Chris Lee, head of the Professional Sports Team at Barclays, who represent 11 of the 20 Premier League clubs and specialise in football-specific services, says clubs are increasingly asking for this sort of assistance. [LNB]"The nature of football means we are offering fairly unique solutions that we just don't see in other sectors," he said. [LNB]"We are increasingly being asked to provide clubs with facilities that allow the selling club to receive the full transfer fee up-front, with the debt effectively being repaid by the buying club. [LNB]"This is fairly unique in that the proceeds of the loan are enjoyed by the seller, but the repayment of facilities is agreed with the buyer. [LNB]"It's an arrangement that works particularly well for clubs that are in slightly more challenging situations, and we have seen a real growth in the number of these sorts of deals since the end of last season."[LNB]With the financial weather not set to improve any time soon and the Premier League about to live through the first recession in its 17-year history, this is a niche of the football business that is only likely to grow. [LNB]

Source: Telegraph