In 2010 UEFA introduce the Financial Fair Play rules. The rules essentially
aim to keep clubs from spending themselves into financial difficulty and,
in UEFA's words, to improve the overall financial health of European football.
Due to several legal challenges brought against UEFA, the severity of the
penalties for clubs failing to comply with the rules are subject to change, but
as a broad summary the rules state that football clubs must balance their books
over a period of three years. The penalties for failing to do so include;
temporary expulsion from European competitions, such as the Champions
League, fines and transfer embargoes. With transfer fees climbing every year and
player wages and agents fees also increasing how are clubs continuing to
comply with the rules and avoiding sanctions. One such method is player amortisation.
Player amortisation is a term used to describe the way in which
football clubs account for the cost of players. Supporters and newspapers often
discuss transfer finances in the form of netspend, for example, Angel Di Maria
cost Manchester United 59.7 million Pounds in 2014.
They then sold him to PSG in 2015 for 44 million Pounds, so their netspend was
-15.7 million. this method fails to include the players wages and
misunderstands the way in which football clubs actually account these costs. In
Di Maria's case, rather than showing a loss,
Manchester United's records for the 2015-16 season will actually show an
annual profit improvement of 22.7 million Pounds.
Here's why:
Rather than showing a cost of 59.7 million in their accounts the year they
bought Di Maria, the club will amortise the cost. Di Maria signed a five-year
contract, so United spread his transfer fee over five years showing 11.94
million Pound per year.
Di Maria was also reported to be earning 280,000 pounds per week or 14.56
million Pound per year. They add this cost to his amortised transfer fee,
meaning that the club's accounts show Di Maria cost them 26.5 million
Pound per year. When the player was sold one year later, the club
had only accounted for a fifth of his transfer fee, leaving four-fifths on the
books. The 44 million Pound that PSG paid for him accounts for most of this,
leaving United showing a loss of 3.76 million Pound on the deal. After the
sale however, the club are relieved of paying for the player. The 26.5 million
Pound costs to employ Di Maria every year is no longer outgoing. When you take
that into account
deducting the loss made on the transfer, you see that the club actually made an
annual profit improvement, having spent 22.7 million Pound
less than had spent the previous year.
A more recent example could be Henrik Mkhitaryan. The midfielder cost Manchester
United 26 million Pound in transfer fees. He is also reported to earn around 200,000
per week or 10.4 million Pound per year applying the same process of
amortisation, the club will calculate his annual cost at 16.9 million Pounds. If
he stays for the duration of his four-year contract, he'd end up costing
United 67.6 million Pounds.
But, if the player dropped in value and the club were to sell him in two years
time, for let's say 10 million Pounds, the accounts, following the year of his sale,
would show an annual profit improvement of 13.9 million, rather than a loss of 16
million, as the netspend figures would show. By accounting for the cost of
players this way, clubs can more easily avoid the penalties for breaching the
Financial Fair Play rules.