Are you sitting down?
The text for today’s sermon is taken from Albert Einstein:
“Everything should be as simple as possible – but no simpler”
He probably wasn’t talking about football finance, but it wouldn’t have been out of place. It must be good for fans to have an understanding of how money works in football, and some simplification is helpful for all of us. But over-simplification can be worse than useless.
Just a quick example before we move on to bigger things. A ‘free transfer’ can be very expensive indeed, once wages and signing-on fees are added to the equation. And those factors are present in every deal, adding (sometimes hugely) to any headline transfer fee. Is Rudy Gestede at £8m or Rickie Lambert at £3m a better deal? As Sherlock Holmes would remind us, we don’t remotely have enough data to judge.
I don’t know how much those two are being paid. But bear this in mind as we go on: if a player is on £45k a week – and many in the Premier League are earning far more than that – then that individual alone is costing the club over £2m a year in basic pay. We’ll come back to the implications of that.
Surely we don’t need to worry, I hear, since we hit the £100m jackpot on that glorious day at Wembley? I’ve lost count of the number of messageboard and Twitter postings I’ve seen from City fans to that effect.
If you’re still sitting down – and awake – here are some figures. The good news is that our promotion is actually worth some £120m or more. Our income for this season will be around £65m, with around half of that amount to follow in ‘parachute payments’ for a couple of years if we’re relegated.
However, other facts put a rather different perspective on things. Firstly, the money comes in tranches over those three or four years – we don’t have a pile of cash now. Secondly, we’ll have clearly made a loss last year, keeping a strong squad despite our income falling by more than half. (If anyone has run a business which lost that much of its revenue, you’ll have an idea of the pain.)
Why did good players choose to stay at City, or come to us, when our wages were severely cut after relegation? For some, such as Bradley Johnson, there was an admirable element of loyalty. But I guarantee they only stayed because we promised major bonuses, and restored wages, if we got promoted. That’s a very large bill which we’re delighted to pay – but it will come out of new money, not old.
Let’s work through some of those figures about wages. For a people business, it’s reasonable to think of as much as 60% of income going on wages and salaries. But football has to add transfer fees to that. For a club that needs to buy players, the wage bill alone should logically be a good deal less than 60% of income.
My usual disclaimer at this point: I’m not ITK. I have no involvement in, or detailed knowledge of, how our club organises its finances but I’d be amazed if we have the kind of transfer kitty that people imagine. Any sensible business – and I believe we’re one – would have a total budget for player expenditure, ie transfers + wages etc . Around 60% of income would be a responsible figure.
Let me now pose a question: how much do you think the third-lowest paying club (ie 18th in Premier League wage table) spent on wages last year? If you’re still sitting down, the answer is £45m. They also spent a little over £15m on buying new players.
That £65m doesn’t look quite so massive now, does it? One of the lowest wage bills, modest transfer outlay – and they were left with hardly any money to run the club. Norwich’s position, with a large chunk of money already earmarked for bonuses and so on is worse.
To those who say “just pay it, ffs” when a transfer fee is suggested for a player we might want, I’d hope this kind of information would give pause for reflection.
How come clubs like Bournemouth are spending freely, you may ask. The answer is straightforward, and is the same as for Chelsea and Man City. Their transfer spending doesn’t come out of the TV revenue – it’s additional money provided by their super-rich owners. They are spending beyond their means.
It doesn’t mean we shouldn’t be spending. With a repeat of my earlier disclaimer, I imagine by the end of the window we’ll have spent substantially more than we have as I write this on Sunday night.
Our chief executive doesn’t decide which players we’ll target; he supports his manager’s judgement and recommendation. But is it important that he’ll get us the best value for money? Bet your bottom dollar it is.