Judging Transfer Fees

In July 2014, FC Barcelona came to an agreement with Liverpool FC for the transfer of Luis Suarez. Though the transfer fee was unknown at the time, the website Football Leaks has since revealed the agreement between the two clubs and shone a little light on what might be a fairly opaque process to most fans. It may seem somewhat rudimentary to go over a deal in its simplest form, but there are plenty of misconceptions out there and certainly this writer has learned many things from going through a variety of documents posted on Football Leaks. It is perhaps worthwhile to enumerate what happens in a transfer:

  • The transfer agreement between the clubs is, as is clearly stated in the Suarez document, for the transfer of the registration of Luis Suarez, meaning “all federative, economic, and registration rights in the Player.” This is important mainly because it means no third party is involved, but it is notable that this is a transfer of registration, not of the player himself. That is, the transfer system facilitates the movement of a player’s ability to participate in particular competitions. Overarching rules dictate how that registration impacts the player’s abilities to participate in other competitions—chiefly it prohibits that player form playing for a team other than the one that owns his (or her) registration rights.
  • Barça and Luis Suarez himself have to come to what is known as “personal terms” in order for the registration to be completed, but Liverpool is not involved in this negotiation. It is therefore not part of the transfer agreement and is not part of the total cost of the transfer. It does, however, have economic consequences and we’ll return to those shortly.
  • The actual cost of the transfer is included as both a lump sum total—£64.98m—and has a payment plan—4 payments of £13m and one of £12.98m. These sums are important not just because they represent the financial outlay (or revenue) of the teams, but because they suggest the greater significance of how these clubs operate, conduct accounting, and report their financial progress to shareholders or members.

The Suarez transfer is so simple that it’s kind of refreshing. As someone who worked in the legal field for a few years, I can say this is the simplest legal document I’ve ever seen that involves large amounts of money, multiple lawyers, and layers of bureaucracy. That two massive organizations such as Liverpool and Barcelona could have such an easy time creating a binding legal contract is nothing short of shocking. There were no riders, no clauses about buybacks, and no complexities regarding any third parties or stipulations (such as Ozil’s requirement that Real Madrid can match any offer from Barcelona should one arrive at Arsenal). If this seems strange, it’s because it is. It’s also not hard to see how things were going at the time: Liverpool wanted rid of Suarez while Barcelona were one of the only teams willing to stump up any real cash for a player of ill repute, thus the deal was a simple cash offer.

Most fans will concern themselves with the cost of a transfer more than the overall cost including salary, player incentives, and potential add-ons. This is fair in some ways, given that the transfer is usually much higher than the wages being paid unless the player is given a contract extension (and at that point we discuss whether that’s worthwhile in terms of salary and contribution, not in terms of the transfer). But the real cost of a transfer can be hard to figure out, even if you know the numbers. Luis Suarez’s case is a perfect example because there were conflicting numbers coming out of both camps. Now that we know both the total sum and the payment dates, we can discuss the actual cost of the transfer.

To reiterate, we have both the total sum (£64.98m) and the individual payment sizes (£13m), so we have what amounts to the total transfer cost. The problem isn’t necessarily that we know how much the cost was in British pounds, but that we don’t necessarily know what it was in Euros, which Barça uses as its currency given its location in the Eurozone. To quickly go over the numbers, according to XE.com’s currency calculator, on July 11, 2014, the date the agreement was made, the cost for Luis Suarez was €81,749,456.09. It would not have been unreasonable for Barcelona to announce a transfer for €82m as was reported at the time, but that suggests that money is static, which it is not. Because the individual payments were made at different times, the total cost for Luis Suarez will likely be in the €86m range given the Euro’s decline over the last 2 years (and the fact that £12.98m still remains to be paid to Liverpool). It may not make much of a difference to Liverpool given that they’ll receive £13m, but there is a rather decent difference for Barcelona between €82m and €86m and that difference often becomes apparent in the numbers a few years down the road.

If you’re a Liverpool fan, you’re probably angry that reports indicated that a total fee of £75m had been agreed. There’s no real justification for that kind of lying from the Liverpool board if that’s what indeed occurred, but without Football Leaks, we’d all be somewhat in the dark about it. Transparency is not a staple of big business, so we’re lucky in some respects to get to look under the hood. And that’s the thing about the difference between €82m and €86m. If transfer fees are being spread across multiple years, the money going into that will get lumped together with other such payments to other clubs when the yearly earnings statements come out. It takes a hell of a lot of work to put together which piece goes with which player and sometimes that’s simply not possible if the information is withheld. When Joan Laporta oversaw the sale of Yaya Toure, he had his accountants lump the total value of the transfer (€24m) into that year’s books to make things look better than they may have been; the problem is that it’s very unlikely that €24m was received as one big bundle of cash, so the actual payments were received later. That €24m didn’t exist, necessarily, when it was claimed that it did because it might one day.

Then there’s the question of what the player actually costs. We can only surmise what Suarez’s salary, bonuses, and other payments include because we’re not privy to his agreement with Barcelona (yet). Instead, we’re left adding in “the total value of the transfer” and trying to talk ourselves either into or out love with the transfer. If we paid €86m for a player that costs an additional €10m a year in salary over a 4 year contract, do we call it a €126m transfer or do we simply write off €40m? There are accounting tricks to pull this off, of course, but it would inform our understanding of player values better if we knew what those personal agreements (without bothering to go into question of privacy, which are a different matter).

If it all sounds so wishywashy or pedantic, this is where it becomes important to have more information simply because it allows writers like The Swiss Ramble to make sense of them. Whatever our thoughts about the trustworthiness of various administration officials or CEOs, we’re almost always looking at incomplete information because that’s simply how business is done. This isn’t a good thing, but it is a realistic way of looking at the world. That means we have to be extra diligent not just in our perusing of the information, but also in our reactions to what we think is all the information. It would be easy to condemn the Barça board for spending £75m on Suarez—94m in July 2014 euros—but that number was wrong and so would be condemnation based on that incorrect number. Indeed, this happens kind of a lot. The Ibrahimovic transfer is a great case-in-point, where the total value of the transfer is unknown, partially because the value of Samuel Eto’o is hotly disputed, but also because the actual number is not readily available. And that was between two clubs without an exchange rate to make it more complicated.

Can we really judge transfers? We take what we think we know about economic realities, our particular perspectives on what constitutes a good player, and our understanding of what the team needs. Then we put it all in a blender and come up with a tweet. Was Suarez a good transfer? Can we really quantify that even though we now know exactly what was paid and when? Do we just divide the cost by the number of seasons like we’re amortizing and ask ourselves if that’s the correct percentage of overall revenue? Do we just throw up our hands and say “that number sounds good, spreadsheets are the devil”? Incidentally, that is exactly what Kxevin will say when he reads this post.

Categorized as Barcelona

By Isaiah

Isaiah is a co-founder and lead writer for Barcelona Football Blog. He currently lives in the greater New York City area with his wife and daughter.