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January transfer window – clubs not anticipating major expenditure

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The January transfer window is slow this year with many football clubs seemingly reluctant to part with their money. Historically, the January window is a commercially difficult window with clubs being careful not to overpay, balanced with the need to bring in new faces to solve short-term injury problems or to fend off a potential relegation risk. Early indications are that clubs will not spend anywhere near the £230 million spent in the January 2020 transfer window.  

What a difference a year makes…

Clearly the COVID-19 pandemic has had a cataclysmic effect on every part of society and is a major reason for the drop in investment in football this January. The UK’s bigger clubs have retained much of their TV revenues but their matchday and commercial revenue streams have been hit severely. The smaller clubs rely even more heavily on matchday income and have been hit hard. In essence, there just isn’t the ability to bring in expensive new talent for many clubs given their cash position and the need to comply with profit and sustainability rules. However, this is a buyers’ market and the fallout from COVID-19 pandemic means the lower league clubs desperate for cash may also be forced to sell their best players to balance the books with the strong possibility of not getting full value for their talent.

Some of the European clubs have experienced collapsed TV deals and many clubs can’t afford to have superstar high salaried players sat on the bench meaning they will need to find new clubs most likely at lower salary levels. Clubs are also looking at more imaginative ways to manage cash flow such as taking players on loan with an option to buy later or signing players with a deferred payment schedule in place.

Implications of Brexit and the transfer market

The second influencer in the market is the impact of Brexit. The UK’s exit from the EU results in additional hurdles being put in place when wanting to sign European players. Clubs are no longer able to sign European players under the free movement of labour rules that previously existed within the EU. This means that players signed from European clubs will now need to obtain Governing Body Endorsement (GBE), in a similar way that was previously required for non-European players. The new rules state that to obtain GBE, there is a points-based system in place. This has been approved by the Home Office in agreement with the Football Association, the English Football League, and the Premier League. To obtain GBE for a player, they must score at least 15 points against set criteria. If the player only achieves between 10 and 14 points against the set criteria, there is an exceptions panel who the club can refer to. This panel will look closely at the case and determine if, based upon the circumstances, it is appropriate to provide GBE for the player.

The criteria are based upon points awarded for each of the following:

  • Player’s international appearances
  • Player’s domestic minutes
  • Player’s continental minutes
  • Final League position of the player’s last club
  • Continental progress of a player’s last club
  • League quality of player’s current club

Will the UK clubs miss out on young talent?

 The implications of this are that an established football player in a top five ranked country, who has played a few games for his country, will easily achieve the points criteria. However, an emerging yet talented player in a lower-ranked country may struggle to get the required level of points, particularly if he has only played a few international games. The search for young talent is difficult enough for clubs and their scouting networks, but now the level of restrictions may make it even harder to recruit raw talent from European jurisdictions. Also, under FIFA’s rules, the UK’s exit from the EU also means that clubs cannot sign players from overseas until they reach the age of 18, with clubs currently limited to three ‘under-21’ signings in each transfer window.

This will mean inevitably that players cannot be recruited until they are more established and hence achieve the points criteria; more established players usually mean higher transfer fees and the affordability issue comes back into play. Paul Pogba, Nicolas Anelka and Cesc Fabregas are just a small sample of some of the young, talented players that were signed by Premier League clubs at an early age in the past, who wouldn’t be able to be signed under the new rules.

New Opportunities possible on the horizon

However, with any rule change, there will also be opportunities. Some clubs that may have struggled to get a permit under the old rules, may now find it easier to achieve the points criteria. For example, players in South America and from Major League Soccer (MLS) may find it slightly easier now. UK football clubs that have done their research should move quickly to take advantage of this market opportunity.

 

Andy Turner Audit and Business Advisory Partner

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