The real cost of a modern-day footballer - everything you need to know

Gareth Bale and Cristiano Ronaldo cost Real Madrid a combined £168 million in transfer fees

Most European leagues are winding towards the close of the 2014-15 season. While the off-season can generally be a time of great boredom for most footballs fans, the one saving grace of this time period is the reopening of the transfer window.

Clubs will be looking to strengthen, upgrade and clear out their squads to maximize the possibilities of achieving the targets that would have been set for them in the upcoming season. Every summer has one or two major transfer sagas that play out, and this season promises to be no different.

While last year was relatively quiet, this transfer window will almost certainly see a bidding war between most European superclubs for Juventus’ talented midfielder Paul Pogba, as well as the continuing uncertainty regarding Gareth Bale’s future at Real Madrid. Some of Europe’s hottest talents such as Koke, Antoine Griezmann, Raheem Sterling and Mario Götze will also be the subjects of transfer speculation.

The biggest transfers in European football often involve huge amounts, often well over the €50 million mark. But while such amounts are eye-catching and are usually the only numbers that are reported, the real cost to clubs is calculated differently.

Transfer fees are convenient and make for easy comparisons of value, but are not necessarily indicative of the actual costs of footballers. There are many other factors that are involved and are often not considered while assessing the real-world costs that a club incurs while making these transfers.

Player wages

Let’s start with the first and most obvious factor: wages. Naturally, clubs have to pay the players once they acquire their services from the selling club. Usually, when players in their prime transfer from one club to another, it is accompanied by a hike in wages as well. It’s the wages themselves that are often the stumbling block in clearing transfers.

For example, Fernando Torres’ £50 million transfer from Liverpool to Chelsea was accompanied by a 5-and-a-half year contract at an estimated £180,000 per week; this is why Chelsea found it particularly difficult to move the misfiring striker off their books, as no club was willing to fork out that kind of money for a striker who only scored 20 league goals in 110 games.

Players are obviously entitled to the money they are owed under contract and few, if any, young players would be willing to take a wage cut.

Fernando Torres cost Chelsea £50m to sign but cost the club nearly £100 million during his stay

Transfer fee and method of payment

It would probably be helpful to explain exactly how clubs record player transfers in their accounts. For Financial Fair Play (FFP) purposes, UEFA has allowed clubs to report their income in two different ways. (If you’re inclined, you can find UEFA’s 85-page document on the workings and rules of FFP here).

The first method is to show all incoming transfer fees as expenses, which is the most convenient way of doing things. Player purchases would be a one-time expense while player sales would be a one-time income. Calculating profit or loss would simply be a matter of subtracting expenses from incomes.

However, most clubs would not use this method for a variety of reasons. While it would allow for quick fixes to large losses by selling players, it would also make it very difficult to consistently break even.

Clubs using this method would likely show seasons of large profit and large loss at varying points of their accounting, and that would affect the calculations for the extent of losses clubs are allowed to make under FFP Rules. It would prevent sustained spending by European clubs (even the ones that would seem to have the finances to do so).

Thus, most clubs would take Option 2: amortization of transfer costs. This means that the cost of the purchase can be evenly spread over the length of the contract. For example, a player purchased for £10 million on a 5-year contract would have his transfer fee spread out over the 5 years he was under contract, working out to an even £2 million per year.

This, of course, doesn’t mean that the club is actually paying £2 million per year to the selling club (for convenience, most transfer fees are paid in full or in instalments over the next year).

Fees paid to players’ agents

In addition to this, clubs also have to account for wages and any agent’s fees. The Premier League publishes an annual list of the total amount of agent fees paid by each club, but this is only for their overall transfer dealings in the window and isn’t broken down by transaction.

Agents usually take a sizable chunk of the transfer fee though, and UEFA estimates that an average of 12.6% of each transfer fee is paid separately to agents. The Premier League alone paid out more than £115 million to agents over the January 2014 and September 2014 transfer windows.

Jorge Mendes (L) is one of the biggest agents in Europe today

Thus, the cost of a player to his club looks like this: (Transfer fee + Annual Wages + Agent Fees) / Length of the contract. For example, Fernando Torres, who signed a 5-and-a-half year deal which was reportedly worth £175,000 a week, cost Chelsea £9.1 million in wages annually. Add that to the £50 million transfer fee (which works out to just about £9.1 million amortized over the length of his contract), and Torres was costing Chelsea £18.2 million per season, before any agent fees are included.

If a player is signed in the January transfer window, his FFP cost is divided by half for the initial season in which he signed. Thus, when Torres moved, he cost Chelsea £9.1 million for that half season, and then another £91 million over the remaining five years on his contract.

The staggering cost of Fernando Torres could have worked out to nearly £100 million over those five years, which represents one of the worst returns on investment in modern football.

Extending player contracts

Another key thing to note is that extending a contract of a player amortizes the remaining amount left on the transfer fee over the extent of the new deal. This allows clubs to tie players that they deem valuable into long-term contracts, securing their future at the club and ensuring that they are able to obtain maximum value if or when they choose to sell them.

The nature of this math is that clubs can even afford to give key players a raise in the new contract, and still have it cost less per season.

Consider the example of Eden Hazard. Chelsea bought Hazard from Lille in the summer of 2012 at a cost of £32 million, on a 5-year deal reportedly worth £185,000 per week. His cost would have been just over £16 million per year to the club, of which £6.4 million was the annual payment towards the amortized transfer fee.

Eden Hazard’s contract extension actually cost Chelsea less per year in spite of higher wages

With half the contract down, Chelsea still had to pay £16 million towards the transfer fee over the remaining two-and-a-half seasons. When Hazard renewed his contract until the 2019/20 season in February 2015, this amount would now be spread over five-and-a-half years instead of two-and-a-half, bringing down the annual amortized amount due to just £2.91 million.

Chelsea could thus afford to pay Hazard £3 million more per season (due to the savings), and have it cost them less per season than it did on the original contract.

This accounting allowed Chelsea to give Hazard a raise to £200,000 per week, but his annual FFP cost for the remainder of his contract would only be (£200,000 × 52 = £10.4 million + £2.91 million), i.e., £13.31m per season – a saving of more than £2.5 million per season.

Player sales

Player sales are far more straightforward to account for. Two kinds of player sales exist: academy products and purchased players. Academy sales are very straightforward, as they don’t have transfer fees attached to them when they reach the academy. Any amount received for them is added straight away.

For purchased players, however, UEFA allows clubs to record all sales as a one-time income in the books. This means that when a player is sold, his entire remaining value on his contract becomes due. This is also known as a player’s book value.

Let’s look at the example of André Schürrle. He was purchased from Bayer Leverkeusen by Chelsea for around £19.5 million in 2013 and signed to a five-year deal. His transfer fee is thusly amortized to around £3.9 million per year. When Schürrle was sold to Wolfsburg for a reported £24.1 million, his entire book value became due.

Thus, the amount left was £3.9m × 3.5 years (the time left on his contract), which works out to around £13.65 million. The selling club must also account for wages paid during the previous season while calculating profits.

Chelsea made a profit after selling Andre Schurrle to Wolfsburg

Schürrle was on approximately £80,000 per week, and half a year's worth of those wages works out to just over £2 million. Thus, Chelsea’s profit from the Schürrle transfer works out to (24.1 – 13.65 – 2), i.e., £8.45 million, and not the £4 million-odd that is assumed merely by comparing transfer fees at the time of purchase and sale.

What does it all mean for the clubs?

Because of these accounting practices, clubs will be heavily rewarded for proper planning and structuring of their squads. Tying down key players to long-term contracts allows clubs to pay their players more while reporting lower expenditures on those players per year, and clubs must also sell expendable players at the right time to maximize their returns in the transfer market.

It is becoming increasingly clear that clubs are realizing that decisions in the transfer market must not only satisfy the fans, but the accountants at UEFA as well.