Clubs across the big five European leagues in England, Spain, Italy, Germany and France are continuing to splash the cash. A study by the CIES Football Observatory found that there was an uptick in transfer fee inflation in 2019 of 31% year on year.
The hike in transfer deal prices was the largest recorded since the 32% increase that was uncovered between 2014 and 2015. The observatory has been analyzing transfer fees since 2011, and has established that prices have spiraled by a staggering 181% since its investigations began.
A record level of spending was found for throughout this year, reaching 6.6 billion euros, with 5.78 billion euros being spent this summer, plus a further 835 million euros in the January transfer window, eclipsing the 6.06 billion euros in 2017 that was paid out for new players.
Premier League clubs lavishly spend
Perhaps unsurprisingly, the Premier League were found to be the biggest spenders, with an outlay of 1.9 billion euros, even though figure represented a decline from the 2.2 billion euros that was spent last year.
In contrast, in three of the five leagues there was year on year spending records.
La Liga spending crept just past the 1.5 billion euro mark, an increase of just over 200 million euros, while Serie A also hit 1.5 billion euros with an increase of 333 million disbursed year on year. Inter Milan’s club record 80 million euro purchase of Romelu Lukaku from Manchester United escalating Italian clubs’ expenditure.
In the Bundesliga, transfer fee spending reached 880 million euros, a rise of 184 million euros from 2018, outstripping the 2017 record of 797 million euros being spent on team improvements.
Television rights fuel transfer inflation
The revenue created by broadcasting rights packages is undoubtedly a major reason why so much money is being sanctioned for player transfers.
Sky TV, BT have been joined by online streaming service Amazon in buying coverage packages for Premier League matches during 2019-22 that total around £5 billion. Sky TV secured four of the seven packages available for just under £3.6 billion to show 128 live matches per season.
Yet the current agreed is deal is down from the £5.14 billion paid for televised games between 2015 and 2019.
Overseas companies have parted with an extra £4.2 billion to broadcast Premier League matches, resulting in all coverage packages totaling a stunning £9,2 billion.
La Liga has also been boosted by the deal brokered with Telefonica, who paid 3.4 billion euros to air the bulk of matches in a three season deal beginning this year.
Mark Littlewood, the director general of London based free market think tank the Institute of Economic Affairs, reflected: “A one off large increase in spending does not mean this is a trend, a few big signings can account for that, we will not necessarily see this happening year on year.”
“I don’t believe that football finances across the five leagues is tapped out, and its still a growing industry.”
“Yes at some point the TV and merchandising markets will become saturated, but I still think that the top clubs will become more affluent over the next five to ten years.”
He added: “As for salaries in the Premier League they are now catching up with premium US sport salaries paid to NFL or basketball players. If you look back 25 years ago there was a considerable gap to what a European footballer was being paid in comparison.The Premier League has a wider audience in contrast to the NFL, and has more of a global footprint.”
“Often the amount of money that is spent is translated to how many points that you earn over a season, someone like Wilfried Zaha could be worth five extra points that may result in Champions League qualification, and the tens of millions in revenue that arrive from Champions League football.”
Premier League clubs in the transfer red
The vast amounts of wealth that Premier League clubs have been allowed to accumulate has led to a greater appetite for speculation on players, which is why the report revealed that English top flight clubs since 2011 have a negative transfer fee balance of just under 6.5 billion euros.
The largest deficit was found last year with transfer balance of 1.2 billion euros in the red.
Serie A follows the Premier League with a transfer deficit of a considerably less 1.2 billion euros over eight years, while Ligue One was the only one of the leagues to reach a surplus ,which amounted to 359 million euros.
“Its an eye watering amount of money which is involved, but that does not mean that the market is malfunctioning.” Littlewood continued.
“It was also found that after Manchester City has spent £57 million on Aymeric Laporte, that they spent more on their defence than the defence budget of 52 nations, this was according to research by The Stockholm International Peace Research Institute.”
“Although this is wholly sustainable from City’s point of view, due to their capacity to create wealth.”
“Premier League clubs are not cruising to financial crises, if revenue was to fall then even the likes of Manchester United and Liverpool would cut salaries, and sell players such as Virgil Van Dijk.”
Overall during 2011 to 2019 just under 35% of the transfer fees paid were received by other clubs in the top five leagues, with just over 31% remaining in the same league.
More positively, lower division clubs received a portion of the outlays, with 8.1% of transfer expenditure welcomed by lower division clubs in the same country, with a further 1.4% finding its way to smaller clubs in other big five leagues, revealing that there is some trickle down benefit from the huge sums involved.
Clubs are stretching themselves say observatory
The CIES Football Observatory concluded its report by opining that due to clubs increasingly spreading transfer payments out over years, many clubs are now finding the themselves at their financial limits.
In a speculative environment, with the profits made from selling players incorporated into clubs’ financial models, clubs are risking their independence and competitiveness.
This begs the question whether the transfer market needs to be calmed, and how effective the break even Financial Fair Play ruling actually is.
Although Mark Littlewood is not too concerned over the report’s thoughts, he concluded: “I am not sure that you need to do anything, financial stability of clubs is not the same as financial fair play. If I was a multi billionaire, why is it unfair to place a billion in the transfer kitty?”
“The point is that is a club spending sustainably, I would have more worries over clubs in hock to owners who are borrowing and spending more than their means.”
“The transfer deficits are broadly in proportion of health in the leagues, wealthier leagues are running deficits compared to poorer leagues which are running surpluses, this is not abnormal.”