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Monday, July 24, 2006

Duff in for how much?

Football finance is one of the most misunderstood things around. Even journalists who should no better have been trumpeting the 'Newcastle only paid #5m for Duff' story as if it's news.

When a transfer fee is announced it's in everyone's favour to exaggerate it. So the selling club will tot up all the potential add ons, extra payments, performance bonuses etc. in order to claim that they got an offer too good to turn down, while the buying club do the same to demonstrate their level of ambition.

The truth is that for most transfers there's a 50% cash payment up front with the rest spread over a few years. I seem to remember there's some sort of different regulation for payments relating to overseas transfers from the UK that makes them more financially attractive as well.

Anyway, the key point is that the stock market is the only place where what gets talked about is cold hard cash. We acquired an asset (Damien Duff) and we are committed to at least #5m. Future payments aren't mentioned - but I wouldn't be surprised if they're linked to appearances, champions league / UEFA qualification, international appearances or even goals scored. All of which could easily push the 'newspaper figure' up to the #10m talked about.

The other thing to look for is what it takes to balance the books. Like most assets player registrations are depleted over the life of the asset on the balance sheet. So assuming the reported 17m Chelsea paid for Duff was real and he was there for three years that leaves 6.8m to go, so the Chelsea accounts will only show a 1.8 million loss on the deal. More likely though some of the agreed #17m was still outstanding and we've got him for exactly what it cost for Chelsea to break even.

While I can't think of examples off the top of my head this is a very common pattern in football transfers, and one the press almost never notice.

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