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05 August, 2010

Why Your Team Hasn't Made All Those Signings This Offseason

I know that, if you are like me, you are upset your EPL team hasn't made that big splash into the transfer market and picked up several new and needed players.

Sure, you hear the manager's statements every year, "We don't have the money," or "We are looking for that special player." Heck, I've even heard the one where they tell you they are looking for two "impact" players and your team gets linked with every star under the sun.

The reason is relatively simple. UEFA and Plantini want your club to be sustainable and stay around for a few years. The basic jist is that the amount of money clubs are allowed to spend in any one season must equal the amount they earn. Teams that overspend are ineligible for the any Euro tournaments. In the essence of the game, the idea is that a club shouldn't face the possibility of overextending itself should another economic downturn happen. So, in effect, should there be future problems, clubs like Man U with it's nearly $1bil in debt or say, Real Madrid with a debt in excess of $500mil won't make a mess of things and go under. The ruling will take effect for the 2012/13 season.

However, because of the relatively vague wording, there are some loopholes.
"Clubs will also be allowed to run up a deficit of 5 million euros over three seasons and may receive cash injections of 45 million euros for the period comprising the 2013/14 and 2014/15 seasons together. This will be reduced to 30 million euros for the period covering 2015/16, 2016/17 and 2017/18.

However, they will not be permitted to owe any money to other clubs, employees or tax and social service authorities at the end of the season." -Rueters

Effectively, big money owners like Abramovich and Chelsea or even clubs like Man City could fiddle with the debt and in effect, write it off. Chelsea actually owes close to $1bil to Abramovich, but if he were to write it off, then poof, no more debt. This is great for tax purposes, usually, but horrible if you really need the money back.

Now, most likely that won't happen because people don't want to just write this off as a loss, but there could be ways to avoid this such as forgiving the debt, then increasing their management pay to approximately the same amount of annual payment they were to receive. It shouldn't be hard to do. Man U was paying the Glazers several million for "advisor fees". Not sure what or who they were advising, but based on their debt, they need to be fired.

There is also the question of income. Man U makes hand over fist in merchandise profits. This could feasibly offset the wages of any player brought in or they could simply sell off players they have in excess as Man City is about to do before the September 1 deadline for the 25 man roster.

This ruling actually currently benefits many Bundesliga teams. As the most profitable league in the world, the Bundesliga had all 18 teams report a profit in 2007/8. Ironically this benefit won't last long. For the 2009 season, Schalke 04 reported nearly $420mil in debt, so they may be the first in the Bundesliga to suffer problems should they qualify for a European event. Teams such as Hoffenheim, that rely on a rich owner to fund player purchases, may soon have issues as well. For the record, Hoffenheim is located in a town of about 3500 people and has a stadium that sits ~30,000.

Another possible loophole is the ability of a team to invest in training grounds and facilities, as those debts will not be factored into the formula determining debt/solvency of clubs. This explains why you have recently heard about the possible takeover of Liverpool and the talk of funding a new stadium there being no problem. The same goes for the on and off again funding of the new White Hart Lane.

Enforcement of the financial constraints will be through FIFA and administered by former Belgian PM Jean-Luc Dahaene. Dahaene will require all teams competing in UEFA tournaments to purchase a license and presumably, the cost of coordinating with a club's home FA will be offset by the license itself.

Now, it comes back to why your team hasn't signed anyone, or very few. It's because they can't afford to, based on future assumptions that they'll be playing in Europe in the near future and the soon to begin 25 man announced roster rule. This partially explains why there will be no big signings by Spurs (the other part is that their manager is Ol' Arry who likes a deal though). It also predicts that we won't see too many purchases unless clubs can pay off debt in the near term and are looking to offload wages onto someone else and get them off their own books.

While many are hoping for a mad shopping spree in the EPL on August 31st, this upcoming rule may squash that. Conversely, you may see some ridiculous deals for loans or just cut rate prices as long as players wage demands follow suit (probably not since Balotelli's rumored move to Man City may be off because he wants £180000/week when offered £65000/week).

Personally, other than a few signings, I expect a couple players to go out on loan, but no great deals in the upcoming weeks and then in the offseason, those players superfluous to a team's needs are going to get bought out of the contract and let go. So it goes.

Photo: Timesofmalta

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