How inflation is rapidly changing the world of football transfers (2024)

Declan Rice is set to become the most expensive British footballer ever after West Ham United and Arsenal agreed a fee worth a guaranteed £100million ($126m) and a possible £5m more in add-ons.

There were protracted wranglings over the amount, with treble-winning champions Manchester City making a surprise late offer of £80million with an extra £10m in add-ons before being outbid.

While clubs will always haggle over the size of a transfer fee, an important factor in this particular deal was the structure of it — still not confirmed in detail — with West Ham wanting more of the money up front and Arsenal preferring to spread out the payments in instalments.

This type of dispute is becoming increasingly common in the world of football transfers, a market which, like everywhere else, is grappling with how to manage high interest rates and rampant inflation.

In the decade-and-a-half since the recession at the end of the 2000s, the economies in developed countries have been defined by two main things. Firstly, interest rates — which determine the cost of borrowing money — have been near zero. Secondly, inflation — the rate at which the cost of goods and services increases — has been low.

This has meant it has been cheap to borrow money and paying for things in instalments rather than up front has not made a huge difference because the value of the cash is not eroded much by inflation.

But now, high inflation, like with everything else, is having an impact on how football clubs manage their finances, with those doing the selling and the buying having different incentives when it comes to transfers.

“From a cash flow point of view, there are considerations,” football finance expert Kieran Maguire says about the impact of inflation. “(Selling clubs) would rather have the cash now because of inflation — the power to buy is diminishing.”

Take a hypothetical transfer of a £20million player paid for in four annual instalments of £5m. In a high-inflation world, that final payment which arrives in three years’ time is worth far less than the first one paid now. On the other hand, such an arrangement would suit the buying club as they are effectively paying a lot less come that final year.

The cost of running a football club keeps going up, and is being passed on to fans in the form of more expensive tickets and merchandise. For example, energy prices have risen dramatically in the UK over the past year, while wages are increasing quickly too. In April, the national minimum wage (for those over 23) rose from £9.50 an hour to £10.42 — a 9.7 per cent increase.

All of this adds to the incentive to get money from transfers upfront.

There is a distinction though. Everything discussed in this article concerns the cash flow between clubs — how much money they send and receive between one another. This is different to the accountancy concept of “amortisation”, which refers to how transfer fees are recorded in clubs’ books.

When a club buy a player, these payments are generally spread out — amortised — over the length of that player’s contract rather than all falling in the year the player is purchased.

For example, a £50million transfer for a player on a five-year contract will come up as five instalments of £10m in the buying club’s accounts (for the selling club however, it appears all in one go in year one.)

These calculations factor into financial fair play (FFP) regulations, which govern how much any club can spend. This week, European football’s governing body UEFA ruled that transfer fees can only be amortised over a maximum of five years after clubs — particularly Chelsea — were criticised for signing players on much longer contracts.

This is a completely distinct issue from the cash flow to clubs.

However, Dr Rob Wilson, a football finance expert at Sheffield Hallam University, explains amortisation has had such an impact that, along with inflation, it has led to more of a mindset of paying in instalments in the game.

This mirrors wider trends in society, especially when interest rates have been low; a lot of people have bought consumer goods such as cars or electronics in instalments rather than handing over one lump sum. But this method of payment has suddenly become a lot more expensive.

Dr Wilson says the increase in paying in instalments actually predates the recent surge in interest rates and inflation.

“Covid was sort of the watershed for it, the volume of trade that was begun through an organised payment structure,” he says, highlighting the example of Cristiano Ronaldo moving from Manchester United to Real Madrid for £80million in the summer of 2009, with the Spanish club paying the full amount immediately.

“Now it’s much more typical to spread the transfer fees.”

This is often good for the buying club, because it means they have more money in the bank to make more transfers in the short term. However, it can mean they are saddled with the payments on them for a long time. Wilson highlights Manchester United as a club that is currently hamstrung by this issue.

This is backed up by Maguire, who notes that at the end of the 2021-22 season, Premier League clubs owed £1.87billion in unpaid transfer fees. He says this may explain why some clubs were quiet in the market last summer, as they already had large transfer debts to deal with.

Maguire agrees that, in a high-interest and high-inflation world, there is increasing pressure from selling clubs to get more money from those doing the buying up front.

“It’s about getting cash into your business as quickly as possible,” says Wilson. “If I said to you, ‘Would you like £1,000 now, or in 12 months?’. You would say ‘Now’.”

That may seem obvious but for a long time, with the value of money relatively constant, there was surprisingly little difference.

There is an option for clubs who are getting paid in instalments but want more cash up front — they can use finance to frontload the money.

Taking Rice as a hypothetical example, Maguire explains how this could work: “(West Ham) will say, ‘We’ve got three IOUs from Arsenal’ and they cash in those instalments due.”

Of course, doing this involves paying interest, and that cost has gone up markedly in recent months.

This sort of arrangement, for which the Australian bank Macquarie is a popular provider, does not just happen for transfers, explains Maguire. Leicester City and Southampton have done this with their expected Premier League broadcast revenue, leaving them in a sticky position after getting relegated last season. West Bromwich Albion did the same for the parachute payments’ awarded when clubs go down from the Premier League to the Championship.

This allows clubs to spend money now, be it on paying off other debts on new signings or simply on keeping the business going — at the cost of having less money to spend in the future.

“Borrowing is not a bad thing but it locks you into those payment terms,” says Wilson. “But the more you’ve got to pay on a monthly basis, the less flexibility you’ve got to do other things.”

The cultural trend of “buy now, pay later” has become deeply ingrained in the world of football transfers.

But with the world’s economy changing dramatically, there is a growing importance to having cash in the bank right now.

(Top photo: Ben Stansall/AFP via Getty Images)