Transfers are a huge part of football clubs finances and compliance with Financial Fair Play (FFP). The way football transfers are accounted for aren’t a simple as taking profit/loss from a sale and adding/subtracting from the clubs profits. This article will take the world record Neymar transfer as an example and explain how this monumental deal can be within Financial Fair Play rules.
In the wonderful world of football accounting, players when purchased are capitalised such that their cost are spread over their ‘useful life’. A players useful life is essentially their contract length, so for a player on a 4 year contract, their transfer fee will be split over 4 seasons. The annual cost is known as the amortisation. For example, Neymar cost PSG £200m on a five-year contract so annual amortisation charge will be £40m, this will be included as an expense in the clubs financial statements. This costs does not include wages.
When the player is sold, the profit is not the transfer fee received less the transfer fee paid, it is instead the transfer fee received less the players remaining ‘value’. This value is the original transfer fee minus any amortisation to the date of sale. So, using the Neymar example again, in two years Neymar ‘value’ will be the £200m transfer fee minus two years of amortisation costs (£40m x2), £80m. This leaves Neymar with a value of £120m in two years.
So if Neymar is sold at this point for £150m, many would wrongly assume a loss of £50m when in fact, the club has made a ‘profit’ of £30m in their accounts. This amount will be added as income in their financial statements. They will also be saving costs on amortisation of £40m for each of the remaining 3 years and his wages.
This explains why the Neymar deal may be financially viable. PSG can sell players and record a ‘profit’ while also saving on their amortisation costs in the future. Lets look at their player sales.
Aurier
Aurier was signed for £9m on a four-year contract from Toulouse in July 2015. This leads to a yearly amortisation costs of only £2.25m a year. He was then sold to Tottenham for £22.5m in August 2017, just over two years worth of amortisation (we will stick to two years for mathematical simplicity). Two years of amortisation is then £4.5m (£2.25m x2) leaving him with a value of £4.5m. PSG therefore record a profit of £18m on this sale in their accounts, nearly half of Neymar’s amortisation costs, plus amortisation savings of £2.25m for each of the next two years and also saved wage costs.
Matuidi
Matuidi was signed for £7.2m on a three-year contract from Saint-Ettiene in July 2011. Since he stayed for six years, he obviously signed a few new contracts. This changes the treatment as his ‘value’ remains at the time of the new contract is then amortised over the new contract length. However due to this amount being negligible, for simplicity we will assume his contract has been fully amortised leaving him with a value of nil. PSG sold Matuidi for £18m, realising a profit on the full amount while also saving on his wages.
Jean-Kevin Augustin
A relatively unknown player, Augustin, 20, was an up and coming PSG youth player, signed as a boy in 2009 at the age of 12. He was signed by the ambitious German outfit RB Leipzig this summer for £14.4m. As he came through their youth system at negligible cost, he has a nil value and the full transfer fee is recognisable as a ‘profit’ in their accounts, another incentive to invest in youth.
Overall
From these 3 sales, PSG have recognised profits of £50.4m, more than covering the amortisation costs of Neymar, leaving room to help afford his lucrative wages. This does not include the saved wage costs of the players and Aurier’s amortisation costs.
This is obviously unsustainable to expect to sell 3 good players a season and not spend elsewhere also, however the quality of Neymar should help the club improve performance in the Champions League to increase prize money, while his star power will lead to increased commercial success through sponsorships, merchandising and TV earnings. Which has already been seen with the added interest in PSG this season and even at one point running out of Neymar shirts in their club store.
