Understanding the finances of football used to seem easy, back when the record transfer fee was £5m for Chris Sutton and a big wage was £30,000 a week, it was pretty easy to see how clubs made their money; selling players, gate receipts, merchandise sales, brown paper envelopes, the list goes on. The modern day beast that is the football industry is one that doesn’t miss a trick - now all revenue streams are exploited, from mobile apps to fans shares in the club, and there will no doubt be new and innovative ways to create more money for clubs in the future.
But over the last few years a major revenue stream has started emerging that the clubs are capitalising on. Clubs love investing, just like you or I may aspire to own a couple of houses as a property portfolio, the clubs have vast portfolio’s of their own. This is nothing to do with property or stocks and shares, it is the commodity that is the modern day footballer. The typical scenario for landlords is to rent a property out and get some extra income or have someone else pay off your mortgage. Football clubs do the same, they just rent their players out for a price.
The current economic state of the country has had a major affect on football at all levels. Generally people are struggling to afford to go and watch their team play week in week out, clubs have less money as attendances, in general, are down. Running costs are then affected, general cash flow is down and a club may have to make cutbacks and cannot fund things like permanent transfers. Clubs have to turnover their workforce so they can bring fresh talent in.
You see this more in the lower leagues. In terms of recruitment League 1 clubs and below have to survive on free transfers and loan players. It is a perfect scenario really, you can pick up young players from Premier League or Championship clubs who need to develop; League 1 and 2 clubs can give them the opportunity to play at a good level. The deal can be structured a variety of ways, the club can pay a nominal fee to the owner club for the player, say £50,000 and then an agreement will be made on the wage structure.
For example, one young player from a top 6 Premier League club went to a club in League 2 on loan this season. The deal between the two clubs was that if the player started games the parent club pay his wages, if the League 2 side didn’t select him, they had to pick up his wages. Good deal? Not too bad. The fee to the Premier League side was undisclosed in this case. But this is reality in League 1 and 2.
What about higher up the leagues? If a team wants to take a player on loan, either in the Premiership or Championship and they want to take that player for a whole season or long period, the deal will have a similar structure, but clubs will generally charge a bigger fee upfront which will be discounted off any future transfer fee. Also they will either split the wage costs or the club taking the player will cover them in totality if it is a more established player rather than a young gun.
This is a major revenue generator for clubs in the Premier League, farming out young players throughout the leagues. Arsenal are one of the main advocates of this. They have a large squad with a lot of youth players and fringe players, plus the club itself has a very good reputation; so not only will any clubs taking loan players from someone like Arsenal get a good player, but they will also get a disciplined player that can add value to the team and that’s not just on the pitch.
Arsenal loaned no fewer than 16 players to clubs all over Europe, as well as domestically, this season. Some are players that have featured in Arsenal’s first team; Carlos Vela, Armand Traore and Henri Lansbury are some of the more established players to have gone out on loan this season. Henri Lansbury is used to this; he ended this season at Championship runners up Norwich and last season he featured heavily for Watford, playing in midfield with another loanee from Manchester United, Tom Cleverley. These more established players command bigger fees and Arsenal made £3.6m from just player loans in the financial year ending 2009.
But this financial model is also commonplace in Europe’s top leagues and it is not always the bigger sides that do this. Udinese, currently 4th in Serie A, have been a major benefactor from this approach. In terms of Italian clubs we all know the household names like AC Milan and Juventus and Udinese probably wouldn’t spring to mind.
They are a team with much lesser financial clout than the big clubs in Serie A and they rely on a vast scouting network to identify young talent that they can recruit at a low cost and develop. Young players cost less in wages and therefore they can recruit more youngsters and have a larger squad. A lot of their players go to other Italian clubs who pay a fee and take over the players wages. Sometime they utilise a joint ownership structure. In the financial year ending 2010 they made €3.6m from various loan deals and on top they maybe able to sell loanee’s to the clubs they spent their loan period at.
Don’t be surprised to see this scenario happening more and more as time goes on. The valuation of players in England is high and it will cost clubs a lot of money to get good talent. Loan’s, especially for the smaller sides, are sometimes the only option. Clubs will have to convert more academy players to the first team going forward and also scour Europe for the brightest prospects, signing them at a young age and loaning them out to aid development.
The main objective is to develop players so their value goes up, if they don’t feature as a prominent player, clubs get money back in terms of transfer fees when their time comes to move on. The next time your club signs a player on loan and you hear his manager saying how the loan will aid a players development, the loan will also be aiding the clubs end of year figures. Players are now as much a commodity as anything else you can buy, sell or rent, and this is the future of football business.