“The Need to Balance the Books”
Having previously looked at Gross spend – which, in effect, deals with the boost of new players irrespective of whether anyone is sold – it’s time to focus on the Net figures, which take into account money raised by sales.
This is particularly important for ‘properly run’ clubs, i.e. those that cannot write off expensive flops with a shrug of the shoulders.
(The more care-free spenders being Chelsea, Manchester City, Blackburn in the mid-‘90s, and to a lesser extent, even though they have always been run as a business and not a play-thing, Manchester United – certainly at times during the pre-Glazer era, when they were the one club to really cash in on their ‘brand’.)
Overall, across the entire Premier League, there has been a dramatic fall in transfer spend over the last three years, and in terms of Net expenditure, Liverpool have dropped below Sunderland and Birmingham, let alone challengers to the Big four, such as Manchester City, Aston Villa and Tottenham.
A fairly weak starting position – certainly when compared with Chelsea and Manchester United, and especially when compared with expectations – is being undermined further by others’ willingness to spend despite market conditions, mainly on the back of foreign investment (which went into overdrive in 2003).
If the fact that Chelsea accounted for 39% of the entire Premiership’s Gross spend in 2003 was incredible, that it rises to 67.9% of all of that season’s Net outlay is quite jaw-dropping. This is a club that was buying, buying and buying, with precious little selling involved. Whereas major clubs normally at least have to sell a star or two for profit to reinvest, this was a pure purchasing machine. A year later it was followed by a further 49.5% of the entire division’s Net outlay.
So for two years running, Chelsea’s Net spending was even more stratospheric than previously envisaged. Even Blackburn only accounted for a little over 25% at their most opulent. Chelsea followed their 49.5% with 19.6% and 23.4%, making for four consecutive years of incredible Net spending. This was money spent to win trophies, with no thought of what tomorrow might bring. This was the benefit of a true benefactor. As other money floods into the English game, it’s crucial to be aware of just how far Abramovich’s money went in the financial climate of the day (which will become apparent when adjusted using TPI).
It’s interesting to note that during Rafa Benítez’s five full seasons, his net spending, as a % of the league’s outlay, doesn’t get even close to even Chelsea’s lowest total during that four-year sequence. Indeed, it shows that Benítez has had to sell in order to buy; trade his way up, as I’ve argued in the past.
His yearly totals register at 13.9% (including a £14.2m signing, Cissé, who was actually signed by Houllier), 6.9%, 6.3%, 12.5% and 1.6%, with the current season standing at a miniscule 0.2%. Indeed, strip out Cissé’s fee and Benítez’s total in his first season was yet again below the 7% mark; making five years out of six when focusing purely on his own spending.
Even the one big outlay during his tenure – the season the Americans briefly looked like they might have the money that was required – the net figure (12.5%) still fell below those registered by Sunderland, Spurs and Manchester City.
So again, unlike what has been seen at Chelsea and Manchester City, this was not pure benefactory, but involved selling players like Craig Bellamy, Mark Gonzalez, Chris Kirkland, Sinama-Pongolle and Stephen Warnock in order to evolve the squad.
Had any of those been kept on, even as mere squad players (not that some would have been happy at that – but that doesn’t stop critics from saying that certain players should never have been sold), it would have provided more depth in the coming years.
But of course, Bellamy could not be kept as a back-up to Torres, because the former was sold to help finance a move for the latter. And Bellamy, like Crouch a year later, did not want to be back-up to the Torres/Gerrard axis.
This 2007/08 figure of 12.5% is actually less than half of that posted by the Reds in 1993/94 (25.9%), and 1999/00 (25.5%), when first Roy Evans and then later Gérard Houllier were able to spend more than a quarter of the entire Premier League’s Net outlay; meaning that they didn’t have to sell valuable assets before investing – a major advantage.
The same applied when Graeme Souness spent almost £9m (three times the then-transfer record, which he set when purchasing Dean Saunders) during the final old First Division season in 1991/92, with only a third of that outlay recouped.
Manchester United have gone above a 15% Net spend on six occasions during the past 18 seasons, and done so twice during Benítez’s time at Liverpool. They also topped that figure twice between 2001 and 2003, but again, never to the extent seen at Chelsea, Manchester City and Blackburn. Only once has Ferguson gone above 20% in the Premiership era: 26.8% in 1998/99, his most celebrated season.
But of course, having money, and using it wisely in the first place, can lead to lower Net spends in the long-term. The problem with comparing Net spends is the different starting points, with wildly varying assets.
Indeed, thanks to the world-record fee for Cristiano Ronaldo, United’s Net spend comes out as -76% during the current season; but they still have an expensive squad, even without reinvesting even half of the Portuguese’s fee. It remains to be seen if the manager gets to reinvest as much of the profit as he might hope; but much of his success over the years is down to selling at the right time.
For instance, buying Ruud van Nistelrooy – a real thoroughbred (no horse pun intended) – whose sale, after five excellent seasons, gave Ferguson more money to spend. That was a great bit of business. However, spending £28.1m on Veron, then selling him two years later for half that amount, was a costly mistake.
On the whole, Ferguson has done well in buying and selling at the right time, not least with the seven-fold profit on Ronaldo; much like Arsene Wenger, whose £500,000 investment in Nicolas Anelka led to a £22m profit. But it’s time that tells whether or not selling for profit leads to long-term success, even if it might induce a short-term blip.
The difference with Benítez is that only now is the Spaniard entering the stage of his tenure when his best investments could be seriously cashed-in on, should he so wish. Most of Ferguson and Wenger’s big profits, especially on ageing players who’d given full value (van Nistelrooy, Henry, Vieira, and home-grown Beckham), came years into the job.
Xabi Alonso is the first of Benítez’s major-profit sales: £20m profit racked up, after five years of service (although according to his CTPP – Current Transfer Purchase Price – the £10.5m paid was worth £20.5m in 2009/10 money).
Torres could be sold for £80m, not that anyone wants to see that; Reina’s value is far in excess of what Benítez paid; Mascherano, despite being expensive (£18.6m actual, £22.2m CTPP), could net a profit with a current market value of at least £25m. Others, such as Agger, Insua, and several other first-team players, could all bring in far more than they cost. But all of these are still relatively young. Right now, they are needed in the team.
The key is to sell someone like Torres when he’s 29 or 30, and on the cusp of diminishing; the knack is to get another four or five years of goals from such a prolific player, sell him to some rich overseas club keen on a ‘big name’ marquee signing, and either find the ‘new Torres’ (albeit easier said than done) at any point in the next half-decade; or invest in two or three top-class up-and-coming players with the money.
The same approach is being used by Spurs to good effect. At times I’ve had to wonder how their squad can be £50m more expensive than Liverpool’s, given the lack of European football, but the key has been selling players who wanted away, and using the profits to strengthen; a bit like the Lyon method highlighted so brilliantly in the book “Soccernomics/Why England Lose”.
As much as their fans might not have wanted to see Dimitar Berbatov leave, the money from that transfer was enough to fund the purchase of Jermain Defoe and Peter Crouch, and with the money left over, finance much of the extra wage demands of two players rather than one.
Spurs’ entry into the big players has come at the expense of some major signings (loads of players snapped up in the region of £10m-£17m), but is also based on a lot of high-price sales – notably Michael Carrick and Berbatov to Manchester United for almost £50m, Darren Bent to Sunderland for up to £16.5m and Robbie Keane to Liverpool for £19m. This is good football business.
(Although buying back players already sold, and then loaning them out again, is less clever. The same criticism applies to frequent management turnovers with no long-term strategy; it’s bizarre that one club can buy back so many recently-sold individuals, and it highlights the changes necessary from manager to manager, depending on their different ideals and approaches.)
Manchester City’s new-found wealth comes at a time when others are either running low on cash due to the recession or pure bad management/accounting.
The drop in overall spending has meant that City’s 2009/10 outlay rockets by comparison – to a truly astonishing 113% of the Premier League’s net spend. (This is due to the fact that, when combined, the other 19 teams in total had a Net INFLOW of £11.7m, mainly due to the sales of Ronaldo and Alonso to Spain, whereas City spent £99.5m, giving a net spend for the EPL of £87.8m.)
This season, the Net spend as a percentage shows Portsmouth at -43.9%, second only to Ronaldo-less Man United, as both clubs made a healthy profit (although Pompey’s was more a case of desperate fire-sale, and there’s certainly nothing healthy about the Fratton Park club right now). Arsenal are once more in profit, with a figure of -35.3% of the overall spend. The issue Arsenal fans have is why Arsene Wenger won’t spend what he raises.
At the other end of the scale, Chelsea, after two seasons of virtually insignificant Net spend, once again return to the top two, with a figure of 29.6%. City are clearly the new richest team on the block, but they also had a long way to go to catch up with Chelsea’s previous squad investment.
Behind Chelsea come Birmingham (27.6%), Aston Villa (22.9%), Sunderland (19%), Wolves (17.8%), Stoke (15.3%) and Everton (11%). Liverpool sit way back in 12th, with just 0.2%.
Net Spend (all figures inflated with TPI©)
The total Net spend for all clubs in the Premier League, when adjusted using the TPI, averaged £261m until season 2008-09. This compares neatly with the £246.1m spent 18 seasons ago. Both 2002/03 and 2003/04 topped the £300m mark, and prior to this season, the lowest adjusted amount was £177.7m, from year two of the Premier League era.
Following the credit crunch and a number of high profile expensive exports, the net spend for 2009-10 dropped to a remarkably low £87.8m.
Six of the 20 clubs actually had negative net spend, including Manchester United (on the back of Cristiano Ronaldo’s transfer) and Arsenal. Only four teams spent above £20m Net, Aston Villa, Birmingham City, Chelsea and Manchester City.
Arsenal have actually made net profits on transfers in three of the last four years, making it all the more impressive that they have managed to maintain their place in the upper echelons of the league table. But do they have what’s required for that final push? They pay high wages, which is vitally important for keeping a talented squad together (with wages determining 90% of a team’s success), but the injection of fresh quality (see this article) might be lacking.
When adjusted with TPI, Liverpool’s net spend is only £4.1m over the last two seasons, but increases to £51.8m when including the previous season, principally from the purchase of Fernando Torres and Javier Mascherano.
This places the team in 5th place overall in TPI Net spending since 2007, behind Manchester City (£243.3m), Sunderland (£87.0m), Tottenham (£86.7m) and Birmingham (£57.1m). The last of these, Birmingham, have accumulated this spend in only two seasons, having been relegated for the 2008-09 season. Are Birmingham benefiting from Alex Mcleish’s canniness, or surprisingly deep pockets? And when will Steve Bruce be taken to task for what seems like massive underachievement at Sunderland in relation to the club’s outlay?
Chelsea, by comparison, have been relatively frugal, spending little over £30m TPI Net in the last three seasons, with virtually all of this in 2009-10, the majority of which went on on Yuri Zhirkov. Of course, as previously covered in the Gross analysis, Chelsea’s spend was so outrageously high between 2003 and 2007 that you’d expect to still find great depth to their squad even now.
The real shock, when looking at TPI Net, is that in just two years between 2003 and 2005, Chelsea’s £216m in actual purchases almost doubles to an astonishing £401m in today’s money.
Why is this?
Well, between 2001 and 2006, the average transfer fee in the Premier League never fell below £2m or rose above £2.9m. To compare, throughout the ‘90s it rose above £1m for the first time in 1995, and topped the £2m mark six years later.
This means there were six seasons where the average was between £1m-2m, followed by seven seasons when it was between £2m-£3m; a fairly gradual overall rise, you’ll agree (even if some seasons it dipped before rising again).
But then in 2007/08, the average rose by £1m, from £2.3m to £3.3m. And then a year later it rose by £1.4m, to £4.7m. Therefore, in 2008/09, the average price for a Premier League transfer was almost £5m.
At this point, the average had more than doubled in just a couple of years. And this meant that a £25m player before this rise was, relatively speaking, costing a lot more money than a £25m in 2008/09. The latest season has seen the average dip to just below £4m, but this is still a lot higher than less than a handful of years earlier.
In terms of Liverpool’s big investment, when adjusted using TPI, the highest-spending season is 1999/00, when Gérard Houllier made massive investment, including the purchases of Emile Heskey, Stephane Henchoz, Didi Hamann, Sami Hyypia and Vladimir Smicer.
The next-biggest also had a Houllier input: the £50.5m of 2004/05, over half of which was taken up by the purchase of Djibril Cissé, who accounts for almost £28m of that inflation-affected total.
But in fairness to Houllier, his Net spend during most of his six seasons was pretty low. His other above-average year was 2002/03, at roughly £30m. This is mainly because El-Hadji Diouf, by today’s standards, cost a stomach-churning £18m. Bruno Cheyrou cost £7m, and Diao a depressing £9m, with only a small amount recouped that year.
Not only was his investment that year fatally flawed, it damaged Benítez’s ability to improve his own Net spend. And this is vital for Benítez’s critics to understand.
£20m of Houllier’s 2002/03 purchases, adjusted to £36m with inflation, and all that could be recouped was a total that, by today’s standards, equates to £7m. Add that Cissé, with a £28m TPI value, was also added to the roster by 2004, and you can see that Benítez was saddled with some substandard players with precious little resale value.
Manchester United have had three Net spends that when adjusted with TPI top £50m, but no truly outrageous figures. Several other clubs have registered c£50m seasons, notably Spurs and Sunderland in recent years, and Arsenal in 2002/03.
Manchester City’s Net TPI over the past three seasons stands at almost £250m, but this is still well below the £531m (TPI) that Chelsea spent between 2003 and 2007 (as mentioned, £401m of that was in the first two years).
The only other consecutive-seasons of particular high spending come from two clubs who flirted with success and then slumped to failure.
Blackburn started the Premier League era with two near-£50m TPI seasons, but spending drifted away; unfortunately for them, the £53.3m of 1998/99 – the club’s biggest – couldn’t save them from relegation.
But as some might expect, Leeds United provide the most contrasting four-year run of spending. For three years running they spent +£40m Net TPI, to make £130m in that short time. But if anyone wonders why they were relegated, read on: the next season equals the biggest fire-sale in the whole Premier League era: £83.2m (TPI) raised in outgoing transfers in a single campaign. Add the £17.7m the following season, and they recouped £100m in today’s money in just two desperate years – on their way to the old Second Division.
Amongst other comparison pieces, in a future article I will be looking at ‘Utilisation’ – how much of each club’s playing resources took the field, across each and every season.
And for Subscribers, I will be looking at lots of Liverpool-specific data.