Insights: How Do Transfers Work and What Do They Cost - Part 2
It's Numberwang! No but seriously, finances in football are confusing.
Well, when I did the first article yesterday, I didn’t expect the incredible reception that I received. So firstly, a great big thank you to anyone that read it, engaged with it or shared it.
If you did miss it - I’ve linked it here - it’s worth going back to read it, as a lot of the concepts will be revisited. Again, I’m also going to repeat: I am by no means a finance expert for football as a whole. I can recommend either Kieran Maguire (@KieranMaguire) or Swiss Ramble (@SwissRamble) in that capacity.
Once again, I also have to thank the amazing Marc Lamberts (@lambertsmarc) for his advice, guidance and insight into clarifying the process and assisting with some of the more complex financial matters.
And finally, before we start, Part 3 will deal with clauses, but might not come until next week. Sorry to disappoint you all. If they continue to do well, maybe I’ll even bust the ridiculous myth of a free transfer - probably one of my most hated phrases in world football.
Without further delay…
The Cost of Transfers: Some Initial Rules
People have a bizarre notion in their head that transfers are simple to do. You just pick a player, whack a sack of cash down, and then saunter off into the sunset, hand in hand with your new big-money signing.
I’m going to immediately debunk this. Transfers are nothing like that. There are numerous boring levies, charges and liabilities to be accounted for.
One of the biggest things people don’t usually know is that selling club also will pay money out during a transfer. Although the buying club covers the majority of the costs, the selling club is liable for a number of different charges. More on that later.
Wages
Secondly, for those of you hoping for an insight into wages - you’re about to be disappointed. You remember our good friend the TMS from yesterday? That’s the only place you will find accurate wage information for players, stored in total contract value per annum and lifetime contract value.
Most reporting about wages tends to either a) inflate the wage by ignoring things like taxes and other liabilities (Gross Pay) usually for shock value or for some nonsense headline or b) deflate the wage by including taxes, ignoring bonuses etc. (Net Pay) to make it seem like a club has got a better deal on a player. Consequently, your life will be much easier if you start ignoring reporting about wages because it is almost certainly going to be wrong somewhere.
With those ground-rules established, it’s time to split up into the payments made by the buying club, and then the selling club.
The Buying Club
The Transfer Fee is a Lie
The most significant cost in any transfer is… the transfer fee. Yes, that exciting big number that flashes along the SlySports banner, proudly declaring that Club A have agreed to buy Player X for the pricely sum of whatever. Again, take this number with precaution. Often, transfer fees are misreported and we will see why very shortly.
Deal Costs vs Transfer Costs
Firstly, you’ve got the issue of Gross vs. Net as referenced above. However, again, the selling club will want to get the bigger number out, whereas the buying club will want to promote the smaller value. Or they might just agree to keep it undisclosed and result in people plucking numbers and values out of thin air.
Secondly, is the transfer fee just ‘the cost of the transfer’ or does it also include the below charges? If it is the former - ding ding ding! You’ve reported it correctly. If it is the latter - you’ve reported the cost of the deal, not the cost of the transfer.
The next biggest charge is a local Football Association Levy. Of course, for clubs to have the privilege of registering their players with a new side within an association, they need to take a cut. This varies from league to league, but for the Premier League, it is between 4-5% depending on the deal.
Next, you’ve got to keep the Government happy, so time to pay up tax due on the transfer fee. In England, this is VAT, and accountants can rejoice, as at least some - if not all - will be reclaimable.
Agent Charges
Where would we be without agents greasing the wheels on transfers? (Probably in a much better position but that’s a whole other article.)
Unfortunately, they are part and parcel of the modern game and will be incorporated into the deal cost. NOT THE TRANSFER FEE. Agent costs can range from several thousands to multi-millions of currency (and in some cases it can even supercede the transfer fee). Clubs will also have to sometimes pay off multiple agents in one deal to get things done. The key thing is agents need to be registered with the relevant Football Associations, pass a ‘Good Character test’ (I’m not joking) and complete some other paperwork, as well as paying a fee.
Again, this is taxable and this time it is billable at the local rate from where the agent is operating from.
Enter the Super Agent
Of course, some players have a ‘Super Agent’ as their Intermediary which ramps up these costs even more, and may include standard fees they charge simply to do a transaction.
And all of this is taxable too. An interesting note is the tax will be billable from the intermediary’s billing address so it may be at a different rate than the transfer fee tax or the agent fee tax.
Other Costs
Wait, there is more. Firstly, you’ve got to agree the signing-on fee with a player. Often, this will be an agreed percentage of the gross transfer fee. Again, this includes tax and that tax is non-reclaimable as long as the player is registered within that country’s taxation system.
To ensure everything runs smoothly, and there are no hiccups, clubs will employ legal experts to check paperwork and process the finer details. They have to get paid too… and you guessed it, that means more tax! If it’s UK-based, again this is VAT so the accountant can reclaim it.
You remember we talked yesterday about how in negotiations, you might discuss schooling and housing for your new signing? Well you also have to cover the moving and relocation costs too. And yes, it’s all got to be incorporated into the actual total cost of the DEAL. Oh, and yes, there is more tax involved, and yes, you can reclaim it.
Solidarity and Training Compensations
The final costs are Solidarity and Training Compensations and paying up insurance costs. The latter usually gets waived as a gesture of goodwill. The former is incredibly complex and this page here explains it in much greater deal, but in a nutshell:
If a player is aged under 24 and moves between different football associations for a transfer fee, clubs need to pay a Solidarity contribution to their previous clubs.
Solidarity is 5% of the transfer fee received (NOT THE TOTAL DEAL COST)
This is split up in 5% increments from the season of their 12th birthday to their 15th birthday
And then 10% of the contribution for each season from their 16th-23rd birthdays
Solidarity is usually paid by the buying club but can be the responsibility of a selling club.
As for Training Compensations - you might be a bit more familiar with this one:
Every club and their academy structures are categorised 1-4 within the English FA system. It is different in various European Leagues, but the concept remains the same.
If a player moves to a higher category club, the selling club are eligible for compensation for the period that the player has been at the club, from Age 12-21.
Compensation must be paid to clubs when players move from amateur to professional status.
Afterwards, it is only paid when they move from their final training club to another club - for example, Liverpool signing Fabio Carvalho.
Initial training compensation is set based on typical costs for category 4 clubs.
Clubs then have to negotiate a fee to agree on the total compensation for a player, on top of the above cost.
If they fail to negotiate a fee, the fee will be decided by a tribunal, which usually tends to favour bigger clubs.
Again, usually the buying club are responsible, although sometimes the selling club can end up paying this.
On the topic of the selling club…
The Selling Club
We lose a player AND have to pay for it!?
Thankfully for selling clubs, they only have a much shorter amount of costs to actually account for during a transaction.
Firstly, there is the money owed to a player if they didn’t request a transfer. A lot of the times you hear this called the Loyalty Bonus. Nonsense-phrasing aside, as explained yesterday, if a player does hand in a transfer request, they can forfeit their right to this money.
If it is paid out, it’s usually around 5% of the transfer fee, but there can be some exceptions and in some cases, players do choose to waive this fee.
Secondly, they have to pay up any outstanding wages and bonuses within a player’s contract. This is usually fairly simple and straightforward, although it can get messy if a club in administration is selling players because then the administrators have to ensure the other creditors get paid which can result in outstanding wages and bonuses and if these aren’t paid, players are legally within their right to pursue legal action. In England, this is usually done on their behalf by the PFA, but some players can pursue it themselves.
Finally, the selling club has to contractually ensure that any previous sell-on clauses or sell-on agreements to former clubs are upheld and they receive the correct money.
The Final Thoughts
You mean it isn’t just as simple as making a bid?
Football transfers are incredibly complex and that is why there is such a huge industry around them. Think about it - agents pretty much spend their lives gearing up for 2 summer months and January to ensure the best outcome for their clients.
Costs are confusing, multi-faceted and sometimes can shift between the relevant parties. Just wait till we get onto clauses and you realise exactly how pedantic things can become.
Until then, I hope you found this informative, interesting and learned something. Or if not, I hope you have pleasant dreams as you are about to nod off in boredom.
Great stuff again Rob, excellent work.
Great article. Makes you wonder why clubs don't take more time with their Academy players, rather than risk going through all that and buying a player that doesn't fit in.