Tuesday, July 15, 2014

Suarez, Barcelona and Liverpool’s potential £70 million plus transfer profit

With Luis Suarez now reportedly close [n.b. - this article was written before his move was confirmed] to moving to Barcelona for a reported £70 million-£80 million, this blog aims to shed light on how clubs account for the sale and purchase of players and why it is important for Financial Fair Play (FFP) compliance. I have previously written on the value of the David Luiz transfer to PSG, which can be accessed here. Parts of that blog are republished here to explain the transfer amortisation accounting process.

How purchasing clubs account for their spending

In sexy accounting speak, 'when a player is purchased, his cost is capitalised on the balance sheet and is written-down (amortised) over the length of his contract.' In laymen’s terms, transfer fees for accounting purposes are spread over the length of a player's contract. If we take Barcelona’s proposed purchase of Suarez as an example, £75 million over a five year contract is amortised by a club in its accounts to the value of £15 million per season.

A transfer occurring in the summer after the 2013-14 season (depending on Barcelona’s accounting year-end) will have an impact on a club trying to break-even for FFP purposes in subsequent seasons. As noted above, Barcelona will amortise Suarez’s transfer fee over the length of his contract. If we assume a five year contract, Barcelona will have four further £15 million amortisation charges in their 15-16, 16-17, 17-18 and 18-19 accounts. All of those amortisation costs will have FFP significance.

How selling clubs account for their income

The other important amortisation issue is the accounting procedure when a player is sold. On this topic I defer to the Swiss Ramble, who uses the ex-Manchester City player Robinho as an example:

'[H]e was bought for £32.5 million in September 2008 on a four-year contract, so annual amortisation was £8.1 million. He was sold after two years, so cumulative amortisation was £16.2 million, leaving a value of £16.3m in the books. Sale price to Milan is reported as £18 million, so City will report a profit on sale of £1.7 million in the 2010/11 accounts. Therefore, City will show an annual profit improvement of £18.1 million after this deal: £8.3 million lower wages + £8.1 million lower amortisation + £1.7 million profit on sale.'

This demonstrates how clubs write off the transfer value of a player over the lifetime of their contract and also illuminates that because Robinho was worth £16.3 million two years into his four year deal, Manchester City actually made an accounting profit on his transfer of £1.7 million. Fans would see the sale of a player for £18 million bought two years previously for £32.5 million as bad business. The club in their accounts will class it as a £18.1 million profit improvement.

Potential Suarez profit for Liverpool

Liverpool originally purchased Suarez on a 5.5 year deal from Ajax in the January 2011 transfer window for a reported £22.8 million. Suarez’s transfer fee was amortised to around £4.1 million annually (£22.8 million / 5.5 years).

Suarez then signed a (presumed) new five year contract in August 2012. The remaining book value of the transfer fee at the time of his new deal was £16.65 million as around 1.5 years of the original transfer fee (£6.15 million) had been amortised. Therefore £16.65 million amortised over the new five year deal meant a new amortisation cost of £3.33 million per season.

Then in December 2013, he signed a new 4.5 year deal. Almost 1.5 years of his re-amortised total figure of £16.65 million had been amortised, which reduced his total unamortised value by £4.99 million (£3.33 million x 1.5 years) to £11.66 million. His annual amortisation cost became £2.57 million (£11.6 million / 4.5 years), or £214,000 per month.

If you are still with me(!), depending on the exact figures that Barcelona is willing to pay for Suarez, an initial conservative £70 million transfer fee minus the remaining £8.89 million (£11.6 million – £1.71 million), which is eight months further amortisation (£214,000 x eight months December ’13 to July ’14 inclusive), gives Liverpool a total accounting profit on the Suarez sale of £61.11 million. Therefore, with £10.4 million in lower wages1, £2.57 million lower amortisation costs and £61.11 million estimated profit on the sale, Liverpool may show an annual profit improvement of around £74 million.

Such profit will no doubt put Liverpool in a stronger position to spend big this summer, but as Liverpool’s year end is 31 May, transfer revenue from the Suarez deal will only appear in the clubs 2014-15 accounts thus not one of the periods (i.e. 11-12, 12-13 and 13-14) that UEFA will use to assess the club for FFP break-even purposes during the upcoming Champions League campaign.


Daniel Geey
Senior Associate
Field Fisher LLP


1. Assuming £200k a week, equaling around £10.4 million per year.


This article originally appeared on Daniel's blog, 'The Final Score on Football Law.' You can access the original by clicking here. A search for 'Financial Fair Play' in World Sports Law Report's internet archive returned 36 articles. To sign up for a free trial to World Sports Law Report, please click here.


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