Listening to Phil Thompson on Sky, giving forth on what he perceived as Liverpools squad difficulties this weekend reminded me of a report I`d read earlier, culled from an investment bank`s prospectus obtained by The Independent. The essence of Thompson`s view was that outside of 12 or 13 players the ‘pool squad had very little depth. The investment bankers report designed to attract potential investors to Liverpool FC, sets out the financial framework of the club for the next 5 years. The report confines the net annual budget each year on players` wages and registration fees to £20m. This includes wage increases for contract renewals. Reportedly a good part of the £20m this summer was used to extend the contracts of some players.
In trying to square record profits with transfer spending Arsenal Holdings financial review published on Monday last makes reference to the increasing costs of renewing contracts for current players revealing at £122m a net increase of £20m for the year in expenditure on wages and player registrations. Though it isn`t entirely clear how the player registrations are amortised if we take out the estimated fees for Ramsey, Nasri, Silvestre and Arshavin in the last financial year it suggests the club spent at least £6m or so just to renew existing player contracts.
There continues to be significant upward pressure on players` wage expectations and the activities of other clubs in the market and the introduction of the 50% income tax rate from April 2010 mean this looks set to continue. The Board remains firmly committed to backing Arsène Wenger`s judgement in determining the composition of the playing squad and the level of contract terms required to secure the long‐term commitment of both new and existing players. Arsenal Holdings PLC Financial Review Sept 09
Cast your mind back to summer 2008 and Wenger was agonising over the inflationary impact of new FIFA rules governing player contracts which he felt means that effectively you only have a player for 2 years.
“After two years, you have to renegotiate your contract, because after three years, the player can move out,” he said at the time. “You give longer contracts because it offers a little bit of protection for the player to have to pay compensation if he moves after three years – if you give a player a five-year contract and he moves after three, he has to pay two years (wages).
“But after two years, you have to renegotiate with the player because he can move the next season; you have no choice. You can never get him to sign an extension to his contract for less – that means you will always have to increase his salary. They have created a situation where inflation goes through the roof.”
In a transfer market where a club can feel compelled to spend big money on player transfers this can leave a problem unless you can make a profit, or at least recover the investment in player registrations. But the bigger the salary of the player for sale the smaller the fee any buying club will be prepared to pay. The more spent on transfers the less you have to spend on renewing key player contracts which is at least every 2 years. Let the player get to his 3 year (or 2 if 28 and over) protected period and you risk losing him for less than you might expect. This means that your key players can end up making it much harder to maintain quality throughout the squad. An average Premier League squad size will be around 26 -28 players. Pretty well all of those can be used in a season but if you only have a budget able to sustain transfer fees and contract renewals for a dozen or so players the quality of the backup can decline.
Thompson`s view on Liverpools squad is just opinion but if you look at the squads of all the big clubs you can justifiably make the claim that the quality doesn`t really go that deep anywhere but just maybe Arsenal`s squad shows more extended quality than a number of others. Depending on your partisanship you can argue this forever and a day but at least it is possible to see the intent in the Arsenal squad.
Forgetting the sugar daddy syndrome which has always been around, even back beyond the time when Jack Walker bought a title for Blackburn, but which equally inevitably must obey the rules of economics at some point, you can perhaps appreciate Gazidis` view that, what he has described as a ‘particularly irrational` transfer market, is an inefficient one on which to rely on building good squad depth. Speaking at last month`s International Football Arena in Zurich, the Arsenal CEO said: “We believe transfer spending is the last resort. That’s a sensible view to have. Re-signing existing players is a far more efficient system.” The message seeming to be that player retention should be a greater budgetary priority than player acquisition.
Wenger`s view a year ago was that the new player contract rules which FIFA had only recently introduced could eventually become the subject of a challenge on age discrimination grounds as those agreeing a contract over the age of 28 are allowed a 2 year protected period.
“At the moment, after 28 you need only two years. I see the next thing coming is people saying, ‘Why is it 28 and not 27? That’s age discrimination. Why do we have to wait two years after 28 and three years before?` If it goes down to two as well, you go from one extreme to the other. It could mean the disappearance of transfer fees.”
At a time when Real increased their indebtedness by a substantial nine figure sum to acquire Kaka and Ronaldo it is hard to imagine that that day will ever be seen. Maybe the reality of new player contract laws, and where they might ultimately lead, is only just being appreciated in football boardrooms as the longer term consequences are now being realised. What you can afford to pay your players as a squad is becoming more important than what you can pay for individual player transfers. If so it`s not so hard to see that how you put your squad together, and how you keep them together, is going to be a factor in how long and how successfully you can continue to compete in the future.
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