Europe's top football clubs spending big

Analysis This summer's transfer window resulted in an outlay of almost Dh10bn on players, but the English Premier League did tighten its belt a notch.

Manchester City bought Emmanuel Adebayor from Arsenal this summer and the striker has repaid the club scoring four goals so far.
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The football transfer window closed last week bringing to an end another summer of high spending for European football's elite clubs. Those in the top divisions of Europe's 'Big Five' leagues (Premier League, La Liga, Serie A, Bundesliga, Ligue 1) collectively spent more than £1.6 billion (Dh9.79bn) on new players.

The 20 clubs in the English Premier League spent about £450 million, more than any other league, although down 10 per cent on the record £500m spent by Premier League clubs last summer. A significant factor in this reduction was the fewer player acquisitions from overseas. This year saw a 40 per cent reduction in the level of acquisitions from non-English clubs compared with each of the transfer windows in 2007 and last year.

Premier League clubs spent £155m on overseas players in this summer's window, compared with £250m in the previous two summers. This represents 34 per cent of total transfer fees committed by Premier League clubs, compared with 50 per cent last summer. There has also been an increase in the amount of money flowing into the Premier League from their European rivals. Premier League clubs received more than £110m in transfer fees from Real Madrid alone. Combined with fewer player acquisitions from overseas clubs, Premier League clubs' overall net transfer spending was £80m.

This is down significantly compared with more than £200m in each of the previous two summer transfer windows. Net spending comprised £8m to overseas clubs and £72m to clubs further down the English football pyramid. Manchester City's transfer dealings have been a key driver of the overall level of spending this year, with the club's acquisitions of about £120m representing 27 per cent of the total.

This takes the total transfer spending of the club's new owners to about £200m since the takeover by Abu Dhabi United Group. Manchester City has been the highest spending club in each of the past two transfer windows. This year they bought nearly an entire new team, including Carlos Tevez, Kolo Toure and Emmanuel Adebayor. A number of other clubs made significant additions to their squads with Aston Villa, Liverpool, Sunderland and Tottenham Hotspur each reportedly spending more than £25m on player acquisitions in the latest period.

Transfer spending by Premier League clubs in the summer window has again exceeded that of other European leagues, albeit not by as much as in previous seasons. Spending by Real Madrid and Barcelona has boosted transfer spending by clubs in Spain's top division to about £400m. In contrast to the Premier League, however, there were a number of "marquee" signings with five players (Ronaldo, Kaka, Ibrahimovic, Benzama and Alonso) acquired for in excess of £250m. Italian Serie A clubs have spent about £350m and the clubs in the top division of each of France and Germany have spent about £200m.

Last year, Premier League clubs spent more than clubs in Spain, Italy, Germany and France combined. These figures show that Premier League clubs are facing tougher competition from other leagues for the best talent. The reduced value of sterling against the euro means that English clubs also are facing higher costs in recruiting players from mainland Europe. In addition, the proposed increase in the top rate of income tax in the UK to 50 per cent from April next year means that Premier League clubs are also facing increased wage costs for new signings. For example, if a player negotiating a new contract this summer demanded ?3m (Dh16.05m) a year after taxes, the cost to a Premier League club following the income tax increase would be ?6.8m, a significant rise on the current cost of ?5.7m based on a top tax rate of 40 per cent.

This is 70 per cent higher than the ?4m it would cost a Spanish club to give a non-Spanish player the same net pay. In recent years, Spain's La Liga has emerged as the main alternative to the Premier League for top talent. Spain has a favourable tax system which broadly permits temporary non-Spanish residents, including sports men and women, to be taxed at just 24 per cent, along with minimal social security contributions, instead of the top rate of 43 per cent for Spanish nationals.

While the cost of players is rising for Premier League clubs, the scale of its revenues still gives the league a significant advantage in attracting players. Last season, total Premier League revenues were ?2.4bn, more than ?1bn ahead of total revenues for La Liga. However, football clubs face the same turbulent conditions as any other industry and clubs need to cut their cloth accordingly. Despite the current economic climate, the Premier League clubs can take comfort from the fact that broadcasting revenues, representing 48 per cent of total revenues last year, are secured for the foreseeable future.

However, clubs face significant challenges in the short term to maintain current performance in relation to both commercial and match-day revenues. For larger clubs, playing to sold-out stadiums, with strong demand for corporate packages and wide commercial appeal, the impact may be limited. However, for smaller clubs, where demand is more variable and where significant excess capacity exists, the downside may be more pronounced.

This year's summer season ticket renewal period has been watched more closely than ever by clubs. Price is one of the few variables over which clubs have complete control and clubs have been carefully reviewing marketing and pricing strategies during the season. In an effort to boost sales, and perhaps to show solidarity with their key stakeholders, we have seen a change in policy almost across the board, with price freezes or even reductions commonplace for this season.

Although conditions are likely to be difficult it is timely to remember that the fundamentals supporting the game remain strong. Football remains a relatively inexpensive hospitality option compared with other one-off events, and seasonal packages present a variety of individual opportunities. Furthermore, many corporate hospitality buyers are small businesses, fans in their own right who have "traded up", rather than large enterprises which may have weaker brand loyalty.

It does appear then that many clubs are adopting a more risk-averse strategy when it comes to transfer spending. Looking ahead, although economic conditions may improve next year, it is still unlikely that Premier League transfer spending will exceed the record level achieved last year, without further significant capital injections from owners. Paul Rawnsley is a director in the Sports Business Group at Deloitte