The talk still continues. “Arsenal have a £50m transfer war chest”. As blogged about recently, the £50m war chest is nothing but a figure to add weight and clicks to articles.
Recently big Dave Ornstein mentioned a pre-sales budget of ~£50m. The reliable BBC man is the only journalist I have seen get closer to the truth in what we have to spend, as he discusses “pre-sales”.
In Arsenal’s history, we have only had a net transfer spend above £50m twice. So if the new manager is given £5 to spend, that is not the bad starting point that many make up.
The key point that very few journalists make is that Arsenal have around £50m to spend this summer. Not a £50m transfer budget.
“Arsenal hand manager £50m transfer budget” will get more hits than “Arsenal have £50m to spend on wages & transfer fee amortisation”. And then for the majority of gossip red tops, where journalists are paid to create hit garnering articles for advertising revenue, they do not have time to go into the truth. As the truth won’t sell.
So Arsenal do have around £50m to spend this summer – before anyone is sold. But this does not mean we have £50m to spend on players (ie it’s not as simple as a £30m goal keeper, a £10m centre back and a £10m midfielder).
We know Arsenal will have around £50m to spend based on club accounts, which have shown a consistent £40-£50m profit before player sales for the last few years. You can not spend money you do not have – unless you want to go into debt or be a rich mans play thing.
So basically, Arsenal can increase their costs of running the business, or the expenditure if you like, by about £50m and still break even as a business. What it does not mean is that we have £50m for transfers.
From this £50m budget, the club will have to to cover any increase in yearly wages, increase in agents fees and the amortisation of transfer fees.
Any increase in wages has to come out of it the £50m. They are part of the overall budget.
Salaries are a cost. If you increase salaries and keep income the same, profits reduce. So any increase in salaries needs to come out of that £50m.
That mean’s Aaron Ramsey’s new contract has to come out of that £50m. Also out of this budget will come the wages of any new players we sign.
Say we buy the 5 players we need – a goalkeeper, centre back, defensive midfielder, attacking midfielder & winger – and Ramsey signs his new deal, our wage bill will rise by about £30m. That £30m comes out of the £50m budget.
But then this increase in wage bill will be offset by outgoing players.
The likes of Mertesacker and Cazorla. Potentially Ospina, Perez, Campbell & Jenkinson. Maybe Jack Wilshere.
Wilshere aside, the 5 cost in the region of £15m a year in annual salary. So that means our net increase in salaries next year will be about £15m.
This £15m is above the £7m yearly salary increase laid out by the Premier League, but Arsenal can prove where the additional funds have come from so are able to circumnavigate the rules.
So we increase the yearly wage bill by about £15m. That leaves us with about £35m to spend on players.
“A £35m transfer budget, that is even worse” you scream loudly into Twitter. You are wrong.
We do not have £35m to spend on transfers, we have £35m to spend on amortised transfer fees.
At this point please note I have excluded agents fees as I imagine they will be at a similar level to previous years, so the cost does not increase and impact the budget.
Football clubs are allowed to amortise the cost of a transfer fee over the length of his contract. In layman’s terms, this basically means “spread out”.
So take Mesut Ozil. He cost the club about £45m, and signed a 5 year deal. So his transfer fee was spread across 5 years, resulting in his yearly cost impacting on the budget by just £9m.
This summer that original 5 year deal comes to an end. Ozil is paid up. That would actually give us an additional £9m a year within our current accounts to spend on a player. But we spent that £9m in January on Pierre-Emerick Aubameyang.
Aubameyang cost £50m, signing a 3 and a half year deal. This will cost Arsenal £14m a year, but with the saving on Ozil transferred across, Aubameyang actually only increases our costs by about £5m a year. Good deal.
With then have the Mkhitaryan / Sánchez swap deal. Sanchez’s transfer fee will be written off in the next accounts, Mkhitaryan cost us nothing. That is a saving to the club in amortised transfer fees of about £9m a year again (Sanchez cost less than Ozil, but had just a 4 year contract).
So we fast forward to this summer. We have established that we can increase the clubs outgoing by about £50m. £15m will be take up by wages, so what does the remaining £35m get you?
Straight off the bat, we could buy a £20m centre back on a 4 year deal – that is the figure quoted for Borussia Dortmund’s Sokratis (I am not going to attempt to spell his surname). £20m over 4 years will cost the club £5m a year.
We could then sign Jean Michael Serri. He reportedly has a £40m release clause. Hand him another 4 year deal. That works out at £10m a year I the accounts.
So we have “spent” £60m in two players, yet the impact on the budget is just £15m. Still leaves us with £20m.
We could then go big. £50m on a goalkeeper. Give him a 5 year deal. True cost is £10m.
That leaves us with £10m to play with. For that we could go out and get 2 £25m players and hand them a 5 year deal. Or sign someone like Max Meyer on free, leaving us able to spend another £50m spread over 5 years.
So let’s list what Arsenal could actually sign within their £50m budget
1x £50m player on a 5 year deal
1x £40m player on a 4 year deal
1x £25m player on a 5 year deal
1x £25m player on a 5 year deal
1x £20m player on a 4 year deal
£160m outlay on players, yet it will only increase our yearly outgoings by £50m. It is within the budget.
Of course, the club won’t want to be bang on break even, as this leaves little wiggle room in future transfer windows. Although as previously signed players transfer fees become fully amortised, this frees up cash.
And this does not even include any profit we make from players sold. We could easily raise a further £20m just in the sale of Ospina, Jenkinson, Perez & Campbell.
The reality is, once fully explained, having a pre-sales budget of £50m is actually more than sufficient.
Have a good weekend. Enjoy the Royal Wedding. Up the Harry.