How Much is 'The Money'?

[Geordie Blade]

When a club sells a player for, say, £2.0m and says that they'll reinvest it, we tend to assume that this means that they'll sign another £2.0m player. However, I'm not quite sure that it works out like that. I'm not certain of the reasoning below, so I'm happy for someone to correct me, but here's what I think happens.

1. Tax
Although we sold Murphy for £2m (I'm rounding to keep the maths simple), I believe that clubs have to pay VAT on top of this (I recall that we were stung on the Glyn Hodges signing, after VAT increased from 15% to 17.5% the day after the supporters raised the money to buy him). So, we get £2.0m in cash, but Brighton effectively had to fork out £2.4m, with £0.4m going to the government. So, this means that even if we spend the full £2.0m, that amoount has to cover the tax as well. Working backwards, that would mean that the player would need to cost £1.67m (as reported in the papers, etc.), with the other £0.33 going on tax. So, already, we'd be getting a 'cheaper' player, even though we'd reinvested the full amount.

2. Wages
In general, the outgoing player will be on wages that were agreed a couple of years ago, before the player became a hot-shot. However, the incoming player will be expecting decent wages, since they are a £1.67m player. Assuming that the new player is on around £3k per week more than the outgoing player and that we're talking about a three-year contract, that would amount to an increase in wages of around £470k. So, we can knock that off the transfer budget too. £1.67m minus £0.47m leaves us with £1.20m.

3. Signing-on fee
If we assume that a player expects around 10% of the transfer fee in signing-on fees, we can again work backwards to say that the actual transfer fee would reduce to £1.09m, with £110k going towards the signing-on fee.

So, even if we truly re-invest the full amount, this would only equate to around 50% of the original transfer budget. As I said, some of the reasoning might not be quite right, but I haven't included anything else like agents' fees or other stuff that might eat into the budget.

 

[William Henry Foulkes]

All interesting points.

I can't add much but I think the statement was made that the money would be reinvested I the first team, that does not necessarily equate to equivalent transfers, it could be wages for loan players for instance.

A Division 2 centre half on loan, a keeper to challenge/cover for Howard (this is the Soccernomics best value for money option) might be two and that would leave us spare cash. Flynn and Kennedy are playing in the u21s btw.

To get back to the OP it's not simple and at some point we have to trust the people working behind the scenes. So far they've done a good job.

 

[1danewhitehouse]

That makes a fair bit of sense Geordie. The only thing I would say is that Murphy signed a new deal in January presumably on decent money and if we buy a replacement outright, they would presumably be coming from a smaller club than us (Dack from Gillingham for example) so I think the wages would be unlikely to exceed Murphy's.

But there are agents fees to consider as well so certainly reinvesting money received is unlikely to mean spending the whole of the received sum on a transfer fee for the replacement.

 

[Tezza1889]

I think the word proceeds is key here, I'll assume the club put 500,000 back in from his original transfer fee, then the remaining funds are available to the manager, we'll see about 1 million for the manager to play about with after taxes...

I don't think jamie murphy got anything from united regarding a signing fee, or a cut of the deal, because handing a transfer request in negates the selling clubs obligation to pay the player, this is why the clubs who don't want to sell play hard ball, its gonna happen at everton with stones this week possibly, he'll have to put the request in to make it happen, meaning chelsea have to pay him A signing on fee, everton don't wanna sell, player wants to go, so forfeits his cut of the fee..

That's the reason I wasn't too fussed when I heard he'd put one in..

Proves as well that we really tried to hang onto him..

 

[alcoblade]

When a club sells a player for, say, £2.0m and says that they'll reinvest it, we tend to assume that this means that they'll sign another £2.0m player. However, I'm not quite sure that it works out like that. I'm not certain of the reasoning below, so I'm happy for someone to correct me, but here's what I think happens.

1. Tax
Although we sold Murphy for £2m (I'm rounding to keep the maths simple), I believe that clubs have to pay VAT on top of this (I recall that we were stung on the Glyn Hodges signing, after VAT increased from 15% to 17.5% the day after the supporters raised the money to buy him). So, we get £2.0m in cash, but Brighton effectively had to fork out £2.4m, with £0.4m going to the government. So, this means that even if we spend the full £2.0m, that amoount has to cover the tax as well. Working backwards, that would mean that the player would need to cost £1.67m (as reported in the papers, etc.), with the other £0.33 going on tax. So, already, we'd be getting a 'cheaper' player, even though we'd reinvested the full amount.

2. Wages
In general, the outgoing player will be on wages that were agreed a couple of years ago, before the player became a hot-shot. However, the incoming player will be expecting decent wages, since they are a £1.67m player. Assuming that the new player is on around £3k per week more than the outgoing player and that we're talking about a three-year contract, that would amount to an increase in wages of around £470k. So, we can knock that off the transfer budget too. £1.67m minus £0.47m leaves us with £1.20m.

3. Signing-on fee
If we assume that a player expects around 10% of the transfer fee in signing-on fees, we can again work backwards to say that the actual transfer fee would reduce to £1.09m, with £110k going towards the signing-on fee.

So, even if we truly re-invest the full amount, this would only equate to around 50% of the original transfer budget. As I said, some of the reasoning might not be quite right, but I haven't included anything else like agents' fees or other stuff that might eat into the budget.

I'm glad you stopped there. Much more and we'd be owing money on the Murphy sale.

UTB

 

[Geordie Blade]

Regarding the signing-on fee, I was referring to the fee for the incoming player. If we have £1m to spend, we will probably actually spend £900k on 'buying' the player (the value that will get reported in the papers) and another £100k on his signing-on fee. The point is that the transfer fee reported in the media won't necessarily reflect the amount that we actually pay.

 

[Bladesman]

In reality it's probably about £10 and we won't see most of it til next year.

 

[Worksop II]

I think the statement was made that the money would be reinvested I the first team

Jimbo said "100% of the Transfer Fee was available for the 1st Team"

Transfer Fee = Undisclosed

So its gonna remain one of those unknowns about SUFC Finances

 

[Geordie Blade]

Transfer Fee = Undisclosed

In fairness, I think that all these points explain why clubs are reluctant to disclose transfer fees. It raises the fans' expectations and means that people complain when the replacement is perceived as a cheaper player.

 

[Silent Blade]

When a club sells a player for, say, £2.0m and says that they'll reinvest it, we tend to assume that this means that they'll sign another £2.0m player. However, I'm not quite sure that it works out like that. I'm not certain of the reasoning below, so I'm happy for someone to correct me, but here's what I think happens.

1. Tax
Although we sold Murphy for £2m (I'm rounding to keep the maths simple), I believe that clubs have to pay VAT on top of this (I recall that we were stung on the Glyn Hodges signing, after VAT increased from 15% to 17.5% the day after the supporters raised the money to buy him). So, we get £2.0m in cash, but Brighton effectively had to fork out £2.4m, with £0.4m going to the government. So, this means that even if we spend the full £2.0m, that amoount has to cover the tax as well. Working backwards, that would mean that the player would need to cost £1.67m (as reported in the papers, etc.), with the other £0.33 going on tax. So, already, we'd be getting a 'cheaper' player, even though we'd reinvested the full amount.

2. Wages
In general, the outgoing player will be on wages that were agreed a couple of years ago, before the player became a hot-shot. However, the incoming player will be expecting decent wages, since they are a £1.67m player. Assuming that the new player is on around £3k per week more than the outgoing player and that we're talking about a three-year contract, that would amount to an increase in wages of around £470k. So, we can knock that off the transfer budget too. £1.67m minus £0.47m leaves us with £1.20m.

3. Signing-on fee
If we assume that a player expects around 10% of the transfer fee in signing-on fees, we can again work backwards to say that the actual transfer fee would reduce to £1.09m, with £110k going towards the signing-on fee.

So, even if we truly re-invest the full amount, this would only equate to around 50% of the original transfer budget. As I said, some of the reasoning might not be quite right, but I haven't included anything else like agents' fees or other stuff that might eat into the budget.

There is agents fee too, you know?

 

[Jon K]

As a business can't the club reclaim the VAT?

 

[blade too long]

the other factor is when do we get the money , its rarely in a tesco bag on signing day

be more likely in 4 payments over 6 months or something

 

[Bladesway]

I'm glad you stopped there. Much more and we'd be owing money on the Murphy sale.

UTB

The way we do deals anything is possible.

 

[wizadry]

Don't forget Motherwells' cut alcos' right, we owe them fuckers

 

[penthouseblade]

Amazingly I don't think you pay VAT on transfers.....however, the government will be sure to right this wrong soon enough?!

 

[dingledog]

Amazingly I don't think you pay VAT on transfers.....however, the government will be sure to right this wrong soon enough?!

West spam will of course be exempt from any such tax.

 

[Houston_Blade]

I'm not sure if footballers are a VATable commodity but if they are we would claim it back in the quarterly VAT return so it would be a short term hit to cash flow but not a "cost" per se.

The point about wages is fair enough but I would imagine that Murphy was fairly well paid so would probably be a like for like replacement if recruited within league 1 and maybe a slight uplift if recruited from the Championship.

The 3rd point is also valid and the players and agents fees will need to be worked into any deal. It's a shame the accounts don't show a split by deal on the fees. Although I'm sure it would result in the arson of a lot of agents properties once the fans were made aware of the deals they're managing to pull off.

The gist of the post is correct though, we won't see a player come in for the full fee. Although we've spent enough on fees in the last year or so that the board could spin it if required that Brayford and Sharp cost £2m between them.

I don't want to see us throw money about willy nilly but another statement signing would boost the warm fuzzy feeling that Phippsy is trying his best to create amongst the supporters.

 

[Jan Age]

I think the board has reinvested money in to the first team (how much we can only speculate) but they seem quite supportive in those terms. Albeit against the backdrop of player sales and cup runs.

I'm not really too fussed about how much of the fee they get/use but I think they need to recommend the manager addresses key positions e.g. We sold McDonald and never replaced him, we sold Maguire and never replaced him and we will wait to see about Murphy. You can't keep stripping the assets without filling the positions again.

 

[SotonBlade]

Jimbo said "100% of the Transfer Fee was available for the 1st Team"

Transfer Fee = Undisclosed

So its gonna remain one of those unknowns about SUFC Finances

Not just SUFC, most clubs prefer undisclosed these days

 

[Geordie Blade]

I'm not sure if footballers are a VATable commodity but if they are we would claim it back in the quarterly VAT return so it would be a short term hit to cash flow but not a "cost" per se.

Fair enough - thanks for clarifying. I always presumed that VAT was applicable because of the Glyn Hodges saga in 1991. He'd been a huge success on loan from Watford, but SUFC couldn't afford his £400,000 fee. So the fans organised all sorts of collections (I remember selling raffle tickets at school), and we managed to get the cash together after a few weeks. There was a last-minute hitch when the Chancellor raised VAT from 15% to 17.5%, adding another £10,000 or so to the transfer fee. The board still wouldn't stump the extra cash, so off the fans went again with their car boot sales and raffle tickets, finally getting over the new target. If you're correct that the board would have claimed the VAT back, then I certainly don't remember them giving me back my share!

Hodges was worth every penny for that sublime chip over Peter Schmeichel alone.

 

[Gibbo89]

West spam will of course be exempt from any such tax.

They will be exempt from paying VAT but will be free to reclaim as much as they want.

 

[Houston_Blade]

Fair enough - thanks for clarifying. I always presumed that VAT was applicable because of the Glyn Hodges saga in 1991. He'd been a huge success on loan from Watford, but SUFC couldn't afford his £400,000 fee. So the fans organised all sorts of collections (I remember selling raffle tickets at school), and we managed to get the cash together after a few weeks. There was a last-minute hitch when the Chancellor raised VAT from 15% to 17.5%, adding another £10,000 or so to the transfer fee. The board still wouldn't stump the extra cash, so off the fans went again with their car boot sales and raffle tickets, finally getting over the new target. If you're correct that the board would have claimed the VAT back, then I certainly don't remember them giving me back my share!

Hodges was worth every penny for that sublime chip over Peter Schmeichel alone.

Email McCabe and ask if there's still a provision in the accounts for the VAT owed to supporters on Glyn Hodges and claim your share. I'm guessing at that point in time it got spent on big fat cigars, sheepskin coats and a new solid oak table for the board members.