How has the weakened pound affected Premier League clubs?

How has the weakened pound affected Premier League clubs?

As the UK steers itself away from the European Union in light of Brexit, one obvious fallout has been the tumbling value of the pound. Sterling dropped more than 10% on June 24 2016, the day after the referendum vote, suffering the biggest single-day fall for a major currency since the Second World War, and hit a low against the dollar that had not been seen in 31 years.

Sterling’s strength against the dollar is less of a concern than the euro, considering that much of Premier League’s imports and exports (be it players, or otherwise) are with clubs based in the EU (and more importantly) the eurozone. Clubs in Ligue 1, La Liga, the Bundesliga and Serie A all transact in the euro.

Sterling’s weakening relationship with the euro over the last two years can be summarised below:

17 November 2015: €1.42 – £1.00
23 June 2016: €1.31 – £1.00
24 June 2016: €1.23 – £1.00
30 August 2017: €1.08 – £1.00

The effects?

The pound’s slide, simply, has made it more expensive for English clubs to sign and pay foreign players.

How much more expensive?

Well take the example of Paul Pogba when he transferred from Juventus to Manchester United. Juventus’ asking price was €105,000,000. Hypothetically, if United had signed him when the pound was at November 2015 rates (as above), it would have cost £73,943,661. At August 2017 rates, €105,000,000 cost c.£97,222,222. That’s a £23,278,561 upswing due to exchange rates, or a 31% increase.

Incidentally, United signed Pogba at the beginning of August 2016, roughly a month after the Brexit vote. The exchange rate at this time was €1.17 – £1.00, making Pogba’s total around €89,500,000 (the press reported €89,300,000). If United had signed Pogba as a ‘pre-summer’ purchase before the Brexit vote, when the rate was nearer €1.30 – £1.00, he would have cost €80,769,230. In short, United incurred a 10.80% price inflation due to ‘political factors’ in the space of a single month.

The same logic can of course be applied to wages. If a European player demands his salary matches whatever his euro equivalent was in sterling, then English teams will be liable for a similar level of inflation, which can really rack up over the course of contracts that last over three years.

Correspondingly, you can invert that logic and apply it in the same way; weaker sterling means European clubs paying in euros now incur a discount.

When Daniel Levy was negotiating over Gareth Bale’s sale in July 2013, agreeing the fee (€100,000,000) probably wasn’t the most difficult aspect of the negotiation. Rather, agreeing on which currency the fee was transacted in carried much more significance.

As a rule, risky fluctuations in currency are removed if you’re playing with your own native money, and English clubs therefore much prefer to be paid in sterling than euros. While there aren’t any examples to directly refer to, there have probably been instances where transfers have broken down between clubs because of a failure to agree on which currency is used.

Incidentally, Tottenham chose to take the Bale money in euros, essentially making a ‘natural hedge’ with the foresight of knowing they were heading into the European transfer market for replacements. They then bought Nacer Chadli (from FC Twente), Etienne Capoue (Toulouse), Eric Lamela (Roma), Roberto Soldado (Valencia) and Christian Eriksen (Ajax), which in turn made their choice shrewd and natural.

Of course, it’s difficult to have any sympathy for this disadvantageous turn of economic events on British clubs, considering these losses are hugely outweighed by the extravagance of the existing TV deal. The deal has been widely publicised as being a three year £5.34 billion deal, but that figure exclusively refers to the sale of rights to British broadcasters in the form of bSkyb (£4.176 billion), BT Sport (£0.96 billion), and the BBC’s highlights package (£0.204 billion). It excludes a further £2.2 billion coming in from an overseas deal, meaning the Premier League for 2016-2019 draws in £2.7 billion per season. Europe’s other top four leagues combined draws an estimated £2.9 billion a season.

In short, while the fall in the pound is no doubt costing English clubs, it’s by no means enough to alter the financial status quo across Europe. Premier League teams remain the powerhouses on the European landscape. True, that record sponsor £5.34bn TV is now worth less to British clubs than it was, but that further £2.2bn coming from abroad in other currencies is now worth more.

Typically, European clubs are currently adding a 50% premium on player prices when English clubs come knocking. It’s basic supply and demand; TV wealth has meant demand from English clubs has never been stronger. ‘Supply’, in the form of quality players, hasn’t changed in this time, meaning player prices have increased. This is a more obvious example of a variable that affects English teams’ finances above changing exchanging rates.

But the next time you hear of a fluctuation in the relationship between the pound and the euro, think of how that might affect the finances of the club you support.