The beautiful game belongs to the accountants now

Football clubs usually write down the amount they have paid for players over the life of the contract; a longer contract therefore means a lower annual amortization charge. Chelsea gave 8.5-year contracts to its two most expensive signings, Enzo Fernandez and Mykhailo Mudryk.

By Matthew Brooker

“Football is a simple game. Twenty-two men chase a ball for 90 minutes and at the end, the Germans always win,” the former England striker Gary Lineker once observed, in a rueful comment on Teutonic supremacy in the 1990s. An updated version might read: Football is a very complicated game, and at the end the accountants win.

Chelsea FC midfielder Conor Gallagher was the focus of widespread media speculation in the run-up to Thursday’s Premier League transfer-window deadline, with multiple reports suggesting the club was willing to sell. In purely sporting terms, it would have been a perplexing transaction. Gallagher has excelled this season, and was named the side’s captain by manager Mauricio Pochettino. He is also only 23 years old and already an England international, with most of his prime playing years ahead of him — exactly the type of player that a big club like Chelsea, with aspirations to challenge for major trophies and qualify for European competition, might be expected to hang on to.

In the event, the transfer didn't happen. But Chelsea’s readiness even to contemplate selling is a sign of how accounting considerations increasingly impinge on football decisions. Once, supporters could follow a team without paying much attention to its finances. In the era of Russian oligarchs, oil-rich nation-states and US private equity investors, understanding what’s happening on the pitch may require a knowledge of amortization schedules, capitalization of interest, timing of revenue recognition and other accounting arcana.

The Premier League’s Profitability and Sustainability Rules were introduced a decade ago as part of a wider European effort to limit the destabilizing effect of super-rich owners, and they restrict clubs to losing a maximum of £105 million ($133 million) over three years. The result has been a scramble to ensure compliance while still spending enough to remain competitive, which in turn has elevated the importance of clubs’ accounting policies.

In Chelsea’s case, the Gallagher speculation stems from a £900 million transfer-spending spree that followed the club’s purchase by US investors Todd Boehly and Clearlake Capital in 2022. This raised the question of how the London-based side could stay within the profitability rules. Part of the answer was that Chelsea put the players it bought on exceptionally long contracts.

Football clubs usually write down the amount they have paid for players over the life of the contract; a longer contract therefore means a lower annual amortization charge. Chelsea gave 8.5-year contracts to its two most expensive signings, Enzo Fernandez (bought for £106.8 million) and Mykhailo Mudryk (£88.5 million). The Premier League subsequently closed this loophole by mandating a maximum contract length of five years — a sign of how soccer’s spending rules have turned into a cat-and-mouse game between regulators and wily accountants.

If a club is still in danger of busting the loss limits, though, it needs to find other ways of bolstering the bottom line. Selling players is an obvious route. But this isn’t just a matter of offloading those that can command the biggest transfer fee: Clubs have to look to those where they can book the biggest accounting gains. Academy players like Gallagher — those developed by teams since childhood — have a cost basis of near zero, so any sale translates into pure profit. That makes them attractive targets for disposal — hence Chelsea has already offloaded several academy players.

There’s an array of other techniques that football clubs can use to make their books look better, some more questionable than others. Say Team A and Team B are both in need of a profit. A sells a player to B for $60 million that it bought for $20 million, and B sells a player to A for $50 million that it bought for $10 million. Only $10 million changes hands, and both clubs get to record a gain of $40 million. This is broadly the form of transaction that saw Italy’s Juventus have 10 points deducted last year in a case over artificial inflation of player values.

The costs of transgressing the Premier League’s regulations — often referred to as “financial fair play” rules after the European version — can be similarly severe. Everton FC had 10 points deducted in November for breaking the loss limit, putting the team at risk of relegation: a potentially disastrous financial hit for any club that has spent heavily in pursuit of success.

The case turned on several esoteric accounting points, including whether Everton was entitled to deduct interest payments on loans to build a new stadium. In principle, this should be allowed; financing costs of a development are typically added to the asset value on the balance sheet, and then depreciated gradually over its useful life. The Liverpool-based club fell foul of the regulations because the loans weren’t linked explicitly to the project. Read the judgment of the independent commission and the impression that comes through is that the club might have escaped with some smarter or more fastidious accounting processes. Everton is appealing the penalty.

Nottingham Forest is another big-spending club that’s charged with breaching the profit rules. In this case, the club’s mistake may have been in not acting quickly enough. Forest rejected two bids for academy player Brennan Johnson before eventually agreeing to sell him to Tottenham Hotspur for £47.5 million in September — more than the earlier offers, but three months after its financial year-end, and therefore too late to be counted toward the period under scrutiny.

The biggest shoes may be yet to drop. Abu Dhabi-owned Manchester City, which has won the Premier League in five of the past six seasons, faces 115 charges of breaching financial rules, which it is contesting. And Chelsea is under investigation over secret payments made by companies belonging to former owner Roman Abramovich, who was forced to sell the club following Russia’s invasion of Ukraine.

Football’s big-money era has contributed to a loss of competition on the pitch. Regulators are at least providing some financial drama to compensate. To follow along, keep your accounting textbook close. It may get complicated.