PSR transfers explained: Why Premier League clubs have rushed to get deals done

Premier League clubs have sought to close deals promptly this year to comply with profitability and sustainability rules.

Aston Villa have been exceptionally active in the sales department because of this, with Douglas Luiz leaving for Juventus and youngster Omari Kellyman joining Chelsea for £19million despite making just six senior appearances.

Squads have been shaken up speedily to avoid the risk of being slapped with a points deduction if found in breach of PSR rules, as Everton and Nottingham Forest both faced, before the end of the accounting year, which passed yesterday.

Mirror Sport spoke to Tom Bason, football finance expert at Coventry University, attempting to get to the bottom of this sudden need to spend, sell, and swap. Here he answers our pressing questions.

What are clubs trying to achieve with these transfers?

We've seen over the last 12 months or so that the Premier League's PSR profitability and sustainability rules have either been ramped up or enforced or clubs have been close to breaking them.

But we've seen the issues that Everton twice and Nottingham Forest have had. And what's happened on Sunday is at the end of the month, for several clubs in the Premier League, that's the end of their financial year.

Nottingham Forest players

So effectively Sunday was the last day for them to get their 2023/24 accounts in order, to meet the profitability and sustainability rules set by the Premier League and avoid potential points deductions coming down the road.

That's why we're seeing a lot of signings - or at least a lot of sales - over the last week or so, because clubs are selling players in order to move them off the books and get the revenue to help them meet the PSR requirements by the end of their accounting year.

So why has there been controversy? Is it because some clubs have been overvaluing their players?

Potentially, but it's difficult to know. Look at last summer, you could say someone like Cole Palmer wasn't worth £50million. But now, that looks like actually one of Chelsea's better signings and was a bargain.

I think an important thing to note about why this is happening, is how transfers are recorded in accounts, the whole amortisation thing. Football transfers are recorded asymmetrically.

That means that they're not recorded in the same way when selling a player as they are when buying a player. When you buy a player that goes into the accounts and with the cost of the player, the transfer fee spread over the duration of the contract, it's amortised over the duration of the contract.

This is standard accounting practice for the purchase of any sort of asset. And what it's essentially saying is that when we purchase an asset, we get value from that asset over many years, not just over one year, so we're going to spread the cost of that asset over the years in which we get value.

Cole Palmer signing for Chelsea

For example, if a business buys a piece of land, or buys a building, they say we're not going to put the entire cost of the building in one year, because we're going to have value from that building for 75 years, instead, we're going to spread the cost of building over the 75 years in which it will be useful.

That is standard accounting practice, it’s called depreciation when purchasing tangible assets like buildings, cars or computer equipment. It is amortisation when purchasing intangible assets, which is in effect what's happening when clubs sign the right sort of player.

That means that, say a club buys a player for £20million and that player signs a five-year contract, instead of that costing the club £20million in the accounts up front, that £20million is spread over the five-year contract, a £4million amortisation charge each year for the five years of that contract, adds up to the £20million transfer fee. This is why the likes of Chelsea have chosen to offer their eight-year contracts.

Is there a certain risk with doing that if certain deals don't work out?

‌The cost is still the same because it's just the transfer fee spread over the duration of the contract. The total that you pay still remains exactly the same, it just depends if the duration of the contract dictates and how long you make those payments for.

It doesn't alter the overall cost at all. I want to explain what happens when you sell a player in terms of the risk that Chelsea gave at the moment.

When you sell a player, all the payment is received in this year's accounts. Because there's no future value for the asset for you, you receive everything, all of that goes into the current year account, which is why clubs are trying to sell players now before Sunday, because all of that value goes into the 2023/24 accounts.

What's important to note is that the profits that you make on a player is the fees that you receive, minus the player's value in the accounts. The player’s value in the accounts is determined by their amortisation.

That £20million signing we mentioned before and signed a five-year contract, he amortises £4million each year for five years. So after year one, after one season, he's amortised £4million. He now has a value in the accounts of £16million. After another year, he amortises another £4million and now has a value in the accounts of £12million, again and again until year five, the final £4million.

So he now has a value in the accounts of nothing because all of the £20million has not been included in the accounts. Where Chelsea are potentially falling foul is that because they've had such long contracts, relatively little value is dropping off each year.

Mudryk's lengthy contract was one that turned heads after his arrival from Shakhtar Donetsk

So say someone like Mudryk, for example, say he cost £80million on an eight-year contract, he loses £10million a year. Call it 18 months [since the transfer], he’d now be valued at £65million in the accounts. That means for Chelsea to make any sort of profit from moving him on, they have to sell him for more than £65million.

So that's perhaps an issue that Chelsea has got by having such long contracts and if a player does not work, they are amortising less each year and are retaining a higher value in the books.

Are these PSR transfers a new thing or have they always happened?

‌I think what we're seeing now that we haven't necessarily seen before is clubs probably working together at the moment.

There's always been an assumption with transfers that the buying club wants to buy the player for as little as possible, and the selling club wants to sell the player for as much as possible, and eventually, they'll negotiate somewhere in the middle.

But if we're seeing, for example, Lewis Dobbin going to Aston Villa and Tim Iroegbunam going to Everton, potentially they could both artificially inflate the price of those two players and receive a higher profit for this finance year.

Dobbin’s gone to Villa for about £9million and Iroegbunam's gone to Everton for £10million. So that would give, for example, Aston Villa £10million in revenue for this year and Everton would get £9million in revenue for this year.

Tim Iroegbunam signing for Everton

We don't know whether those players are worth £9million because those teams could easily be colluding. They could easily have sold those two players for £109million and £110million.

That would make no difference from a cash perspective because they're just saying how much the players are valued when they transfer them and that would potentially allow those two clubs to register £110million this year.

So that's where I think there's a little bit of controversy that these now seem to be, transactions where the two clubs are negotiating for the best price of each of them, but are perhaps not negotiating and are agreeing on a price that's more than they are valued at.

But, the valuation of players is incredibly difficult. Everyone puts different values on different players. Take Cole Palmer, nobody would have priced him as a £50million left this time last year. I think that's where that's where the issue is, it's impossible to really prove anything.

Are there any rules in place to stop this from happening?

So there are some rules. UEFA have rules and regulations. They have rules or if two or more players are transferred in opposite directions between clubs, that's rule G.3.5, which basically says that, if they have doubts about the values of the exchange transaction, they might adjust accounts, for their Financial Fair Play.

The Premier League also have a fair market value assessment protocol, which is in the Premier League handbook. This basically says that players have to be sold at their fair market value.

Then they list a load of factors that play into it like the player's age, position, injury history, nationality and stuff. It says that the Premier League could look into transfers and again adjust them if they think that it's not being sold at a fair market value but is very, very difficult to prove. It's incredibly difficult to prove categorically this player is worth this much.

Could the Premier League look at an offer, say from a big-spending Saudi club, and go, that is not an accurate valuation?

‌That's a good question. I'm a Wolves supporter, and we sold Ruben Neves to Saudi Arabia this time last year for more money than we thought with 12 months left on his contract.

There was talk about this because of allegations about Newcastle potentially being able to get players from Saudi Arabia at a lower value. Most of the focus up until now has been about whether you might be able to get a player too cheap from a partner club.

Newcastle, for example, potentially being able to pick up a player from Saudi Arabia, just because of their owners. I think that just from reading the Premier League handbook - and I’m not a lawyer - but what I suspect it says in the handbook would allow them to have a look at it, but this doesn't occur often.

Newcastle were taken over by a consortium lead by Saudi Arabia's PIF in 2021

It says if the board has reasonable grounds to suspect that the threshold transaction is not an arm's length, i.e. that done between two associated transactions, I don't think, for example, if Saudi Arabia, with no links to Manchester United, paid £150million for Bruno Fernandes, they could particularly do anything about that because they are very separate organisations.

I think the Premier League would have to demonstrate that there's a link between Saudi Arabia and Manchester United, but like I say, I'm absolutely not a lawyer. That's just my reading of the Premier League handbook.

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