Why Manchester City Can ‘Quite Easily’ Afford To Sign Jack Grealish And Harry Kane
Even for Manchester City spending around $300 million on two players is a lot of money.
But, after getting the first $145 million deal over the line in the form of Jack Grealish and with Harry Kane pushing for a similar value move, the outlay looks like it could happen.
The question everyone’s lips is: how?
The world of soccer reels from the financial impact of a season played almost entirely behind closed doors hitting every club’s bottom line.
In these circumstances, people doubted how City could fund such a spree and stay within the Financial Fair Play regulations.
Manager Pep Guardiola even said as much himself in April when asked about potential signings.
“There is a big chance that because of the economic situation in the world right now, we are not going to sign a striker next season,” he explained.
“With these prices, we are not going to buy any striker. It’s impossible, we cannot afford it.
“All the clubs struggle financially and we are not an exception.”
However, according to University of Liverpool Football Finance expert Kieran Maguire, Manchester City can comfortably break the British transfer record twice in one summer.
“They can easily afford it,” he tells me
“First of all, from a cash perspective, the owners have put enough money into the equity side of the club to fund any deal they particularly want.
“[Transfers] these days tend to be running on an instalment basis. We don’t know how much the initial deposit is, it could be 50%.
“[In terms of] the financial fair play implications. He’s signed a six-year contract. So under the accounting rules, you spread the cost over the six years, so it works out to [$20 million] a year.
“The hit to your profit and loss account, for a club such as City that’s got total revenues of in a north of [$690 million], is not actually too much of a burden to take.
He points out that the club’s revenue last year was boosted by winning the Premier League and reaching the Champions League Final. Costs, meanwhile, have been cut significantly by the departure of legendary striker Sergio Aguero whose wages were substantial.
“Yes, [$300 million] is a big number. But it’s not that much of a challenge for them,” Maguire concludes
Cash is king
In a sport where the short-term is everything, there is a tendency to focus on overall transfer spends and gross wages.
But as financial experts like Maguire know all too well, this distorts the picture.
To accurately assess a business you need to look at the long-term profit and loss performance and, most crucially, the cash position.
Manchester City’s ownership model, like Chelsea’s, uses an owner’s deep pockets and continued generosity to keep money flowing through the business.
Losses, like the $172 million the club recorded in 2019-20, can therefore be absorbed without borrowing money expensively from banks to cover outgoings.
You only have to look at the perilous financial positions of Barcelona and Real Madrid to see how debt can come back to bite.
Both clubs are having to slash costs substantially following significant drops in earnings.
In contrast, the owner-financing model City and Chelsea benefit from has been making them both stronger over the past decade.
“I think it’s no surprise that those two clubs contested the Champions League Final earlier this year,” Maguire continues.
“I’ve been back through all of the records of the Premier League [and] those are the two clubs that have the highest financial losses since the inception of the premier Premier League, which total around about [$2.7 billion] between them.”
As clubs across the world grapple with the coronavirus related losses, Manchester City and Chelsea’s edge is even greater.
The sustainable side
Much has been made of Chelsea and Liverpool’s ability to sell big to balance the books, less is mentioned about City’s transfer market savvy.
But Maguire points out that before the big COVID-19 loss the club’s profit/loss performance had been positive.
“Manchester City’s long-term spend certainly has been big, but they were they were breaking even on an annual basis financially for quite a few years [before] they suffered big losses in 2020,” he continues.
“From a financial angle, what City has been very good at doing is selling players on a regular basis.”
This is crucial because the way soccer clubs record player transfers in their accounts mean a couple of good deals each summer can seriously improve the bottom line.
“When you sell a player, you take all of the profits in that year, but when you buy a player you spread that cost over a number of years,” explains Maguire.
City s banked around $50 million in the sale of fringe players Jack Harrison (pictured) , Angelino and Luka Nmecha, this summer alone. This more than covers the $20 million cost of Jack Grealish in the accounts.
Add in the $75 million from last year’s sale of Leroy Sane-which didn’t make the 2019/20 numbers-and there is more than enough to cover a $150 million move for England captain Harry Kane.