THE GREAT NET SPEND ROPE TRICK (AND MORE MONEYBALLS) - The Anfield Wrap

BACK in the dark days, when a Texan tyrant roamed free in the 2nd city of Empire, debt was the new black, and Liverpool football club was hurtling towards a never imagined abyss, its chief financier and ultimate unlikely knight in shining armour, the Royal Bank of Scotland, imposed upon the club the first in a series of double agents.

Christian ‘Cecil’ Purslow was the initial appointment the bank charged with unofficially watching their backs, as they, like Liverpool’s by then bereft supporters, began to have more than serious concerns about the errant decision making of evil capitalist caricatures, Tom Hicks and George Gilette.

To cut a confused and long story short, ‘Cecil’ Purslow came, saw, and tried vainly to financially restructure the club to the bank’s order. He shed his pinstripes for a tracksuit, deluded himself he was as much director of football as hired gun accountant, and made himself Gary Neville level popular on the Kop, before ultimately allying himself to the small band of corporate assassins who contrived the legendary ‘epic swindle’ that finally rid Liverpool football club of the two headed behemoth from across the Atlantic.

Cecil slayed the dragon(s), his epitaph will read. When he gets round to writing it.

Christian Purslow finally, and quietly, exited the scene of his crimes, misdemeanours, and perhaps grudging redemption, last winter. Gone from a club and a community that would forever associate him with their darkest hours rather than the glory of their resurrection.

Tough luck Cecil. You came, you saw. You merited a banner depicting a big cock with your name on it, courtesy of the Kop. You got very well paid , and you got to pump your fist outside the big court house in that London. The end. The people, have now retired your memory.

So why bring Purslow back out of his box again ? Simply, because of something the man once said. Something, one of many things, he got it in the neck for. It seemed rightly so at the time, and thus far it’s been cast into the dustbin of Hicks/Gillett era soundbite history (along with ‘a spade in the ground in 60 days’ and ‘blow me fuck face’). Consigned to dust, until  now. Watch out. Here comes the revival of Cecil Purslow’s much derided ‘player account’ world view.

Before the summer of 2009 we, as humble football folk, had satisfied ourselves with the neat lay accountancy analysis that concluded that seeking to improve your team by investing in it, meant that you had to be spending more in transfer fees for new players than you were recouping from the proceeds of the sales of those players no longer required.

When pressed by fans and journalists to account for Liverpool FC’s nil net transfer fee spend in the summer of ’09, Purslow directed inquisitors in the direction of that maligned ‘player account’section of the club’s published accounts. He argued that although the club had spent ‘fanny all’ (I’m paraphrasing) on transfer fees that close season it had heavily invested in new contracts for star players, including Gerard, Alonso, Kuyt and Torres.

As ever more weary and cynical fans, we were having none of it. Wages are wages, and transfer spend is quite another thing. Equating the two, seemed on the surface, to be quite frankly a piss take. You judged a club’s commitment to its manager, its team and its future by how much it was prepared to fork out for fees on new players.

The problem is, that that simple and neat correlation has become ever increasingly obsolete as top level wages have begun, in relative terms, to outstrip transfer fees.

Now, it is becoming apparent in a changing economic climate in professional football, that as supporters and judges of managers and players, We’ve got to get our heads around what ‘net spend’ truly means. It has become clear that, as a quick label,  this traditional short hand measure is increasingly irrelevant, without regard to wages.

The most obvious recent example of the folly of looking only to the net fees yardstick has been in the cases of the Andy Carroll and Kun Aguero headline making transfers. Much of the media and many fans noted the parity in the respective £35m prices on these players heads, and rushed to the judgement that Aguero, as the proven world star, was clearly the better buy.

It was implicit that Liverpool (Dalglish/Comolli/FSG) had ‘dropped one’ in spending so much on the relatively raw potential of Carroll when for the same price they could have had the likes of the proven Aguero. The truth is, though, that whilst the fees for these two strikers were the same, the Argentinian Kun picks up around £10m a year in salary, whilst our Geordie Andy sees something closer to a much more modest £3m per annum.

Therefore, after the fees have been paid, Aguero will cost Manchester City around a further £50m over the life of his contract, compared to the c.£15m Carroll will cost Liverpool. No comparison then in the scale of the wage deals.

Successive managers at the likes of Liverpool, Arsenal and Man united may point to their modest net transfer spends in recent years, whilst studiously ignoring the growth in investment in their wage bills.

Home grown talent such as Steven Gerrard or Ryan Giggs may pleasingly show up as a nil net transfer fee cost, but the growth in the size of their pay packets down the years tells a different story. Let’s guestimate that Stevie G’s new 5 year contract of 2009 cost the club a further £60k a week, to bring him into line with his well paid England colleagues at clubs like Chelsea. The cost of that deal, then, is akin to LFC paying a transfer fee of £15m (£3m per year x 5 years) just to retain one of their own players.

Of course, the wage cost factor cuts in both directions, and we are seeing a clear manifestation of that at LFC this summer. When FSG took power at Anfield last autumn, John Henry and co. were at pains to make an observation that became somewhat lost in the clamour to ascertain ‘how much’ they were preparing to spend on a ‘transfer war chest’.

Henry noted that the club’s wages were far too high. Well, he qualified that, by noting that they were high (and this is the key bit) relative to value. This was a marker to a fundamental FSG (Moneyball influenced) maxim – it ain’t about what you pay, but that the value attained ultimately exceeds cost.

This approach has governed LFC transfer policy all summer long. It’s why there was a preparedness to apparently ‘overpay’ for the likes of Carroll, Henderson and Downing, why the likes of Wickham and Clichy appeared to price themselves out of moves to Anfield, and ultimately why LFC have been patient in waiting until the pricing is ‘just so’ before closing a deal on players like Adam and Enrique.

The FSG/Moneyball war cry appears to be that ‘it will not be the market that will tell us what a player’s worth, we will dictate to it!.Your average punter or media ‘expert’ will tell anyone and everyone that Stewart Downing was worth no more than £14-15m, tops. The Comolli computer, however, says ‘no’. In fact it says that the market, the fans and the media are all looking at players through distorted lenses and that only by looking to the correct performance statistics can true value be assessed.

So in FSG/LFC eyes, Downing may well be so effective a player that he’d be a good buy at, say, £25m. Therefore at £18-20m he’s a great buy. Get it ?

The critics of Liverpool’s transfer policy have indeed made a cause celebre of the Downing transfer and demanded to know ‘why buy Downing when rising Spanish star Juan Mata is available for similar money ?’.

Bargain?

Setting aside the obvious answer that those that truly matter and know best may well have concluded that Downing is simply the better player, or at least, the better ‘fit’ for LFC requirements, there is also the simple fact that the deals for the two players are highly unlikely to be financially comparable.

Downing wil cost LFC about £18m (plus add ons) and about £17m in wages over the life of his 5 year contract – a total package cost of £35m then. Mata is on the verge of joining Chelsea for about £25m we hear. If his wages attract the premium that big inter European deals seem to these days we could safely estimate that a 5 year wage deal for Mata could set Chelsea back about £25m. Therefore whilst Mata is costing a total of about £50m (transfer fee and wages added together), Downing looks a lot cheaper option at £35m all in.

Back at the old fashioned net-spend-ometer, fans and pressmen alike are looking at FSG’s gross spend of £105m since January, with about £58m recouped in sales, and concluding that they are entitled to heap big pressure on the Liverpool manager and team to deliver the improvement to match the boldness of that investment.

Yet, if we apply the correct measure of net investment that includes the wage factor, just how bold has this summer’s LFC transfer activity actually been ?

Here follows some broad brush stoke sums, and apologies to all implicated and to accountants everywhere for the crudeness of this analysis :

 

LFC players signed since Jan 2011

Andy Carroll, Luis Suarez, Doni, Charlie Adam, Jose Enrique, Jordan Henderson, Stewart Downing, Coates

Total Gross fees(approx): £112m

Estimated total annual wages for new signings : £23m per annum

If we assume each player contract is for 5 years, we can then amortise the cost of their transfer fees by dividing them by 5, to give us an annual gross cost for the new signings : –

Annual cost of transfer fees (£112m over 5 years) = £22m

Annual cost of new player wages               = £23m

Therefore gross total annual cost of this summer’s transfer activity = £45m

LFC players departed since Jan 2011 and likely to be gone by 31st August

Fernando Torres, Ryan Babel, Jovanovic, Alberto Aquilani, Paul Konchesky, David Ngog, Nabil El Zahr, Danny Pacheco, Ayala, Philip Degen, Joe Cole, Christian Poulsen, Brad Jones

Total estimated gross fees recouped :   £72m

Estimated annual wage savings :       £32m

Again, if we amortise the fees by the 5 year average contract length, the annual fee recouped figure   = c.£14m

Annual wages saved (as above) = £32m

Therefore gross total annual cost of monies recouped this summer = £46m

 

So, and here’s the big reveal, our true, as near-as-dammit, estimated crudely, yet probably not miles out, best approximation for net spend by LFC this summer is…….wait for it…….(drum roll) …. minus £1m.

One whole million pounds (give or take a million or two)in credit. That’s the real likely ‘price’ of what in actuality will have been a nigh-on revolutionary turning over of the Liverpool squad.

By August 31st, of the players we will have released, only one contributed to the first team squad in any significant way last season (Fernando Torres). The rest will not have amassed enough premiership starts between them to be equivakent to more than one more player’s worth of loss (Babel, Jovanovic, Konchesky, Ngog, Cole and Poulsen).

Yet on the other side of the assessment, we’ve added arguably 6 players, who are all very likely to fill first 11 positions. That’s half a dozen new first teamers in, with effectively two going the other way, and all for the princely sum of one million pounds.

A trick of the light ? Smoke and mirrors ? Sleight of hand ? Nope, just solid good old fashioned  smartness. It’s an astute business turn

Smoke & Mirrors?

around and needs to be seen as that in itself, regardless of the vagaries of the fickle hand of fate as yet to be revealed (like, all the new players may ‘turn out to be shit’).

Come next May, be we 1st, 4th or 14th , praise or criticism will be apportioned, but let no man deem that the measure against which judgement may fall, be measured against the context that Liverpool FC have been profligate ‘spenders’ this summer. They simply haven’t been.

John Henry vowed last year that his Liverpool would live within their means, and only spend the revenue the club self generated. Damaged by the absence of that valuable commodity ‘the truth’ during the Hicks/Gillett years, some LFC fans feared that Henry’s proclamation was a short hand for ‘we ain’t putting any of our own money in’. In fact, he’s been more faithful to his other oft quoted mantra of autumn 2010, ‘we will under promise and over deliver’.

Henry and FSG have clearly delivered this summer. Although it is reasonable to assert that they will have engineered an effective ‘nil’ net spend, in a book balancing sense, by the time the transfer window shuts, there is no doubt that they have also provided the short term cash required to allow LFC to move swiftly and decisively in securing the key new recruits.

This provision of necessary cash resources at a crucial phase in the club’s development is a key marker to the future. It demonstrates that the new ownership is well resourced and will be primed and able to make the big decisions in the next phase of ‘drafting’ in that will surely follow next summer.

LFC have astutely re-aligned and remodelled a defective squad using the guile and methodology of a financially sound approach – the ‘Financially fair’ way. There is a real sense that this is only the beginning. Something special is stirring at Anfield.