By Sam Jones
JOHN W HENRY is on record as saying that his plans for Liverpool were contingent on the implementation of the Financial Fair Play rules, in 2010 he confirmed that FFP was key to his decision to buy the club.
Much has been written elsewhere on the subject of FFP in general, and there is probably not much to add to that, but what could it mean, specifically, to Liverpool?
It’s fair to assume that Henry and FSG, given that they made their money exploiting “market inefficiencies”, will have looked closely at the detail of FFP and what it means for clubs, and given their area of expertise it’s likely they will spot any advantages that it may offer.
Football clubs operate within a market, various types of revenue exist, tickets sales, sponsorship and the like, all of these things are affected by market forces, supply and demand, for example determines the “market price” for a sponsorship deal or the cost of your match ticket.
The most obvious market in football though is for players. This too is subject to market forces – the smaller the supply and greater the demand the higher the price, with the converse also being true. This is what makes Ronaldo’s market price £80million – players of that talent are in short supply, and more than one club is able to bid for them, so they are in demand and the price goes up.
The same thing makes an average player cheap. They are in plentiful supply and there is no particular demand so the price is consequently lower.
This affects not only the transfer fee, but also the player’s salary, the combination of which is the true cost of the player. All this is, of course, patently obvious.
What has it got to do with Liverpool? What has it got to do with FFP?
Given that the transfer of footballers is a market, it is currently inflated. Chelsea, Man City, Malaga, PSG all benefit from the money their sugar daddies pour into the teams.
Madrid, Milan, Inter and Juve have all had money put into them by wealthy owners or benefactors, though as this is the status quo it attracts less attention.
All of these clubs live beyond their means, and this is what has allowed the market for players’ fees and wages to inflate.
And so, to FFP. If it has any teeth (and whether it does or not is a separate issue) then there will be an impact on the market.
The impact will be twofold – a contraction in demand, as clubs have to be more financially prudent and the level of support from owners will have to diminish, and an increase in supply as clubs will need to trim squads and reduce wage bills.
This can only lead to a reduction in price. Supply and demand dictates that, and while this will start by affecting the most expensive of players, it will inevitably have a knock-on effect for the cheaper ones, too, and the end result will be a reduction in the cost of most footballers.
There will still be exceptions, of course, but the exceptions seem to be the rule currently, as the cost of the likes of Stewart Downing or James Milner demonstrates.
This is also, probably, obvious to most, but for Liverpool it has a potentially practical application, and that is in the timing of transfers.
Under FFP there is a rolling reference period of three years in which clubs need to, broadly, break even. Many clubs will only be able to do that by being significantly less profligate in future seasons to offset their earlier spending, meaning that it is not for a couple of years that the impact on the transfer market will be fully felt, and, if you have saved up your money then spending it at this point makes sense for two reasons.
First, you will be buying in a deflated, not an inflated market, and secondly you will be in the minority in having money to spend. Your cash will go much, much further.
So, if FSG want to take advantage of this it doesn’t make sense for them to spend all the money available for transfers this summer. Or next summer.
Obviously this would not be welcomed in some quarters, and the murmurings of discontent would doubtless increase among those who feel FSG should have injected large sums into the playing squad.
However, they always claimed they would follow a sustainable model so this was never going to be the case. The point, though, is that Liverpool, without the competitive disadvantage conferred by Abramovich et al, are more than able to compete in the transfer market.
If this is FSG’s strategy it will clearly need to be carefully managed. Expectations are high at Liverpool, particularly in an age where a large part of our fanbase seem to use social media and the internet to fuel the fires of transfer speculation – not a summer can pass without a Mata, Silva, Villa or Alves ruining things for months before signing for someone else.
The thought of not spending big in an attempt to bridge the gap will be anathema to many and this expectation will need to be carefully managed, but can this be done?
The way in which this is most likely to be palatable is in the context of a long-term project, and with the appointment of Brendan Rodgers the opportunity for this presents itself.
Most fans will buy in to the idea of an overhaul of the way we work as a club. A new manager, head coach, call it what you will, coupled with a change in “technical staff” is certainly that.
If FSG bill it as such people will have expectations that this will come to fruition not this year, but in two or three.
In the meantime, merely adding one or two first-team quality players and getting the remainder of them to play to the level they should be at will see a significant jump in our points total, a step in the right direction that is, rightly, the expectation of many.
If we can get back among the top four places and the jump in income that the Champions League brings then a real opportunity to capitalise on FFP exists, as the Liverpool “brand” has the potential to bring in far more than anyone else in England, bar Manchester United, can match.
At the same time we will see the club on a far more stable footing both on and off the pitch, with only the question of the stadium to answer.
This is, of course, all speculative.
There is the risk of falling further behind in the league but with the underperformance we have endured in the league for several years now that seems unlikely.
There is also the possibility that top four this season is the number one priority and that we will spend accordingly, but FSG’s history suggests the long game.
It appears unlikely that we’ll spend big on marquee signings, and the lack of Champions League football may hamper our pursuit of top players anyway. Another transitional season looks to be on the cards, but if the transition takes us to where we need to be that doesn’t seem so bad.
So if this summer brings us not the flavour of the month, the Championship Manager signing, this year’s Juan Mata or David Silva, but a couple of decent, reasonably-priced players and the advent of attacking possession football that makes the most of what we have, then maybe – just maybe – there is a plan at work and the sky isn’t falling.
Great article; my hopes lie in your latter paragraphs – some astute, exciting signings to push us into top four, followed by the extra income and prestige to attract a few top-calibre additions. There’s nothing wrong with the long game as long as it has an end game, and I think with FSG and BR it does
Brilliant article. I can totally see FSG playing the long game with us. In my head they will seem to be treading water for a year or 2, then all of a sudden without us realising we will begin to play nice football, and after that start picking up the decent players.
Anyway, its not about signing the star names, its about creating them.
brilliant, just brilliant
Thank you. Great to read a well balanced and realistic piece regards the owners and the spending issue.
Great article. Puts a complicated subject into simple context. Nice one.
Whether FFP is actually enforced is, as you say, another issue. Gawd knows I hope so…. but we know UEFA ….
I can’t see FSG letting UEFA off the hook if they don’t make all clubs abide by the rules.
American business is one of the most litigious beasts out there and these guys are no mugs.
Good, informative article. Just wonder why, if FSG are indeed working to a plan, why they don’t disclose their plan to the fans who would then in turn understand why LFC aren’t buying the world class manager and the marquee players & would be more willing to have patience.
Fans are there to “follow” “support”, nothing more & they don’t need to be told anything
I don’t understand why some fans feel they have to be informed every step of the way what the club is planning or why they are doing things a certain way. They are certainly under no obligation to disclose their methods or plans to achieve their goals. Giving away too much information may take away any advantage you are looking to gain or exploit over you competition.
They shouldnt have to reveal everything, and it does give away a tactical advantage. Having said that – they have said as much. They’ve said that noticeable progress is required but not immediate top four; BR being an appointment for now but also for the future; building an exciting young squad. Knowing FSG’s form and from what’s been said, how can you not read that as the obvious intention? I think they’re as open as they need to be!
Very well written article however i do have my doubts about FFP can anyone acually see for example Man United Barcelona and Real Madrid being kicked out of Europe if they are still in debt personally speaking i cant
Garbage, makes no sense.. what aboslute tosh.. bleh
great article – I hope it’s widely read by Reds.
That said, I’d be happy with a top 6 finish this season – baby steps in the right direction would please me. It would probably drive loads of Reds mad tho
I find this naive to say the least. Anyone who has this much faith in ‘markets’ working as they should, doesn’t know their history. They are ignoring, monopolies, market manipulation and the old chestnut ‘cornering’ the market. All fall into what FFP is in my opinion. It is a tool to maintain the status Quo, not to disrupt it. It means with the increase in champs league money only the ‘current’ top clubs will be able to afford the best, with FFP or not, them top clubs who earn the most money can afford the best. No longer can any club spend beyond their means with the ‘gamble’ of breaking in to the top 4 or challenging for the title. The FFP isn’t a tool to create fairness, it’s a tool to maintain the current levels. The revenue streams of the Madrids and Barca’s and Mancs, means they will be able to sustain for a long time, what people percieve to be over-inflated market prices. But thats a fact, as it says in this article, the market is about supply and demand, FFP won’t effect that, as the biggest, with the most money will always create the demand amongst themselves. What we are going to see basically, is a European elite of champs league clubs buying and selling the best players and paying the highest wages…..status quo my friend.
But even if you fill a squad with the 30 best players in the world only 11 can play at any one time, eventually those players will want regular football and leave for other clubs.
What if it falls flat on FSG’s face？ I don’t subscribe to appointing an inexperienced mgr and become a mid table club; all in the hope that in 4 yrs time there will be funds to spend. I say it is hogwash and crap TBH!
I say FSG are on there way to turning LFC into a mid table club. Because without significant spending, that is what LFC will become. Maybe they are readying LFC for a sale. They claim they want CL football for LFC, yet chose to ignore experienced mgrs in Van Gaal & Rafa; instead opted for an inexperienced bur a good talker in Rodgers.
it was Rafa that turned LFC into a midtable team.
Somebody get this guy a helmet!
Rafa is nothing short of a genius. He may not be the greatest manager of all time but he’s up there. The problem lay mostly with the owners at the time. Had Rafa been given more control and been supported by the owners he would have won us the league at least once. And I’m not talking about giving him millions and millions of pounds to spend, but just allowing him to buy the players he wanted at reasonable prices.
The scouting needs to improve to have any chance of pulling in some cheaper, successful purchases. Aside from sami and half of rafa’s buy’s, we have wasted cash on rubbish for too many years. from souness’s dicks and stewart, to houlliers diouf and diao, even rafa’s aquillani and keane, there have been too many mistakes in the market.
Let’s hope Rodgers has a real eye for a bargain AND that he can bring through some of our youth players , thus saving money for top quality players, instead of having to pad the squad out. ibe is the young player i suspect will develop into a top class player, but there are plenty of kids there who could hopefully offer a damn site more than adam or downing have.
Sigurdsson would be a good, fairly low risk and proven purchase, and word is that diame is a done deal. he will offer good cover for lucas.
Very well written article that provides some much needed perspective and objectivity. Food for thought, if nothing else.
A very optimistic article, but in my view overly optimistic. Man city for example, have already skirted around ffp with their clearly setup £400m sponsorship deal. Clubs will find a way to keep spending, and FSG, if indeed it is their plan, are putting all their eggs in a rather unsafe basket by gambling on ffp ‘leveling’ the playing field!
We need to be in the top 4 ASAP, or risk falling out of the elite on a permanent basis, and that means large capital injection now and next season. Worry about ffp IF and when it comes fully into affect, and if by that time we are back at the top I’m sure we’ll also be able find a loop hole to exploit, just like all the other top teams will be doing!
Without getting too technical. The Man City deal will be “normalised” for FFP purposes. For example if the stamdard Revenue generated by a similar club for a similar deal was 30m, then FFP would assume that a 300m deal would have the value of 30m.
Good article, cool and to the point.
Two things that I would like to mention, in general:
We should not expect any serious transfer activity until after the pre-season, when BR will be able to identify strengths and weaknesses of the squad. Of course he has started working on the targets already, but the deals will happen more likely in the second half of August, when he has worked with the existing players and got a clearer picture of where we need strengthening;
Some of our fans keep banging on about the “big names, big signings, marquee signings”, etc. They are disappointed that it is not Guardiola or Mourinho, or some other ‘big name’ who has been appointed a manager, but Brendan Rodgers, who had only one season in the PL.
Well, many blogs have been written on BR, and I am not going to repeat anything. It is Brendan Rodgers. Live with it. It is him who is going to identify the players who he feels he needs to succeed with his plan. Trust him. Do not raise a sh**storm when some unknown player signed instead of the likes of Llorente, Villa, Cavani et al.
Big names – big money and no guarantee they won’t flop. No names – less money, but perhaps more quality in terms of what we need.
In other words, we should come back to the Big Club mentality, i.e. that it is we, Liverpool FC, who Make the stars, the big names. Not the other way around.
OK but this is to assume that FFP will come into effect and have proper teeth. The way City and Chelsea and other monied clubs are continuing to spend would suggest otherwise. As mentioned above, does anyone really think the likes of Real, Barca, Milan, Chelsea, etc are going to but kicked out of the CL for failing to adhere to the FFP?
Another point, a question really: where does the cost of our stadium re-build fit into this? Will that be taken into consideration or are captial costs considered differently? If the former then the likes of Arsenal have already stolen a march on us, if we’d have to factor in a couple of hundred million building costs.
I have been thinking about the reason for why Brandon was signed now. Consider if he had stayed another season with Swansea and if they did really well – say finished 7. Then combine that with FFP closing. I think the reason Brandon was signed now is he would have otherwise ended up at either Arsenel or Man u. So basically Fsg chose to take a chance now, rather than gamble on Dalglish improving compared to this season. What do you think?
It will not be funny when the FFP is scraped off in two years time, when the real debating would start which could result in a change in the heads of UEFA. I would also assume the big clubs would have found some loopholes in the system, being astute business entities. Not funny at all.