Why Manchester City offered Erling Haaland the longest contract in Premier League history
- Written by Christina Philippou, Associate Professor in Accounting and Sport Finance, University of Portsmouth
In the fast-moving world of Premier League football, fans are a constant. While a club’s managers, players and owners come and go, the one true commitment seems to come from the supporters.
So Erling Haaland caused quite a stir when he signed his latest contract[1], which ties him to Manchester City for nine and a half years. It’s the longest contract in Premier League history, and a significant statement for both club and player.
There’s a similar story over at Chelsea, where England midfielder Cole Palmer recently extended[2] his seven-year contract to nine years. And while both these players are valuable team members, there are also risks to such long-term deals.
Even the best footballers can lose form or fitness, or suffer career-ending injuries at any point. Yet with long-term contracts signed, they will still be paid for the full term[3].
So what motivates the clubs to make such long commitments? Well, strange as it may sound when Haaland is reported to be earning £500,000 a week[4], it’s often about saving money. And part of that comes down to holding on to the value of an investment.
In football, this starts with clubs owning the “player registration” required for each footballer to be in their squad. Transfer fees are basically the amount of compensation paid by one club to another to release a player from that registration, and register for them instead.
So player registrations are essentially club assets, used to generate revenue[5], mainly from ticket sales, commercial deals or broadcasting rights. But human assets are a volatile kind of investment.
They can get hurt, they can fall out with their teammates or coaches, or they can just get bored and fancy a change. And when it’s time for them to move on, clubs need to transfer that player’s registration to a new employer.
But those clubs will only receive a fee for a player registration if they sell[6] it before the player’s contract ends. When the contract is done, the player can take advantage of freedom of movement rights to join another side[7] on a “free transfer,” often receiving a significant joining fee.
And this is the main attraction of long contracts for highly valued players. If a rival club want a certain player, they can pay compensation to release that player from the terms of the contract. Alternatively, they can wait until the contract expires.
The longer the outstanding term of the contract, the higher the potential fee a rival club will have to pay for that registration – especially if the buying club urgently need a player to fill a particular position.
In Haaland, Manchester City have a very valuable player registration thanks to his goal scoring[8] record. The club wants to protect the value of his registration.
Negotiation costs
A long contract can also save the club money, even if it has committed to paying out generous wages every week for almost a decade. One reason for this is that every contract renegotiation comes with costs, like legal fees and payments to football agents. Having longer contracts means fewer renegotiations.
Another economic benefit is something called “amortisation”[9], an amount which shows what proportion of an asset has been used up in a year. Put simply, this is the cost of the asset (a transfer fee plus costs) divided by the length of the contract, so a longer contract means a lower annual expense.
Chelsea used this method to allow them to buy player registrations without breaching the Premier League’s financial regulations, which monitor clubs’ profits and losses. Long contracts allowed them to reduce their recorded expenses. For example, £80 million for a player on a five-year contract gives an annual amortisation cost of £16m a year, but if the contract is eight years then the annual cost decreases to £10m.
Repeat this approach on many transfers and the overall annual amortisation expense can be substantially reduced, meaning a club is within its spending limits. Uefa[10] and the Premier League[11] have now changed the rules to limit the length of time a player registration can be amortised to five years.
Risky business
While keeping value and lowering some relative costs can be helpful, long contrasts are not risk-free of course. And in an industry where most clubs struggle with financial sustainability[12], it can unnecessarily tie a club in to very high costs for a long period.
Players also take a financial risk. Long-term contracts lock players into pre-agreed wage bands which can look grossly undervalued very quickly. Basketball player Scottie Pippen for example, signed an eight-year contract with the Chicago Bulls in 1991[13] and then found himself earning much less than his teammates after the sport’s salary cap increased dramatically.
Premier League wages rose by 2,811%[14] from the start of the league in 1992 to 2020, so predicting the rate that they will continue to grow is difficult. That said, Haaland is not likely to suffer unduly on £500,000 a week.
And maybe it’s not even all about money.
As with any job, footballers players can benefit from a sense of stability that comes from knowing where they will be based for the next few years. Uprooting to a different city or country on a regular basis can be detrimental to a player’s wellbeing[15] and potentially their performance[16] on the pitch. And only Haaland’s opponents would want that.
References
- ^ latest contract (www.bbc.co.uk)
- ^ extended (www.bbc.co.uk)
- ^ full term (www.joe.co.uk)
- ^ earning £500,000 a week (www.theguardian.com)
- ^ generate revenue (www.tandfonline.com)
- ^ if they sell (www.skysports.com)
- ^ join another side (www.espn.co.uk)
- ^ goal scoring (www.football365.com)
- ^ “amortisation” (www.ifrs.org)
- ^ Uefa (onefootball.com)
- ^ Premier League (www.premierleague.com)
- ^ struggle with financial sustainability (www.gov.uk)
- ^ in 1991 (www.essentiallysports.com)
- ^ rose by 2,811% (assets.publishing.service.gov.uk)
- ^ a player’s wellbeing (www.tandfonline.com)
- ^ their performance (www.researchgate.net)
