Are Premier League clubs overvaluing young players to beat financial rules?

It was bound to happen once financial regulations — like the Premier League‘s Profit and Sustainability Rules (PSR) — were tightened. Accounting principles, and the ability to exploit them, become important to teams, like hiring a scout who can unearth a teenage prospect. And so you end up with de facto swap deals that don’t look right to most observers.

We’ll get to how they work in a minute, but there are two things to bear in mind here.

The first is that, at least regarding the cases we’ve witnessed in the Premier League — Tim Iroegbunam and Lewis Dobbin between Everton and Aston Villa; Ian Maatsen and Omari Kellyman between Chelsea and Villa; Douglas Luiz and Samuel Iling Jr and Enzo Barrenechea between Villa, again, and Juventus — aren’t examples of cheating. Rather, it’s simply working the system and the letter of the law, and whatever benefit the clubs get now will have to be accounted for down the road. You’re not “cooking the books” and generating money out of thin air in perpetuity. Though the Premier League reportedly wrote to all 20 clubs last week to warn them that such transfers will be scrutinised.

The second is that there are mechanisms to prevent the most egregious excesses, some of which are already in play. And in any case, if you believe in wanting clubs to be financially sustainable because it’s good for the game’s ecosystem, a summer or two of “funny” transfers is a price worth paying. It’s a sign that clubs are taking regulation seriously, perhaps after seeing their brethren (namely Nottingham Forest and Everton) punished with points penalties this past season.

What regulations are we talking about? Well, the Premier League has PSR, which limits the losses a club can accrue over a three-year period. Some expenses — infrastructure, youth development, women’s football — are seen as “virtuous” and aren’t included in the calculation, but without getting overly technical, the point is this: There’s a ceiling to how much each club can lose over a rolling three-year period and if they go above it, they get punished. And because most clubs’ accounting periods end on June 30 each year, if your books aren’t great, there’s an incentive to shift players for a fee before July 1 in order to comply with the loss limit.

(It’s worth noting that UEFA has its own set of regulations — actually, multiple sets of regulations — for clubs playing in European competitions like the Champions League, but we’ll leave that to one side for now.)

The easiest way to raise money quickly in football, of course, is moving players out for a transfer fee. The only problem is that your players are generally worth whatever someone wants to pay to sign them. But acquiring clubs know which clubs are in need of raising funds — and the transfer window doesn’t close until Aug. 31, which means there’s little “panic shopping” in June — so it’s hard to maximize your fee if you try to move a player early in the summer.

Enter the “swap deal,” which may sound funny and may appear like some sort of bookkeeping sleight of hand, but it is actually in line with accounting practices. It hinges on the fact that when you transfer a player out for a fee, that fee gets booked as profit straight away, whereas when you acquire a player, the transfer fee gets spread out over the life of the contract.

We’ll use the granddaddy of them all — the Miralem Pjanic for Arthur swap between Juventus and Barcelona — to illustrate the point.

Using figures from the excellent Swiss Ramble blog, Barcelona acquired Arthur in 2018 for €30 million and gave him a six-year deal, meaning that €5m of that cost would be on their books each year until 2024 (a concept known as “amortization.”) In 2016, Juventus signed Pjanic for €35m and gave him a five-year deal, followed by a two-year extension, in 2018. That meant that when the Arthur-Pjanic swap took place (in 2020), Arthur’s transfer had a book value of €20m (the residual amortization on his fee) while Pjanic’s was €13m (due to the two-year extension spreading things out further.)

At this point, Juventus transferred Pjanic to Barcelona for €63m, while Arthur went the other way for €72m. It allowed Barcelona to book a profit of €52m (€72m minus his book value of €20m) and Juventus to book a profit of €50m.

That was one of the more extreme cases. Today, folks look at deals like Iroegbunam (21 years old, with 164 league minutes in 2023-24) moving to Everton for a £9m fee, while Lewis Dobbin (21, with 232 league minutes in 2023-24) goes the opposite way for £10m and see something similar going on.

Officially, these are entirely separate deals that just happen to occur around the same time. But based on the fact that both players had a negligible book value and that Iroegbunam was given a three-year deal (therefore his £9m fee costs £3m a year), Swiss Ramble estimates that Everton made a cool £7m off that deal. Dobbin’s contract length wasn’t reported, but assuming he got four years (so £2.5m in amortization), then Villa get to book a £6.5m profit.

Some will be up in arms at what they see as nothing more than accounting chicanery. To most normal folk, the idea that you can just trade two players in their 20s who probably won’t have meaningful top-flight careers and generate millions out of thin air seems somehow wrong.

There are a few things worth pointing out here. First, while players no doubt appreciate the concern over their humanity, the fact is their employers run a business and treat them as productive — and depreciating — assets. It’s sort of like a farmer with a tractor. And that applies in U.S. sports too, which is why older tractors that cost a lot to run (i.e., expensive stars) sometimes get traded for the right to pick up a shiny new tractor at the county fair (NFL draft.)

The difference here is that, unlike tractors (and most athletes in the NFL or NBA), footballers can turn down any move. They may be assets that can be monetized, amortized and traded on a spreadsheet and that may be dehumanizing to some, but they always have the right to say “no” and wait for free agency. If they say “yes,” they can usually demand a new and improved contract for their trouble. And no, it probably won’t derail their careers either: They’re still playing professional football.

Second, while deals like these may be a short-term fix for the clubs involved, they come with long-term consequences. The transfer fee of the incoming player can be amortized and you make a profit straight away, but then you’re on the hook for the duration of his contract. Put differently, it will cost Everton £3m to have Iroegbunam on their books in 2025-26, and the same again in 2026-27 unless they extend his contract, which means they’ll just be spreading out the costs further. Or unless they transfer him elsewhere, but then they’d need to get at least £6m back for him next summer or they’ll lose money. All of which means, Iroegbunam had better contribute, otherwise this will be a bad deal. The same goes for Dobbin.

Regulators don’t like this, partly because it feels a bit dubious, partly because it doesn’t do much to address their ultimate goal: financial stability and clubs operating within their means, since the costs simply get pushed into future seasons. The problem is — as prosecutors in Italy found out when they went after Juventus for some of their deals — that transfer fees are ultimately subjective. They were able to dock Juventus points not because they could prove that deals were inflated, but because they had access to wiretaps and evidence from a separate police investigation in which club officials talked openly about what they were trying to do and why they were doing it. Without such evidence — and, let’s face it, no club is going to admit in public that they’re colluding with another club to inflate transfer values for accounting reasons — this becomes tricky to police.

UEFA isn’t even trying. It passed legislation stating that if two players move in opposite directions during the same transfer window, their transfer value for financial regulations purposes will be the lower of the actual fee and the residual amortized value on the books. In the case of homegrown players, this would typically be zero. The Premier League, on the other hand, introduced rules to determine “fair market value” based on a whole set of criteria you can read about here on page 607. (Yes, really.)

But the problem here is that a bit like fair market value in sponsorship deals, there’s a whole lot of subjectivity going on. And as we’ve seen, they’re vulnerable to legal challenges, which is why it’s unlikely any of these deals will be investigated.

Really, that part is OK. We’re not talking fraud — we’re talking exchanging short-term gain for long-term pain here. If it’s the price to pay for a sustainable sport, I’m OK with it as long as the rules are enforced and applied equally and fairly.

As for players being financialized and turned into tradable assets, well … where ya been the past 10 years? And not just in football, but across the pond, too. Just listen to those general managers talk around draft day. It’s not just the analytics staff who are in charge now, it’s the accountants too. Financial sustainability rules have only accelerated the process.