I recently posted this in an article, but i figured i would make a fan post of it since its really lengthy and kind of in-depth. this was prompted by Stephen's recent article in which he makes the point that Luis is not a bad acquisition for us in light of FFP. I disagree as seen below. I would also add that Moreno and Rodriguez fit in nicely in what follows, so consider the following to be interchangeable as between Shaw or Moreno or Rodriguez. They are all young and promising.
We should not simply analyze FFP and the financials of a hypothetical transfer solely on the basis of the "cost via amortization over life of contract"... by that I mean, if Player X costs 10 M and gets 2M per year in wages on a 2 year deal, his cost as amortized over the life of the contract is 14M (e.g. 10 + 2 + 2) divided by 2 = 7M per year.
I draw this conclusion because this is a short-sighted view. It ignores incoming revenue from player sales and outgoing revenue from having to re-address a position of need again in the near term.
So, we now turn to the debate at hand: Luis v. Shaw (Moreno / Rodriguez). Values used (approximated):
-- Shaw = 30M up front over 5 year deal. (probably slightly lower transfer cost than reality)
-- Luiz = 20M up front over 3 year deal. (probably lightly higher transfer cost than reality, thus two even out)
NOTE: Both Luis & Shaw will likely come at about the same wage bracket. I estimate that will be in the 80-90K region, could be inaccurate, but the negligible difference between the two (e.g. 10-15K), won't much change the overall point in the FFP big picture…
So all that separates the two is the up front transfer cost (about 10M for Shaw). This excess amount would be amortized over the life of the contract, and that is what makes Shaw cost more.
As i see it, over the first three years of Shaw’s contract (and thus the life of Luis 3 year contract), Shaw will cost about 3.3-3.5M more per year. I reached this number based on the approximate 10M more paid for Shaw, divided by the 3 years.
so, if we stop the analysis there, yes, Luis is cheaper and thus better in this new era of FFP. But, to me, this is not the whole picture. This is for two main reasons: (1) ignores probable future outgoing transfer fee costs and (2) ignores probable future incoming transfer fee costs. Why??
Well, in 3 years, we probably aren’t going to re-sign Luis (he will be 32 then, see A. Cole current predicament). More likely, we let Luis go on a free transfer. Maybe we give him a 1 year extension at a lower wage packet, but not likely and he probably won't be good enough then to warrant starting for us. So, what does that mean??
We dive back into the transfer market and are back in our current predicament in 3 years. Meaning, we spend another 15-30M on a new LB in 3 years.
So, that 10M we might save today and over the next 3 years goes back out the window when we spend another 15-30M on transfer fees for a new LB in 3 years. In fact, we probably lose money if we end the analysis there. But, I will take this even further into the future.
Lets assume we sign Shaw and bite the bullet on the higher amortized cost in the short-term. Well, in 3 years, Shaw will be 21 and will have 2 years left on his deal. Now, we will probably need to extend this contract and give him a raise in the process. This all assumes he warrants such a raise, but he has been quite impressive so I am going to presume as much. So, he will be 21 and we will have to bump his wages up from the 80-90K we would have originally signed him for to something in the 120-140K region. We would probably extend his contract to 5 years (e.g. by adding another 3 years onto the 2 years he would have remaining in 3 years). So, that sucks. But, remember, we didn't just drop another 15-30M in the market buying a new LB (e.g. Luis situation).
Now, lets fast forward 6-7 years from now, Shaw would be 24-25. At this point he would be running down to the last 2 years of this newly extended contract i had just mentioned. At this point, we could extend and give him a raise, OR we could just as easily sell him on now and recoup 20-25M+. (See Fabio Coentrao going for 35M a couple years ago at 22).
So, suddenly, Shaw is the wiser financial decision when you look at this situation over the long term (e.g. 5-7 years) as opposed to simply isolating this analysis to just a discussion of "amortized cost over life of contract" of Player X v. Player Y
Remember of course FFP compliance is on a year to year basis; but, if we sell a player and bring in revenue or have to spend more in a few years, that will drastically affects our year to year compliance.
In sum, a guy like Shaw (Moreno/Rodriguez) makes a lot more sense in FFP terms when you assess the situation along a longer spectrum. While Luis could and is probably a better current option, we would actually be taking a pretty hard hit on FFP for a relatively small upgrade on the other options.