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While Fredy Guarín may not be first on most Chelsea supporters' wish lists of ex-Porto players from Colombia, the reported £15m transfer fee looks to be a solid, if unspectacular, piece of business from a financial perspective. According to Whoscored, Guarín's is the sixteenth highest rated player in Serie A this season. If we only account for the matches in which Guarín has played as a centre-midfielder, where he's played about seventy percent of the time (as opposed to attacking midfielder, a position he'll almost certainly never play at Chelsea), he becomes the sixth highest rated player. For more on Guarin's abilities, check out Steve's scouting report.
In this article, we're going to focus on the financials involved in a potential transfer and how it impacts the bottom line for both Chelsea and Inter Milan.
As I recently discovered from reading Ed Thompson's piece on the differences between the English and Italian transfer reporting systems, unlike the Premier League, Serie A clubs are required to publish detailed accounts of player transfer fees.
When researching this article, I reached out to football finance expert Diego Tari, who runs the excellent football economics and finance site, Tifoso Bilanciato (the fact that they publish many of their articles with Italian, English, and Spanish translations is a testament to the site's truly global readership). Diego generously took time out of his business trip to Brazil to help us understand the deal from the perspective of Inter Milan, and he provided me with copies of the two most recent annual reports filed by Inter Milan (2010-2011 and 2011-2012).
A look at the financial statements show that Inter Milan purchased Guarín from Porto in June 2012 for £9.85m and signed him to a five-year deal. His transfer fee is thus amortised to £1.97m annually. If he's sold is January, Inter's book value on Guarín will be approximately £6.9m (the initial £9.85 fee less eighteen months of amortisation). If he's sold for the reported £15m, Inter will record a £8.1m profit on the 2013-2014 books for the Guarín sale.
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While Inter Milan is the 12th highest earning club in the world (earning £150.4m during the most recent reporting period), it has seen significantly decreasing revenues over the past three years. The decline in revenue is directly tied to the club's performance on the pitch and it's failure qualify for the Champions League (and therefore receive a portion of the extremely lucrative broadcasting revenues). Inter Milan's lack of matchday revenue is also a significant problem. San Siro is a legendary pitch, but it's also 87 years old and half-full on a good day. Inter earned a mere £18.8m in matchday revenue. Compared to Chelsea (which has stadium issues of it's own) at £77.7m or Arsenal at £95.2m, Inter is left at an enormous disadvantage when it comes to being able to compete with the global footballing giants in this new era of financial fair play. The club's new owner, Erick Thohair, is an Indonesian billionaire who, at 43 years old, also owns MLS club DC United, part of the NBA's Philadelphia 76ers, and a number of Asian basketball teams. In the pre-FFP era, I would find it very difficult to imagine a huge club with an enthusiastic new billionaire owner selling a very good player when the club is trying to get back into the Champions League, but times have certainly changed. In fact, Inter cut its wage bill by about 35% in one year, from £121.7m in 2011-2012 to £84m in 2012-2013. This is an enormous reduction and one that is likely necessary to ensure Inter's compliance with the break-even mandate imposed by the FFP regulations.
As expected, the potential acquisition of Fredy Guarín has little impact on Chelsea's ability to meet the break-even requirement under UEFA's financial fair play regulations. As discussed previously in the financial analysis of a potential Nemanja Matic transfer, Chelsea's increased revenue from to the new broadcasting deal coupled with current player wages being reduced or coming off the books next season allow the club to spend quite a bit in the transfer market.
If we assume that Chelsea will pay Inter the reported £15m transfer fee to acquire Guarín's services and then hand Guarín a 3.5 year deal at £85k per week, that works out to a £8.7m annual cost with regards to FFP accounting (wages + amortised transfer cost).
The £85k per week figure stems from the fact that Guarín is currently earning about £70k per week. Diego Tari provided me with Gazzetta dello Sport's list of Serie A player salaries. He also provided me the necessary context to do the appropriate conversions (the figures listed are in Euros, and also reflect the player's net take-home pay, not the full pre-tax salary paid by the club). Once you factor in the appropriate tax rate and do the currency conversions, you find that Inter Milan pays Guarín about £70k per week.
Now, £85k is obviously quite a bit more than £70k. I arrived at the £85k per week figure by applying the UK tax rates to Guarín's current take-home pay to find out what Chelsea would have to spend to match his current salary. I then gave Guarín a generous 25% raise, since, at 27, this is likely his last chance at a big payday and both he and his agent are well aware of this (a 25% raise is likely a bit much, but I always estimate high with regards to club expenditures for FFP accounting purposes).
While this is quite a bit of money for what amounts to a depth signing, I could envision a similar situation to the Raul Meireles business unfolding. Meireles signed a four-year deal after coming over from Liverpool in August 2011 on a £12m fee. On £50k per week, Meireles' annual FFP cost was £5.6m. When Chelsea sold Meireles to Fenerbahçe in August 2012, the £7.9m fee Chelsea received was offset against Meireles remaining book value (£9m). Therefore, after owing £5.6m on Meireles in 2011-2012 and owing £1.1m on him for the purposes of the 2012-2013 FFP accounts, he is now off the books. This amounts to paying £6.7m for one year of Meireles, which was easily worth it for this moment alone.
This Meireles example highlights the fact that just because Chelsea initially signs Guarín to a lengthy contract, Chelsea might not have to report £8.7m annually through the 2016-2017 season. Guarín can eventually be sold on, which would offset a significant portion of Guarín's book value. As an aside, Steve Schmidt also compares Meireles to Guarín in his scouting report (albeit for different reasons), and found the interesting coincidence that Guarín was actually Meireles' replacement at Porto when Meireles moved to Liverpool.
In short, the proposed sale of Fredy Guarín to Chelsea would lead to a tidy profit for Inter Milan and provide Chelsea with a solid depth signing in central midfield at a relatively expensive cost. However, the potential for Guarín to be sold on allows for Chelsea to offset a significant portion of Guarín's book value in the future.
Again, many thanks to Diego Tari for not only replying to a stranger's request for help, but going well above and beyond in providing me with all these documents, explaining how the salaries are reported, and the details on Inter Milan's acquisition of Guarín from Porto. If you're interested in in-depth financial analyses of football clubs (he primarily covers the global giants in addition to comprehensive Serie A coverage), I urge you to bookmark his website and check out his Twitter feed.
