How the wording of the Diego Costa deal could save Chelsea £10m+

Now that Diego Costa is officially a Chelsea player, we turn our attention to how much he'll actually cost.

Costa had a buyout clause, reported at £32m. Seems simple enough. Chelsea just pays Atletico Madrid £32m, and it's a done deal, right? Unfortunately not.

Buyouts are subject to extraordinarily high taxes by the Spanish government, and Chelsea would be responsible for paying those taxes if the buyout clause was activated. As such, Costa's £32m price tag could have risen to nearly £50m, depending on the tax rate.

Ian Lynam, the joint head of the sports law practise at Charles Russell, a leading law firm, wrote an excellent piece on buyout and release clauses for the Guardian back in January. Lynam explains -

A buy-out clause... sets a figure for which the player can buy his way out of his current deal with the club. They are mandatory in Spain but are rarely triggered for a variety of reasons: the release figure can be set at a level far beyond market value; an apparent gentleman's agreement between the Spanish clubs not to destabilise each others' players; and considerable tax and logistical complexities. The tax issues arise as the money technically must come from the player, resulting in the "buying club" having to transfer money to the player, who then has to pass it on to the "selling club".

If Chelsea and Atletico Madrid agreed to a £32m transfer, then Diego Costa would cost around £16m per year, based on a five-year deal at £185k per week.

Depending on the tax rate (somewhere between 27 and 52 percent from what I gather, depending on how it's taxed), Diego Costa could end up costing Chelsea a lot more than £32m. In fact, if Chelsea was forced to pay the taxes, the fee would end up being somewhere between £40.6 and £48.6m.

Writing for ESPN, Graham Hunter explains how clubs can avoid the buyout taxes -

Behind the scenes, the buying club will say, "OK, we'll give you 99.9999 percent of the buyout clause, but if we make it a purchase rather than an actual buyout then we won't have to pay extra tax on the whole move, and we'll do the same for you one day or we'll look well on your next move for one of our fringe players.

The president of the club losing its star will make very loud noises about how he forced Barcelona to pay the maximum amount possible -- i.e., the buyout -- and the fans look at him as a winner in the transaction rather than someone who let them down and sold the family jewels.

But for this kind of "quickness of the hand deceives the eye," there needs to be a relationship between the clubs and an acknowledgement that the player is likely to go -- an acceptance that the whole thing is pretty much inevitable.

As Hunter deftly explains, Chelsea avoids the buyout taxes if it was able to convince Atletico to play ball. Hunter specifically mentions the need for the clubs to have a solid relationship in order for this kind of deal to happen.

Enter Thibaut Courtois. The Belgian goalkeeper has brought the clubs together, and they have worked closely over the past three years. Surely, Chelsea lending Atletico one of the best goalkeepers in the world for the past three seasons has to count for something.

Further, there is no practical benefit for Atletico to not agree to a transfer for 99.999% of the value of the buyout clause. The buyout taxes go straight to the Spanish government, and if Atletico were to decide to stick it to Chelsea out of misguided spite, then obviously Chelsea would never lend Atletico another one of their bright young stars ever again.

Atletico's statement says that the clubs "reached an agreement," and Chelsea paid "the full amount of the buyout" for Costa, exactly in line with Graham Hunter's analysis. Had Chelsea been forced to actually activate the buyout, the statement would have likely read "Chelsea activated the buyout clause." This is a very small distinction, but a very important one.

As we just saw last week, however, Manchester United was forced to activate Ander Herrera's buyout clause, so it's not unheard of for a Spanish club to refuse to play ball. That said, Athletic Bilbao is notoriously difficult to deal with and the two clubs do not appear to have the relationship that Chelsea and Atletico have.

Atletico's statement on the Costa deal isn't at all definitive, but based on my interpretation of the statement and the solid relationship the two clubs have established over the past three seasons, I think it's reasonably safe to assume that Chelsea paid Atletico a transfer fee of £31,999,999.99, thus avoiding the buyout taxes.

Finally, if anyone is interested in further reading on Spanish buyout clauses, see this easily-understood FAQ from Daniel Geey, an attorney who focuses on EU competition and regulatory issues.