Filipe Luis to Chelsea: the financial impact of the transfer

Chelsea recently signed Filipe Luis from Atletico Madrid for around £15.8m (€20m), and as we are wont to do here at WAGNH, we now turn our attention to how the deal affects Chelsea from a financial perspective. Such an analysis has become increasingly necessary not only because of financial fair play, but also to show exactly how clubs allocate their finite resources, so let's dive in.

Luis' £15.8m transfer fee was amortised over the life of the contract for accounting purposes. If you've been reading our various financial analyses on WAGNH, you're likely already well-aware of the concept of amortisation by now. However, for newcomers (welcome!), amortisation is the process by which an expenditure is paid off over time on the books, and it is a uniform accounting practise employed by football clubs (i.e. it's not just something Chelsea decided to do on its own to make the books look better).

Luis signed a three-year deal, and as such, the £15.8m fee is amortised to around £5.27m per year. When we factor in his estimated £80k weekly wages, we can see that Luis' annual FFP cost is £9.43m per year (£5.27m amortised transfer fee + £4.16m in wages).

For perspective, Luis is currently the sixth most expensive player on the roster, after Fernando Torres (£18.5m), Eden Hazard (£16.7m), Diego Costa (£16m), Cesc Fabregas (£14m), and Willian (£10.8m).

Despite the relatively high cost, I like that Chelsea signed the soon to be twenty-nine year old Luis to a three-year deal. If he's still playing at, or close to, his current level in 2016-17, then the club can always offer him an extension. Given his age, Luis will have very little re-sale value regardless of how well he plays, and £9.4m for three years looks better than £8.1m for four years or £7.3m for five years.

This deal will likely be compared to Manchester United's purchase of Luke Shaw for a while (rightly or wrongly). Shaw is a talented, young, marketable, English player with boatloads of potential. He also grew up as a Chelsea fan. Luis is ten years older than Shaw, and he has established himself as one of the best left backs in the world. The fact that Chelsea actually had a choice between these players should not be overlooked or taken for granted, as very few clubs in the world are lucky enough to be in these types of positions.

Shaw will cost Manchester United £13.1m per year over the next four years, based on a £31.5m transfer fee paid to Southampton and wages at £100k per week. Assuming that Chelsea could have signed Shaw for the same amount, there's about a £3.7m difference in terms of annual costs. £3.7m certainly isn't an insignificant amount of money by any means (that's more than a Thibaut Courtois, Marco van Ginkel, or Mohamed Salah will cost the club this season), but it's not a deal-breaking sum.

Choosing Luis over Shaw comes down to winning now versus winning later. Right now, Filipe Luis is a better fullback than Luke Shaw. While Shaw likely has a higher ceiling than Luis, Chelsea would rather have a player with a proven track record than allow a player to go through the natural growing pains that come with youth development. When a club is focused on winning titles both domestically and in Europe, you want the strongest possible squad, and Filipe Luis is currently a stronger option at left back than Luke Shaw.

When Manchester United signed Luke Shaw, I thought it was a fantastic deal, despite the fact that committing over £13m per year to a teenager or a fullback, and certainly to a teenaged fullback, is unprecedented. Shaw has already shown himself a capable Premier League fullback at an extraordinarily young age and young, talented English players are at a premium. Further, with Manchester United's revenues skyrocketing, the club can easily justify the cost.

Of course, there's a very good chance that Luke Shaw becomes a better option than Filipe Luis in a few years, and again, it's simply a matter of priorities. Chelsea's main priority this season is to win trophies. Manchester United's priority is to right the ship, get back into the Champions League, and ideally, give Louis van Gaal time to implement his system. With regards to long-term value, Luke Shaw clearly looks like the better option (assuming he extends with Manchester United beyond age twenty-two, when his contract expires). With regards to who provides the most value to Chelsea this season, then Filipe Luis is clearly the better option.