Pedro to Chelsea: the financial impact of the transfer

Now that Chelsea has signed Pedro for £21.4 million (an initial £19.3m fee plus £2.1m in performance-related add-ons), as we are wont to do here at WAGNH, we turn our attention to how the deal impacts Chelsea from a financial perspective.

Why are the finances important? Well, for Chelsea, financial fair play is never going to be an issue in terms of compliance, but it still very much affects the how the club does business. With enormous, but ultimately finite resources, Chelsea needs to maximise those resources in order to put the strongest possible squad on the pitch. This is especially important when you consider that the handful of clubs with more resources (Manchester United, Real Madrid, Barcelona, Bayern Munich, and Manchester City) are all in direct competition with Chelsea for trophies, either domestically or in the Champions League.

Pedro signed a four-year deal (this might actually be a three-year deal with a club option for a fourth that reverts to a vested year upon certain performance metrics being met, but for simplicity, we'll stick to four years), and for the purposes of FFP accounting (which, for Chelsea, is the only sort of accounting that matters), when a player is purchased, the transfer fee is amortised over the life of the player's contract.

Assuming the add-ons are met, the total transfer fee sits at £21.4m, or £5.35m per year amortised.

When we add his estimated £100,000 per week wages to the amortised transfer fee, we see that Pedro will cost around £10.55m per year (£5.35m amortised transfer fee + £5.2m annual wages).

For perspective, Pedro is currently the fifth most expensive player on Chelsea's FFP books this season -

• Costa: £16 million
• Fabregas: £13.8 million
• Hazard: £13.3 million
• Willian: £10.8 million
• Pedro: £10.55 million

Juan Cuadrado, whose place in the squad is now up the air, slots in just below Pedro at £10.38m.

Cuadrado could be sold or loaned out before the transfer window shuts, as could Victor Moses, but right now, Chelsea has over £35m per year in wages and amortisation committed at right wing just between Pedro, Cuadrado, Moses, and Willian (to say nothing of Marko Marin, who somehow still has two years left on his Chelsea contract. Bertrand Traore and the other youngsters aren't included in that £35m figure either, as they are extremely cost-effective and have varying amounts of potential to provide great returns on Chelsea's investment in them).

Granted, Willian may slide over to the centre of the pitch, but spending that kind of money at one position is not an ideal use of resources.

For perspective, £35m per year works out to signing a player for £100 million in transfer fees and then handing him a five-year deal for over £285,000 per week. That type of money gets you just about any player in the world not named Cristiano Ronaldo, Lionel Messi, or Neymar.

Rather than spending £100m on seven £15m players, simply because there aren't many £15m players that can upgrade the squad that Chelsea already has in place (this absolutely does not apply to young players with high ceilings, mind you), Chelsea would be much better served spending superstar money on superstar talent.

Of course, that's easier said than done.

As Jose Mourinho told me a few weeks ago, "there are some players that we would like to have, but it is impossible to do. We are calm, we have a good squad, but we know that there are some players that are impossible for us to have."

There's not exactly a huge pool of players that could walk into Chelsea's starting eleven, and for the relatively few players who could, they're either already playing for a huge club that can offer just as much as Chelsea can, or their club will be reluctant to let their marquee player leave. When one of these players does become available, however, Chelsea should do whatever it can to bring him to Stamford Bridge.

So, while a Lionel Messi would obviously be an extraordinary addition, it would be very difficult (borderline impossible) to pry him away from Barcelona. First, there's not much that Chelsea or any other club could offer him that Barcelona can't. Second, no other club could afford what he'd cost in transfer fees and wages right now (as a La Masia product, Barcelona has obviously never had to worry about a transfer fee for Messi).

Bringing it back to the player at hand, this is not to say that Pedro was a bad signing. Far from it. However, there is a rather large surplus at right wing at the moment and there will be a lot of money tied up in players on the bench that could be put to better use elsewhere.

With Premier League clubs set to share an additional £700 million next season (and that's just from the new domestic broadcasting deal), there's almost no such thing as a bad deal this summer. Transfer fees are only going to keep increasing and £10.55 million per year for a winger who had twenty goals and assists last season across all competitions (and in limited minutes), is already very comfortable playing with key members of the squad (Costa, Fabregas, Azpilicueta), and comes with a top pedigree as a winner, certainly seems like a good deal in this market.*

* I will say that I'd have preferred Raheem Sterling, even at twice the price, but as mentioned, there doesn't seem to be any harm in adding Pedro to the squad, especially if Chelsea is saving up for another big purchase before the window closes.