The two biggest financial giants in world football both realized something this year. Manchester United and Real Madrid needed to rebuild. They needed to cut dead weight, they needed to add firepower, and they needed to get younger.
Armed with unparalleled revenues and spending power one would assume this shouldn’t be a difficult task for either team. That would be wrong.
You can’t compare the rebuild’s of Manchester United and Real Madrid. The clubs may look similar on paper, but the reality is they are in vastly different financial situations.
Since the season ended Real have already splashed out €303 million on five players, centered around the €60 million signing of 21 year old striker Luca Jovic and the €100 million signing of Eden Hazard.
Manchester United manager Ole Gunnar Solskjaer said he wanted the club to be finished with their transfer business by July 1st. He was supposed to be cut-throat and cut dead weight. But with 10 days to go until “his deadline” no one has left and the club have only signed £15 million winger Daniel James from Swansea.
It’s no surprise that United fans are frustrated by this. They see Real moving quickly to settle their business. They see Borussia Dortmund signing four new players within days of the Bundesliga season ending. United talk a big game about moving quick but fail to back that up with any action.
The truth is it’s not (necessarily) incompetence keeping United out of the transfer market. Financially, United’s hands are tied until July 1st. (This isn’t to say that I have any faith that Ed Woodward will start getting deals done swiftly at the start of July, I don’t.)
Let me explain.
This all comes down to UEFA’s Financial Fair Play rules, generating revenue, and how transfers actually work.
UEFA FFP rules essentially state that a club can only spend as much money on transfers as they are bringing in. That takes into account all revenue, be it from match-days, TV contracts, commercial sponsorships, and of course the easiest way to generate large amounts of cash quickly, player sales.
Where it gets tricky is in how transfers fees actually work and how they’re reported. According to Swiss Ramble, transfer fees are paid in installments over the lifetime of the contract For example, with Paul Pogba signing a five year contract, the £90 million fee that United owe to Juventus is paid out in increments of £18 million a year for five years.
When a team buys a player, the annual fee is what gets reported in their finances ever year. However, when a player is sold the club can report that entire fee as revenue for that fiscal year. That means that even though Juventus are still receiving £18 million in cash for Pogba this year, it doesn’t count as revenue since they reported the entire £90 million three years ago.
(Transfers can be paid in one installment, but that’s very rare, especially after the worldwide recession at the end of the last decade.)
This is where two things continue to really hurt United. Ed Woodward not having any football background and the hiring of Jose Mourinho.
Mourinho is a short term manager who demands his club’s sign him players who are ready to win right now. That means older players who are not only more expensive but will have little to no re-sale value.
In Mourinho’s first two years United spent £292 million on transfer fees alone while only bringing back £54.1 million. That £54.1 million is already off the books, but the £292 million is still there. Then you also have to take into account how much the team is spending on wages.
Mourinho leaves every club with a mess to clean up but this one isn’t entirely his fault. This one is on Ed Woodward. Mourinho’s spending is even worse because it comes right on the heels of a previous United rebuild where the club spent £262.65 million on transfer fees under Louis van Gaal. At least in those two years the club made £90.44 in sales.
It should also be noted that Woodward chose to hire Mourinho despite Mourinho’s history of leaving clubs in the exact financial mess United currently find themselves in three years after he’s hired. (Chelsea were able to rebound quite quickly from constantly selling off pieces of their loan army. They now face a ban for assembling that army illegally sooo.)
United and Real generate pretty similar revenues. United earn more on match-days and from the Premier League’s massive TV contract. Real have gotten a nice payday in the last three years from winning three straight European Cups. They also earn 50% of all their players individual endorsements.
There’s one thing that sets the two clubs apart in a big way. The money they’ve earned in the transfer market. Take a look at each team’s business over the last five years.
Over the past five years Real spent just €23 million (which converts to £20.49 million based on today’s conversion rate) compared to a whopping £455.11 from United.
(FFP rules only look at the last three years, I chose five to show how much United have spent since Woodward aggressively began rebuilding under Louis van Gaal. Nevertheless if you want to look at the last three years the numbers are still damning. Real actually sold more than they spent, while United…)
July 1st marks the start of a new fiscal year in football. Even if a club is making a signing for next season, any transfer business done before July 1st will still count for last year.
As you can see, United and Real are in different worlds. Since Real sold Cristiano Ronaldo for €100 million last July, they can use that to bankroll a whole spring of signings. That includes spending €100 million on Eden Hazard since only €20 million of that goes on the books for this year.
They are likely going to move Gareth Bale and Keylor Navas, but they’ll wait until July to do that so those fees can count towards next year.
With United tied up in so many previous transfer fees, they can’t add to their 2018/19 year and still comply with FFP rules. They got Daniel James deal done early because his low fee won’t hurt them and they could tell to their fans that they’re moving quickly. For everything else, they need to wait.
Once July comes they’ll be able to sell players like Romelu Lukaku, Matteo Darmian, Marcos Rojo, and maybe even Paul Pogba. Those fees will all get reported for next year, giving United a fresh war chest to spend on players. (Again, not saying I have faith that Ed Woodward gets it right but.)
UEFA showed they mean business when they started to go after Manchester City for violating FFP rules. For now, that means complying with those laws is of the utmost importance (if UEFA don’t come down hard on City that could change).
Comparing the squad investments of Manchester City and Real Madrid to United is laughable. One team cheats, and the other just had a lot more flexibility to move quickly.
It’s not about how much money you have, it’s about simple accounting.