Record sums a world apart in global recession

THE normal rules don’t apply in football. The global economy may be mired in the worst recession in living memory, but transfer records can still be smashed.

The €94 million that Real Madrid will pay for Ronaldo comes a week after the Spanish club paid €65m to AC Milan for Kaka. Yet Real is already carrying €500m in debt. And it’s not as if the Spanish economy is the powerhouse of Europe. They’ve got the highest unemployment rate in the EU and are suffering a housing market collapse compar-able with our own.

On the same day that Real announced that they would pay Ronaldo €117m over six years, the National Statistics Institute in Spain published the worst deflationary figures in 57 years, while economists said that wage inflation in the country was approaching zero. Not in the Bernabeu it’s not.

The reality is of course that football has been thumbing its nose at financial realities for years. Top-flight clubs have an insatiable thirst for cash, but to get it you’ve got to spend as fast as you can get it in, which is why net debt in the Premiership increased by 15% to €3.6 billion in the 2007/08 season.

Two thirds of that is being carried by four clubs: Arsenal, Chelsea, Liverpool and Manchester United. No prizes for guessing where that money’s going.

According to Deloitte’s just released Annual Review of Football Finance, wage costs in the Premiership increased by 23% in the 2007/08 season to €1.4bn, the largest increase in the history of the league.

And that’s just the league average. Chelsea topped the salary table, paying out more than €201m last season, 30% more than the previous year’s wage bill.

In the year they won the FA Cup, Portsmouth increased wages by 48% to €64.1m. Pity Newcastle, who suffered relegation despite increasing salaries by 31% to €87.3m.

The same excess is also evident in the transfer market. Even when you exclude the Ronaldo deal, transfer fees hit a record €791m in the summer 2008 and January 2009 transfer windows.

You could argue that these are historical figures, that the Ronaldo deal is an anomaly, and that next year’s finance review will paint a very different picture. Early indications suggest that the party is far from over, however.

Thanks to a tax incentive designed to lure foreign workers to the country, when Ronaldo starts playing in Madrid he will only pay 23% tax. Back in Britain, Gordon Brown’s recent austerity budget raised the top tax rate from 40% to 50% for those earning more than €175,000.

If the Premiership is to compete with the resurgent Spanish league, it’s going to have to compensate its top earners. There have already been reports of ex-pat players in Britain considering a return home thanks to the tax situation. Another “solution” under consideration would see the clubs paying wages as interest-free loans, thereby attracting a far more benign tax treatment.

The Spanish have other advantages over the British. Real signed a seven-year broadcast rights deal with MediaPro three years ago for €1.1bn, giving the club twice as much revenue from TV rights as Manchester United. The choice facing the Red Devils is increasingly the same choice facing every other Premiership club. To remain competitive on the pitch, you’ve got to adopt a wholly uncompetitive position off it.