Economic Lessons Taxing for Premier League

In this never ending time of recession, transfer activity has been somewhat low key. Manchester City and Real Madrid aside, globally excessively large foreign purchases have been on the decrease. However what appears to be on the increase is domestic transfers. Emmanuel Adebayor, Gareth Barry, Frazier Campbell, Glen Johnson, Roque Santa Cruz, Carlos Tevez and Antonio Valencia have all moved between Premier League clubs, with a further few acquisitions from the Championship - yet there has only been one significant purchase from overseas, that of Thomas Vermaelen from Ajax to Arsenal.

There are a number of arguments for this trend, but two particular arguments stand out. Primarily, there have been a lot more players coming to England with the intention of using their first move as a stepping stone to the 'Big 4'. Steve Bruce, now Sunderland Manager, has said himself that his success at Wigan Athletic was due to selling players "the dream of using the club as a stepping stone". This has been effective for Wilson Palacious and Valencia at Wigan, succesful too for Javier Mascherano and Tevez at West Ham United and Santa Cruz at Blackburn Rovers. This stepping stone strategy allows two benefits to prospective buyers, the ability to scout players close up on a week-to-week basis, but more importantly the ability to assess how the players adapt to the cut and thrust of the Premier League. Judging their adaptability takes a large element of risk out of bringing in new talent.

The second argument is economic. The recent Kaka transfer from AC Milan to Real Madrid raised an unprecedented issue with transfer records. Kaka's transfer fee of £59m smashed the previous record fee of £47m paid by Madrid to Juventus for the services of Zinedine Zidane. However both of these transfers were actually made in Euros, and the Euro has strenghted in that period of time, thus making Zidane's fee still higher at 73m Euros, as Kaka's fee exchanges to only 68m Euros. The argument seems pedantic (particularly given that Ronaldo's fee of £80m/94m Euros is definitively the new world record), however the drastic change in exchange rate is important. £20m used to be able to purchase 31m Euros of talent, however now it is merely worth 23.5m Euros, which sadly to the likes of the Premier League hierarchy is still twenty million in Pound Sterling. Essentially this means that it is increasingly more expensive for British clubs to buy players from Europe. Not only do their costs increase, but European clubs themselves need to raise less to compete. This is why it's fundamental to British clubs that the Premier League continues to be so globally attractive and obtain such high revenues.

A further economic issue soon to cause Premier League clubs problems is the government's decision from April 2010 to increase the highest tax band to 50% of earnings. This will apply to almost every footballer in the top flight, and hugely affect their net income. Deloitte Sports Business Group report that for a Premier League club to remunerate a 3m Euro net salary, it would cost the club 6.8m Euros gross. However the same 3m Euro net salary in Spain would only cost a La Liga club 4m Euros. And of course, the modern player is demanding to be remunerated in Euros with its current strength over the Pound, creating more problems for the Premier League.

Liverpool's Xabi Alonso has voiced his concerns, "When you see your contract down by 30 per cent you cannot be happy. I cannot do anything – it must be Gordon Brown or David Cameron". Alonso's comments fuel the belief that Premier League footballers are only in it for the money, but the figures do not make pleasant reading for his peers. Alonso's £65,000 p/w salary signed in 2007 was worth 96,000 Euros p/w... but with the fall of Pound Sterling, and the increased tax rate, that will only be worth 69,000 Euros p/w from April 2010; a loss of £1.2m a year.

Many see this as the beginning of the end for the Premier League's dominance of European football, with Arsenal Manager Arsene Wenger commenting "The new taxation system, and the collapse of Sterling, means the domination of the Premier League will go... It will be a financial problem for all the English clubs".

However, I can see not just a silver lining, but perhaps even a break in the clouds. Primarily, this will force Premier League clubs to turn their attention to domestic purchases, which will keep increased revenue within the UK, potentially helping the country out of recession. But from a footballing point of view, youth development will become increasingly more important, and with increasingly larger funding, lower league clubs will again find themselves a necessity in the league ladder.

And... if Sepp Blatter does succeed in implenting his 6+5 plan for the future... will the Premier League not have been given an accidental head start in proceedings?