Twice over the transfer window I heard it discussed on a podcast and by Martin Keown on R5 Live that the cost of bringing in a new player is the asking or agreed price to which is added the player's salary. I'm not certain whether they mean a year's salary or the total over the term of the contract. However I think adding either salary to the cost is wrong. Let me give you an example. Cesc leaves so we don't have to pay his salary. Instead the saving on this is given over to meeting the salary of his replacement. So in principle they both contra each other out. Besides this, salaries should be an expense that is met by income generated anyway, shouldn't it? So why is it that in discussions, it is claimed that the war chest with which we go hunting for new players has to cater for not only the buying-in price of the player but his salary as well? Sounds crazy to me...
I wonder if we can get the definitive on this. It first came to light for me when I was listening to that podcast where one of the speakers mentioned that if Arsenal had approx £35m per annum war chest, it wouldn't go very far once one included the player's salary in the calculation.
OK Thanks Lee So it's really an ' on paper ' cost, isn't it because the salary is already reflected as an expense in the club's annual accounts. To bring it in again as part of the cost of acquiring the player would be to count it again. If one takes the example of Dear Mikel, while we pay £10m to Everton, to include the £3.4m salary in the first year into the calculation of the player's cost to AFC seems wrong to me. I say this because Mikel's salary is essentially an expense that is set off against income. In AFC's case as the income is derived because of having players on board so the salaries become a legitimate expense that in accounting terms in set off against the income at the gate and from commercial initiatives like kit sales. To take it into an arbitary calculation of a player's buying in cost is in a way double-counting. Looking at it again in accounting terms, the player is an asset and is theoratically a balance sheet item. Wages and Salaries are a Profit and Loss account item. Since the salary is already accounted for in the Profit and Loss Account, to attempt to bring it into any calculation of the player's buying-in cost ( that is the asset cost ) would be double-counting. The salary cannot appear in both the balance sheet and the profit and loss account!! Thus my question is - why bring it into the reckoning at all? If Mikel replaces Cesc and we have stopped paying Cesc, so Mikel's salary takes the place of Cesc's salary. It is not an additional cost since it replaces the money the club would have paid Cesc. If we take the analogy of a car that is purchased for business purposes. Say the car costs £10K and in the first year, running costs amount to £4K. The cost of the car remains £10K, not £14K so the same principle of cost differentiation should be applied to the player.
I think its pretty important to get definitive on this before jumping to conclusions as its pretty significant which contract it is.
