This piece is a bit long and a lot of it is common knowledge. But I found the part of how clubs consider the cost of signing a player very interesting. Considering this I find the way our club now operate much more sound, and I have a greater understanding of how tricky it must have been to get rid of all the overpaid wrong-uns.
Anatomy of a transfer story: A consumer's guide to rumors, fake news, buyback clauses and more
https://www.espn.com/soccer/blog/marcottis-musings/62/post/3881418/anatomy-of-a-transfer-story-a-consumers-guide-to-rumorsfake-newsbuyback-clauses-and-more
Q: What's the biggest misconception out there in the way we talk about the transfer market?
A: Many still don't seem to understand how most clubs think about what a player costs them. When clubs buy players, they amortize (write off the initial cost) the fee over the life of the contract. So if Player X (him again) joins for $50m and signs a five-year deal worth $5m a season, he's costing the club $15m a year ($10m in amortisation and $5m in wages). If Player Y joins on a free transfer (yes, I know it's not quite "free" so let's leave that to one side a minute) and signs a five-year deal worth $20m a season, he's costing the club more than Player X.
But there's a twist. Let's say both play pretty poorly and after two years, the club wants to get rid of them. In Player X's case, as long as they sell for $30m or more, they get their money back (in accounting terms) because that's the value left on the contract. In Player Y's case, he cost nothing, so any transfer fee means they've turned a profit on him. (Remember though: because he signed the bigger $20m contract, it will likely be harder to find a buyer who can take on that expense in addition to paying a transfer fee.)
Incidentally, amortization is also why clubs are incentivised to offer longer contracts, and even raises, in some situations. Take Player X. If, after two years, he signs another five-year deal worth, say, $6m a season, he's happy because he gets a 20 percent raise, right? But the club is also happy because they can spread the residual value of his fee ($30m) over another five years, which means it is now costing them $12m a season ($6m in amortisation plus $6m in wages).
So they've managed to pay him 20 percent more, while saving themselves 20 percent. Everybody wins.