The financial fair play regulations of the English top flight have made most teams be very mindful of their financial dealings in recent times.
However, the Reds have already invested close to £300m this summer, and speculation suggests potential offers for Newcastle’s star striker Alexander Isak and/or Real Madrid’s winger Rodrygo, potentially elevating their spending to approximately £400m.
Given the financial landscape, is it genuinely feasible for Liverpool to commit to such expenditure without encountering difficulties – and if so, what are the underlying factors?
Profits from player trading, fiscal management principles, and substantial commercial activity strengthen Liverpool’s financial compliance, despite significant investments
In response to the opening question, the answer is affirmative. The ‘how’ requires further elaboration but is essentially rooted in three key aspects.
The primary element is the mechanism by which financial stability is assessed. It considers a rolling three-year window, and the financial outlay in any particular transfer period is not directly equivalent to the revenue generated from player disposals.
From a fiscal perspective, acquisition costs are distributed over the duration of a player’s engagement, or a ceiling of five years if their arrangement extends beyond that.
This implies that, for accounting purposes, the impact of acquiring a player for £100m on a five-year agreement is represented as an annual expense of £20m over that period.
Concurrently, the player’s book value depreciates by the same proportion, and divestitures are accounted for as earnings post-amortization. Should the same player be sold four years subsequently for another £100m, the club’s financial statements would reflect an £80m gain.
This elucidates the rationale behind instances where clubs have exchanged players for comparable transfer values, as this strategy may be more conducive to their financial standing than maintaining their existing assets, at least in the near term.
This is pertinent to Liverpool and brings us to the second factor, as they have realized approximately £190m from player sales during this transfer window, largely attributed to homegrown talents acquired at no initial expense.
The totality of the revenue derived from these players constitutes unadulterated profit. The exceptions are Luis Diaz and Darwin Nunez, although even in Diaz’s case, a significant profit margin is anticipated.
Moreover, Liverpool also gained £50m from divesting young players during the preceding summer, while incurring acquisition expenses of only £10m. Prior to that, the £52m received from the Saudi Pro League for Jordan Henderson and Fabinho aided in offsetting the £145m invested in new acquisitions.
Considering that financial regulations are evaluated over a triennial period (from July to June), these transactions position Liverpool favorably, even when solely assessing transfer activities.
Lastly, and most fundamentally, Liverpool is a prominent institution that garners substantial revenue through matchday attendance, premium seating arrangements, international retail operations, international exhibition tours, and associated activities. Moreover, participation in the Champions League is financially advantageous.
In that context, Liverpool’s financial structure is broadly similar to that of Arsenal and the two Manchester-based clubs (both of which actually recorded higher revenues than Liverpool in 2023/24, based on the most recent publicly available data).
However, it establishes Liverpool, with revenues of £614m, at an advantage over other prominent English clubs such as Tottenham (£518m), Chelsea (£468m), Newcastle (£320m), and Aston Villa (£272m).
Sustaining their present level of expenditure would inevitably impinge on Liverpool’s financial flexibility going forward, potentially necessitating increased prudence in the coming years. Nevertheless, for the time being, they possess the financial capacity to finalize one or two additional significant acquisitions.
