What is amortisation?
In the modern game, fans seem to spend just as much time fretting over the financial health of their favourite team as they do about how theyāre performing on the pitch.
āBut itās amortised over five years,ā you may hear your average Chelsea-clad boffin say as they usher in their umpteenth multi-million-pound signing of the summer through the door.
But what does amortisation actually mean? Hereās a quick breakdown for youā¦
Enzo Fernandez became the Premier League’s most expensive player when he signed for Chelsea in 2023 (Image credit: Dan Istitene/Getty Images)Amortisation is an accounting method used by football clubs to ease the burden placed on their balance sheets by ultra-expensive transfers.
Simply put, rather than a Ā£30m player (Player X) going down as a Ā£30m cost in the first year he signs, a club can opt to spread that cost over the length of their new manās contract.
The Athletic revealed earlier this year that an added benefit to extending Harry Maguire’s contract was the extra financial room it supplied via lengthier amortisation (Image credit: Getty Images)Say Player X is handed a three-year contract, rather than taking a Ā£30m hit to their accounts in the first year, it will go down as a recurring Ā£10m cost for the next three years.
Conversely, clubs can count the full sale price of an academy player leaving on their books ā since they weren’t signed over a number of years.
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In Profit and Sustainability Rules (PSR) terms, therefore, if a club sells an academy graduate for Ā£30m and buys Player X for Ā£30m the next day, on those same terms, the accounts will show a profit of Ā£20m to use on further purchases in that year, rather than a balance of zero.
In most cases, amortisation is unrelated to when actual money changes hands, as it is merely an accounting method to track the financial health of a club for purposes like PSR.
The Blues seem commited to long contracts regardless of a recent rule change, extending Cole Palmer’s terms to 2033 recently. (Image credit: Alamy)Premier League clubs voted to bring in rules at the end of 2023 which imposed a five-year limit on amortising transfer fees, following a string of Chelsea signings who were tied down to long-term contracts for this reason.
Despite this, you can give a player as long a contract as you like. Go ahead, Chelseaā¦
