Delving Deeper Into The David Luiz Deal!

14140248

Chelsea’s official announcement regarding the sale of David Luiz last week took football-loving folks by surprise – not because of the decision to cash in on the Brazilian, but because of the sheer amount of money involved in the transfer. There has been long, rumoured interest in Luiz from various clubs across Europe, mostly Barcelona and Bayern Munich, but very few people expected him to fetch in excess of £40m. Paris-Saint Germain held the record for paying the highest transfer fee for a defender when they bought Thiago Silva from AC Milan, but they beat themselves by some margin when they tabled a bid for Luiz, reported to be around £48m.

David Luiz was purchased from Benfica for a fee of £21.4m and Nemanja Matic went the other way, in the January of 2011. He was initially signed on a five & a half year contract, but later extended it upto June 2017. Considering his amortized transfer fee and wages of £75k/week, Luiz was costing Chelsea around £7.3m annually.

Amortization of transfer fees .i.e. spreading the cost of the purchase of the player over the life of the contract, for accounting purposes, ensures that Chelsea had already paid all but £11.5m of Luiz’s purchase amount before the start of this season. Taking into consideration the reported fee agreed with the Ligue 1 club, Chelsea are set to put down David Luiz as a £36.5m profit in the accounting books of 2014/15.

Did Chelsea Need To Sell First In Order To Buy??

Contrary to popular belief, Chelsea have never been endangered by UEFA’s vigilante process, Financial Fair Play. Yes, Chelsea have regularly spent hefty amounts to secure signatures of top players, but the books are well balanced and the club is pretty stable, when it comes to monetary purposes.

It had been a foregone conclusion that Chelsea will spend this summer to fill the missing pieces of puzzle, in the mould of a centre forward and a left-back, as the period of transition draws to a close. The rumoured targets Diego Costa and Luke Shaw (although he seems to be Manchester United-bound off late) will be pretty expensive.

However, with the new TV deal for Premier League kicking in this season, in addition to the renewed Adidas deal, Chelsea’s revenues are set to increase substantially. All this points towards one direction – FFP cannot hurt Chelsea in near future.

Why Did Chelsea Choose To Sell & How Does This Deal Affect Chelsea’s Finances??

Chelsea have refuted queries from Barcelona in past, in regards to David Luiz. There were also reports of Chelsea refusing a cash + swap deal for Mario Mandzukic from Bayern Munich. The amount offered, by Paris Saint-Germain, however, was humongous and there was no way the club could turn it down. Luiz had been a third-choice centre back for most of the last season, with John Terry and Gary Cahill putting in solid displays at the heart of defense and the move made sense for all parties involved.

In recent past, Chelsea have not been shy to offload players who were surplus to requirements and would fetch a good price. The sale of fan favourite Juan Mata to Manchester United and the sparingly used Kevin de Bruyne to Wolfsburg for a combined total of £53.7m is a testimony to that policy. The club recorded a profit of £34.3m last season, from these two sales alone, considering their amortized fees and wages paid.

Chelsea had reported a loss of £49.4m in the 2012/13 accounts (the club had made a profit of £1.4m in 2011/12) and failed to meet the criteria to receive wage exemption sanction of the first monitoring period (this however has no significant implications on the aspect of complying with FFP). The finances of 2013/14 are yet to be released. But the sales of Mata, De Bruyne and David Luiz ensure that Chelsea would be in good position to meet the criteria for wage exemption during UEFA’s second monitoring period comprising the seasons 2013/14 and 2014/15.

The sales also take off a relatively significant amount off Chelsea’s books and allows the club to pursue players who fit better to the needs of Jose Mourinho. Chelsea’s wage bill of 2012/13 season was reported to be in the region of £176m and a slight rise is expected in 2013/14 books. It should be noted that wage bill includes the amortized transfer fee in addition to the weekly wages and are estimated seasonally. For instance, Fernando Torres costs Chelsea £18.5m per season while Eden Hazard costs £16.6m. Willian at £10.8m and John Terry at £9.1m take up the top rung of FFP hits per season. The latest acquisition Nemanja Matic cost Chelsea £3.7m last season and starting this season, will garner a FFP hit of £7.4m.

rsz_d

With the departure of Mata, de Bruyne and Luiz over the course of six months, Chelsea have opened up a cumulative monetary space worth £18.4m. Non-renewal of Frank Lampard, Samuel Eto’o and Ashley Cole’s contracts implies there would be a further £20.0m to spare from the wage bill, making the sum total a staggering £38.4m. At this point, further sales cannot be ruled out. Even without removing any other player from the wage bill, this ensures Chelsea can afford to buy as they wish, without worrying about their wage bill sky rocketing any further. This will not just allow Chelsea to sign players in the positions of urgent requirements, but also stock up in a position where they have enough players (for instance, at centre back).

Will Selling David Luiz Affect Chelsea’s On-Pitch Performance??

David Luiz was brought in to shore up the heart of defense amidst the falling stars of Alex and the injury concerns of John Terry. A lot of water has flown below the bridge since his arrival, with the signing of Gary Cahill and the resurgence of John Terry under Jose Mourinho. Luiz has put in tremendous performances at back, especially in the Champions League Final of 2012. However, his inconsistency led to the loss of his position in the starting XI. In the later phases of last season, Luiz formed a formidable partnership with Nemanja Matic at the centre of the midfield, putting in brilliant shifts in wins against Manchester City and Arsenal. During the second half of the return leg of the Champions League quarter-finals, Luiz had single-handedly shut down Paris Saint-Germain’s midfield as Chelsea pushed for a goal. On his day, David Luiz is a world class player, who would walk into any team in the world. However, on days when his eccentric side gets the best of his brains, his decision-making could cost the club big time.

The sale of Luiz might not affect Chelsea at centre back, with John Terry’s renewed vigour and Gary Cahill being in the form of his life. Chelsea also have a set of promising young defenders in Tomas Kalas, Kurt Zouma, Kenneth Omeruo and Andres Christensen. Luiz’s ball playing ability, penchant for perfect long passes, blistering free kicks and penalty-taking abilities will be sorely missed though. Chelsea must sign an elite central midfielder as for most parts of last season, Luiz looked to be the go-to guy in central midfield, alongside the impeccable Matic.

The Road Ahead

David Luiz has been a fantastic servant to the club, over the last couple of years, bringing joy to the fans not just with his on-field breakthroughs but also because of his childish nature. It might not be difficult to replace the player in him, but it would be impossible for Chelsea to acquire another “Sideshow Bob”.

Jose Mourinho has already voiced his plans regarding the club – this season, Chelsea will challenge for trophies on all fronts. To ensure the plans are actually executed, Chelsea need reinforcements. Spending wisely in the transfer market and re-investing the bucks from this deal is of utmost importance. The club has already been linked to a host of central midfielders. If Emenalo & co. manage to snap up one or two of the elite ones, the trading of Luiz for boatload of cash would prove to be a masterstroke.

Enhanced by Zemanta
About these ads

2 thoughts on “Delving Deeper Into The David Luiz Deal!

  1. This is an excellent financially informative insight into David Luiz transfer to PSG. Hope Chelsea acts smartly in this transfer window with the transfer funds. Definitely going to post this on my blog adeboyinternational.blogspot.com

What do ya think?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s