Brexit: Plummeting value of the pound could cause headache for Premier League clubs in the summer transfer market
Premier League clubs are expected to rack up bigger transfer receipts than previously anticipated this summer, after a Brexit vote caused the value of the pound to tumble.
Some teams could meanwhile be left vulnerable by failing to hedge against the risk of fluctuating markets.
Sterling plummeted to a new low overnight as the UK voted to leave the European Union, falling 5.3 per cent against the euro by Friday lunchtime.
Similar slides were seen on the FTSE 100 index and banking stocks as markets entered a period of volatility in the wake of the UK's unprecedented move.
Thanks to a new £8bn broadcasting deal, Premier League clubs are expected to break spending records in the forthcoming transfer window, but should the pound fail to recover over the following few months, footballers in Europe will come with an increased cost.
Read more: How Premier League clubs' ability to buy European players will be affected by Brexit
Arsenal's Granit Xhaka, signed from Borussia Monchengladbach a month ago for €45m, cost the club £34m. On today's rates, the Gunners would have had to fork out £36.5m to match Monchengladbach's asking price.
Similarly, Manchester City's purchase of Ilkay Gundogan would have cost the club around 14 per cent more than the £30m paid last month if completed today.
"A club in Europe will expect to be paid in euros and they will set the transfer fee that they are prepared to accept in euros," said Dan Lowen, a partner at sports law firm Couchmans who works with Premier League and overseas players.
"If there is a club on the continent who has set the value of a player at, for example, €40m, then the drop in the value of the pound could certainly result in an English club having to pay more in sterling for that player following Brexit.
"A number of players on the continent have buy-out clauses in their contract which is in euros so if there is an English club seeking to trigger a release clause in a player's contract then the level [of sterling] necessary to do so has just got more expensive."
Yet with each team guaranteed a minimum of £99m from the Premier League next season, such premiums imposed by currency fluctuations are unlikely to deter clubs — now wealthier than ever — from a high level of spending which is expected to cross £1bn for the first time and has already passed £115m.
Selling European clubs will be the chief beneficiaries; a stark contrast to last season when Premier League teams saved around £85m from a strong pound.
Although West Ham's vice-chairwoman Karren Brady and Stoke City's Peter Coates both warned that the FA's current work permit restrictions would hamper their ability to buy players from Europe, Premier League teams are expected to continue shopping in the European market until new rules are decided — last summer clubs spent more on players based in Belgium and France than on players already in England.
Granit Xhaka would have cost Arsenal over £2m more if they'd bought him today.
However, industry insiders have warned that many Premier League clubs with instalments left to pay on transfers of players from Europe could be left exposed by the poor exchange rate.
It is now common practice for clubs to pay transfer fees over at least two years with instalments every six months, and those who did not negotiate a forward with the selling club may now have to pay more than previously planned.
"There are clubs out there that tend to float their exposure," said Richard de Meo who works with Premier League clubs as managing director of Foenix Partners.
"They know they have obligations in a few months time and the following year but they also don't want to lock in rates because they're not sure how many euros they're going to need in the future."
According to James Powell, former commercial director at Everton and head of the Sports Group at Cantor Fitzgerald Europe, clubs rarely seek out insurance on future instalments.
"It doesn't happen that often, because there's been relative stability between the euro and the pound," he said. "This may be different now."
De Meo agrees that Brexit could convince clubs to exercise even more precaution when negotiating transfers, having already begun to do so.
"We are seeing a little bit more discipline," he said. "The risk of the referendum at a time when people are looking at players has definitely seen a spike in a number of clubs looking to implement risk management strategies.
"We've seen the bulk of clubs are looking at future obligations in terms of payments they'll have to make for players already purchased, assessing what they'll be able to spend in the coming months and, in a quite disciplined way, fixing the rates for future conversion."