Manchester City will claim the helm as the biggest spenders in world football, according to a new study of football transfer trends by Plain Soccer.
Real Madrid and Man Utd ranked second and third in the report, which ranks clubs by expected spending power during the coming seasons.
This is the most comprehensive analysis of football's rich list in terms of financial spending power that is available on the internet.
It combines reports from Deloitte and Forbes* with club financial reports and examinations of all club transfer expenditure and revenue from the past 12 months.
In doing so, we are able to draw forecasts of the spending we can expect from the world's biggest clubs over the course of the next few seasons.
Football fans and analysts can expect four major changes in the European football transfer market during the coming seasons.
First, Man City will establish themselves as the biggest spenders in world football.
Second, the depreciation in the value of the sterling as well as anxiety about debt levels will diminish the spending power of Premier League clubs relative to their European rivals.
Third,
AC Milan and Juventus will once again arise as major competitors in the world football transfer market.
Fourth, as the number of teams able to compete for the top players in the world increases, the market value of top players will rise.
Manchester City are clearly the biggest climbers in football spending power rankings relative to twelve months ago.
City's new owners will establish the club as the undisputed biggest spending club in the world game.
Sheikh Mansour, who took control of the Eastlands club last year, has an estimated net worth of £33b and has pledged to turn the club into one of the biggest in the world.
In the past 12 months, the club has spent approximately £175m on new players (approx. £300m including salaries).
This amount far supercedes club income. City's revenue is approx. £82m per year, while the club has only earned approx. £15m from players sold.
In short, City's net transfer expenditure during the past 12 months is +£160m, twice the last recorded annual revenue of the club.
To put this in context, besides Real Madrid (who earned £210m more than City in the last recorded year), the club with the next largest net transfer expenditure during the previous 12 months is Juventus with a net of £40m, or £120m less than that of City. City are outspending the biggest football clubs in the world.
More pleasing for the club's fans, there is no indication whatsoever of an end to City's spending.
The club's big spending will continue, far far surpassing that of any competitor in the world game.
Sheikh Mansour is clearly determined to transform City into one of the biggest clubs in the world game.
Second, the depreciation in the value of the sterling as well as anxiety about debt levels will diminish the spending power of the Premier League clubs relative to their European rivals.
Despite standing among the richest and highest earning clubs in the world, Arsenal, Chelsea, Liverpool and Man Utd all have debt levels surpassing 50% of club values.
Following the credit crisis, these clubs face mounting pressure to improve profit margins and move income to debt repayment in order to decrease their debt levels.
No doubt, money previously assigned to transfers will now be assigned to debt repayment.
Signs of this are already apparent by the relative silence of the EPL elite in the transfer market so far this summer.
With the sale of Ronaldo and increasing revenue, Man Utd could move their debt below 50% of club value in 2010; ; Liverpool co-owner G. Gillett recently sold his stake in the NHL's Montreal Canadiens, partly to help fund Liverpool's approx. £415m debt; Chelsea have a goal to make profit in 2010 for the first time in seven years, thus preventing the expansion of their approx. £447m debt; while Arsenal are showing signs in recent times of being very worried about their massive debt. (edit: the magnitude of Arsenal's debt is difficult to measure.
Forbes lists the debt at a massive £800m+, but this is by no means the only opinion. Bloomberg and the Telegraph list the club debt at £300m+, which would put Arsenal in a good financial situation moving into the future.
Still, for the next few years, Arsenal are committed to financial restraint, so do not expect the club to compete with Man Utd or Chelsea for players.)
While the big EPL clubs repay their debt, the big continental clubs, all of which have much smaller debt levels, will close the financial gap on the premier league elite.
The credit crisis's heavy effect on Britain has also caused the value of the sterling to depreciate against the Euro.
Consequently the transfer power of continental clubs relative to their premier league rivals has increased.
This can already be realized in the concern expressed by Liverpool midfielder Xabi Alonso, "I think the weakness of the sterling is not helping the Premiership because for those competing and fighting against the European teams it is a big weak point." Alonso signed a five year contract with Liverpool in 2007 worth an estimated £65,000 per week.
At the time there were €1.48 to the pound so he was on €96,200 per week but due to the weakness of the pound, as the Telegraph notes, that has fallen to €76,700 per week, or approx. €1,014,000 per year.
The gap between pre-recession take-home EPL salaries and post-recession take-home salaries has been exacerbated by new higher tax rates for the rich in the UK.
The new UK highest tax rate of 50%, up from 40%, will have a major impact on the spending power of the EPL.
When the new tax rate is initiated in the UK new year, Alonso's salary will drop to €69,000 per week, 21% less than he agreed to when he signed the contract.
EPL teams, in short, will now not only have to endure greater emphasis on debt repayment, but they will have to pay players significantly more money to counter the depreciating value of the sterling and higher UK tax rate.
This will be the only option of the EPL in order to access the elite players in the world from continental rivals.
This does not mean that EPL clubs will cease to compete. We expect three of the top five biggest spenders in European football to come from the EPL.
However, it means that 1) the big EPL clubs (excluding Man City) will focus more on profit making so that they can repay their debt, meaning they will be more cautious in their transfer policies and; 2) the relative spending power of continental clubs relative to their EPL rivals has increased.
Third, the major Italian clubs will once again arise as major competitors in the world football transfer market.
Serie A teams have taken a backseat to EPL and Primera teams in recent seasons, but financial data indiciates the lull in the success of Serie A is coming to a quick end.
We expect
AC Milan and Juventus to compete in the transfer market with the likes of Man Utd, Chelsea and Barcelona during the coming seasons.
These clubs have the dual blessing of minimal debt levels and huge revenues. Combine this blessing with the debt concerns of the EPL clubs and the scenario is clear: the strength of the big Serie A clubs will rise relative to their European rivals.
AC Milan especially, in a rebuilding phase at the moment, will arise probably next season as one of the biggest spenders in world football.
Meanwhile, Juventus, recovering from a short lull, once again will arise as one of the big clubs in the world game.
Fourth, as the number of teams able to compete for the top players in the world increases, the market value of top players will rise. With the rise in the spending power of the Italian clubs and the entry of Man City into the elite league, there will be more competition in the transfer market for the world's top players.
