Analysing Premier League clubs exposure to foreign exchange

There exists a single factor that is usually not recognised when the very rich clubs that belong to the English Premier League use millions of pounds for the period of the transfer window, that is, their exposure to foreign exchange.

The aspect of spending £50m on superstar midfielder may not be the most exciting aspect, but similar to all businesses, the forex is one crucial factor that requires closer attention by those who work behind the bars at football clubs. An extreme rate can simply cost millions of pounds.

In the current transfer window and economic wrangles in China, the global equity market rejects and lows in commodities have inflicted chaos all over financial markets. The Sterling has experienced great losses dramatically in the conversion from pound to euro mostly as the rate drops to a 12-month low due to plunging risk sentiment.

Since the clubs usually pay the players using the selling club’s local currency, extreme rates for pounds indicate that buying players from Europe are a huge investment by like ten percent in some cases. In the same line, the buying power of Europe has been boosted significantly.

These ridiculous rates will cost British teams several millions of pounds more than when paid in Euros during the summer window as compared to the month of January, which is a panic-buying period. The previous transfer window that closed at the end of month August, the GBPEUR high was 1.4386. Currently, the transfer window has fallen to 1.2888, which is very low.

Those that acted during the summer period are safe for feeling smug, especially when the players’ value has increased in the meantime, For instance, Manchester City’s investment in Kevin De Bruyne. This acquisition would cost significantly more than £55m that was paid during summer. A sharp spend despite it being currently injured.

To make sure that these rates are even worse for the clubs, they should be well informed when they are trading a player back to a continental club after purchasing him from one during the last transfer window, that the loss they are receiving is essential and that it does not cost them too much.

To overlook that Premier League football clubs function in a similar way to another international trading business is easy. Forgetting the currency risk is very expensive.

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Isuru Karavita

He graduated from the university of Hertfordshire with a BEng(Hons) in Digital Communication and Electronic Engineering. 

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