After ringing the opening bell at the Nasdaq Stock Exchange in New York, Daniel Levy was in a punchy mood during a Q&A with investors as part of Tottenham’s pre-season tour to the USA.
In a near hour-long session, the Spurs chairman lashed out at overspending by rival Premier League clubs, and defiantly backed his prudent approach to managing the club’s finances. However, for fans still awaiting the first new signing of the summer, his comments on the club’s transfer policy caused eyebrows to be raised.
Denying that the new £800m stadium was stopping Spurs from bringing in fresh blood, Levy stated: “It’s not impacting us on transfers at the moment as we’re not yet in a place where we’ve found the player we definitely want but can’t afford.”
For a club that finished seven points behind Premier League winners Chelsea, crashed out in the Champions League group stage and failed for a ninth season in a row to win any silverware, it seemed dreadfully complacent.
There was a huge amount to admire in what Levy said about his vision for the club: backing local talent, earning success and not buying it, investing in infrastructure with the long-term future of the club in mind. However, the comment on transfers seemed an odd one as soon as it was uttered, and certainly makes the chairman a hostage to fortune.
Mauricio Pochettino’s subsequent Baldrick-esque reassurance to fans — “We have a plan!” — did little to ease the concern that Spurs are missing an opportunity to strengthen. A brutal dismantling by Manchester City in Nashville only heightened fears.
I wanted to look in a little more depth at Tottenham’s approach to transfers, and in particular try to gauge what impact the stadium is having on the club’s transfer spending.
For those interested in learning more about the club’s finances, I have written in detail about stadium funding through the construction phase, naming rights, rising construction costs and club accounts. Dig in, and do join me on Twitter for more Spurs chat.
The three-phase transfer approach
If you look at the past two summers, Spurs have followed a similar three-phase strategy in their approach to transfers.
In phase one, “essential business” is done. In 2015, Kevin Wimmer, Kieran Trippier and Toby Alderweireld came in early. In 2016, it was Victor Wanyama and Vincent Janssen.
In phase two, there is a long selling period, as Spurs try to maximise returns on those leaving the club (for example Ryan Mason, Nacer Chadli and Kyle Walker).
In phase three, there is a final purchasing period as the club goes bargain hunting and filling squad holes in the final weeks of the window (Son Heung-min, Georges-Kevin Nkoudou, Moussa Sissoko and so on).
This summer, Spurs have skipped straight to phase two. This early spending wasn’t just about filling glaring needs — but also spoke to the club’s approach to the market. Tottenham’s strength has never been in outspending rivals, out-scouting or out-analysing — it has been about having quality market intelligence. Knowing, say, that Trippier had a £3.5m release clause, or that Wanyama wasn’t re-signing his contract and wanted to reunite with Poch. This year, for whatever reason, that sort of bargain was never available. You suspect Spurs hoped Everton would opt to dump Ross Barkley quickly rather than see his situation fester with his contract winding down, but Everton have chosen for various reasons to cling on. There are also no immediate positional needs — a right back will be needed, but Trippier is first-choice for the time being so Spurs can afford to shop around.
Is this an ideal strategy? Of course not, given the number of potentially useful players who get snapped up before Spurs come into the second purchasing phase, and the poor returns on those bought late in the window.
Is this a logical strategy for a club that is also trying to finance a stadium? It would seem so.
Ring-fenced vs sell-to-buy
Levy has previously spoken about the transfer budget being “ring-fenced” — essentially, a portion of club funds are set aside for transfer activity with the aim of ensuring Spurs have a competitive team when the new stadium opens. However, how much exactly is ring-fenced is another question entirely.
Trying to think on a practical level, Spurs must be facing huge cash management challenges at the moment, ensuring the stadium continues to advance at the required rate. Even with the £25m credit facility agreed as part of the stadium funding package, Spurs can’t afford to take any chances: there’s virtually no room for manoeuvre on the timeframe. Think back to the story where Spurs purchased cranes for the site as they weren’t able to wait for rental cranes to become available.
There’s a lot of talk about net spend over the course of the season, as the numbers are remarkable. Since the Abu Dhabi takeover in August 2008, Manchester City have a net spend of £970m, while in the same period, Spurs have made a net transfer profit of £60m.
But I want to drill down a bit further to see to see the cash management in action: is there a “ring-fenced” amount Spurs can spend, or actually are Spurs in a situation where we must sell to buy, in order to avoid going into the red and ensure maximum available funds for stadium construction.
The chart below shows all transfers since the start of the 2014/15 season, in chronological order. For deadline day, I’ve gone by time the deal was announced on the club website — deadline day in September 2014 was a busy one. The line shows the cumulative balance — so exactly how much is in the transfer kitty, using June 2014 as the starting point. The values are what’s on Wikipedia — it’s not perfect, but it’s just what was closest to hand.
A few things to point out:
1. Spurs have only dipped into the red three times, and barely. The first was on deadline day in Sept 2014, so this was for a matter of hours and it is a technicality. The second was after signing Vincent Janssen last summer. Can you recall the haggling over that deal, dragging on for weeks? Spurs simply didn’t want to spend the extra four or five million AZ were demanding — this deal pushed Spurs £4.4m into the red, until Alex Pritchard was sold to Norwich. The final dip was for Moussa Sissoko — however, this was widely reported to be an installment-based deal, so you can see why this so appealed to Levy. A £30m player, available for £6m initially — perfect for a club managing cash flow, just a shame he is crap.
2. Think back to Georges-Kevin Nkoudou and last summer’s barbershop ITK. It was rumoured he was on his way to London in mid-July, but his transfer wasn’t announced until the end of August. All sorts of reasons were floated — Marseille were being taken over, Clinton N’Jie may have been stalling on a return to France — but was Tottenham’s cash flow also an issue? Having dipped into the red to complete the Janssen deal, it took Spurs until late August to offload Pritchard, Yedlin, Chadli and Mason, while Nkoudou languished in a hotel.
3. You can see the bursts of activity — a few players are sold, a couple come in, a few more leave, and it continues. Up until Man City took a liking to Kyle Walker, the amount in the kitty never got about £36.4m. Now, Spurs have, by this very rough measure, £74.4m.
So, there’s plenty in the kitty if Pochettino wants to spend. You hope, “ringfenced” means this accumulated transfer wealth is separate from the stadium funding and is entirely for squad strengthening (on transfer fees or wages), rather than getting rolled into construction.
Ongoing risk factors
Spurs have now secured the main bank finance for the stadium — a £350m loan package, with £25m credit facility and a £50m contingency fund provided by Tavistock Group, the ultimate owners of the club. Coupled with the £240m already poured into the project and funds from advanced hospitality sales, Spurs are in a good place.
However, there are two main risk factors remaining with the stadium. First, a naming rights partner has not yet been found. This leaves a hole — perhaps as high as £300m, although that amount always seemed optimistic — in the project finances. Second, while construction is ongoing, there is the risk of cost overruns. It was reported that during the demolition of the South Stand, an issue with gas pipes delayed work briefly — these little things can add up. It certainly looks like Spurs are going full bore at the moment, judging by the webcams, but if the timetable starts slipping, more money may have to be put in than was originally planned.
In this context, it is understandable that Spurs remain cautious on transfer activity for the foreseeable future. The hope is that, once naming rights are secured and the stadium is completed, Spurs can start to move more aggressively. That may not be January, but perhaps by next summer, the constraints will ease and Spurs can focus more on securing targets they want, when they want them.
Wages to turnover
Of course, transfer fees are just one part of the picture — another issue is wages. There is concern among some Spurs fans about the club being uncompetitive in wages, risking the departures of key players and limiting arrivals. Personally, I’m not quite as concerned. Of course, Manchester City will be able to offer more than Spurs can offer — but Spurs could double the wages of everyone at the club, and that would still be the case.
Here is a look at how wage growth has moved versus revenue from financial year 2005 to 2016, the last published. As you can see, wage growth has stalled, while revenue has continued to slowly climb.
Next season, revenue is going to go through the roof — simply adding in known amounts for Premier League and Champions League revenue distribution, Spurs revenue should jump to nearly £280m. And it will climb again in the next year with both new Nike and AIA deals kicking in.
In short, Spurs have plenty of money to increase the wage bill — if the club wants to. The wage bill is artificially low at the moment — in FY 2016, a lot of high earners came off the books, such as Paulinho, Soldado and so on. In the past year, there have been more than a dozen contract renewals, so the wage bill should jump somewhat. It currently stands at £100m — if Spurs were to maintain the same 47.4% wage to turnover ratio, that would mean a wage bill of £133m or thereabouts. What isn’t known is the amount of bonuses that are paid out — there may be Champions League kickers and the like. The next accounts may give us more insight.
Spurs being strict on wages isn’t just about Daniel Levy and the stadium — it’s also about Pochettino maintaining the harmonious environment in the squad. It’s frustrating during the transfer window, but so long as Spurs continue to move firmly on offering key players new deals to ensure the core of the team is in place once the new stadium opens, then most fans will be happy enough.
There are lots of other factors that have an impact on how Spurs act in the transfer market — relationships with certain agents, a weak scouting department and failure to embrace analytics, the broader context of the Premier League’s financial situation, the focus on youth, a starting XI that is hard to improve, the personalities of Pochettino and Levy, and so on.
The stadium is undoubtedly a huge constraint, but it’s not an excuse. The key to the success of the stadium will be ensuring it is full — and the best way to ensure that is by having a successful, appealing team. I’m pretty sure Levy and Co know this. There is money in the kitty, and room on the wage bill — now it’s just a case of finding those players who will realistically join and will be able to push us over the line.
Thanks for reading. Please follow me on Twitter for more Spurs chat.