Arsenal are set to effectively free up £135m in transfer funds with a move that new regulations will prevent from happening again.
Arsenal’s only signing so far this summer is David Raya, whose loan move from Brentford was made permanent as has long been expected it would.
They are also yet to receive a fee for a player, although that could change very soon.
Emile Smith Rowe, Eddie Nketiah and Reiss Nelson have all been linked with permanent exits from Arsenal in recent weeks.
The trio are all graduates of Arsenal‘s Hale End academy, which illustrates a growing trend in the Premier League in recent years of homegrown players often being the first to be sold.
The reason? Because of a quirk of the Premier League’s Profit and Sustainability Rules, or PSR (formerly Financial Fair Play, or FFP).
Academy player sales are classed as ‘pure profit’ whereas other sales are offset against a player’s book value in the accounts, which is determined by their original fee divided by time remaining on their deals.
However, this will not be the case for much longer.
Arsenal’s Emile Smith Rowe transfer boost will never be repeated
It appears as though 24-year-old playmaker Smith Rowe could well be Arsenal’s first sale of the summer.
Fellow London club Fulham have reportedly agreed a deal in principle to sign Smith Rowe, with £27m paid up front plus £7m in potential add-ons.
It is expected that the three-cap England player will have a medical next week.
Although the consensus appears to be that it is the right time for Smith Rowe to move on, Arsenal fans will be sad to see one of their own leave the club.
But in terms of the finances of the deal, it is easy to see why his sale appeals to the Gunners.
Because outgoing fees are received upfront whereas new signings are, for PSR, amortised over a maximum of five years, sales free up five-times the received fee in PSR headroom in the short term.
This is particularly effective with academy sales as the player has no book value because they have no original fee to offset.
For Smith Rowe, his £27m sale price would allow Arsenal to make £135m of signings this summer without a net impact on their PSR position.
Ordinarily, this would not be a free hit in terms of PSR as Arsenal would still need to register the amortisation of the new signing(s) over the subsequent five years at a rate of £27m per season.
However, the Premier League is expected to move to a new squad cost ratio system from 2025-26, which will limit clubs to spending a maximum of 85 per cent of turnover on wages, transfer and agent fees.
Under this system, it will be more effective to sell players with big amortisation charges rather than academy players because the calculation is based on costs and not a club’s profit-loss.
For Smith Rowe, the new system would allow them to reinvest 85 per cent of his £27m fee in the playing budget – that’s £22.95m.
But if you sold a player whose book value is £27m for £27m, it does not affect your revenue but you avoid £27m in amortisation, 100 per cent of which can be spent elsewhere.
As 2024-25 is the last season Arsenal will be able to exploit the ‘pure profit’ loophole, if there was ever a time for them to really push the boat out, it is now
TBR Analysis: Arsenal’s Smith Rowe sale could fund Victor Osimhen deal
If Arsenal wanted to make a marquee signing, Stan Kroenke could use the pure profit loophole to give them the immediate PSR headroom to sign Victor Osimhen.
Arsenal are believed to be back in for Osimhen after having previously balked at Napoli’s £85m asking price for the striker.
Stan Kroenke has historically not been willing to bankroll major losses in order to fund new signings, but he has departed from this stance somewhat in recent seasons.
The additions of Declan Rice and Kai Havertz will lead to the club posting a substantial loss for 2023-24, although the club still has ample PSR headroom.
But with the Premier League’s PSR system about to change, now represents the perfect opportunity to spend big on Osimhen before the rules become more restrictive.
