Currency Fluctuation Makes For a Nightmare Transfer Window

Between sanctions on Russia, a strengthening dollar, and the unfolding Greek crisis, currency markets are about as volatile as they’ve ever been. How do clubs protect themselves?

Jul 19 2015, 2:40pm

Credit: Images Money, Flickr

When I moved to Europe in 2012, I didn't consider the financial risk. Really, there wasn't any. Not at first, anyway. My wife got a job that paid in euros, and I freelanced, earning money in dollars. I used those dollars to pay off our student loans, which were also in dollars, and we never paid much attention to the exchange rate, except on visits back in the United States. Back then, one euro equaled about $1.30, which made visits to our hometowns seem like strange, discount vacations. If we paid for things in euros, everything was 30 percent off.

When I began work at VICE, I was obviously thrilled. Learning I'd get paid in euros was a bonus. Here's an actual thing I said to my wife: "We're going to be able to pay off our loans so much faster!"

The excitement about the euro didn't last. Just months after I stopped freelancing and started here, the value of the euro began to fall. Then it suddenly plummeted. One euro wasn't worth $1.30 anymore but only about $1.10. Put differently, with our entire income in euros, in the space of four months, our loans had become 15 percent more expensive for us to pay off.

What a strange situation. A positive career development coupled with my ignorance of financial markets had cost us thousands of dollars. And with the euro forecast to lose even more value relative to the dollar (when the euro bottomed out in March, some estimates had the two currencies at 1:1 later this year), it would only get worse.

In addition to my diet of world news and sports coverage, I began obsessively watching the currency market, hoping, praying for a euro rebound. It was then that I realized I wasn't alone. Some soccer teams were hurting as well.

Euros per US Dollar over the last year. Screenshot from

Across Europe, some teams pay players in foreign currency. The practice isn't uncommon, and it can be fundamental to signing certain players, but it can also jeopardize a club's financial health. In transfer negotiations, the threat of currency fluctuations also plays a huge-if-little publicized role in weather a deal gets done: disagreements over what currency one club uses to pay another can derail otherwise promising player transfers, and once deals are in place, failure to hedge against fluctuation when carrying out transfer payments can lead to losses of millions of euros (or pounds or dollars.)

Between sanctions on Russia, a strengthening dollar, and the unfolding Greek crisis, currency markets are about as volatile as they've ever been. With the Greek crisis coming to a head in the next couple days (Parliaments across Europe are voting on the latest bailout measures) the financial situation has made for a very interesting European transfer window.

"It's completely uncharted waters," Simon Hughes, an Associate Dealing Director at International FX, a UK foreign exchange consultancy, says when I ask him about the Greek crisis. Hughes often works with soccer teams during the transfer window, offering various services that can shield clubs from the risk of currency fluctuation. "Nobody's ever come close to falling out of the euro. Even the experts out there and the economists don't really have a clue which way it's going to go."

Before we get to the transfer window, let's talk about the necessity, and the risk, of paying players in foreign currency. At the same time I was worrying about my student loans, Zenit St. Petersburg had a much bigger problem: Their star player, Hulk, has a contract worth something north of 7 million euros a year. You read that correctly, Hulk isn't paid in rubles, Russia's national currency, but in euros. Hulk signed a new contract on February 16th, when one ruble equaled 0.014 euros. By April 15th, due to the economic sanctions levied on Russia by the West, the rate had changed to 0.0187 euros per ruble. (It has since settled back to about 0.016 euros per ruble.) In two months, Hulks contract had more than doubled in value relative to the ruble. Yikes!

In Zenit's case, this isn't a huge issue; the club is owned by Gazprom, one of the world's biggest companies, and it's bankrolled by Gazprom's CEO, a Russian oligarch named Alexey Miller who is worth at least 4 billion dollars. But for other clubs, such a drop in currency value could be catastrophic.

It might sound crazy that a club would risk paying a player in a foreign currency, but it can also sometimes be necessary, especially in Eastern Europe. "It can be the negotiating position of the player and the agent that they don't want to take the hit on a more unstable currency, so the only way to incentivize the player to actually come is to pay in a non-national denominated currency," explains David Geey, a UK sports lawyer who works with clubs across Europe.

The ruble and other Eastern European currencies are notoriously volatile, at least compared to the dollar and the pound, so it makes sense that a player would opt for something more stable. But even in England, paying in foreign currencies isn't unheard of. "We never ever did contracts in euros, but I am aware that some clubs in the Premier League have done player contracts in euros," says Nick Igoe, the former Finance Director at West Ham United. Igoe worked for West Ham for 15 years before leaving the club in 2012 to work as a consultant; today he's the financial director of a rugby team.

Igoe goes on to explain that the practice isn't always risky. If a club knows it has a payment in a foreign currency on the 30th of every month, it can take steps to hedge against that risk by locking in a certain exchange rate beforehand. But here's the thing: Not all clubs hedge. Amazingly, some take the risk themselves. And as much as an unhedged player salary might threaten a club, transfers might offer even more risk.

Imagine it's July 2013 and you're Dan Levy, Chairman of Tottenham Hotspur. You're locked in fierce negotiations with Real Madrid, the world's richest soccer team, over Gareth Bale, the year's hottest player. The media is focused on the most important thing—the transfer fee—but what people don't realize is how much more is at play in a negotiation like this. Maybe you've already agreed on the 94-million-euro fee, but Madrid wants to pay in euros and you want pounds sterling. As a rule, British clubs like to be paid in pounds, because there's no risk to them if they're on their own currency. The flip side is that teams in the Eurozone want to pay with euros. What do you do?

Gareth Bale playing for Real Madrid. Credit: Kevin Jairaj-USA TODAY Sports

Maybe this sounds like a silly thing to quibble over—money is money—but payment currency is sometimes a huge hurdle to getting a deal done. "There have been a couple of large international deals which have been held up in the past [when clubs couldn't agree on a currency]," explains Hughes. "For example, one club in, say, Spain wanted to pay a club in the UK in euros but the club in the UK said, 'No, we want pounds because we don't want to take the risk on the currency."

Richard Price, a consultant who worked on Bale's deal, says Tottenham had a staged offer from Madrid in sterling but opted to take the payments in euros, which it then used for other transactions in the Eurozone. This is what's called a natural hedge, and it's what I was doing when I was earning dollars and using them to pay off my loans. Similarly, English clubs with Champions League revenue or other pots of euros will sometimes sit on the money with an eye to spend it later, on euro-based deals. The summer Tottenham sold Bale, it also brought in Eric Lamela, Roberto Soldado, Christian Eriksen, Étienne Capoue, and Nacer Chadli on multi-million euro deals from clubs in the Eurozone.

But for Levy in the Bale transfer, currency wasn't the only negotiating point. The two parties also had to agree on a payment plan.

"A lot of people don't realize that when football clubs buy a player they don't usually pay for the player in one lump sum," says Hughes. "Normally you put a down payment—or not normally, but sometimes—and if the player costs 40 million euros [and signs a 3-year contract] they put a down payment of 10 million up front and then 10 million each year in the transfer window, like August of next year, August of the following year, and August of the year after that."

Typically, the payment stretch over the length of the player's contract, so if a player signs a four-year deal, the buying club will make four installments, but it can vary. Clubs like to structure payments in this way because it gives them more flexibility. "These are big amounts we're talking about," says Igoe. "If you can pay 10 million sterling over three years instead of one year, it helps cash flow."

Pounds per Euro over the last five years. Screenshot from

But this is also where Tottenham's decision to take euros became risky. The club will presumably receive a large payment on September 1st, the two year anniversary of Bale's transfer. Let's say Levy doesn't have any agreement in place with Real that mitigates the growing disparity between the euro and the pound; Tottenham could be out millions. Bale signed a 6-year contract with Madrid. Tottenham probably received a large lump sum with when it first sold Bale, but let's assume September's payment is exactly one sixth of Bale's fee: 15,666,666 euros, or about 13,250,000 pounds in 2013 currency. At today's exchange rate, those same euros are worth just 10,963,377 pounds, a loss of more than 2,250,000 pounds.

How might Tottenham have protected itself? Well, it depends on what the clubs negotiated. Sometimes clubs stipulate that after a certain amount of fluctuation, the buying club guarantees a certain value. In other words, Real might have to pay more. (VICE Sports reached out to Tottenham but the Financial Director was not available. We'll update this story should we receive comment.)

If there is no hedge in place, the Greek crisis must scare the shit out of Levy, assuming he's waiting on an installment from Madrid. But if that is the case, Levy also isn't alone. Hughes says he's aware of a number of clubs who have "suffered" over the years, with one European club having lost the equivalent of 7.5 million pounds on a recent transfer due to exchange rate fluctuation.

There are a number of reasons a club might assume the risk rather than hedge, and the biggest reason probably comes down to owner involvement. When a club really wants a player, and maybe the transfer deadline is approaching or another club is pursuing the same player, owners sometimes step in and do inadvisable things, like finish a deal on their own. Both Hughes and Igoe suggested most mistakes occur when deals were carried out without the input of the club's financial experts, which seems to happen often.

"Some of the owners got fairly active in actually concluding the deals themselves," remembers Igoe about his time at West Ham. "They would actually, when we were buying from overseas, which happened more and more as the years went by, would actually conclude the deals in euros.

"If we were going to trade in euros, it was generally fairly easy to look at foreign exchange dealers and buy a forward [a forward is a type of hedge that locks in an exchange rate for a future payment]. Generally we'd buy a forward because we were more often buying players than selling players. But occasionally we did take the risk—and again, this wasn't necessarily my decision—and I think it burned us a couple of times when we didn't hedge against it."

Hughes thinks clubs and club owners are becoming more savvy in how they protect themselves (he has six Premier League teams running hedges on his current client list), but he still thinks club administrators in the Premier League have a gap in education when it comes to understanding financial transactions. "They have all these things like Leaders [in Football] and Soccer X", says Hughes, (Leaders and Soccer X are conferences aimed at professionalizing the soccer business), "but they don't have anything really that is aimed at football finance. There's no forum or anything like that for it."

Clubs coming up from the lower divisions are particularly susceptible to making mistakes, because some are doing their first ever deals for foreign players. They simply don't have the experience. And that experience, that professional, financial knowhow is more important now than ever. "If you go back 10 years ago, before the so called recession kicked in, the markets only moved about 2 to 3 percent in a whole year," says Hughes. "That could happen quite easily in a few days now."

With today's volatility in currency markets, if you don't take your time and study your options, you're going to get burned. Hughes recommends everyone protect themselves with stop losses and hedges. And although Hughes makes money selling these products, it's hard to disagree. I lost a few thousand dollars. Clubs have millions at stake.

What did I do to protect myself? In the end, my wife and I worked out a hedge of sorts for our student loans. We took out a loan in euros and paid off what we owed in dollars. The German bank even got us a better interest rate. The savings won't make up for our loss on the financial exchange, but now, at least, I can sleep at night.