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Breakdown: Napoli's summer finances and Financial Fair Play

One of our friends and readers, who wishes to remain anonymous, provided a stellar financial breakdown of this summer for Napoli, as well as some excellent lessons on why Napoli had to limit spending and how things work with Financial Fair Play.

Giuseppe Bellini

The summer transfer market hasn't been exciting for Napoli fans, and several people have asked whether Aurelio De Laurentiis and Riccardo Bigon could have done more to strengthen Napoli, especially before the crucial Champions League tie with Athletic Club, with Italian media agreeing on the president's cheap ways costing Napoli the qualification.

In truth, things are not so simple. In order to understand Napoli's actual money availability, we can check their balance and see what's going on. Deloitte publishes the revenues of top European teams each year and this way we know that when Napoli participated to the Champions League, it made about €150 million, while it stopped at around €115 million in the years in which it participated to the Europa League. This is consistent with common knowledge. The broadcast money that comes for UCL participation is roughly €30 million, plus there are €5 million which come from ticket sales and bonuses (such as winning games in the group stage, each one worth €1 million). In this upcoming season it is reasonable to think that Napoli will make about €115 million, then, even though this seems to be somewhat optimistic too. Season ticket sales have absolutely crumbled, with the fanbase choosing to abandon the team. As a result, revenues might shrink. That said, we are working with estimates, so 115 will work just fine at this stage, and 110 or 120 won't really change much.

What does Napoli spend? To find out, we have to check out the salaries, which are published annually by La Gazzetta Dello Sport. To find out the gross amount of money, you have to double that listed amount, as soccer salaries are taxed at 100% in Italy. This means that Napoli's roster costs in basic salary about €71 million, not including bonuses. You have to add €7 million for Rafa Benitez (he makes €3.5 million net). To this, we must add transfer fees, which is where is gets a little tricky. You see, soccer clubs use what is called "amortization" for transfer fees. Suppose a player is purchased for €10 million (in transfer fees) and signs a 5-year contract at € 1 million net: the team will immediately pay the €10 million, subtracting it from its available funds, but on the club's balance, the cost will be spread over the life of the contract. The player will cost the team €4 million for each year of his 5-year contract: €2 million of amortized transfer fees, plus €2 million of gross salary. Many people just think that the first year will use up €12 million (€10 million ransfer fees plus his salary), while the following 4 years take up only €2 million each (only his salary), but his transfer fees are instead spread out.

Napoli adds another small layer of complexity, in the fact that they use asymmetrical amortization. Instead of having each year use up the same amount of amortized transfer fees, they frontload them. There are various reasons to do this, but we won't go to those depths here. The way they amortize a 5-year contract for example is by having a 40-30-20-7-3 spread (in percentage). Let's have a clear-cut example: Higuain cost €40 million in transfer fees, and makes €5.5 million net over a 5-year contract. This works out to a €95 million investment over 5 years. In 2013/14, on balance Higuain actually cost €16 million (40% of the transfer fees) plus €11 million in gross salary, which comes out to €27 million otal. In 2014/15 he projects to cost €23 million.

There are only 6 guys on Napoli's entire roster who have had their transfer fees completely amortized, and they are the guys who outlived the entirety of their first contract with Napoli: Colombo (signed on a free transfer), Insigne (came from the youth setup), Maggio, Zuniga, Gargano and Hamsik. For everybody else, there is a portion of transfer fees being amortized (on the club's balance) every year.

So, what is the cost of amortizations this year? €49.05 million, which added to the roster's salaries means that the cost of the players and Benitez is €124.55 million on this year's balance. Remember that we projected Napoli to have €115 million in revenues, so they are already roughly €10 million in the red. To these costs we must add salary bonuses (many players have them), the rent for the stadium, the rent for the training ground, the improvements and maintenance costs for both, the salaries of all employees (from coaches to grounds crew, secretaries, and Bigon), the board of administrators (who make €5 million every year), the cost of youth systems, scouts, etc. Napoli may end up losing €20-25 million this year (the exact amount will depend on January's transfer window and on how far Napoli will go in the Europa League, although gains prior to the semifinals are minimal). In the best of cases, Napoli will still lose plenty of money. Before Pandev and Dzemaili were almost "gifted" to Galatasaray (€3 million transfer fees didn't seem like much, but simply removing their amortizations and their salaries from the payroll actually saved about €10 million total) and Donadel opted out of his contract, things were even bleaker.

Now, some fans have opined that Napoli should have taken a risk. First of all, Napoli has roughly €52 million put on the side from previous years, so they could have used those to strengthen the squad. The problem with this line of thinking is that nothing gives you 100% guarantees over 180 minutes, much less when those 180 minutes are being played in August, before the league starts, with most of the squad returning from the World Cup (and some guys being completely unfit to play, like Zuniga for example), against a team that had zero players called up to Brazil and has been able to practice for the whole summer. Napoli could have purchased Sandro (well yeah, we're not talking about purchasing James Rodriguez or Falcao: it would have been Sandro or Fellaini or someone like that). But what if it hadn't made it past Athletic? It's not like Sandro would have changed everything on his own. And in case of elimination, Napoli would have had to sell someone like Callejon at the end of the window to contain losses. Fans are quick to address that Napoli should have risked, but I wonder how many would have accepted the consequences of a failed risk. Sandro for Callejon? Who signs off on that?

Moreover the "safety money" is fundamental and shouldn't be wasted. The only reason for which Napoli will manage to stay afloat this year despite projected losses in the €20 million range is because of that money. Without it, Napoli would have had to sell plenty of players on the spot, pretty much having to start over from where it was 4-5 years ago. This way, a setback can be suffered without having to blow up the team. Sure, only David Lopez arrived but... Napoli still got David Lopez, and that's better than not getting anybody, or not getting anybody AND having to sell a couple of stars.

Napoli is in the position to fail one more year, in theory, without terrible consequences, thanks to good economic management in the past few years, although in practice if that happens, it will be hard to tell Higuain and Callejon and others that they have to sit out another Champions League campaign. If Napoli fails, they will likely leave, but it won't be due to economic reasons and this year they'll stay here.

But here's where the good news come in. You remember that Napoli frontloads amortizations, right? Well, this means that costs will decrease next year. As of now, Napoli's roster (which costs €125 million right now) projects to cost roughly €30 million less (even including the return of guys like Edu Vargas and El Kaddouri, currently out on loan). Suppose that Napoli gets back into the Champions League: it would project to have about €150-155 million in revenues, versus only about €95 million in roster costs. You do the math on Napoli's money availability for next year. That availability would increase exponentially if Higuain left, pretty much like what happened in 2013 with Cavani leaving and Higuain, Callejon, Mertens and Albiol arriving.

Napoli had very limited funds for this year because it was paying the lion's share of last year's investments, in terms of amortization. This was the year in which Napoli couldn't afford to stay out of the Champions League. But Athletic happened, and the bad luck in the draw cannot be overstated, given the finances, given the other teams in the pot, and also given the fact that those €30 million will now be split between Juventus and Roma, further strengthening their revenues and their transfer possibilities. It's bad timing, while Juventus for the second time in three years will benefit from Italy only having two teams in the Champions League (of course, when Napoli participated, Italy was at full strength, reducing the money funneled to them). That said, Napoli could not do anything else this summer. If you want to complain, I guess you have to complain about the specific names, but not about the quantity of money spent, which actually projects to exceed handsomely the money Napoli will gain this season.

Next summer things will look better. But for now, drawing Athletic made all the difference in the world. It was poor timing, but Napoli's three Champions League participations have all been doomed by ridiculous draws, and this one was right in line.

If you want an overview of Napoli's finances, here is a spreadsheet of roster costs.

Obviously the spreadsheet is in Italian, but here is the meaning of some headers:

  • Anno di acquisto: year of purchase.
  • Scadenza: year of expiry of the contract.
  • Cartellino: transfer fee.
  • Anni Attuale Contratto: years of contract. Not the years remaining, but the years from the time the contract was signed.
  • Netto: Net salary.
  • Lordo: Gross salary.
  • Ammortizzato: the transfer fees that have been amortized already, prior to the 2014/15 season.
  • Amm. 2015: amortization for 2015. (Same for following years)
  • Costo 2015: the cost of the player (gross salary+amortization) on the 2014/15 balance. (Same for following years)
  • Inv. Totale: the total investment made on that player on the current contract.
  • Inv. Coperto: the part of the investment that has already been paid, prior to 2014/15.
  • Inv. Dovuto: what is still owed to the investment.

Bear in mind that these are only the roster costs. There are many other expenses as mentioned, not included.