When Newcastle United opted to move for Lewis Hall last summer in a season-long loan deal with an obligation to buy it raised plenty of eyebrows.
The loan deal itself, which involved a £4 million fee for the year, maybe wasn’t such a surprise given the potential that was seen in the 19-year-old left-back, but what was curious was the £28m fee that had been agreed between the two clubs to make the deal permanent this coming summer, with a further £24m to be paid by the Magpies.
It was a deal that was fashioned by Newcastle’s former sporting director Dan Ashworth, a man soon to take up a similar role at Manchester United, and one involving two clubs with their own individual concerns around profit and sustainability rule compliance.
Chelsea had been on a spending spree the likes of which the English game had never seen before under the ownership of Todd Boehly and Clearlake Capital, with more than £1bn shelled out on a host of young, exciting talents from across the globe. In the space of six months, the club had broken the British transfer record on two separate occasions with the £106.8m addition of Enzo Fernandez and then the £115m signing of Moises Caicedo.
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For Chelsea, the requirement is to make sure the player trading model functions at an optimum level, and that means selling academy graduates comes to the fore given that they count as pure profit from an accounting perspective due to not holding any book value.
The sales of Mason Mount, Ruben Loftus-Cheek, Tammy Abraham, and others have been financially beneficial to the club and afforded them some room for manoeuvre when it comes to the signing of new talent, where transfer fees are spread over the life of a contract through a process called amortisation.
But with such heavy spending, allied with a lack of competitive success that would have been anticipated by the new owners, with Champions League football missing both this season and next, there is a requirement to ensure that player trading operates at the very apex of where it can be.
Newcastle’s story is a little different. Acquired by the Saudi Arabian Public Investment Fund (PIF) back in October 2021, the Magpies, effectively, have the wealthiest owners in world football given the size and scale of the assets under PIF management, some $925bn (£734bn).
But PSR regulations, where clubs face sanctions should they post cumulative losses of more than £105m over a three-year period, means that the club cannot simply spend its way into the so-called ‘big six’, it has to be done on a piecemeal basis.
Deductions are allowed for investment into infrastructure, the academy, the women’s game, and community projects, but all these things are elements that can aid growth and revenue-generating potential in the future, it does little to solve the here and now for Newcastle, and that means that transfer business has to be on the mark.
Additions such as Alexander Isak, Bruno Guimaraes, Sven Botman, Anthony Gordon, and Sandro Tonali have been big-ticket, but there is little headroom left and player trading will come into focus in a big way this summer in order to make the numbers work.
But Newcastle are already on the hook for a hefty sum this summer with regards to Hall, a player who has featured just 12 times in all competitions this season and who has not been able to force his way into manager Eddie Howe’s plans.
The insistence is that Hall is raw and has the potential to be impactful for Newcastle for several years to come, but his lack of progress thus far will be cause for concern on both sides.
Earlier this month Howe claimed that the conditions had not yet been met for the full hit of Hall’s transfer fee to kick in, although he fully expected it to be a deal that was done as planned in the summer with few issues.
However, Hall hasn’t managed to show enough to be considered a viable option often enough this season, and there is a significant element of risk that remains attached to his signing, particularly at a time when the club needs to maximise its financial flexibility where it can heading into an important summer transfer window. Hall was supposed to be the player to put pressure on Dan Burn, but when the opportunity has arisen, Howe has instead looked to move Tino Livramento from right back to left back.
Hall may have a breakout year next year, his transfer fee of a total of £28m may look to be a total snip when we all have the benefit of hindsight. But right now, Newcastle will be paying above the market value for a player with limited experience, while Chelsea will be cashing in on a player significantly above where his real market value should be based on what has transpired over the course of this season.
According to Transfermarkt, Hall’s current market value stands at €18m (£15.4m), while the Swiss-based football data analytics bods at the CIES Football Observatory places a lower €10m (£8.5m) market value on the player. Now, there is no hard and fast rule when it comes to transfer market valuations, but based on a lack of game time and a lost year of progress due to that, a reduction of the rather over-inflated £28m overall fee seems appropriate. The CIES value hints at an overpayment of almost £20m, or some 227%.
Chelsea will want Hall to make an impact in the final weeks to maximise the value of the deal, and they will know that in securing such a deal last summer that they have done well in the short-term in maximising the value of a playing asset well beyond current market value, especially as Hall wouldn’t have had any greater opportunity to make headway at Stamford Bridge.
For Newcastle, there is far more risk attached and the club will be banking on him delivering in the next 12 months to ensure that they haven’t been caught cold in the market, which given the PSR constraints on the club is something that they can ill afford to do.
