Thanks Stan, great post as per usual.
I find it fascinating how loans are becoming much more common place these days. Is there a reason for this? I'm not really up to date with the finances of football but i know there are some fantastic posters here that often have good insight on it, I just don't process figures and maths all that well.
Loans have grown as a proportion of deals in recent years there are several reasons some of them financial but also because of the developmental model used by the bigger clubs.
The Italian giants have always used the loan market to farm out younger players across Serie A and B. This model has been adopted by Chelsea and Man City in the Premier League and it allows those clubs to stockpile talent. The big Spanish sides have tended to use their B teams but still loan out young players e.g. Martin Ødegaard who even at 17 might not have been stretched by B team football.
The other big reason why clubs go down the route is trying de-risk transfers. Where a player is changing leagues and or making a step up a loan to buy gives the buying club the comfort of trying before they buy. Equally the loan market is a bit of a safety net on transfers in general and this is where the accounting and maths comes into play.
To demonstrate let's create an artificial example. Carlos Kickaball 23 is the rising star for mid table La Liga team Real San Miguel and impresses a number of Premier League clubs including mid level team Arkell's United. A £20m deal is agreed and Carlos agrees a £50k a week 5 year contract (he was earning £10k a week in Spain). He is costing Arkell's £6.5m a year (£4m in depreciation and £2.5m in wages.
However Arkell's are confident that they have a star and could easily sell young Carlos for £40m in just a couple of years time and the wage is nowhere near their top earner.
Things do not go well for Carlos he doesn't settle Arkell's change the manager mid way through the season and he finds himself frozen out. To compound matters Carlos is desperately homesick. Arkell's know this isn't working and the obvious thing to is ship Carlos back to Spain. One small problem mid level La Liga teams don't spend £20m on players nor do they pay them wages at anywhere near £2.5m a year. Now Arkell's could just take the hit pay up the contract and take a loss on the fee.
The only problem is all that cost lands in one smelly lump into one years accounts. Lets say they lose £10m on the fee and buying out the contract costs £4m (everyone is being very reasonable here). Arkell's finance director is a deeply unhappy man and so is their manager because all of that is coming out of this year's budget.
Maybe there is a solution, a loan to Turkish club (WTAF!!) Effesspor. How does it work? Arkell's are stuck for £6.5m a year almost regardless. However instead of crystallising £14m of losses they get a loan fee of £1m to offset against the £4m of depreciation and it get's better. Effesspor are happy to pay half Carlos's wages which is as good as any Spanish club but because of the favourable tax regime to get Carlos to his net position the overall wage needs to be 20% less so this saves Arkell's nearly £3m in wages. To move Carlos on either costs £14m to sell today or £2.5m to loan out, what are you going to do?
The above is hugely simplified but that is often why players are loaned rather than sold.