A Few Thoughts about Loans

Since Southampton has recently announced a deal to loan Eljero Elia for the rest of the season with an option to buy and strongly hinted that there would be no permanent transfers in the January 2015 transfer window, I thought this would be a good time to finish the article about loans upon which I have working for a while.

From the perspective of an American sports fan, loans are very strange.  Grammatically speaking, they are just plain wrong.  Surely, we are borrowing Elia, not loaning him. 

As far as I know, in North American sports, players must play for the team that employs them.  Certainly, I cannot remember a North American football (by which, I mean the football that is the big sport in the United States and Canada), baseball, basketball, or hockey player being loaned from one club to another.

There are a number of reasons for the lack of such transactions other than the simple lack of a tradition of loaning.  With the exception of the Canadian Football League, the North American sports leagues are all at the top of the world’s feeding chain in their individual sports.  If the New York Yankees have a player who was not good enough to play for them but needed game time, there would be no appropriate league to which to loan the player.  As a practical matter, the Yankees would never want to loan out a player because they have their own hierarchy of minor league baseball teams.  Baseball players who are not ready for the major leagues simply play regularly for the appropriate minor league team.  (There are some aspects of this transaction which bear a superficial resemblance to the loan process, but not really.)

Moreover, North American sports leagues impose very strict roster limitations and salary caps that fundamentally make it impossible for even the richest team to stockpile players.  In American football, the rosters are a fixed size.  With exceptions that are not relevant to this discussion, no team can keep extra players.  Instead, they are forced to cut the extra players who are then available to be picked up on waivers by other teams in the league with the weaker teams getting first choice.  Baseball has a more complicated process but it ultimately boils down to a similar result which is that there is a limited number of players that a major league team can retain and a limited amount of money they can pay them without suffering significant financial penalties.

Thus, in the context of North American Sports, Chelsea’s rather clever strategy for developing younger players while making financial fair play profit is a complete nonstarter.  Chelsea has dozens of players out on loan and they sell those players, on a regular basis, for a profit.  If the Premier League worked like a North American league, Chelsea would be forced to release their excess players and their contracts could be picked up for free by other teams in the Premier League.  For that matter, Chelsea would not be able to afford the extra players because the salary cap is the same for all teams and not dependent on how much money the team had spent the previous year.

The strangeness of the institution notwithstanding, it seems unlikely that loans are going to go away.  Therefore, I will focus on Southampton’s recent loan activity and how it seems to have significantly benefited the team.

I don’t think anyone can reasonably dispute that the two most successful summer transfers for Southampton were Ryan Bertrand and Toby Alderweireld.  Other than Toby’s short injury stint, neither player has done much of anything wrong the whole season.  On the other hand, the permanent transfers have all had their periods of underperformance and their occasional serious error.  Is this difference because players on loan have something to prove and work harder?  Who knows?  I am certainly in no position to make that judgment.  That being said, given his disciplinary history, it is entirely possible that the decision to loan, rather than buy, Elia is based in part on a desire that he understand that he needs to prove himself.  This would not be an unreasonable approach.  Emmanuel Adebayor never played as well for the Spurs as he did during the season he was on loan with them.

Given the success of the incoming loans this year so far, one might be tempted to suggest that Southampton should increase its participation in the loan market and purchase fewer actual players.  Given subsequent developments, we certainly wished we had loaned Osvaldo, Ramirez, and Mayuka.  Millions of pounds would have been saved if the first two players had been loaned rather than purchased.  (The club could have given out its season tickets free this year and come out ahead financially over buying those three players.)  On the other hand, if we had loaned, rather than bought, Dejan Lovren, even with an option to buy, he undoubtedly would have refused to sign for us at the end of last season and pushed through a direct sale from Lyon to Liverpool with all the profit going to Lyon rather than Southampton.

There are salary cap and financial fair play and cash flow issues as well.  Very likely despite the very large nominal profits made by last summer’s transfer dealings, the cash was not there to buy both Bertrand and Alderweireld outright.  (Since the option to buy Alderweireld is somewhat peculiar, it was probably not possible to buy him outright even if we wanted to.)

The primary disadvantages of loans, over purchases, is you don’t get a permanent member of your squad to develop over the years and you don’t get the profit from future transfers.  Of course, if the loans are made with an option to buy at a reasonable price and if the player has already agreed to contract terms, then neither of those problems exists.  Under such terms loans may always be better than purchases.  On the other hand, I do not know if contract terms have been agreed in advance with Bertrand or Alderweireld.  Not being inside the Southampton Black Box and never having run a football team other than in Football Manager, I cannot really be sure.

In addition, to the successful incoming loans, outgoing loans have also been an important part of Southampton’s transfer activities this year.  As best I can determine, Southampton currently has eight players loaned out.  Each of these loans appears to be a success for Southampton given the underlying purpose of the loan.  Gaston Ramirez and Pablo Osvaldo were both loaned out because they are not wanted at the parent club and we want some or all of their salary to be covered by somewhere else.  Artur Boruc is loaned out to Bournemouth to keep him happy and playing but hopefully he is nearby recalled if Forster gets injured.  Jos Hooiveld had been loaned out to Norwich to run out his contract because he was never going to play for us again and we wanted him to have the opportunity to play somewhere particularly given how hard he worked for Southampton while he was here.  Unfortunately, he has only played six games so the loan does not appear to be working out for him.  Will Britt, Jake Sinclair, Jack Stephens, and Jordan Turnbull have all be loaned out to smaller clubs where they will play and develop.

Since I have no ability or time to watch their games, I cannot really be sure how those loans are going but it certainly appears that Stephens and Turnbull are doing well at Swindon Town FC.  Turnbull has played in all 28 of Swindon Town’s games.  Stephens arrived later and came down with tonsillitis but has played in all the games since he recovered in late September.  The local paper’s website publishes players rating article after each game.  They have given Turnbull an average of 6.71 and Stephens and average of 6.65 which are both good ratings.  On the other hand, there is nothing to suggest that either player is ready to step up to the Premier League right now.  But they are playing together which down the road actually might be helpful.  Stephen’s loan is due to end in January, but there is talk of extending it for the rest of the season.  Whatever happens, those two players and Southampton are clearly better off for the extensive playing time they have been given this season.  Even if, ultimately, Southampton sells them to a championship or league one team, their value has been increased by their performances on loan.

In my view, Boruc’s loan is particularly successful.  He appears to be playing well and, more importantly, Bournemouth (FC) is playing well.  They are in first place with a good goal differential.  I have indicated elsewhere that I have no emotional involvement in the local rivalries but I believe that Bournemouth being promoted to the Premier League would be good for Southampton.  I have no reason to change my opinion.  Further, from an American perspective, I do not see the point of rivalry games that are never played.  It may be all fun and jolly to laugh at Portsmouth for being in League Two, but I think it would be more fun to occasionally play and beat them.  Since that doesn’t look like its going to happen for a few years – at least – it would be nice to play another local team a couple times next year.

Swindon Town is also doing very well being in second place after 23 games and 15 points ahead of the seventh place team.  Being involved in a promotion battle can only be good experience for Stephens and Turnbull.

Looking to the future, there are a number of things Southampton can do with respect to loans that can strengthen the team.  Premier League rules impose a number of limitations on “temporary transfers” which is what loans are officially called.  Loan players cannot play against their parent club.  During the season, a team may receive no more than four in country loans and only two of those loans may be active at the same time, with the discretionary exception of a loan of an emergency goal keeper.  This rule does not limit the ability to loan players from foreign teams.  Finally, only one player, at a time, can be loaned from the same domestic club.  Thus, right now, the Ryan Bertrand loan prohibits us from loaning another player from Chelsea but if we were to make the transfer permanent we could, once again, loan a Chelsea player. The loan deals for Alderweireld and Elia are unaffected by these rules and we could, in theory, loan additional players from foreign clubs.

Given these rules, the past successful loan transactions, and the club’s future goals which include both progression by the team as a whole and financial sustainability, I think additional loans can be a critical part of the club’s future development.  In particular, it would be a good idea to keep friendly relations with Chelsea and perhaps routinely plan to loan a first team regular to Chelsea every year.

Frankly, if Chelsea were open to the deal, I think Southampton should pay Chelsea a “retainer fee” to give Southampton first choice each summer from among the players Chelsea intends to loan out.  Unless the Russian economy crashes so badly that Roman Abramovich has to liquidate Chelsea to cover his losses, Chelsea is always going to have extra players who are not good enough for Chelsea but would be plenty good for us.  Further, they will often be willing to agree to purchase options for these players given their need, under the financial fair play rules, to make consistent transfer profits.  It would be a very unusual young Chelsea player who would refuse to play for us if strongly urged to do so by the Chelsea management so such an arrangement would pretty much guarantee a solid player every year and the flexibility to pick a player that fits the club’s current needs.  In fact, such an arrangement might be better and cheaper than the actual purchase of a player.  Similarly, Manchester City looks likely to have loanable players on a consistent basis and, at the very least, the possibility of loaning players from them should be investigated.

From the hints we get from the media, it seems likely that Elia is the only winger that the team is going to bring in in January, but this does not mean that it might not be possible to loan another player to fill another opening on the team.  Certainly, we could use another striker. In an earlier article, found here, I used Football Manager 2015 to generate a list of potential striker candidates. Somewhere in Europe there must be a available striker who can help our squad.

I reject the concept that Rickie Lambert would return on loan to us.  Any such transaction would amount to an admission that the transfer was a mistake by both Lambert and Liverpool.  I think, as a practical matter the egos involved would not permit such an admission.  That problem aside, Lambert obviously wanted to be in Liverpool with his family and is unlikely to want to spend the next five months living in Southampton without his family.  (As I am living in California, I have no way of ascertaining whether Lambert has sold his home.  I suppose if he has not sold his home, his family could move right back into it.)  Besides, I still believe Lambert could help Liverpool if they had the slightest clue as to how to use him.  Of course, part of the problem of both Lambert and Balotelli at Liverpool is that some of the strongest aspects of their games are removed because Steven Gerrard is on the team.  Both Lambert and Balotelli are better penalty kickers than Gerrard and they are both good free kickers although, possibly, Gerrard is still better than either of them.  This is yet another reason to be highly skeptical of Liverpool’s flawed transfer decision making process.  Obviously, they did not really consider the fact that either player would lose so much scoring ability with Steven Gerrard still the captain.  But I digress.

The final aspect of the loan process that interests me is its potential corrupting effect on the competition itself.  A player who is employed by one club but playing for another club can have mixed motivations.  I do not mean to suggest that every player in that position would play to benefit his parent team rather than his current team but it would also be unreasonable to suggest that the conflicting motivations would never have any effect whatsoever.  In England, the issue is addressed by prohibiting loan players from playing against their parent club.  However, this does not really address the issue because it forces a club to field a weaker team against one specific opponent effectively at the expense of all their other opponents.

On the other hand, as we saw last year in the Champions League, European rules forced Chelsea to permit Thibaut Courtoris to play against them without Athletico Madrid paying the contractually required fee.  Apparently from the European perspective, the more significant corrupting effect would have been if Chelsea could stop their opponent from playing their best team.

I am not sure how this all sorts out.  Since Atheltico Madrid beat Chelsea, it appears that Courtoris did not feel obligated to throw the competition in favor of Chelsea.  Yet, from my American perspective, none of this feels exactly kosher.

Given that the loaning process is here to stay I wonder if Southampton should try to emulate Chelsea, if on a smaller scale.  Given the current reputation of our academy, we ought to be able to sign good young players from all over Europe, bring them in for a year or two of development, sign them to a professional contract, and then either play them or loan them out as appropriate.  If handled properly, this could be a source of good players or transfer profits or both.

Certainly, Chelsea intends to continue to take advantage of this business model.  There is no reason why Southampton should do so as well both by loaning out its own players and by following up on the success of the Ryan Bertrand loan by loaning (or borrowing) players from Chelsea on a regular basis.  Likewise, for those younger Southampton players who are not yet ready to play for our first team, it is certainly worth sending them out on loan if first team football in a lower division is better for their future development then playing for the under 21s.