Brexit and how the pound's value drop could affect Premier League transfers
Opinion is still divided on the impact of Britain's exit from the European Union in the next six months to two years. In the narrower scope of football, there has been much fretting and hand-wringing over the impact the so-called Brexit vote will have on the Premier League and the fact that foreign players will require work permits, though a closer look reveals those fears are overstated.
In the short term, though, one effect we're already seeing is the pound crashing against the dollar and the Euro, by as much as 10 percent in the opening 24 hours.
This is important because Premier League income comes in pounds, and a fair chunk of expenses, especially when it comes to transfers, go out in Euros and dollars.
To put it very bluntly, a player who cost €40 million on Thursday would have cost £31 million. By Friday, that same player would have set the buying club back £34 million. Similarly, if a team wanted to sign a player from abroad and he had agreed to a salary of €2 million a year -- because, say, he's French and thinks in euros -- that team would need to pay him £1.7 million instead of £1.55 million.
The question then becomes whether the pound will recover and when. I'm not an expert in foreign exchange rates, but most agree that markets above all hate uncertainty. So since the Brexit was an unexpected result with uncertain aftereffects, investors sold pounds and bought other currencies. But as the effects become clearer, odds are they'll come back and the pound will strengthen. Foreign exchange prices are affected by many factors, but sharp drops like this one are down to uncertainty, not underlying fundamentals.
Sure, if the underlying fundamentals deteriorate badly as a result of Brexit -- and some predict they will, others are less certain -- then the pound might well continue to slide. But that is an effect we'll see over time.
The curious thing is that we've been here before. In October 2008, one pound bought €1.28. By December, the pound was at €1.06. That's a drop of 17 percent. In December 2015, the pound was at €1.22. By March 2016, it stood at €1.40 -- again, a shift of around 15 percent.
Those fluctuations didn't quite get as much attention because they were more gradual, whereas this one has been sudden. Then again, this drop has been motivated by panic, the others more by economic fundamentals.
Expect Premier League clubs to wait, perhaps a month, to get a better sense of where the exchange rate is heading before doing business.
Gabriele Marcotti is a senior writer for ESPN FC. Follow him on Twitter @Marcotti.