The strength of the British Pound (GBP) has become something of a public obsession in recent years. As the UK lurches from one apparent political crisis to another, sterling has ceased to be the safe currency haven of years past and has instead suffered, as many investors seek to find their financial security elsewhere.

Whilst much of the public will be rightly concerned about the impact on their investments, and perhaps more importantly the relative cost increase of their holiday to Florida or Spain – there is also a significant financial impact for England’s elite football clubs.

The currency trend is hardly a surprise, the framing of fiscal policy by current Chancellor Rachel Reeves (and indeed her predecessors Jeremy Hunt and Kwasi Kwarteng), has only exacerbated a trend that started with the UK’s divorce from the EU in 2016. Sterling dropped more than 10% on June 24 2016, the day after the referendum vote, suffering the biggest single-day fall for a major currency since the Second World War, and hit a low against the dollar that had not been seen in 31 years.

Sterling’s strength against the dollar is less of a concern than the euro, considering that much of Premier League’s imports and exports (be it players, or otherwise) are with clubs based in the EU (and more importantly) the eurozone. Clubs in Ligue 1, La Liga, the Bundesliga and Serie A all transact in the euro. Yet this rate of exchange will become increasing important for Premier League clubs as they begin to transact in regions where the US dollar is the preferred means of payment, for example in the Middle East as well as Latin America. The importance though goes far beyond player trading, and has impacts on how clubs engage with global capital markets. How will a club balance receiving commercial income in GBP whilst having long term debt obligations written in USD? We will come onto some of the mitigation strategies that clubs use a little later.

So what of the GBP/ EUR trend in the last decade? Ignoring the sharp post-Brexit slump, the euro has arguably been just as volatile and depressed as the pound. However, the pound still trades consistently down on its pre-2016 level against the euro and the impacts of this are still being felt across the Premier League.

The effects?

The pound’s slide, simply, has made it more expensive for English clubs to sign and pay foreign players.

How much more expensive?

Well take the example of Paul Pogba when he transferred from Juventus to Manchester United in 2016. Juventus’ asking price was €105,000,000. Hypothetically, if United had signed him when the pound was at November 2015 rates (as above), it would have cost £73,943,661. At August 2017 rates, €105,000,000 cost c. £97,222,222. That’s a £23,278,561 upswing due to exchange rates, or a 31% increase.

Incidentally, United signed Pogba at the beginning of August 2016, roughly a month after the Brexit vote. The exchange rate at this time was €1.17 – £1.00, making Pogba’s total around €89,500,000 (the press reported €89,300,000). If United had signed Pogba as a ‘pre-summer’ purchase before the Brexit vote, when the rate was nearer €1.30 – £1.00, he would have cost €80,769,230. In short, United incurred a 10.80% price inflation due to ‘political factors’ in the space of a single month.

The same logic can of course be applied to wages. If a European player demands his salary matches whatever his euro equivalent was in sterling, then English teams will be liable for a similar level of inflation, which can really rack up over the course of contracts that last over three years.

Similarly, you can invert that logic and apply it in the same way; weaker sterling means European clubs paying in euros now incur a discount.

When Daniel Levy was negotiating over Gareth Bale’s sale in July 2013, agreeing the fee (€100,000,000) probably wasn’t the most difficult aspect of the negotiation. Rather, agreeing on which currency the fee was transacted in carried much more significance.

As a rule, risky fluctuations in currency are removed if you’re playing with your own native money, and English clubs therefore much prefer to be paid in sterling than euros. While there aren’t any examples to directly refer to, there are likely to have been instances where transfers have broken down between clubs because of a failure to agree on which currency is used.

So what can clubs do?

Active mitigation of forex risk for a football club is a modern phenomenon, and one that was brought into even more focus post-Brexit. In the past, clubs that had international financial transactions may well have held multiple currencies at a time (mainly for ease of doing business rather than to take a speculative position). This has changed though, and many of the biggest and most active clubs will use a variety of financial tools in order to hedge against forex fluctuation risks (Accrington Stanley’s use of exotic options trades might still be some years off). There are a number of ways of achieving this, and most of these would be agreed and facilitated by the clubs financial brokers. One of the most common options is the use of a forward contract, which means agreeing to buy a set amount of a currency for a set price on a set date in the future (most relevant when a club knows the amount of the currency they will need and when). Remember transfer fees are often paid in instalments, and this allows clubs to make prudent decisions around their means for financing a deal.

If a club needs more flexibility, their advisors might recommend use of the options market instead, which gives the holder of a contract the ‘right’ rather than the ‘obligation’ to purchase a currency (in a forward contract it would be an obligation to purchase the currency). This again allows the club in question to peg the exchange rate at a pre-determined point but as the name suggests, the option can be left to expire if there is no requirement for acquiring the currency. It is worth noting that all of these contracts cost money, but the brokerage fees and spreads pale in comparison to the potential cost a club could incur with a currency fluctuation working against their interests.

In short, while the fall in the pound is no doubt costing English clubs, it’s by no means enough to alter the financial status quo across Europe. Premier League teams remain the powerhouses on the European landscape. With access to the same financial instruments that are used in major corporations across the world, Premier League clubs have the ability to manage these risks now more so than ever.

But the next time you hear of a fluctuation in the relationship between the pound and the euro, think of how that might affect the finances of the club you support.