Last night, one of the most groundbreaking decisions in history was made by the British people, who voted that the United Kingdom should leave the European Union. The result was so shocking that British Prime Minister David Cameron has resigned, and financial markets throughout the world, from the United States to Germany to Japan, have plunged.
This decision will have huge economic consequences on Europe and the rest of the world: many of which have not been fully realized yet. However, because this is a Borussia Dortmund blog and not a "The world" blog, we will stick for now to how this outcome may affect Borussia Dortmund’s financial dealings.
Brexit’s effects will be far-reaching and long lasting. Many that involve trade and agreements won’t come into play for years. However, one effect that is already happening, less than 12 hours after the results have been announced, is the massive devaluation of the British Pound Sterling. As of 14:13 EST on Friday, June 24th, the Pound is worth 1.229 Euros, down more than 6% from where it was merely 24 hours ago. The pound’s value to the Euro is the lowest it’s been in 31 years.
Any economics major/minor will tell you that in the long run (we’re talking 10, 20, even 30 years), exchange rates are nominal values, and that eventually prices domestic and abroad will readjust to make their actual values meaningless. That’s why it isn’t really a big deal that the Japanese Yen is worth less than one hundreth of a dollar. However, in the short run, exchange rates are incredibly important. Here’s one example:
Ilkay Gündogan just signed a contract with Manchester City. I don’t know for how much it was because those figures aren’t published, but let’s just say for simplicity that it was ￡1,000,000 per year. Two days ago, that would have been worth €1,300,000 per year. Now, that same contract is worth only €1,220,000 per year. That’s an €80,000 difference! Now, imagine what would happen if the pound plunged to €1.10- as many economists are predicting it might- that contract could be worth nearly €200,000 less than it originally was!
If you think about it, that might actually help Dortmund, because Dortmund players who are thinking of jumping ship to england (*cough* Mkhitaryan *cough*). I don’t want to give them financial advice per se, but... you may want to stay on the mainland. The thing is, nobody really knows just how far the pound may fall, as European and American investors keep pulling out further.
Furthermore, this may affect player transfers between clubs in the United Kingdom (remember, not just England). The largest, of course, is that English clubs will now have to pay significantly more to purchase players from Europe. For example, in order to match the €40 million transfer target that Borussia Dortmund have laid out for Henrikh Mkhitaryan, Manchester United now have to pay ￡32.5 million, whereas just yesterday they would have had to pay only ￡30.5 million. That ￡2 million is likely chump change for Manchester United, and they’d probably fork it over if they had to, but it’s still worth noting, especially if exchange rates drop further.
Freedom of Movement
The European Union’s various labor and immigration laws, such as the Schengen Agreement, have always made transfers between the UK and the rest of Europe very easy. As Brexit begins to come into effect, these freedom-of-movement agreements are likely going to unravel, and it may be years before new ones are written.
Over at Managing Madrid, Om Arvind has written a great article on how Brexit will impact Real Madrid. One aspect that he mentioned that I was unaware of is something called "Article 19" from FIFA’s labor regulations. I don’t want to repeat his same points, but basically, with the UK leaving the EU, it will be nearly impossible for British clubs to sign players aged 16-18 from Europe. This means that any young talents from France, Spain, Germany, etc now have one less country to think about signing to. This is good for Dortmund because it means that there is now less competition to sign young stars. Go check out that article, it’s very informative.
Strictly in terms of Borussia Dortmund football club, Brexit may actually have positive impacts. It’s at least one more thing that players have to think about before they jump ship to England, and it may prevent young German stars from signing in England. So, yay.
June 24, 2016
One more thing: I know that Brexit is very important to a lot of people, and many people have vastly differing opinions on the subject. I tried my best to keep my opinions out and just stick to how it will affect the Borussia Dortmund Football Club, and I respecfully ask that you do the same. lf you do feel the need to share your opinions on the subject, please keep any discussions civil. Thanks!