Credit crunch, what credit crunch?

As recession looms, Premier League clubs are spending like there's no tomorrow. But is there method to this new bout of money madness?

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Robbie Keane's £20.3m move from Tottenham to Liverpool was "a good piece of business" for Spurs, according to their former manager David Pleat. He is right: to command such a huge fee for a 28-year-old striker with 11 years' football and more than 500 matches in his legs was a decent piece of salesmanship. The more so as Keane averaged only 20 League starts a season in his Spurs career.

Add in fees of £17m for David Bentley, a 23-year-old yet to start a Champions League match or competitive international, £2m for 38-year-old Brad Friedel, £6m-plus for a pair of West Ham reserves in Bobby Zamora and John Pantsil, and putative fees of £18m for a defensive midfielder in Gareth Barry and £13m for a forward who scored six League goals last year, Andrew Johnson, and the transfer market looks, once more, to be going mad.

This, though, has been the cry since Alf Common's £1,000 transfer from Sunderland to Middlesbrough in 1905 prompted an unsuccessful attempt by the Football League to limit fees to £350. A quarter-century later David Jack's £10,890 move from Bolton to Arsenal led to the chairman of the Football Association, Sir Charles Clegg, declaring that no footballer in the world was worth such a fee. Jack's role in Arsenal's subsequent dominance proved otherwise.

Keane's fee, too, may well prove well spent. He has miles on the clock but he is a gymnastic player, rarely troubled by injury, who looks after himself. His skill and football brain are his prime assets, rather than speed. All of which suggests he will continue to play at the highest level for many years. He could enable Liverpool to bridge the gap established by Manchester United and Chelsea. More pertinently, with the top three Premier League clubs being given automatic places in the Champions League next season, but the fourth-placed club facing a much harder qualification process, he may ensure Liverpool continue to participate in the globe's most lucrative club competition.

This is the crux of the matter. The top four's pre-eminence is due to the wealth, direct and indirect, garnered via the Champions League. It is fear of failing to maintain that status which has driven the club to spend such a large slice of their profits from the competition on Keane.

Fear also drives the market lower down the table, fear of relegation. Sunderland spent £50m last season and just stayed up. Fulham are on course to spend £20m this summer in an effort to strengthen a squad that nearly went down. Promoted Stoke City have shattered their transfer record, previously £1.5m, in paying £5.5m for Dave Kitson, scorer of 10 goals for relegated Reading last season.

How can these clubs afford this? Is there not a credit crunch stalking the land? The answer is television money – from deals drawn up before a recession loomed. Last season's champions, Manchester United, received £49.3m from the distribution of television income but even Derby, who finished bottom with one win all season, "earned" £29.1m. As the average TV income of Championship clubs is less than £2m, the incentive to speculate and, hopefully, accumulate is overwhelming.

But every year three clubs have to go down. While clauses invoking wage cuts upon relegation are often inserted into contracts some players, and their agents, resist. Unless a relegated club undertakes a fire sale it will thus carry a huge wage bill into the Championship. That is initially sustainable due to the parachute payment (Derby, Reading and Birmingham will receive £11.4m in each of the next two seasons) but if a club fail to bounce back within two years receivership and further relegation beckon, as teams such as Leeds United and Bradford City have discovered.

In Deloitte's 17th Annual Review of Football Finance, released as clubs began plunging into the summer transfer market, Dan Jones, head of the company's sports business group, noted that clubs had filed a second consecutive year of falling operating profits, while pre-tax losses have reached a new high. Fears "that player wages would consume most of the increase in [television] revenue, with no improvement in profit margins" were being confirmed with the Premier League's cumulative wage bill exceeding £1bn last year. More than £600m was spent on transfer fees, an increase of nearly 25 per cent on the previous season. Was it worth it? Manchester United spent £58m, bringing to £89m their outlay in the 18 months leading up to the season, and won the Premier League and Champions League double; Sunderland's £50m outlay enabled them to stay up, and reap another £30m-plus this season.

Jones added: "We appear to be seeing game theory in action. A shared will, and action, individually by all the clubs to limit wages growth would deliver increased profitability for all, but the pursuit of on-pitch success and the intense competitive desire to gain an edge means clubs continue to invest heavily in their playing squads and bid the market up, to the detriment of all clubs' finances and the benefit of players and their agents."

The same rules apply to transfers as wages, and did so long before wage restraints were lifted in the early 1960s. Writing in the weighty 1960 publication, Association Football, the former player turned journalist Ivan Sharpe observed, in relation to "sky-high" fees such as the £45,000 Manchester United had paid Sheffield Wednesday for Albert Quixall, that "there aren't enough stars to go round ... supply falls short of demand".

Sharpe put this down to postwar shortages but even with an influx of foreign players there are not enough good players to go round. There never will be, not in an industry in which there are far more competitors than winners, and in which the consequences of failure are potentially catastrophic. The problem is exacerbated by the elite few stockpiling the best players while the rest, even clubs of the status of Arsenal and Spurs, increasingly appear to be building for a future that may never come, because their rough diamonds, the Alexander Hlebs and Dimitar Berbatovs, will be lured away once honed.

Kitson's fee will look a bargain if his goals keep Stoke up, similarly Keane's if he cements Liverpool's top-three status. And if they do not, there will still be plenty of clubs, and managers, prepared to gamble that the next signing really will be the last piece of the jigsaw.

Breaking the bank The hot-shots who cost a packet, but were they worth it?

On the move Players signed by Premier League clubs this summer

FIVE SIGNIFICANT TRANSFERS FROM THE PAST...

First four-figure fee

1905 Alf Common Sunderland to Middlesbrough, £1,000.

Worth it? Boro stayed up.

First five-figure fee

1928 David Jack Bolton to Arsenal, £10,628. Worth it? With Jack, Arsenal won three championships and an FA Cup.

First six-figure fee

1961 Denis Law Manchester City to Torino, £110,000. Worth it? Law failed to settle, but Torino got their cash back plus £5,000 from Manchester United a year later.

First seven- figure fee

1979

Trevor Francis Birmingham City to Nottingham Forest, £1m. Worth it? Francis scored the European Cup final winner three months after joining Forest.

First eight-figure fee

1996 Alan Shearer Blackburn Rovers to Newcastle United, £15m. Worth it? Shearer scored more than 200 goals for Newcastle.

... AND FIVE FROM THE PRESENT

Robbie Keane Tottenham to Liverpool, £20.3m. Worth it? If he is instrumental in Liverpool winning the Premier League title or the European Cup. Not if they finish outside the top three.

Jose Bosingwa Porto to Chelsea £16.2m. Worth it? Hard to justify such a fee for a full-back, as his new team-mate Paolo Ferreira has proved. Needs to be a key figure in Champions League success.

David Bentley Blackburn Rovers to Tottenham Hotspur, £17m. Worth it? If Tottenham break into the Champions League, or win the Uefa Cup.

Bobby Zamora & John Pantsil West Ham to Fulham, £6.3m combined. Worth it? If Fulham stay up, and they play a major role

DAVE KITSON Reading to Stoke City, £5.5m Worth it? If his goals keep Stoke up.

Glenn Moore