These new Financial Fair play rules

[David Hodgson]

....anyone got a real handle on them, and how they'd affect us.

 

Broughton made much of the 'sensible custodians' over 'reckless sugar daddies' thing when he announced NESV, because of the supposed forthcoming strictures of 'Financial fair play'. However, there doesn't seem much sign that Man City are in any way worried about these constraints, or is it that there's still a window of opportunity to spend recklessly before the stable door is shut ? And if so, are we (hopefully) seeing signs that FSG now see the merits of 'front loading' their investment in players. i.e getting it all done now/the summer.

 

Any expertise on this would be welcome. Rimbeux, for one, seemed to get this issue. Sir, please step up to the plate .....

[Rimbeux]

I'll bite.

 

This window is the last free one. From June 2011 all spending will be taken into account, and any fees will have to be written down over the initial contract length, so there's no ability to have one off huge loss in transfer fees and then break even thereafter or try and write them down over 10 years like some Italian clubs tried to do last decade to hide their losses.

 

What it means today is that City have one last window, this one, to splash the cash. It would probably be in their advantage to wait until the Summer before selling spare players as they will get a big boost in income that will help them break even over the three years from next season before the sanctions come in.

 

Over the next three seasons, clubs are allowed to accumulate losses of £40m, which will be reduced for the three year period after that. Effectively the £40m is the max an owner can put in over the three years without having to set up fake sponsorship agreements that will have to be cleared by UEFA as market rate and not a conflict of interests.

 

As far as we're concerned, John Henry has mentioned these rules being significant in his decision to buy. I'd guess from that that he's no intention of getting into an arms race with Mansour and that he felt the club can compete with it's own resources. Abramovich has already put Chelsea on course to meet the conditions, it's something they wanted to do anyway, they've just not managed it very well. You even get the impression Real Madrid have put the breaks on, Inter certainly have.

 

Spending on the ground and such as the academy will fall outside of these rules, so the advantage of having money to put in will be if it can be used to boost capacity rather than the wage bill.

[Dan]

There's a 120 page .pdf online that you can access DH if you fancy a read!

 

I'm not very clued up on it at all but there was a Times podcast on it last week with Marcotti, Oli Kay, Alysson Rudd and Paddy Barclay (I know) and the general concesus was that the approach has been pretty hamfisted and won't stop the likes of City being successful at all. It will probably cement a two tiered system particuarly in this country and Spain as it will protect the big clubs who already generate large revenues and create a barrier for smaller clubs to break the monopoly e.g. Hoffenheim would never have been successful. I think investment in stadiums and academies are exempt though from the calculation and subsequent penalties.

 

Going off this it doesn't look like it's going to have a significant impact on LFC.

Edited January 20, 2011 by Grabiner

[Philby]

My take on how these rules will stack up for us (versus Citeh)

 

Liverpool have no CL football/revenues. Barring a c**k-up Citeh will have CL football by the time these rules come into force, hence greater ability to spend.

 

Liverpool have a squad which is depleted in depth and quality from it's recent peak (~2008 or so) and these rules will place restrictions on spending large amounts of cash to rectify this situation.

 

Liverpool are stuck in an under-sized, ageing stadium and rake in £1m per game less than the like of United and Arsenal. Am I right in saying these rules place no restrictions on infrastructural investment?

 

The only real advantage I see for Liverpool is that I think the current owners are better equipped to adapt to restrictive sporting rules (having encountered them on the other side of the pond).

[surf]

My take on how these rules will stack up for us (versus Citeh)

 

Liverpool have no CL football/revenues. Barring a c**k-up Citeh will have CL football by the time these rules come into force, hence greater ability to spend.

 

Liverpool have a squad which is depleted in depth and quality from it's recent peak (~2008 or so) and these rules will place restrictions on spending large amounts of cash to rectify this situation.

 

Liverpool are stuck in an under-sized, ageing stadium and rake in £1m per game less than the like of United and Arsenal. Am I right in saying these rules place no restrictions on infrastructural investment?

 

The only real advantage I see for Liverpool is that I think the current owners are better equipped to adapt to restrictive sporting rules (having encountered them on the other side of the pond).

 

so what you're saying is those in CL footy at the time of the rules change are going to be harder to shift, because the spending restriction will mainly hit the clubs below them on less income? in that case it's very important that if NESV are going to spend they do so in this window, so we head into the new rules change with a strong team to begin with

[honourablegeorge]

This window is the last free one. From June 2011 all spending will be taken into account, and any fees will have to be written down over the initial contract length, so there's no ability to have one off huge loss in transfer fees and then break even thereafter or try and write them down over 10 years like some Italian clubs tried to do last decade to hide their losses.

 

Is this window definitely a free one? T thought the restrictions came in form 2011, but that would mean that wages & fees of current players would be taken into account over the coming years?

 

Either way, they've massively increased their wage bill - even if they made £50M from the CL, they'll still probably lose £100M odd.

[Rimbeux]

so what you're saying is those in CL footy at the time of the rules change are going to be harder to shift, because the spending restriction will mainly hit the clubs below them on less income? in that case it's very important that if NESV are going to spend they do so in this window, so we head into the new rules change with a strong team to begin with

 

 

It's a chicken and egg, because to spend the CL money with confidence on something like wage increases, you'll have to be sure of being in there year after year, because if missing out one year means your budget is shot, then even getting a place may cause problems in getting a license.

 

If you're outside the CL and Europa places and/or you can live with missing out, you can spend what you like. This might be where Fulham are.

[Gunga Din]

My take on how these rules will stack up for us (versus Citeh)

 

Liverpool have no CL football/revenues. Barring a c**k-up Citeh will have CL football by the time these rules come into force, hence greater ability to spend.

 

Liverpool have a squad which is depleted in depth and quality from it's recent peak (~2008 or so) and these rules will place restrictions on spending large amounts of cash to rectify this situation.

 

Liverpool are stuck in an under-sized, ageing stadium and rake in £1m per game less than the like of United and Arsenal. Am I right in saying these rules place no restrictions on infrastructural investment?

 

The only real advantage I see for Liverpool is that I think the current owners are better equipped to adapt to restrictive sporting rules (having encountered them on the other side of the pond).

 

perhaps, but our commercial activity will mean we should still be able to compete. we are on e of the top 3 or 4 supported clubs in the world, and i think you will see much more aggressive marketing from us

[Rimbeux]

Is this window definitely a free one? T thought the restrictions came in form 2011, but that would mean that wages & fees of current players would be taken into account over the coming years?

 

Either way, they've massively increased their wage bill - even if they made £50M from the CL, they'll still probably lose £100M odd.

 

 

June 2011 is when the accounting period starts, so it's the books from then on. A club would be free to write off transfer spending now as a one off like City appear to do at the moment, from June they will have to take the loss over each year of the contract. There is also some mitigation allowed for contracts signed before June 2010, not sure how it works, if it's just a plea that 'the only reason I'm over is the £20m a year we pay x, y and z'.

 

I agree City are going to have to do something drastic. I'm even starting to think they are stockpiling with a view to selling them on when it can make a dent in their future losses, £20m spent now is potentially £20m less wages they could recoup when needed.

[honourablegeorge]

June 2011 is when the accounting period starts, so it's the books from then on. A club would be free to write off transfer spending now as a one off like City appear to do at the moment, from June they will have to take the loss over each year of the contract. There is also some mitigation allowed for contracts signed before June 2010, not sure how it works, if it's just a plea that 'the only reason I'm over is the £20m a year we pay x, y and z'.

 

I agree City are going to have to do something drastic. I'm even starting to think they are stockpiling with a view to selling them on when it can make a dent in their future losses, £20m spent now is potentially £20m less wages they could recoup when needed.

 

The biggest thing City have in their favour is that football f***ing loves money, and is highly unlikely to do anything when it comes to the crunch. Turkeys don't vote for Christmas.

 

There'll probably be some stern warnings and a few last chances.

[Maldini]

What I don't understand is how City are going to get around contract amortisation. They've signed nearly £300m worth of players in the last 2 years, all on 4 or 5 year contracts. Won't that equate to an extra £60-70m a year extra in losses due to amortisation?

[Dan]

The biggest thing City have in their favour is that football f***ing loves money, and is highly unlikely to do anything when it comes to the crunch. Turkeys don't vote for Christmas.

 

There'll probably be some stern warnings and a few last chances.

 

Bit like when Germany, France and the UK flout EU laws at will.

[Rimbeux]

The biggest thing City have in their favour is that football f***ing loves money, and is highly unlikely to do anything when it comes to the crunch. Turkeys don't vote for Christmas.

 

There'll probably be some stern warnings and a few last chances.

 

 

I think that's the view the Scudamore is taking, lets see what they do when faced with a real case. However football also loves a ban. Remember the reason we are in Europe this season is because Pompey failed the current financial rules and were not granted a license. The rules also have the overwhelming support of the clubs association the ECA, which since G14 was disbanded has become a far wider group of nearly 200 clubs with a general self-interest in not losing money and not having to compete with those without that reality.

 

Currently 11 clubs across Europe would be sanctioned, they have three years to sort themselves out.

 

What I don't understand is how City are going to get around contract amortisation. They've signed nearly £300m worth of players in the last 2 years, all on 4 or 5 year contracts. Won't that equate to an extra £60-70m a year extra in losses due to amortisation?

 

 

I think their current method is to pay up front and write them off in one go as one off costs, which probably explains their huge losses, their wage bill alone isn't behind the £130m loss. Therefore from June they will have a clear balance sheet as far as that is concerned and it will then be about getting their wages in balance and maybe selling to buy or just selling.

[David Hodgson]

City have spent so profligately that they've probably already amassed more than £100m worth of deadwood. Just recycling that alone will allow them to remain big big spenders for a couple of more years, by which time they'll be thinking that they'll have Europe's strongest squad and will only need to tinker with it (Chelsea style).

 

From our point of view, there certainly appears to be some merit (on a few levels) for getting our spending done now. In theory, if NESV have the cash flow capacity, there's much sense in spunking £70m now on Suarez, Ashley Young, Cahill and M'villa (for example), and then only spending small amounts thereafter (maybe just a left back in the summer) largely funded from sales of our 'deadwood' (Aquilani, Babel, Konchesky, Insua, Poulsen, Skrtel, Cavalieri, Ngog, Spearing).

[boohog]

I think their current method is to pay up front and write them off in one go as one off costs, which probably explains their huge losses, their wage bill alone isn't behind the £130m loss. Therefore from June they will have a clear balance sheet as far as that is concerned and it will then be about getting their wages in balance and maybe selling to buy or just selling.

 

Nah, English companiies have to adhere to IFRS in their accounts. They can't just amortise player contracts 100% in one year (unless the player died or was unable to realistically ever play football again for some reason). Nothing to do with football that, simple fact is no legitimate auditor would sign off on the accounts.

[Big Red Machine]

I think that's the view the Scudamore is taking, lets see what they do when faced with a real case. However football also loves a ban. Remember the reason we are in Europe this season is because Pompey failed the current financial rules and were not granted a license. The rules also have the overwhelming support of the clubs association the ECA, which since G14 was disbanded has become a far wider group of nearly 200 clubs with a general self-interest in not losing money and not having to compete with those without that reality.

 

Currently 11 clubs across Europe would be sanctioned, they have three years to sort themselves out.

 

 

I think their current method is to pay up front and write them off in one go as one off costs, which probably explains their huge losses, their wage bill alone isn't behind the £130m loss. Therefore from June they will have a clear balance sheet as far as that is concerned and it will then be about getting their wages in balance and maybe selling to buy or just selling.

 

They can't do that, they can't change their accounting practice to suit the new rules coming in. All clubs in England, including City have amortised player values over the lengths of their contracts, one of the things specifically mentioned was exactly that.

 

I've read a lot of differing opinions on how exactly the rules will work and won't work. Some saying that any large financial outlays (i.e. players signed) before June 2010 when the rules were announced would be looked upon differently, or at least more leniently. Other says thats its a sliding scale of punishment and not an instant European football ban if you don't stay within the limits. Scudamore himself said something a long the lines of 'as long as progress was being made towards breaking even we don't think they'd be a ban'.

 

With regards to Liverpool, I don't think it's going to effect us much. NESV made a song and dance about how their company books don't publish accounts, so even if we are still laden with debt through holding companies etc theres no way for FIFA to know (or the fans to know...)

 

Our commercial income is still massive and is mostly set in stone for the coming years anyway so that gives us a bit of breathing room.

 

An interesting thing to note is that within the new rules club operations in proximity to the stadium or training ground counts as club profit and loss. Meaning if we build a new stadium and build our own lot of shops/restaurants/hotels/whatever in a complex next to New Anfield any profits made from that could go towards footballing activities. (This is basically Cities plan and why theyve bought up all the land around CoM stadium).

[Rimbeux]

Nah, English companiies have to adhere to IFRS in their accounts. They can't just amortise player contracts 100% in one year (unless the player died or was unable to realistically ever play football again for some reason). Nothing to do with football that, simple fact is no legitimate auditor would sign off on the accounts.

 

 

Well that's that one out of the window

[honourablegeorge]

Nah, English companiies have to adhere to IFRS in their accounts. They can't just amortise player contracts 100% in one year (unless the player died or was unable to realistically ever play football again for some reason). Nothing to do with football that, simple fact is no legitimate auditor would sign off on the accounts.

 

Aye way around that, like an offshore company doing the buying and leasing them the player or some s***?

[boohog]

With regards to Liverpool, I don't think it's going to effect us much. NESV made a song and dance about how their company books don't publish accounts, so even if we are still laden with debt through holding companies etc theres no way for FIFA to know (or the fans to know...)

 

They could always go on the Companies House website and have a garner since players (and the funds to purchase their contracts and pay their wages) have to be registered at the operating company level. In any event I imagine providing financial statements is already a prerequisite for competing in European competition given the hoo-ha in the press about Liverpool maybe going bust and whether UEFA would let us participate in European competition a while back. If it isn't a prerequisite I can't imagine they'd say 'Oh, that's ok, you don't publish accounts so no worries.'

 

Aye way around that, like an offshore company doing the buying and leasing them the player or some s***?

 

Finance leases would show in the accounts at contract value (although i thought all the nonsense with non-football clubs owning contracts wasn't allowed any more post the Masch/Tevez situation). Operating leases are a bit more complicated as they are off balance sheet, but they should be able to back calculate the total contract value from the payment streams.

[RaoulD]

[i think their current method is to pay up front and write them off in one go as one off costs, which probably explains their huge losses, their wage bill alone isn't behind the £130m loss. Therefore from June they will have a clear balance sheet as far as that is concerned and it will then be about getting their wages in balance and maybe selling to buy or just selling.

 

The latest accounts suggest otherwise - the loss included £71 million for amortisation of players and it is clear that they are accounting on a capitalisation and amortisation basis for the players. The UEFA rules would require this cost to be included as an expense in the break even calculation.

 

I suspect that City will try and off-load some of the more expensive acquisitions in this window or the summer whilst they can still get reasonable fees for them. This would either result in a loss that falls outside the breakeven accounting period (for sales before 31 May 2011) or a loss on the sale that is less than the amortised cost of retaining the player for the year. They have also converted all debt to equity so that finance charges on the debt do not eat into their revenue in the calculation.

 

The rules will probably stop them from buying older players who have low resale values but it could also be that they are prepared to risk losing European football in the short term in order to achieve domestic success which would then lead to greater revenues. It is noticable how their turnover has increased as a result of the signings and the same happened at Chelsea when Abramovich spent massive amounts on players but the problem is sustaining this growth as neither club has the global appeal that LFC and Man U have.

[David Hodgson]

Nah, English companiies have to adhere to IFRS in their accounts. They can't just amortise player contracts 100% in one year (unless the player died or was unable to realistically ever play football again for some reason). Nothing to do with football that, simple fact is no legitimate auditor would sign off on the accounts.

 

So how are city going to get round their spendathon then ? They can't have not thought this through.

[Big Red Machine]

They could always go on the Companies House website and have a garner since players (and the funds to purchase their contracts and pay their wages) have to be registered at the operating company level. In any event I imagine providing financial statements is already a prerequisite for competing in European competition given the hoo-ha in the press about Liverpool maybe going bust and whether UEFA would let us participate in European competition a while back. If it isn't a prerequisite I can't imagine they'd say 'Oh, that's ok, you don't publish accounts so no worries.'

 

 

 

Finance leases would show in the accounts at contract value (although i thought all the nonsense with non-football clubs owning contracts wasn't allowed any more post the Masch/Tevez situation). Operating leases are a bit more complicated as they are off balance sheet, but they should be able to back calculate the total contract value from the payment streams.

 

 

Oh I didn't meant the accounts for LFC, I meant the ones higher up the ladder, as it were.

[Beardsley]

I'll bite.

 

This window is the last free one. From June 2011 all spending will be taken into account, and any fees will have to be written down over the initial contract length, so there's no ability to have one off huge loss in transfer fees and then break even thereafter or try and write them down over 10 years like some Italian clubs tried to do last decade to hide their losses.

 

What it means today is that City have one last window, this one, to splash the cash. It would probably be in their advantage to wait until the Summer before selling spare players as they will get a big boost in income that will help them break even over the three years from next season before the sanctions come in.

 

Over the next three seasons, clubs are allowed to accumulate losses of £40m, which will be reduced for the three year period after that. Effectively the £40m is the max an owner can put in over the three years without having to set up fake sponsorship agreements that will have to be cleared by UEFA as market rate and not a conflict of interests.

 

As far as we're concerned, John Henry has mentioned these rules being significant in his decision to buy. I'd guess from that that he's no intention of getting into an arms race with Mansour and that he felt the club can compete with it's own resources. Abramovich has already put Chelsea on course to meet the conditions, it's something they wanted to do anyway, they've just not managed it very well. You even get the impression Real Madrid have put the breaks on, Inter certainly have.

 

Spending on the ground and such as the academy will fall outside of these rules, so the advantage of having money to put in will be if it can be used to boost capacity rather than the wage bill.

 

So, basically teams like City will hoover the market for the best talent while other teams will be stuck with less promising prospects?

[boohog]

So how are city going to get round their spendathon then ? They can't have not thought this through.

 

Dunno, I'm sure they have bods working on it who know a tonne of stuff that I'm not privvy to.

 

Oh I didn't meant the accounts for LFC, I meant the ones higher up the ladder, as it were.

 

Pretty sure you can't hide players up the holding company chain though. That amortisation has to appear in the football club accounts somehow. Even if leases are allowed they would have to be market tested and the cost would hit the football club accounts. If there is a loophole, it isn't immediately obvious to me.

[Rimbeux]

So, basically teams like City will hoover the market for the best talent while other teams will be stuck with less promising prospects?

 

 

I dont think that means the players they pay or buy at that level, more like basic facilities, but the regs should clear it up