Prestwich_Blue said:Why is it a daft question? Because it's not as simple as revenue minus wages gives us possible spend, as in your example.Silva_Spell said:How is it a daft question?
I didn't ask how much we will spend, I asked how much would we be able to spend.
If our revenue is 350m and our wage bill is 210m, let's say, what other factors are there to consider that would stop us being able to spend 140m on bringing players in (fees and increase in wage bill)?
For one thing, there were other expenses in the accounts on top of wages, which is why we made a £7m loss (before the UEFA fine). We have operating expenses which include match expenses - things like heating and lighting, paying the police and Showsec, payments to suppliers for food, accomodation and travel for an away game, etc. And there are other expenses throughout the year. Those were about £55m (which included £10m wages paid by other companies that were on behalf of City, so we repaid those as an expense (rather than wages).
But the second biggest expense in the accounts after those wages is something called player amortisation and that is the expense of buying players. When we buy someone, we don't put all the cost through the books in one go (or at least not through the profit & loss account) but split that cost over the life of the contract. That mean that buying a £25m player on a 5 year contract will incur annual amortisation of £5m. At the end of the first year, the first £5m is knocked off the original cost, meaning that player is "worth" £20m in our accounts. A year later, we charge another £5m so he's "worth" £15m. At that point, if we sell him for £25m we've made a £10m profit in acounting terms, despite the fact we only got what we paid for him. That profit is shown in the accounts although it's only on paper. That's one reason why sales are crucial as they impact the bottom line and hence how much we can, in theory, spend.
Let's say his wages come to £5m a year and that means the player will actually cost us a total of £10m a year. So let's assume we broke even one year and then bought that player. If we do nothing else financially and all other figures stay the same, that would mean we'd report a £10m loss at the end of the year. If we reported a £50m profit on the other hand, then we could in theory buy 5 such players costing us that £10m a year and still break-even. So knowing how much profit or loss we are going to report in the year ahead is a crucial part of the calculation.
But it's not just one year, if we buy those five £25m players for 5 years and can still break even in the first year, we have to be sure we will still break-even in the next 4 years or we risk failing FFP. But we can't be 100% sure what might happen in 4 or 5 years so have to be prudent in our spending or we could be forced to sell. And that's just one part of it.
As a club, we may have set wage bill restrictions, to keep them within a certain percentage of revenue or at a fixed level. If we're at the ceiling we've set then it will be 'one in, one out' regardless of how much we can, in theory, spend in the market on fees. There might be other constraints we want to work to, which might be profit related or to do with cash generation. We might have a target squad size or profile. So there may be many different considerations that need to be factored in when deciding how much we could or would want to spend. Which is why it's a question that can't be answered by me or anyone on here.
As it happens, I think next year (2015/16) will see us report excellent results, with significantly higher revenues and net profits in the £40m range. Some or all of the FFP sanctions may also be removed so we may have some leeway for a decent spend.
JoeMercer'sWay said:Silva_Spell said:gordondaviesmoustache said:Does someone else want to explain amortisation to him, because I really can't be arsed?
PB?
I'm aware of amortisation.
How does it stop us from determining the max the club could spend next season?
Well we don't even have this year's accounts. We don't know who we're going to sell, we don't know what new sponsors we may get, we don't know what our PL or CL revenue will end up being etc. etc.
In the most recent accounts, we reported a £23m loss, including the £16m fine. We could add back that £16m plus about £20m of other allowable expenses, giving us an FFP surplus of £13m against a maximum allowable loss of £16m (€20m).Silva_Spell said:Prestwich_Blue said:Why is it a daft question? Because it's not as simple as revenue minus wages gives us possible spend, as in your example.Silva_Spell said:How is it a daft question?
I didn't ask how much we will spend, I asked how much would we be able to spend.
If our revenue is 350m and our wage bill is 210m, let's say, what other factors are there to consider that would stop us being able to spend 140m on bringing players in (fees and increase in wage bill)?
For one thing, there were other expenses in the accounts on top of wages, which is why we made a £7m loss (before the UEFA fine). We have operating expenses which include match expenses - things like heating and lighting, paying the police and Showsec, payments to suppliers for food, accomodation and travel for an away game, etc. And there are other expenses throughout the year. Those were about £55m (which included £10m wages paid by other companies that were on behalf of City, so we repaid those as an expense (rather than wages).
But the second biggest expense in the accounts after those wages is something called player amortisation and that is the expense of buying players. When we buy someone, we don't put all the cost through the books in one go (or at least not through the profit & loss account) but split that cost over the life of the contract. That mean that buying a £25m player on a 5 year contract will incur annual amortisation of £5m. At the end of the first year, the first £5m is knocked off the original cost, meaning that player is "worth" £20m in our accounts. A year later, we charge another £5m so he's "worth" £15m. At that point, if we sell him for £25m we've made a £10m profit in acounting terms, despite the fact we only got what we paid for him. That profit is shown in the accounts although it's only on paper. That's one reason why sales are crucial as they impact the bottom line and hence how much we can, in theory, spend.
Let's say his wages come to £5m a year and that means the player will actually cost us a total of £10m a year. So let's assume we broke even one year and then bought that player. If we do nothing else financially and all other figures stay the same, that would mean we'd report a £10m loss at the end of the year. If we reported a £50m profit on the other hand, then we could in theory buy 5 such players costing us that £10m a year and still break-even. So knowing how much profit or loss we are going to report in the year ahead is a crucial part of the calculation.
But it's not just one year, if we buy those five £25m players for 5 years and can still break even in the first year, we have to be sure we will still break-even in the next 4 years or we risk failing FFP. But we can't be 100% sure what might happen in 4 or 5 years so have to be prudent in our spending or we could be forced to sell. And that's just one part of it.
As a club, we may have set wage bill restrictions, to keep them within a certain percentage of revenue or at a fixed level. If we're at the ceiling we've set then it will be 'one in, one out' regardless of how much we can, in theory, spend in the market on fees. There might be other constraints we want to work to, which might be profit related or to do with cash generation. We might have a target squad size or profile. So there may be many different considerations that need to be factored in when deciding how much we could or would want to spend. Which is why it's a question that can't be answered by me or anyone on here.
As it happens, I think next year (2015/16) will see us report excellent results, with significantly higher revenues and net profits in the £40m range. Some or all of the FFP sanctions may also be removed so we may have some leeway for a decent spend.
Thanks.
So in FFP terms, if UEFA doesn't downgrade the accounts this time, are you saying we're in profit (-7m + around 55m), if you isolate it to the most recent accounts?
Silva_Spell said:Prestwich_Blue said:Why is it a daft question? Because it's not as simple as revenue minus wages gives us possible spend, as in your example.Silva_Spell said:How is it a daft question?
I didn't ask how much we will spend, I asked how much would we be able to spend.
If our revenue is 350m and our wage bill is 210m, let's say, what other factors are there to consider that would stop us being able to spend 140m on bringing players in (fees and increase in wage bill)?
For one thing, there were other expenses in the accounts on top of wages, which is why we made a £7m loss (before the UEFA fine). We have operating expenses which include match expenses - things like heating and lighting, paying the police and Showsec, payments to suppliers for food, accomodation and travel for an away game, etc. And there are other expenses throughout the year. Those were about £55m (which included £10m wages paid by other companies that were on behalf of City, so we repaid those as an expense (rather than wages).
But the second biggest expense in the accounts after those wages is something called player amortisation and that is the expense of buying players. When we buy someone, we don't put all the cost through the books in one go (or at least not through the profit & loss account) but split that cost over the life of the contract. That mean that buying a £25m player on a 5 year contract will incur annual amortisation of £5m. At the end of the first year, the first £5m is knocked off the original cost, meaning that player is "worth" £20m in our accounts. A year later, we charge another £5m so he's "worth" £15m. At that point, if we sell him for £25m we've made a £10m profit in acounting terms, despite the fact we only got what we paid for him. That profit is shown in the accounts although it's only on paper. That's one reason why sales are crucial as they impact the bottom line and hence how much we can, in theory, spend.
Let's say his wages come to £5m a year and that means the player will actually cost us a total of £10m a year. So let's assume we broke even one year and then bought that player. If we do nothing else financially and all other figures stay the same, that would mean we'd report a £10m loss at the end of the year. If we reported a £50m profit on the other hand, then we could in theory buy 5 such players costing us that £10m a year and still break-even. So knowing how much profit or loss we are going to report in the year ahead is a crucial part of the calculation.
But it's not just one year, if we buy those five £25m players for 5 years and can still break even in the first year, we have to be sure we will still break-even in the next 4 years or we risk failing FFP. But we can't be 100% sure what might happen in 4 or 5 years so have to be prudent in our spending or we could be forced to sell. And that's just one part of it.
As a club, we may have set wage bill restrictions, to keep them within a certain percentage of revenue or at a fixed level. If we're at the ceiling we've set then it will be 'one in, one out' regardless of how much we can, in theory, spend in the market on fees. There might be other constraints we want to work to, which might be profit related or to do with cash generation. We might have a target squad size or profile. So there may be many different considerations that need to be factored in when deciding how much we could or would want to spend. Which is why it's a question that can't be answered by me or anyone on here.
As it happens, I think next year (2015/16) will see us report excellent results, with significantly higher revenues and net profits in the £40m range. Some or all of the FFP sanctions may also be removed so we may have some leeway for a decent spend.
Thanks.
So in FFP terms, if UEFA doesn't downgrade the accounts this time, are you saying we're in profit (-7m + around 55m), if you isolate it to the most recent accounts?
The next accounts will be for the year to May 31st 2015 and should hopefully show a small profit. The accounts for the following season (2015/16) will show significantly better results due to:Silva_Spell said:So in FFP terms, if UEFA doesn't downgrade the accounts this time, are you saying we're in profit (-7m + around 55m), if you isolate it to the most recent accounts?
SilverFox2 said:I suppose our recent history has been to spend whatever our football experts feel we need to form a team that is capable of winning trophies.
At times FFP limited this spend but as our chairman says that pinch has been overcome and it is time to concentrate on the commercial side of the business.
Is it just possible that our spend on players will be limited by ADUG and have little to do with what FFP rules and regulations allow ?
I get the impression that our owners are looking for profit much more aggressively than the skewed yet also profit orientated FFP ones do.
aguero93:20 said:SilverFox2 said:I suppose our recent history has been to spend whatever our football experts feel we need to form a team that is capable of winning trophies.
At times FFP limited this spend but as our chairman says that pinch has been overcome and it is time to concentrate on the commercial side of the business.
Is it just possible that our spend on players will be limited by ADUG and have little to do with what FFP rules and regulations allow ?
I get the impression that our owners are looking for profit much more aggressively than the skewed yet also profit orientated FFP ones do.
No, concentrating on the commercial side of the business means raising revenues, not lowering costs. Our owner is from the royal family of an emirate that makes hundreds of millions every single day from oil sales, we're a PR exercise, he's not going to compromise our performance for the sake of squeezing 20 or 30 million in profit every year.