City launch legal action against the Premier League | City win APT case (pg901)

[gordondaviesmoustache]

And there was me thinking at at the time we all thought Leicester were in on a fix with the league to win it

We didn’t all think that!

 

[MadchesterCity]

Reading the thread, I have seen some posters say shareholder loans or equity can be used to spend money on players etc. But shareholder loans are not money earned (turnover) which is what the PSR is based on.

Whilst the shareholder loans can help with cashflow or reduce some interest costs due to low interest rates (might not be allowed going forward if these are tested for arms length principle), these loans or even if converted to equity will not equate to turnover and therefore be not much help towards PSR.

Agree I honestly can’t understand this, could you add a billion in 0% share holder loans and use that to buy new players and avoid PSR and FFP rules?

 

[chris85mcfc]

Reading the thread, I have seen some posters say shareholder loans or equity can be used to spend money on players etc. But shareholder loans are not money earned (turnover) which is what the PSR is based on.

Whilst the shareholder loans can help with cashflow or reduce some interest costs due to low interest rates (might not be allowed going forward if these are tested for arms length principle), these loans or even if converted to equity will not equate to turnover and therefore be not much help towards PSR.

I thought the PSR rules were that effectively you could only lose £105m over 3 seasons? Don't think they're based on turnover at all, will be profitability if anything.

So regardless of what the loan is actually spent on, in having a shareholder loan there is a direct saving on interest costs, had that loan been bought on the 'High street', which is currently increasing (or not reducing profitability).

For example, Arsenal are saving ~£25-£30m a year in interest, which would impact their Profit for PSR purposes.

That's my understanding of PSR anyway, and is what I'd say is the drawback of allowing shareholder loans.

But you're right, whether they spend that loan on players is largely irrelevant for PSR purposes, unless new signings result in an increase in player amortisation.

 

[Albeeeert]

Reading the thread, I have seen some posters say shareholder loans or equity can be used to spend money on players etc. But shareholder loans are not money earned (turnover) which is what the PSR is based on.

Whilst the shareholder loans can help with cashflow or reduce some interest costs due to low interest rates (might not be allowed going forward if these are tested for arms length principle), these loans or even if converted to equity will not equate to turnover and therefore be not much help towards PSR.

They can be used to cover losses of up to £105m over three years and so can contribute to squad costs. But the issue is the interest free element, because that isn't fair market value, so whatever they would have paid in interest at a fair market rate should have been included in their outgoings on the PSR balance sheet.

 

[chris85mcfc]

Agree I honestly can’t understand this, could you add a billion in 0% share holder loans and use that to buy new players and avoid PSR and FFP rules?

Not sure any owner of any business in their right mind, would sanction that unless they had some form of guaranteed annual return, or a payback schedule of the loan itself.

Spending a billion quid doesn't guarantee shareholder wealth, they'd probably prefer it to be spent on infrastructure!

 

[arbabarshad]

I thought the PSR rules were that effectively you could only lose £105m over 3 seasons? Don't think they're based on turnover at all, will be profitability if anything.

So regardless of what the loan is actually spent on, in having a shareholder loan there is a direct saving on interest costs, had that loan been bought on the 'High street', which is currently increasing (or not reducing profitability).

For example, Arsenal are saving ~£25-£30m a year in interest, which would impact their Profit for PSR purposes.

That's my understanding of PSR anyway, and is what I'd say is the drawback of allowing shareholder loans.

But you're right, whether they spend that loan on players is largely irrelevant for PSR purposes, unless new signings result in an increase in player amortisation.

Profitability is directly related to turnover. PSR being profitability and sustainability rules, is also related to turnover.

Interest or financing costs (external or shareholder loans) are usually a small amount in a P&L even if a business is highly geared. In your example of arsenal saving £25m a year, whilst it is a large amount in its own right, relative to turnover and some of the other costs such as players wages or amortisation, it is a small cost. So there is benefit in using shareholder loans (or was up until now) but if tested for arms length principle, it won't be a significant benefit going forward.

 

[Stoned Rose]

I hope it felt nice :-)

Fragrant.

 

[Stoned Rose]

Pics?

Reserved only for @gordondaviesmoustache eyes sorry love.

 

[Barcon]

Reserved only for @gordondaviesmoustache eyes sorry love.

Tease.

 

[Rammy Blue]

Agree I honestly can’t understand this, could you add a billion in 0% share holder loans and use that to buy new players and avoid PSR and FFP rules?

Yes, yes, yes, what a great idea! Wonder why no one has ever thought of it!? Brilliant.