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

[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.

 

[arbabarshad]

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!

Agree with this.

The risks attached to this industry are relatively higher than other industries. Therefore, shareholder loans would most certainly have guarantees against tangible assets and most likely be spent on infrastructure projects.

Sheikh Mansour has been shrewd, as you would expect, in investing the business over a period of time, resulting in capital growth. And has taken out significant chunk of his investment in the form of share sale to silverlake or the chinese. Therefore reducing his overall investment at risk should the CFG fail in future or go downhill, although that risk is also very well managed with the diversification across the globe.

 

[chris85mcfc]

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.

Probably crossed wires, as your original post said that it's based on turnover (money earned), but it's actually based on profitability (money retained).

I've not got figures to hand, but fairly sure Arsenal have made 'small' losses in the last couple of years (from memory), which are likely to still clear PSR. However, I'd imagine they'd be in a spot of bother if they have to retrospectively include the savings made from their shareholder loans?

Fairly sure I've seen someone else mention something similar as well.

 

[arbabarshad]

Probably crossed wires, as your original post said that it's directly linked to turnover (money earned), but it's actually directly linked to profitability (money retained).

I've not got figures to hand, but fairly sure Arsenal have made 'small' losses in the last couple of years (from memory), which are likely to still clear PSR. However, I'd imagine they'd be in a spot of bother if they have to retrospectively include the savings made from their shareholder loans?

Fairly sure I've seen someone else mention something similar as well.

Agree with both.

 

[MadchesterCity]

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

But clubs have, Chelsea did it and Arsenal have 300M extra in the bank not scrutinised by FFP because of this?

 

[manimanc]

Makes you wonder how the rags could splurge millions and millions each season without any questions being raised.

 

[Albeeeert]

But clubs have, Chelsea did it and Arsenal have 300M extra in the bank not scrutinised by FFP because of this?

It doesn't work like that, they could have a trillion in the bank and give the club another trillion £ loan, they can only spend based on what they earn (with allowable losses of up to £105m over three seasons).

 

[The Future’s Blue!]

Makes you wonder how the rags could splurge millions and millions each season without any questions being raised.

Shhhhhhhhhh, nobody will notice.

 

[slbsn]

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.

You’ve missed the point. Currently interest free/low interest related party or AP loans don’t count for COSTS. When they do, COSTS increase unless converted to equity.

 

[arbabarshad]

You’ve missed the point. Currently interest free/low interest related party or AP loans don’t count for COSTS. When they do, COSTS increase unless converted to equity.

I kind of covered the point in my post so not disagreeing with it.

My point was money from RP or AP loans can’t just substitute turnover. It only helps by a very small amount (7%-8% of the overall loan amount per year over the last 1-2 years). Prior to that, it would be around 2.5% - 3%. So not necessarily material.