Financial Fair Play/Financial Report (merged)

[Dj1979]

Re: Financial Fair Play will not affect us.

Can anybody explain in very simple words , i am getting a headache !!

Let's say we buy a player for £25m on a 5 year contract. We don't charge the whole £25m as an expense in one go but we divide the value of the contract by the number of years and use that value as the figure we charge as an expense.

So in theory we'd charge £5m a year for that player to the profit and loss accounts for the 5 years of his contract. The accounting value of that player is reduced by the same amount each year so he'll be in the books at £20m after Year 1, £15m after Year 2 and £10m after Year 3. If we then renegotiate a new contract over 4 years, we do the same thing for the new contract so divide the £10m by 4, charging £2.5m to the accounts each year.

If we sell the player, then we subtract his book value from whatever we receive for him, which gives the profit or loss on sale. So if we get £12m after the first 3 years, we've made a £2m profit. If we only get £8m, we've made a £2m loss.

This might sound srupid but could we sign a player for 20 mil then sign him on a ridiculous amount of years say 20 in his contract so his value will be spread over said period but have clauses in his contract that any one of the parties can terminate the contract after 5 years so its effectively a 5 year deal but 20 on paper. Then if we sold the player 3 years into his contract for 20 mil would it not then show a 17 mil profit on the player or would contract stipulations be factored into it?

 

[BluessinceHydeRoad]

Re: Financial Fair Play will not affect us.

The effect of FFPR is one of the great unknown factors in world sport. City are confident that the club will have no problem while others believe we have no chance of meeting the requirements. I would trust the business brains on the board at City rather than a rag-bag of journalists and other scaremongers, but we don't know. The assumption is that FFPR is a stitch up to prevent City's wealth from blowing the cosy world of the “big clubs” apart, but this ignores some basic facts.

The first of these facts is that City are not the only club to rely on a wealthy owner for finance. In fact our owner is clear that this reliance is temporary and he has a plan to put a definite time limit on it. Inter is the “biggest” name to be totally dependent on a wealthy benefactor and it's feeling the pain of complying now – if it is trying to meet FFPR rather than adapting to the crisis in the Italian economy. The model of the massively rich benefactor is not unique to City, or England and there will be many more casualties than City if UEFA apply these rules rigidly.

The second fact is that critics believe that the problems arising out of FFPR face City: the club will be judged and pass or fail. In fact UEFA has some sizeable problems. The first is scale. Platini has admitted that about 70% of top flight clubs operate at a loss and that time is required to get the finances in order. The courts will not allow him to apply his rules selectively, and it is hard to see how they would allow him to prevent shareholders investing in their own clubs/businesses. If he did this while doing nothing about debt, he would be seen as acting in favour of a cartel, especially as the likes of Gill etc played such a major part in framing the rules.

City will, however, not mount a legal challenge. The return the Sheikh wants on his investment may not be immediate profit from the club, so much as the development of the site into a gold mine, and the association of Abu Dhabi with a successful club, but he will probably feel that these objectives cannot be achieved if City appears as the great stirring, trouble maker of world football initiating messy legal actions and being seen to throw tournaments into chaos. With such a healthy long term plan for the club and its finances I think Platini and UEFA will think very carefully before attacking a club which is doing literally everything on the UEFA prescription for the re-establishment of the health of football.

 

[1an3]

Re: Financial Fair Play will not affect us.

Bit OT, but what were the 'sanctions' of the PL FFP-esque scheme proposed recently?

 

[Prestwich_Blue]

Re: Financial Fair Play will not affect us.

Can anybody explain in very simple words , i am getting a headache !!

Let's say we buy a player for £25m on a 5 year contract. We don't charge the whole £25m as an expense in one go but we divide the value of the contract by the number of years and use that value as the figure we charge as an expense.

So in theory we'd charge £5m a year for that player to the profit and loss accounts for the 5 years of his contract. The accounting value of that player is reduced by the same amount each year so he'll be in the books at £20m after Year 1, £15m after Year 2 and £10m after Year 3. If we then renegotiate a new contract over 4 years, we do the same thing for the new contract so divide the £10m by 4, charging £2.5m to the accounts each year.

If we sell the player, then we subtract his book value from whatever we receive for him, which gives the profit or loss on sale. So if we get £12m after the first 3 years, we've made a £2m profit. If we only get £8m, we've made a £2m loss.

This might sound srupid but could we sign a player for 20 mil then sign him on a ridiculous amount of years say 20 in his contract so his value will be spread over said period but have clauses in his contract that any one of the parties can terminate the contract after 5 years so its effectively a 5 year deal but 20 on paper. Then if we sold the player 3 years into his contract for 20 mil would it not then show a 17 mil profit on the player or would contract stipulations be factored into it?

There are two good reasons why we wouldn't do that I suspect. The first is that the contract should reflect the useful working life of the asset and 20 years is too long for a player. The second is that there is an general accounting principle that you should take a prudent view. So if there's a chance the contract could be terminated after 5 years then you'd have to be prudent & assume it would be.

In your example, if we used 20 years we'd charge £1m per year. His value would therefore be reduced by £3m at the end of Y3 so his book value would be £17m, giving a £3m profit on sale (20 - 17). If we did it over 5 years, we'd charge £4m a year for 3 years then show a profit of £12m at the end of Y3. So both would even out.

 

[cibaman]

Re: Financial Fair Play will not affect us.

Also, once we reach a steady state where we're spending roughly the same on transfers every season, the amounts being amortised will roughly equate to our annual transfer spend.

 

[Ladybarn Blue .]

Re: Financial Fair Play will not affect us.

The effect of FFPR is one of the great unknown factors in world sport. City are confident that the club will have no problem while others believe we have no chance of meeting the requirements. I would trust the business brains on the board at City rather than a rag-bag of journalists and other scaremongers, but we don't know. The assumption is that FFPR is a stitch up to prevent City's wealth from blowing the cosy world of the “big clubs” apart, but this ignores some basic facts.

The first of these facts is that City are not the only club to rely on a wealthy owner for finance. In fact our owner is clear that this reliance is temporary and he has a plan to put a definite time limit on it. Inter is the “biggest” name to be totally dependent on a wealthy benefactor and it's feeling the pain of complying now – if it is trying to meet FFPR rather than adapting to the crisis in the Italian economy. The model of the massively rich benefactor is not unique to City, or England and there will be many more casualties than City if UEFA apply these rules rigidly.

The second fact is that critics believe that the problems arising out of FFPR face City: the club will be judged and pass or fail. In fact UEFA has some sizeable problems. The first is scale. Platini has admitted that about 70% of top flight clubs operate at a loss and that time is required to get the finances in order. The courts will not allow him to apply his rules selectively, and it is hard to see how they would allow him to prevent shareholders investing in their own clubs/businesses. If he did this while doing nothing about debt, he would be seen as acting in favour of a cartel, especially as the likes of Gill etc played such a major part in framing the rules.

City will, however, not mount a legal challenge. The return the Sheikh wants on his investment may not be immediate profit from the club, so much as the development of the site into a gold mine, and the association of Abu Dhabi with a successful club, but he will probably feel that these objectives cannot be achieved if City appears as the great stirring, trouble maker of world football initiating messy legal actions and being seen to throw tournaments into chaos. With such a healthy long term plan for the club and its finances I think Platini and UEFA will think very carefully before attacking a club which is doing literally everything on the UEFA prescription for the re-establishment of the health of football.

Very well said , i wish i could write like that .

 

[bluefoever]

Re: Financial Fair Play will not affect us.

The other important thing is that Platini's son is PSG lawyer. End of it.

 

[Pam]

Re: Financial Fair Play will not affect us.

Buy falcao

 

[HolisticJim]

Re: Financial Fair Play will not affect us.

All looks great on paper but unfortunatley judging by our transfer activity it looks like FFP IS effecting us.

What I find more supprising is that Chelsea seem to be able to spend, buying an incredible team (and are now linked with Fellani) and dont have the same concerns as us.

 

[cleaner475]

Re: Financial Fair Play will not affect us.

Financial Fair Play (FFP) has been implemented to create greater competition. However, nothing will happen to Chelsea, PSG or even ourselves for that matter, and there are a couple of reasons why.

1) Losses Exclusions: Stadium infrastructure, youth and fixed assets do not count.
2) Player Transfer/Wages Amortization: The players’ wages and transfer fees equal to a yearly loss based on the contract that they have signed. Also, contracts signed prior to June 1, 2010 do not count.
3) Gaps in the UEFA license ban: If a club fails to show that it is sustainable and posts a negative loss below the FFP threshold they can escape a European ban. This can occur by two ways, i) by showing the trend of losses is improving; and ii) the over-spend is predominantly caused by the wages of players contracted prior to June 2010.
4) Allowed Loss: With an owner who is capable of contributing their wealth into balancing the financials, then the club is allowed to lose 45million per year over the monitoring period and not be punished.

Example – Manchester City:
2011/2012 reported loss – 97.9 mill
Stadium Infrastructure – 15 mill (excluded)
Wages (Prior June 1, 2010) – 80 mill (excluded)
Net Loss – 2.9 mill

Since we have a limit of negative 45 million, UEFA will view us as having a 42.1 million dollar profit.

Example – Player Transfer/Wages Amortization:
Take Sergio Aguero…
Transfer Fee: 35 million pounds
Wages: Say 200,000 pounds per wk (equals 10.4 mill per yr)
Contract: 5 years

Now, instead of adding the 35 million to our 11/12 losses, UEFA create an annual assessment (transfer fee/contract years). Therefore, the figure becomes: = (35,000,000/5) + 10,400,000 = 17.4 million
____

Hope I helped. Bottom line, City will not get punished, nor anyone else.

Quite a lot of this 'everything will be all right' theory is wrong. First of all, losses for the 2012-13 season are actually expected to increase from £97.9M after this summer's transfer activity.

Last season the club also received £12.8m from selling 'certain Design, Know-How and other Intellectual Property Rights to Abu Dhabi United Group and Investment & Development Limited'. Unless the club can justify this figure it is likely to be discounted from FFP due to the rule on ‘Related Party’ transactions.

With losses set to rise the club will also be unable to discount the £80M (or £52.5M of wages depending on who you believe) from FFP as that is only possible if the club's losses are reducing over time.

Essentially if City report an increased loss this year, they will fail FFP by around £148M.

http://www.financialfairplay.co.uk/...s-2011-12-accounts-the-devil-is-in-the-detail