Re: Financial Fair Play will not affect us.
cleaner475 said:
Golden Balls said:
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
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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
Are you Ed Thompson, the chap who owns that site? If so I know you have your own view and nothing will change it, despite the fact you're not clear on some basic concepts. Whether you are or not, if you're telling people they're wrong then it helps if you're not wrong yourself.
I don't understand why you believe losses are likely to increase as a result of some relatively modest (by our standards) transfer activity. One of the things Ed (you?) doesn't understand properly is amortisation of player contracts. As explained in the thread, the value of the contract is charged on a straight line basis over the life of that contract. However, when a contract is re-negotiated then the remaining book value is re-charged over the life of the new contract. To illustrate this, using the £25m over 5 years example, there will be a book value of £10m at the end of Y3. If the player then gets a new 4 year contract, amortisation will halve, going from £5m to £2.5m. Plus while we've bought a lot of players, many have left, which means we stop charging amortisation on them.
The net result is that, over time, unless we continue the same level of spending then amortisation will drop off significantly. I estimated an amortisation figure of £82m in 2011/12 and the actual figure was just over £83m so I think I've got a good handle on this now. On that basis, I estimate that amortisation on a like for like basis will be £53m this financial year. Our net spend was £40m according to the accounts so that should add another £8-9m this year, giving a total of around £62m, which is £20m less than 2011/12. So even if no other figure changed, then our losses would reduce by that amount.
That's not to say that our failure in the CL won't impact the bottom line but the transfer spending won't automatically make it worse.
The sale of IP rights took everyone by surprise and I don't know what that relates to but it could be something to do with trademarks or the new training complex/campus site. It is a related party transaction, as it involves our holding company, but that doesn't mean it will be automatically disqualified from the FFP calculation. What must happen is that the reporting entity (i.e. City not UEFA) have to declare whether it meets the fair value test and, if not, what the appropriate value would have been. Its not an "all or nothing" situation. Now I'm assuming our owners are not so stupid that they would artificially inflate this transaction and that, if challenged, they could justify it to the Licensing Panel. So I'm not too worried about that one.
Regarding the pre-2010 contract wages add-back, that figure also seems on the high side to me (my estimate was £55m) but if that's what the club says then I believe them. Why should they lie about a figure they will have to justify if UEFA or the FA carry out an FFP audit? We simply don't know what wages are paid to who and the figures of £180k a week quoted in the media for players like Tevez may be net, whereas these could be grossed up. Plus we've only considered first team players, who are just part of the overall squad. Even youngsters like Razak, Lopes and Suarez, who oars on the verge of the first team, are on at least £20k a week I believe.
There is certainly a possibility that unless we find an extra £25-30m this financial year that we will fail the first FFP assessment. I estimate we need to report turnover of £245m to scrape through. This year will see significant expenditure on the campus however and, assuming that's capitalised it won't hit the bottom line but I believe we can add it back for FFP purposes. So that might be our get-out.
But even if we do fail the first period the new Sky deal, as well as our deal with Nike, both kick in next financial year plus I believe there is at least one other mouth-watering commercial deal in the pipeline. So I'm confident we can demonstrate an improving financial result to UEFA & I anticipate a decent bottom line profit in 2013/14 of around £40-50m.
