Go figure - new blog article about City's accounts

[Cityfan]

Sorry Cityfan. didn't see your post when I replied.

The way I worked out the wages was to look at the assumed wages of players we have sold or won't be keeping and knock them off the current figure. I got a figure of over £57m to deduct but, as you say, we really don't know what the real figure is. If that's correct however, that would leave the core wage bill at around £120m. I then added on £15m for the three new players (Clichy, Aguero & Nasri) and allowed some more for new contracts.

As for the amortisation, the thing to remember is that it gets re-apportioned when players sign new contracts. So if we sign someone for £25m on a 5 year contract, we charge £5m a year. After three years their book value will be £10m but if they sign a new contract, we re-charge that £10m over the 5 years, giving a revised amortisation charge of £2m a year. I've got quite a detailed spreadsheet where I've made assumptions on who will be staying and who will be going and the figure I got for 2010/11 is quite close to the one in the accounts.

What you have projected may be correct and you are looking at it from a bottom up point of view and trying to accurately estimate things. I am not a buisnessman or have anything to do with accounting but looking at it from a more comparative top down view.

With regards to the wages we do have a reputaton of paying a premium. There is a strong suggestion that Nasri preferred us over United in part because of the wages. I think it is realistic that our wage costs will end up slightly above those of our neighbours. I guess it is possible that last year represented a bit of a peak for them because of the likes of Neville, Scholes and VdS who being experienced players were probably paid a bit of a premium. Do you think it is likely that we will pay more than them for our squad?

Your assumptions on amortisation may be accurate but if we maintain squad cost of approx £300M it would imply that they will have average contracts extended to 10 years to reach an annual rate of £30M which seems a little unlikely to me. Nowadays players and their agents seem very aware of their value and contract renegotiations are often pricey for the top players in either wages or fees as United found last year with Rooney and we appear to be finding with DeJong.

 

[morleyswife]

L

 

[MAXXI]

top blog pb. this should be sent to the football correspondents at every national newspaper, the men, ssn, espn, bbc & talkshite.

OH yeah specially to "The Sun" of Bitch

 

[Gary James]

Great financial analysis as always by PB. I've said it before but it's worth reminding people that City's financial experts know what they are doing and they will ultimately create a club that becomes the model of how a football club should be run.

Football should never have financial restrictions in place (other than rules that any other business should follow - debts and so on should all be based on normal business practices), but when it does those clubs that have strong, knowledgeable, astute leaders will always find the right way to cope.

A lot of rubbish keeps being written about City's finances, but those who read Bluemoon should know that with PB and others we have real expertise and a genuine desire to set the record straight.

 

[Prestwich_Blue]

Sorry Cityfan. didn't see your post when I replied.

The way I worked out the wages was to look at the assumed wages of players we have sold or won't be keeping and knock them off the current figure. I got a figure of over £57m to deduct but, as you say, we really don't know what the real figure is. If that's correct however, that would leave the core wage bill at around £120m. I then added on £15m for the three new players (Clichy, Aguero & Nasri) and allowed some more for new contracts. That won't happen in one go however but is looking a couple of years ahead.

As for the amortisation, the thing to remember is that it gets re-apportioned when players sign new contracts. So if we sign someone for £25m on a 5 year contract, we charge £5m a year. After three years their book value will be £10m but if they sign a new contract, we re-charge that £10m over the 5 years, giving a revised amortisation charge of £2m a year. I've got quite a detailed spreadsheet where I've made assumptions on who will be staying and who will be going and the figure I got for 2010/11 is quite close to the one in the accounts.

Your assumptions on amortisation may be accurate but if we maintain squad cost of approx £300M it would imply that they will have average contracts extended to 10 years to reach an annual rate of £30M which seems a little unlikely to me. Nowadays players and their agents seem very aware of their value and contract renegotiations are often pricey for the top players in either wages or fees as United found last year with Rooney and we appear to be finding with DeJong.

When we talk about contracts with respect to amortisation, we're talking about transfer value and we only pay that once. When we renegotiate a contract on a player we've bought, we simply re-apportion the current book value over the length of the new contract. It doesn't matter what that player is worth.

We've spent an awful lot of money over the last 4 seasons so amortisation is high and will be higher again probably this financial year (although not by much). But I've assumed our spend will come down significantly as we build a more settled squad and mainly replace like for like. I'm sure there will still be some net spend but it won't be anything like that of the last 3 seasons. Plus a lot of the deadwood we're charging high amortisation on have gone or will be going and won't be replaced. We still charge amortisation for players on loan as well.

If we do carry on spending heavily then I agree my assumption is wrong.

 

[moomba]

Very interesting stuff on amortisation PB, I feel that I almost have a basic understanding of the whole concept which for me is a minor miracle.

Just to clarify, in the case of someone like Adebayor, if he is sold in the summer is it right that the sale price less the unamortised figure then goes onto the accounts as a profit or loss.

But if we've written off his unamortised value through an extraordinary expense, then anything we get from a sale just goes down as pure profit?

 

[halfcenturyup]

Very interesting stuff on amortisation PB, I feel that I almost have a basic understanding of the whole concept which for me is a minor miracle.

Just to clarify, in the case of someone like Adebayor, if he is sold in the summer is it right that the sale price less the unamortised figure then goes onto the accounts as a profit or loss.

But if we've written off his unamortised value through an extraordinary expense, then anything we get from a sale just goes down as pure profit?

Yeppo<br /><br />-- Mon Nov 21, 2011 9:26 pm --<br /><br />Looking at the numbers again PB, do you think Adebayor is included in the extraordinary write-down? I had a quick look and thought the unamortised values would be around: Bellamy 6 mill, Bridge 4 mill, RSC 8 mill, Jo 4 mill. Seems to me we have to include Ade in there (value around 15 mill) to get near the number recorded. Thoughts?

 

[Cityfan]

When we talk about contracts with respect to amortisation, we're talking about transfer value and we only pay that once. When we renegotiate a contract on a player we've bought, we simply re-apportion the current book value over the length of the new contract. It doesn't matter what that player is worth.

We've spent an awful lot of money over the last 4 seasons so amortisation is high and will be higher again probably this financial year (although not by much). But I've assumed our spend will come down significantly as we build a more settled squad and mainly replace like for like. I'm sure there will still be some net spend but it won't be anything like that of the last 3 seasons. Plus a lot of the deadwood we're charging high amortisation on have gone or will be going and won't be replaced. We still charge amortisation for players on loan as well.

If we do carry on spending heavily then I agree my assumption is wrong.

I realise the deadwood will be taken out which is surely the purpose of the impairmanet provision and may knock £10-15M off the bill but surely the purpose of amortisation is to apportion costs to the year when they are used so a large spend can be spread over a number of years when managing the accounts? Whereas there may be a short period when apparents costs can come down dramatically if we have amortised for a five year contract and we extend to seven the reality is that these players still have to be replaced as Chelsea have discovered which puts up the cost a little further down the line.
Our current champions league squad which contains none of the deadwood players (Except possibly Onouha and Tevez ) cost approx £320M from the papers estimates of transfer fees. If this is about 23 players the average cost including ones like Richards /Hart who were free and cheap is £14M. If the average total contract length is 7 years which is I feel optimistc and there is no transfer inflation this still represents an average year of amortisation of £46M.
When you consider the difficulty other team have in developing top quality players and the recent prices paid by Chelsea and Liverpool I think that getting costs much under this may be optimistic.

 

[VOOMER]

Should have added these figures to the article, which I've just added to the accounts thread. This is my best guess at what our FFPR results will look like. Obviously these are pure guesswork to a large degree but as we're allowed €45m in aggregate losses, there's a large margin for error.

2011/12
Result per accounts -£85m
FFPR adjustment +£120m (possibly conservative)
FFPR result £35m profit


2012/13
Result per accounts -£20m
FFPR adjustment +£30m
FFPR result £10m profit

That means our first FFPR assessment in 2013/14 will show a surplus of £45m. PASS

2013/14
Result per accounts +£15m
FFPR adjustment +£20m
FFPR result £35m profit

Therefore our second FFPR assessment in 2014/15 will show a surplus of £80m. PASS

And this isn't including the new shirt deal and would be based on very conservative estimates for both further global commercial partnerships and general merchandising. Shit, I can see us having a £80 million transfer kitty each and every season, but infact not needing it all, as the youth set up clicks into action.