Long term contracts: plus and minus?

[bluechampion7891]

Amortisation. Big plus with longer-term contracts - particularly as long as those bent UEFA twats are messing about in our shop.

I thought amortisation was only worked out based on the first deal signed.

So for instance we signed Silva in 2010 for £25m on a 4 year deal. Amortisation would be £6.25m per season until 2014 then his fee is off our books.

I am probably wrong, but lets say Silva signed a 4 years deal worth 25 million in wages and had a transfer fee of 25 million. He would show up as 12.5 million per year till 2012, where he signed a new contract.

Now, half his transfer amortization has gone, so that still leaves 12.5 million. Lets say his contract was 30 million over 5 years. That adds 6 million a year for his wages and 2.5 million per year for the rest of his transfer fee so that would show up as 8.5 million per year from 2012 onward.

Now he has signed a new 5 year contract in 2014 say worth 30 million again (the same), that would show up as 6 million/year in wages. He still has 7.5 million in transfer amortization left, so 1.5 million/year is also added. So, now he would show up as 7.5 million/year on the books.

So with this method, with newer contracts, you can significantly reduce what a player appears on the books in terms of amortization even if you increase his wages (assumed constant here).

But all this assumes that transfer amortization gets carried into the next contract.

 

[MCRJON]

The new contracts have several wins for the club. Most people have already got the general theme that they are on lower basic wages and much higher bonus packages because the bonus element does not count towards the FFP calculation.

Also City have some of the bonuses insured against.

Finally a lot of them are back loaded, this is all sorts of good business. So using basic figures we sign Ged Brannen on a 5 years £10m deal, basic logic is that we pay him:

Year 1 - £2m, Year 2 £2m, Year 3 £2m, Year 4 £2m, Year 5 £2m.

Some of the new deals are like this

Year 1 - £0m, Year 2 £1m, Year 3 £2m, Year 4 £3m, Year 5 £4m.

This encourages 'loyalty' and also means our outgoings for the FFP calcuation are much smaller in the short term and bigger in the long term when were commercially better off.

 

[CityFan94]

It really depends on the player.

I think handing out big contracts to the likes of Kompany, Silva and Aguero can only be a positive.

Having your best players, and top players in the country, tied down long term is a fantastic thing to have.

 

[Chippy_boy]

I thought amortisation was only worked out based on the first deal signed.

So for instance we signed Silva in 2010 for £25m on a 4 year deal. Amortisation would be £6.25m per season until 2014 then his fee is off our books.

Correct.

But you could style a new long-term deal as an extension of the existing one. I think that would be how they would handle all these renewals for current players. They were certainly on about that with Nasri.

Also correct. You could sign a player for £33m on a 3 year deal and then after 2 years you'd have £11m still on the books with £22m written down already. You could offer them a 2 year contract extension and instead of taking an £11m hit that year, you'd spread the £11m over the remaining 3 years and only expense £3.3m/year.

 

[I'm With Stupid]

There's no minus if they're a great player. Especially if it's heavily incentive based. It also means that you get much more money if you do decide to sell someone. The main problem we've had in the past is offering long contracts on huge wages to players we knew wouldn't be in the first team for that long. And then it becomes difficult to shift them from the books, because no-one will take their wages on (Bellamy, Santa Cruz, etc).

 

[BLUEisville]

Correct.

But you could style a new long-term deal as an extension of the existing one. I think that would be how they would handle all these renewals for current players. They were certainly on about that with Nasri.

Also correct. You could sign a player for £33m on a 3 year deal and then after 2 years you'd have £11m still on the books with £22m written down already. You could offer them a 2 year contract extension and instead of taking an £11m hit that year, you'd spread the £11m over the remaining 3 years and only expense £3.3m/year.

Ah, so if a player's contract was £20m / 4 years but you structured it £1m - £2m - £5m - £12m, like the poster above suggested, you could offer a new contract for the 4th year and spread the £12m across the new contract?

So the same £20m / 4 years with the 4th year carried in would be 4/5/8/15? That right?

I can see how that would help.