The loan with an obligation to buy

[forevermancity]

slightly off topic, but has the ffp sanction now been lifted from us? can we go and spend 100m in jan or is it a season long sanction?

Personally I've never seen the logic behind believing it wouldn't apply to January as well. We should be completely free from sanctions next summer, in the meantime the sanctions still allow us to spend around £40m in January if we feel we have any issues within the squad to address.
Last time we signed anyone in January was the loan deal for Pizarro though, so it's doubtful we'll see much activity barring serious injuries to key players.

cheers mate

 

[aguero93:20]

I was of the understanding that this is nothing to do with FFP ?

Valencia currently have no money to speak of for a large outlay, however they are in the final stages of being taken over by Peter Lim (tried to buy scousehampton in 2010) who does indeed have cash and has been the driving force behind wanting Negredo. By doing business this way Lim and Valencia have there man and once all the paperwork has been completed then Lim will be investing enough that the transfer can be paid as permanent. Until then the loan was the only option as Lim cannot invest until all the I's are dotted and the T's are crossed.

They're in exactly the same position they would be in if they'd agreed a permanent transfer with £2m up front and the rest paid in instalments as they have to cough up the rest of the fee regardless of whether Lim's takeover goes through so that's not the reason behind it mate. The only clubs that pay large transfer fees up front are ourselves, Chelsea and PSG anyway.


@Cleavers,
According to Jorge Mendes it's the same for Falcao, the transfer went through so late that I haven't checked Monaco's website yet.

 

[Chippy_boy]

Not necessarily. If completion is conditional on any events then you cannot account for it up front. It would be simple to put some nominal conditions in so that only the loan fee hits the p&l.

If you are obliged to buy, with no break clause as Valencia are, then it becomes a cash flow issue only, not a p&l one, prudence requires you to recognise the expense.

The entire transfer expense, or just the loan fee? So far I understand that clubs just put the loan fee as an expense in that year's FFP expenses but I don't see why it should be treated any differently to a permanent deal whose payments are spread over say 5 years. For FFP purposes that would involve a club immediately taking a full hit of the fee over the length of the players contract

@Aguero: No-one on here has seen the contracts have they mate.

@Marvin: If it's a truly unconditional contract then I don't think Valencia would get away with only accounting for £2m of spend. It would be treated as a £26m transaction and extended payment terms, which would mean all £26m of spend would be in this window and it would be amortised as you suggest.

If the £2m loan fee construct is to get around FFP, then there must be some contingency in the contract. Accounting standards don't judge how likely such contigencies are however, so it could be dependent on him playing more than 3 games for example. That would be enough to make it a conditional contract and therefore only the loan fee would count at this time.

 

[aguero93:20]

@Chippy boy
Confirmed by Valencia CF yesterday that it's a loan with definite obligation to buy. If there were specific get out options it would be an option to buy, unless you've seen something the rest of us haven't there's no reason to believe otherwise.

 

[Chippy_boy]

I was of the understanding that this is nothing to do with FFP ?

Valencia currently have no money to speak of for a large outlay, however they are in the final stages of being taken over by Peter Lim (tried to buy scousehampton in 2010) who does indeed have cash and has been the driving force behind wanting Negredo. By doing business this way Lim and Valencia have there man and once all the paperwork has been completed then Lim will be investing enough that the transfer can be paid as permanent. Until then the loan was the only option as Lim cannot invest until all the I's are dotted and the T's are crossed.

They're in exactly the same position they would be in if they'd agreed a permanent transfer with £2m up front and the rest paid in instalments as they have to cough up the rest of the fee regardless of whether Lim's takeover goes through so that's not the reason behind it mate. The only clubs that pay large transfer fees up front are ourselves, Chelsea and PSG anyway.


@Cleavers,
According to Jorge Mendes it's the same for Falcao, the transfer went through so late that I haven't checked Monaco's website yet.

See my post above. We haven't seen the contract so we don't know how watertight the obligation to buy is. It might be an obligation in all practical reality, but not from an accounting point of view because of some arbitrary conditional terms.

 

[Chippy_boy]

@Chippy boy
Confirmed by Valencia CF yesterday that it's a loan with definite obligation to buy. If there were specific get out options it would be an option to buy, unless you've seen something the rest of us haven't there's no reason to believe otherwise.

See above again. The fine wording in the actual contract is the key and we haven't seen it. If no such wording exists the there would have been no reason why this was not structured as a £26m sale with £2m payable up front and £24m in a year. This latter structure would have benefitted us greatly, especially if we want/need to spend in January. So the fact we have not got this is for a reason.

 

[aguero93:20]

@Chippy boy
Confirmed by Valencia CF yesterday that it's a loan with definite obligation to buy. If there were specific get out options it would be an option to buy, unless you've seen something the rest of us haven't there's no reason to believe otherwise.

See above again. The fine wording in the actual contract is the key and we haven't seen it.

Even if you're right, it's still a blatant dodge and at the very least the rags will have to register the transfer fee as a contingent liability, which means we'll find out more.

 

[cleavers]

@Cleavers,
According to Jorge Mendes it's the same for Falcao, the transfer went through so late that I haven't checked Monaco's website yet.

Thanks, wasn't aware of that, surely though it would have been more benefit to pay the full fee now, while they aren't subject to FFP, rather than defer till next year, when they might be (though hopefully the same will apply next year too).

I thought they had loaned him because there was not enough time to give him a full stringent medical ?

 

[Chippy_boy]

@Chippy boy
Confirmed by Valencia CF yesterday that it's a loan with definite obligation to buy. If there were specific get out options it would be an option to buy, unless you've seen something the rest of us haven't there's no reason to believe otherwise.

See above again. The fine wording in the actual contract is the key and we haven't seen it.

Even if you're right, it's still a blatant dodge and at the very least the rags will have to register the transfer fee as a contingent liability, which means we'll find out more.

Who are you talking about at the rags?

I thought Falcao was just a straight loan with option to buy deal, i.e. business as usual? It's the loan with obligation to buy construct that is somewhat odd and open to interpretation.

 

[aguero93:20]

@Cleavers,
According to Jorge Mendes it's the same for Falcao, the transfer went through so late that I haven't checked Monaco's website yet.

Thanks, wasn't aware of that, surely though it would have been more benefit to pay the full fee now, while they aren't subject to FFP, rather than defer till next year, when they might be (though hopefully the same will apply next year too).

I thought they had loaned him because there was not enough time to give him a full stringent medical ?

No idea, first I've heard if so.
They will be assessed on this season as part of the 3 year rolling period if they get into Europe, eg if they get Europa League this year, then at the end of next season they'll be assessed on 12/13, 13/14 + 14/15, it's not a free ride, they might just not want the fee on their books until the Adidas deal kicks in next season and they're probably hoping to add CL money to that as well.

 

[aguero93:20]

See above again. The fine wording in the actual contract is the key and we haven't seen it.

Even if you're right, it's still a blatant dodge and at the very least the rags will have to register the transfer fee as a contingent liability, which means we'll find out more.

Who are you talking about at the rags?

I thought Falcao was just a straight loan with option to buy deal, i.e. business as usual? It's the loan with obligation to buy construct that is somewhat odd and open to interpretation.

Mendes claim obligation to buy, not option.

 

[Chippy_boy]

Even if you're right, it's still a blatant dodge and at the very least the rags will have to register the transfer fee as a contingent liability, which means we'll find out more.

Who are you talking about at the rags?

I thought Falcao was just a straight loan with option to buy deal, i.e. business as usual? It's the loan with obligation to buy construct that is somewhat odd and open to interpretation.

Mendes claim obligation to buy, not option.

Thanks - I hadn't heard that.

 

[pardoeofftomexico]

Who are you talking about at the rags?

I thought Falcao was just a straight loan with option to buy deal, i.e. business as usual? It's the loan with obligation to buy construct that is somewhat odd and open to interpretation.

Mendes claim obligation to buy, not option.

Thanks - I hadn't heard that.

All the newspaper reports refer to United having a straightforward loan with an option to buy Falcao. That would make sense to me in view of his injury record.

In the case of Negredo if Valencia wanted to delay the purchase for 12 months they could have put in cross options that allow either City to enforce the sale or Valencia to enforce the purchase at that time.

 

[kupest]

Who are you talking about at the rags?

I thought Falcao was just a straight loan with option to buy deal, i.e. business as usual? It's the loan with obligation to buy construct that is somewhat odd and open to interpretation.

Mendes claim obligation to buy, not option.

Thanks - I hadn't heard that.

I think its an option to buy. I havn't seen Mendes being quoted just his name being thrown around. Don't the Rags have to announce the fee on the stock market?

 

[cleavers]

In the case of Negredo if Valencia wanted to delay the purchase for 12 months they could have put in cross options that allow either City to enforce the sale or Valencia to enforce the purchase at that time.

I think they just wanted to delay it till their takeover completes, I'm sure City knew that which is why we agreed it, it wouldn't surprise me if the money is paid in full when it does complete.

 

[117 M34]

Can't be arsed reading it all so may have already been mentioned. The reason it is going through next year is because they are waiting for their takeover to go through

 

[aguero93:20]

Mendes claim obligation to buy, not option.

Thanks - I hadn't heard that.

I think its an option to buy. I havn't seen Mendes being quoted just his name being thrown around. Don't the Rags have to announce the fee on the stock market?

This is from memory from an interview yesterday but:

"It is a permanent transfer for Falcao, we just call the first year a loan for FFP"
-Mendes

 

[johnmc]

Right so the club have agreed an obligation to buy with Valencia with no clauses some people believe. So what contract has Negredo signed with Valencia? He wont have signed a 3 or 4 year deal so his registration is still with us. There is no way we can enforce him to sign for Valencia next year if he doesnt want to. So say Real come in, and he wants to go there, then Madrid are now negotiating for a 30 year old.

I do not see how we could force him to sign a contract if he didnt want to.

 

[aguero93:20]

Right so the club have agreed an obligation to buy with Valencia with no clauses some people believe. So what contract has Negredo signed with Valencia? He wont have signed a 3 or 4 year deal so his registration is still with us. There is no way we can enforce him to sign for Valencia next year if he doesnt want to. So say Real come in, and he wants to go there, then Madrid are now negotiating for a 30 year old.

I do not see how we could force him to sign a contract if he didnt want to.

Presumably since he and his agent spent Sunday and Monday in negotiations with Valencia he's agreed and signed a pre contract.

 

[cleavers]

Right so the club have agreed an obligation to buy with Valencia with no clauses some people believe. So what contract has Negredo signed with Valencia? He wont have signed a 3 or 4 year deal so his registration is still with us. There is no way we can enforce him to sign for Valencia next year if he doesnt want to. So say Real come in, and he wants to go there, then Madrid are now negotiating for a 30 year old.

I do not see how we could force him to sign a contract if he didnt want to.

Why do you want to convince yourself that City have f**ked up ? Why is it so hard to believe that we have people that know what they are doing ?