This guy determined we will fail FFPR

[mcfcphil]

Hello, I write The Swiss Ramble blog and hope that you don’t mind me dropping in to this conversation, as I have been mentioned a couple of times (a City fan emailed me to bring the thread to my attention).

First up, a brief introduction: I’ve written extensively about football club finances, including Manchester City, in particular the club’s ability to meet UEFA’s Financial Fair Play regulations. At a time when most journalists were stating that it would be impossible for City to meet FFP targets, I explored how this might be achieved.

The last time that I wrote in detail on City was two years ago when I concluded: “It’s by no means an impossible dream for City to get close enough to break-even in order to satisfy FFP. It’s not quite the Masterplan that their famous fans, Oasis, once sang about, but it’s a smart strategy that has every chance of succeeding.”

You can read that article here, though I warn you that it’s long – the blog is not called a Ramble for nothing:

http://swissramble.blogspot.ch/2011/12/manchester-city-masterplan.html

In that piece I detailed how I thought it would be possible for City to improve their finances. As I said at the time, such an analysis inevitably requires making a few assumptions, but that should not materially affect the conclusions. That said, my estimate that City would reduce their 2010/11 loss of £197m to £88m was not too shabby, as they actually came in at £98m in 2011/12.

I also noted that City would benefit from a Transitional Factor in the FFP guidelines, as they would be allowed to exceed the “acceptable deviation” of €45 million by the costs of pre-June 2010 signings – so long as the 2011/12 deficit was only due to this factor.

As I am not a club insider (obviously), I had to use estimates to come up with the quoted £52.5m cost of the pre-June 2010 signings – which is clearly much lower than the £80m subsequently mentioned by City. There are some good reasons for this difference: (a) I only calculated a figure for “big name” players, not all the squad; (b) importantly, I excluded players whose contracts were extended after 1 June.

The second point was due to my interpretation of Annex XI clause 2 (ii) of the FFP regulations, which states, “It proves that the aggregate break-even deficit is only due to the annual break-even deficit of the reporting period ending in 2012 which in turn is due to contracts with players undertaken prior to 1 June 2010 (for the avoidance of doubt, all renegotiations on contracts undertaken after such date would not be taken into account).”

This has since been clarified in the 2013 edition of the UEFA Club Licensing and Financial Fair Play CL/FFP IT Solution Toolkit, in Appendix VI Section I on Transitional Factors, which lists some specific examples, e.g. if a player’s contract was renegotiated after June 2010 increasing his weekly salary from £75,000 to £100,000, the club can still exclude the original £75,000. Therefore, City can include the original cost of players that I had excluded, such as Joe Hart, Pablo Zabaleta, Adam Johnson and Micah Richards.

I also assumed that this clause only relates to salaries and not player amortisation. Although this has never been formally clarified (as far as I am aware), my informal discussions with UEFA suggest that it only relates to salaries.

For what it is worth, I agree with Prestwich Blue’s interpretation of how the 2010/11 player impairments will be treated. The FFP clauses he has quoted are the relevant ones IMHO and I think that it would be very difficult for UEFA to argue otherwise. It would be a different story if a club had royally taken the piss by, say, impairing (writing off the value of) their entire first team squad, but that is palpably not the case here.

I also believe that UEFA would struggle to treat the Etihad deal as a Related Party Transaction, though even in the hypothetical case that they did, then I’m not sure that City would have too much to worry about, given some of the other commercial deals at the time (and especially since then). In fact, I wrote about that back in July 2011, when I described the deal as “a well-considered plan that seems to me to be within both the letter and to a large extent the spirit of FFP.”

http://swissramble.blogspot.ch/2011/07/manchester-citys-incredible-deal-know.html

Obviously, these are just the thoughts of a humble blogger, but they are backed up by more than 25 years of experience in the world of finance. I’ve actually spent a few hours with the people responsible for FFP at UEFA’s offices in Nyon (at their invitation), when they told me that they had used some of my analysis in their meetings with football clubs to explain the regulations.

I hope that helps the debate.

Great stuff SR.

 

[shadygiz]

Hello, I write The Swiss Ramble blog and hope that you don’t mind me dropping in to this conversation, as I have been mentioned a couple of times (a City fan emailed me to bring the thread to my attention).

First up, a brief introduction: I’ve written extensively about football club finances, including Manchester City, in particular the club’s ability to meet UEFA’s Financial Fair Play regulations. At a time when most journalists were stating that it would be impossible for City to meet FFP targets, I explored how this might be achieved.

The last time that I wrote in detail on City was two years ago when I concluded: “It’s by no means an impossible dream for City to get close enough to break-even in order to satisfy FFP. It’s not quite the Masterplan that their famous fans, Oasis, once sang about, but it’s a smart strategy that has every chance of succeeding.”

You can read that article here, though I warn you that it’s long – the blog is not called a Ramble for nothing:

http://swissramble.blogspot.ch/2011/12/manchester-city-masterplan.html

In that piece I detailed how I thought it would be possible for City to improve their finances. As I said at the time, such an analysis inevitably requires making a few assumptions, but that should not materially affect the conclusions. That said, my estimate that City would reduce their 2010/11 loss of £197m to £88m was not too shabby, as they actually came in at £98m in 2011/12.

I also noted that City would benefit from a Transitional Factor in the FFP guidelines, as they would be allowed to exceed the “acceptable deviation” of €45 million by the costs of pre-June 2010 signings – so long as the 2011/12 deficit was only due to this factor.

As I am not a club insider (obviously), I had to use estimates to come up with the quoted £52.5m cost of the pre-June 2010 signings – which is clearly much lower than the £80m subsequently mentioned by City. There are some good reasons for this difference: (a) I only calculated a figure for “big name” players, not all the squad; (b) importantly, I excluded players whose contracts were extended after 1 June.

The second point was due to my interpretation of Annex XI clause 2 (ii) of the FFP regulations, which states, “It proves that the aggregate break-even deficit is only due to the annual break-even deficit of the reporting period ending in 2012 which in turn is due to contracts with players undertaken prior to 1 June 2010 (for the avoidance of doubt, all renegotiations on contracts undertaken after such date would not be taken into account).”

This has since been clarified in the 2013 edition of the UEFA Club Licensing and Financial Fair Play CL/FFP IT Solution Toolkit, in Appendix VI Section I on Transitional Factors, which lists some specific examples, e.g. if a player’s contract was renegotiated after June 2010 increasing his weekly salary from £75,000 to £100,000, the club can still exclude the original £75,000. Therefore, City can include the original cost of players that I had excluded, such as Joe Hart, Pablo Zabaleta, Adam Johnson and Micah Richards.

I also assumed that this clause only relates to salaries and not player amortisation. Although this has never been formally clarified (as far as I am aware), my informal discussions with UEFA suggest that it only relates to salaries.

For what it is worth, I agree with Prestwich Blue’s interpretation of how the 2010/11 player impairments will be treated. The FFP clauses he has quoted are the relevant ones IMHO and I think that it would be very difficult for UEFA to argue otherwise. It would be a different story if a club had royally taken the piss by, say, impairing (writing off the value of) their entire first team squad, but that is palpably not the case here.

I also believe that UEFA would struggle to treat the Etihad deal as a Related Party Transaction, though even in the hypothetical case that they did, then I’m not sure that City would have too much to worry about, given some of the other commercial deals at the time (and especially since then). In fact, I wrote about that back in July 2011, when I described the deal as “a well-considered plan that seems to me to be within both the letter and to a large extent the spirit of FFP.”

http://swissramble.blogspot.ch/2011/07/manchester-citys-incredible-deal-know.html

Obviously, these are just the thoughts of a humble blogger, but they are backed up by more than 25 years of experience in the world of finance. I’ve actually spent a few hours with the people responsible for FFP at UEFA’s offices in Nyon (at their invitation), when they told me that they had used some of my analysis in their meetings with football clubs to explain the regulations.

I hope that helps the debate.

spot on fella ;)

 

[BertTrautmann'sParachute]

This thread is like an episode of Only Fools & Horses in which some stranger is giving it the big 'un in the Nag's Head when suddenly the Driscoll brothers walk in.

 

[baildon blue]

This thread is like an episode of Only Fools & Horses in which some stranger is giving it the big 'un in the Nag's Head when suddenly the Driscoll brothers walk in.

Your right Bert . But Only Fools & Horses was a lot more fun .

 

[gordondaviesmoustache]

This thread is like an episode of Only Fools & Horses in which some stranger is giving it the big 'un in the Nag's Head when suddenly the Driscoll brothers walk in.

Your right Bert . But Only Fools & Horses was a lot more fun .

Oh I'm not sure, BB, I'd say it's been pretty entertaining watching a fool make an even bigger fool of himself.

 

[Skashion]

This has since been clarified in the 2013 edition of the UEFA Club Licensing and Financial Fair Play CL/FFP IT Solution Toolkit, in Appendix VI Section I on Transitional Factors, which lists some specific examples, e.g. if a player’s contract was renegotiated after June 2010 increasing his weekly salary from £75,000 to £100,000, the club can still exclude the original £75,000. Therefore, City can include the original cost of players that I had excluded, such as Joe Hart, Pablo Zabaleta, Adam Johnson and Micah Richards.

I also assumed that this clause only relates to salaries and not player amortisation. Although this has never been formally clarified (as far as I am aware), my informal discussions with UEFA suggest that it only relates to salaries.

Hello, and welcome Swiss Ramble. I read some of your blog articles and they have always been instructive so thank you.

Without having spotted this, I would leave it there with my welcome but I'd just like to seek your opinion of how mad this is. The reason for these transitional factors would be to assume that UEFA cannot, and would be in a tricky position legally, if it enforced sanctions due to contracts signed prior to the rules coming into effect. The basis being that had those rules been in effect, those contracts would not have been signed, or would have had dramatically different terms. Given that:
a) How can you exclude amortisation, it's a huge part of the contract and one which of course could vary hugely depending on financial rules in effect and sanctions thereby.
b) Even further, how the in the world of fuck, can you exclude the original £75,000. If you've increased the wages, surely that means the deal would have taken place regardless of the new rules and therefore the full £100,000 should be included in the calculation because the renegotiation shows that in full view of the new rules, the player was worth the original wage and more.

To me, that is mind boggling. It seems completely backwards to do that. Logic dictates it should be the amortisation which is excluded and renegotiated wages - assuming they stay the same or rise, should be fully accounted for.

 

[oakiecokie]

Just had another read of SR great piece from 201/12 and this from the replies he had,didn`t half make me smile :

AnonymousDecember 1, 2011 at 7:26 PM
I tend to agree with some of your projections but and it's a massive BUT, I think your estimates for wages both in the short and long term are extremely unrealistic and it will be this factor which ultimately makes it impossible for City to pass Uefa's FFP regulations. I note that this time last year you projected the 2010/11 wage increase to be £20m when in actual fact it was £41m. I think your biggest oversight when looking at City's wages is that you don't make any allowance for the standard 'built-in' inflationary increases in the existing player's contracts. For a club like City this is likely to be in the order of 10-15% pa. On a related point I can't see any allowance for new contracts signed in this financial year (Hart, Richards, Zabaleta, A.Johnson with De Jong and Kompany likely to follow shortly).

If I've calculated correctly you project City's 2011/12 wage bill to be £187m. I can state with a very high degree of confidence that it will in fact be north of £200m. The idea that under the current adminstration, City will reduce their wage bill to £153m in the years to come is just a complete and utter fantasy as far as I'm concerned.

GCHQ

I would love to see this fuckers face now !!

 

[The Fat el Hombre]

Ahhh swiss ramble. Was gonna tweet him and see if he'd put his view on here actually. He da man

 

[SwissRamble]

This has since been clarified in the 2013 edition of the UEFA Club Licensing and Financial Fair Play CL/FFP IT Solution Toolkit, in Appendix VI Section I on Transitional Factors, which lists some specific examples, e.g. if a player’s contract was renegotiated after June 2010 increasing his weekly salary from £75,000 to £100,000, the club can still exclude the original £75,000. Therefore, City can include the original cost of players that I had excluded, such as Joe Hart, Pablo Zabaleta, Adam Johnson and Micah Richards.

I also assumed that this clause only relates to salaries and not player amortisation. Although this has never been formally clarified (as far as I am aware), my informal discussions with UEFA suggest that it only relates to salaries.

Hello, and welcome Swiss Ramble. I read some of your blog articles and they have always been instructive so thank you.

Without having spotted this, I would leave it there with my welcome but I'd just like to seek your opinion of how mad this is. The reason for these transitional factors would be to assume that UEFA cannot, and would be in a tricky position legally, if it enforced sanctions due to contracts signed prior to the rules coming into effect. The basis being that had those rules been in effect, those contracts would not have been signed, or would have had dramatically different terms. Given that:
a) How can you exclude amortisation, it's a huge part of the contract and one which of course could vary hugely depending on financial rules in effect and sanctions thereby.
b) Even further, how the in the world of fuck, can you exclude the original £75,000. If you've increased the wages, surely that means the deal would have taken place regardless of the new rules and therefore the full £100,000 should be included in the calculation because the renegotiation shows that in full view of the new rules, the player was worth the original wage and more.

To me, that is mind boggling. It seems completely backwards to do that. Logic dictates it should be the amortisation which is excluded and renegotiated wages - assuming they stay the same or rise, should be fully accounted for.

I tend to agree with you on player amortisation. As you say, it's an inherent part of the total cost associated with signing a player, so I'm not sure that it makes sense to treat this differently from salary costs in terms of the transition stage.

On the other hand, I think that the clause on not taking any salary increases after June 2010 into consideration is a reasonable compromise, as those increases would have been made in full knowledge of the FFP regulations.

 

[gordondaviesmoustache]

Hello, I write The Swiss Ramble blog and hope that you don’t mind me dropping in to this conversation, as I have been mentioned a couple of times (a City fan emailed me to bring the thread to my attention).

First up, a brief introduction: I’ve written extensively about football club finances, including Manchester City, in particular the club’s ability to meet UEFA’s Financial Fair Play regulations. At a time when most journalists were stating that it would be impossible for City to meet FFP targets, I explored how this might be achieved.

The last time that I wrote in detail on City was two years ago when I concluded: “It’s by no means an impossible dream for City to get close enough to break-even in order to satisfy FFP. It’s not quite the Masterplan that their famous fans, Oasis, once sang about, but it’s a smart strategy that has every chance of succeeding.”

You can read that article here, though I warn you that it’s long – the blog is not called a Ramble for nothing:

http://swissramble.blogspot.ch/2011/12/manchester-city-masterplan.html

In that piece I detailed how I thought it would be possible for City to improve their finances. As I said at the time, such an analysis inevitably requires making a few assumptions, but that should not materially affect the conclusions. That said, my estimate that City would reduce their 2010/11 loss of £197m to £88m was not too shabby, as they actually came in at £98m in 2011/12.

I also noted that City would benefit from a Transitional Factor in the FFP guidelines, as they would be allowed to exceed the “acceptable deviation” of €45 million by the costs of pre-June 2010 signings – so long as the 2011/12 deficit was only due to this factor.

As I am not a club insider (obviously), I had to use estimates to come up with the quoted £52.5m cost of the pre-June 2010 signings – which is clearly much lower than the £80m subsequently mentioned by City. There are some good reasons for this difference: (a) I only calculated a figure for “big name” players, not all the squad; (b) importantly, I excluded players whose contracts were extended after 1 June.

The second point was due to my interpretation of Annex XI clause 2 (ii) of the FFP regulations, which states, “It proves that the aggregate break-even deficit is only due to the annual break-even deficit of the reporting period ending in 2012 which in turn is due to contracts with players undertaken prior to 1 June 2010 (for the avoidance of doubt, all renegotiations on contracts undertaken after such date would not be taken into account).”

This has since been clarified in the 2013 edition of the UEFA Club Licensing and Financial Fair Play CL/FFP IT Solution Toolkit, in Appendix VI Section I on Transitional Factors, which lists some specific examples, e.g. if a player’s contract was renegotiated after June 2010 increasing his weekly salary from £75,000 to £100,000, the club can still exclude the original £75,000. Therefore, City can include the original cost of players that I had excluded, such as Joe Hart, Pablo Zabaleta, Adam Johnson and Micah Richards.

I also assumed that this clause only relates to salaries and not player amortisation. Although this has never been formally clarified (as far as I am aware), my informal discussions with UEFA suggest that it only relates to salaries.

For what it is worth, I agree with Prestwich Blue’s interpretation of how the 2010/11 player impairments will be treated. The FFP clauses he has quoted are the relevant ones IMHO and I think that it would be very difficult for UEFA to argue otherwise. It would be a different story if a club had royally taken the piss by, say, impairing (writing off the value of) their entire first team squad, but that is palpably not the case here.

I also believe that UEFA would struggle to treat the Etihad deal as a Related Party Transaction, though even in the hypothetical case that they did, then I’m not sure that City would have too much to worry about, given some of the other commercial deals at the time (and especially since then). In fact, I wrote about that back in July 2011, when I described the deal as “a well-considered plan that seems to me to be within both the letter and to a large extent the spirit of FFP.”

http://swissramble.blogspot.ch/2011/07/manchester-citys-incredible-deal-know.html

Obviously, these are just the thoughts of a humble blogger, but they are backed up by more than 25 years of experience in the world of finance. I’ve actually spent a few hours with the people responsible for FFP at UEFA’s offices in Nyon (at their invitation), when they told me that they had used some of my analysis in their meetings with football clubs to explain the regulations.

I hope that helps the debate.

Thank you for taking the time to come on here SR. I wondered if you'd be good enough to answer a question I've been struggling to elicit a response from others on, as I'm genuinely interested on your take on this, given your knowledge of FFP.

Given the new financial landscape imposed by UEFA, where do you see City sitting as a footballing force in five years time?

I personally believe that , if anything, FFP will assist City - the drawbridge effect - and that we will continue to grow as a club to the point where we are one of the top six clubs in Europe. I say this in light of the "FFP-Free" areas of committed expenditure in and around the stadium, the resources and commercial nouse of our owners, the continuing rise of English club football as a global brand and the fact that we are approaching compliance in any event.

I would really value your thoughts on the effects on my football club over the next few years of the subject that you write about with such authority. The "bigger picture" if you will.