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.
