I thought I would take this blog to answer one of the questions I receive most often. How is it possible for Premier League clubs to spend exorbitant amounts on new players and still remain compliant with the Financial Fair Play rules now in effect? Don’t the millions they spend violate the rules on maintaining breakeven incomes? There are a number of reasons the clubs expect to remain FFP compliant, but the most vital one is based on a core accounting principle.
When a club incurs a cost it is treated one of two ways depending on the source. If the cost is related to a benefit that is only applicable to the current year (ex. buying medical tape for the squad) it is treated as an expense . If the cost is incurred for a benefit that is realized over multiple years (ex. improving the stadium) it is capitalized. A cost incurred for a benefit never realized is called a ‘Bebe‘. I kid because I love.
A capitalized cost is then divided over the usable lifetime of the asset. In the case of a player the usable lifetime is the length of his contract. For example, Chelsea have signed André Schürrle to a 5 year contract for £18m. The cash cost is likely to be £18m paid out immediately to Bayer Leverkusen, however the cost of the transfer for accounting/FFP purposes is £3.6m per year.
What about multiple players?
That puts big transfer price tags in the perspective of a FFP-conscious club. The annual cost does increase as you stack up more transfer in a single year but it makes it more plausible that a club that has spent millions over the past 5 years could actually be compliant. Let’s take a look at Manchester City (shockingly one of the clubs most often linked to this question in my mail).
Below is a schedule that lays out the amortized costs of ManCity’s transfer spending over the last 5 years.
At the peak in 2012-13, the annual cost of the spending spree totals €94m. The actual number is less important than seeing how the headline grabbing sums are actually spread out for FFP matters.
A monthly compilation of interesting business news related to soccer. September 2012.
Transfer spending rises in England, France and Germany – September 3rd
Spending in the summer transfer window has increased year-on-year in England’s Premier League, France’s Ligue 1 and Germany’s 1.Bundesliga, but has reduced in Italy’s Serie A and Spain’s Primera Division, according to analysis by Deloitte.
The business advisory firm said that player transfer spending by Premier League clubs was around £490 million in the 2012 summer window, marginally up from the £485 million spent in summer 2011 but just short of the £500 million record of 2008. Transfer fees to overseas clubs were around £300 million, almost 50% up on the level seen in 2011.
Manchester United chief executive David Gill will put club allegiances to one side if successful in bid to represent England on Uefa board – September 4th
Manchester United chief executive David Gill will put his club allegiances to one side in his bid to represent England on the board of UEFA.Gill will stand for election as the Football Association’s nominee to the influential 16-strong body that decides on the European football governing body’s policies.
An election will be held at the UEFA Congress in London next May when all the 53 member nations will each have a vote.
You may have heard about the Financial Fair Play Regulations (FFPR). In the works since 2009, the rules are the sword which UEFA’s Michel Platini hopes will slay the dragon of financial excess in the European soccer economy. The legislation requires clubs to be financially break even or profitable without the help of cozy financing schemes (*ahem* ̶R̶o̶m̶a̶n̶ Sheik Mansour) while also maintaining or improving debt levels. The carrots offered to compliant clubs are reduced costs and financial stability, inducements which fall somewhere between an actual carrot and a package of underwear for Christmas. The stick that will compel clubs to fall in line is UEFA’s ability to deny entry to the Super Cup, the Europa League, and the Champions League. The glory and prizes are enough to give credence to Platini’s message: if you want to play at the highest level you will follow the rules.
There is no doubt which country currently sits on top of the iron throne of soccer. Spain. All foes have fallen at the hands feet of the Spanish national team for the past four years and La Furia Roja go into the summer as favorites to defend their European Championship title of 2008. Those odds are likely to carry over to the their bid to retain the World Cup in 2014. Domestically, La Liga attendance is high with the twin giants Barcelona and Real Madrid locked in a battle for the league title and on course to meet in this year’s Champions League final. The Spanish brand is also the strongest it has ever been with the rivalry of Messi v Ronaldo pulling in eyeballs from all over the globe and Spanish players in high demand across the continent for their technical brilliance.
So what happened to all the Manchester United IPO chatter? Last we heard the Glazers were in the middle of trying to price a deal in Singapore to sell between 25-33% of the club into the market.
The market indigestion of last fall, caused by the unpalatable downgrade of the United States’ credit rating and exacerbated by Europe’s continuing refusal to eat its peas, dropped these plans straight into the tank. Since then equity and credit markets have largely recovered their losses and are off to their best start to a year since 1994. I updated the graphic from last time to show market performance and some key events which have occurred since:
As it is likely that the Red Devil IPO-talk will start cooking again I thought it might be valuable to review the background and details of the transaction.
It has been a cold winter for Carlos Tevez. The fiery Manchester City striker has dug himself into a situation that has hurt his career, reputation, and bank account. The trouble began last with rumors of disagreements between Tevez and manager Roberto Mancini, things were left on a low simmer and promptly boiled over during City’s Champions League match with Bayern Munich where the striker refused to enter the game as a substitute. Tevez’s refusal arguably cost the club advancement to the knockout stages of the competition with a furious Mancini publicly lambasting and dropping him from the first team. Relations between player and club predictably plummeted to a new low with Tevez leaving the club to winter in Argentina. City subsequently docked him wages and actively sought to sell him to other clubs in response.
The Tevez situation has been cast as a personal spat by much of the soccer world; it is a regrettable product of the Argentinian’s temper, the Italian’s pride, and the modern reality of the game, but ‘Così è la vita!’ with eyes directed at the heavens. But some suspect that there is more to the situation than a simple clash of personalities. Many believe it is Kia Joorabchian, Tevez’s agent, who is encouraging the Argentinian to agitate for a big money transfer. Why? Because it is Joorabchian who has the most to benefit from Carlos Tevez on the move. Continue reading “Carlos, Kia, and Third-Party Ownership”→