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Financial Fair Play


The Moos

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I found this article and found it quite interesting.

Financial Fair Play (FFP) – the three words that used to send shivers down my spine, when I first found out about the UEFA proposals to put an end to loss-making football clubs.

Yet surprisingly, Roman Abramovich was reportedly one of the biggest backers of FFP and UEFA initiatives. The English media put 2 and 2 together and got 5, claiming the main man was no longer interested in backing Chelsea financially.

Yet, our new £50 million signing is set to make his debut against his former employers on Sunday. How can it be possible?

Chelsea released a statement that they have become cash-positive for the first time under Roman Abramovich, whilst announcing a loss of £70.9 million. So having spent another £70 million in January, and with sources claiming Roman Abramovich is ready to bankroll an overhaul of playing staff in the summer – how can Chelsea possibly comply with the FFP criteria?

The key figure in all of this is the £68.6m operating loss. To those unaware of financial jargon, operating profit/loss is wages and amortised (read below) transfer fees taken away from total revenue to generate a figure, in our case a loss. For past 3 or 4 seasons, wages formed about 70-80% of our costs, last season’s figure being £167 million (excluding pensions and social security benefits).

Obviously for past 3 seasons we haven’t really spent that much, and although the sackings of managers have contributed to these costs, they only formed no more than 5% of the total spend.

From the start of 2011/2012 season clubs can post total losses of no more than €45 million for the following three seasons, or an equivalent of €15 million a year. With Chelsea revealing a £70.9 million loss and Manchester City a £121 million loss for one year, it seems unfeasible how the two clubs could possibly meet the requirements.

Yet only a few months ago Monsieur Platini claimed that Roman Abramovich was one of the biggest supporters of FFP. So what does Roman Abramovich know, that British press have failed to recognise – claiming we are staring into a possibility of being kicked out of UEFA Champions League?

Well it seems that the lazy journalism has prevailed, jumping on sensationalism and failing to pick up on key aspects of the FFP. UEFA will monitor spending whereby clubs are not allowed to spend more money than they earn. However, there are special dispensations whereby certain losses are allowed if they are funded by the owners (Moratti, Abramovich, Sheikh Mansour).

More importantly perhaps, for the monitoring period of 2011-12, 12-13, 13-14 the clubs are able to deduct wages of players whose contracts were signed before 1st June 2010 (which is the large majority of Chelsea’s high earners).

As mentioned previously, we spent £167 million on wages last season which contributed to our losses, but if you deduct the cost of all contracts that were signed before 1st June 2010 (likes of Lampard, Terry, Drogba), that figure is likely to be closer to £67 million. So according to UEFA and FFP our £70.9 million loss looks more like an operating profit of £29.1 million.

This view is supported by the club’s chief executive Ron Gourlay: “The club is in a strong position to meet the challenges of UEFA ‘financial fair play’ initiatives which will be relevant to the financial statements to be released in early 2013.â€

Chelsea of course have already begun the reduction of the wage bill, which wasn’t really reflected in the financial figures released. High earners like Michael Ballack, Joe Cole, Ricardo Carvalho and Deco have all left. Their replacements – Yossi Benayoun (£60,000 per week reportedly), David Luiz (£35,000 p/w reportedly), Ramires (£25,000 p/w reportedly) – may have cost a total of £44.5 million but earn significantly less.

This is where transfer amortisation comes in. Transfer amortisation is an accounting term in football whereby the cost is allocated among the period of player’s contract. So for example – David Luiz is costing us £3.8 million per annum for the next 5 and a half years on top of his wages.

So what does the future hold for Chelsea? Of course nobody can tell for sure, as far as some are concerned the world is coming to an end in 2012. But I believe the following might happen in the next 2 to 3 years:

• Senior players on high wages – either being sold, released, retiring or taking massive pay cuts.

• Chelsea (and other clubs) willing to pay higher prices for players, and paying lower wages (as already seen with Luiz and Ramires).

• Chelsea (and other clubs) handing out longer contracts so that transfer fees can be amortised over longer periods.

• Clubs tying ‘marquee’ players to long-term (8, even 10 years) contracts.

• Sponsors paying wages directly for ‘marquee’ players (a pattern that has already emerged in Brazil).

• Naming rights to Stamford Bridge being sold.

Well-informed sources claim that Roman Abramovich is keen to spend further in the summer months as he takes a more hands-on approach on Chelsea signings. It makes sense as a lot of highly-paid club officials in charge of recruitment policy are departing in the summer (Hans Gillhaus, Frank Arnesen and a host of others).

Of course the press have been trying to convince us (the football fans) that he has been meddling with transfers ever since he got here, a claim a certain Claudio Ranieri recently refuted.

If signing two long-term targets who happen to be world class players is an example of Abramovich “interference†and “panic buying†– then I’ll happily take more of that.

Doesn't sound as bad as I imagined.

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Some club owners are so filthy rich that you know they are not in football for the money, only for the glory. Where as owners like Gilette/Hicks, Glazers, Lerner, Henry are all in it for one thing and one thing only $$$$$$$$$$$$$$$$$$$$$$$$$

Uefa are not going to stop people like Roman and Sheikh Mansour from pumping £££ into football, not when owners like Glazers continue to take the money away from football.

Edited by coco
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I don't know why anyone in their right mind would adopt the words "financial fair play" when describing these new rules. It should really be called the "Fifa corruption rules" because that is what it really is.

For starters, there is nothing "fair play" about ensuring clubs only spend the level of revenue they have an no more. All it does is artificially and corruptly make it impossible for clubs with smaller revenue bases to compete with clubs with larger revenue bases.

Second, it unfairly advantages clubs in Spain and Italy where the clubs sell television rights individually rather than collectively like in England. The England model is far better, far fairer and makes for a more competitive and exciting league, but it hold down the big English clubs revenue wise compared to their counter-parts in Spain. Fifa know this and do it anyone because the organisation is corrupt.

Thirdly, the rules fail in their very stated purpose to make clubs more financially stable. Reporting huge financial losses DOES NOT make a club's finances unstable if their is an owner happy/willing to absorb these losses, it's clubs going into massive debt's that does. Clubs go broke due to debts, NOT heavy spending. Man City is probably the most stable club financially in the Europe because the club has basically no debts. Portsmouth got into the position they were in because of debt not spending.

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All it does is artificially and corruptly make it impossible for clubs with smaller revenue bases to compete with clubs with larger revenue bases.

Second, it unfairly advantages clubs in Spain and Italy where the clubs sell television rights individually rather than collectively like in England.

I can't think what the motives were behind these new regulations.

Edited by Backbiter
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I thought this is a good idea, just so everyones aware, im a liverpool fan and with the ownership fiasco we endured and the almost tragic ending that nearly arose i just hope these rules are rushed in quick, itll stop clubs loading up debt to the point of unsustainability. We nearly went bankrupt, man utds buried under a mountain of debt along with real and barcelona ?, it cant carry on and from a chelsea point of view, if roman released chelsea FC although financially sound in his possession, youll have to find upwards of 60m a yr to balance the books ?, thats got to scare you just a little bit, thats a huge gap to close over a long period of time, no club is to big to fall victim to these tragedies.

on the plus note, could you really see Real, Man U, Barca and Chelsea not permitted in the champions league ?, i cant :)

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on the plus note, could you really see Real, Man U, Barca and Chelsea not permitted in the champions league ?, i cant :)

You and Blatter agree then, I heard him interviewed by an English journo on 5live yesterday, he said the same.....

The Swiss Fifa president also cast doubt on Uefa proposals to bring financial parity to clubs across Europe.

Uefa president Michel Platini has introduced measures where clubs must break even over a rolling three-year period from the 2012-2013 season or they could incur bans from European competitions.

With English clubs having spent £225m in the January transfer window, Blatter said he approved of the idea but could not see how it would work effectively.

"Concerning the money [in English football] and the mechanism of the economy, we can only deplore that but we cannot intervene," he stated.

"I do hope that Michel Platini will succeed but I don't know how. It's not so easy. The principle is good but how can you stop that? They say that they have this financial fair play also supported by the European Union in Brussels, but they have other problems to deal with other than football."

http://news.bbc.co.uk/sport1/hi/football/9387891.stm

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This article from Sporting Intelligence goes into more detail.

It's clear that whilst we won't have an immediate problem it will become an issue over time.

I can understand the desire to stop clubs piling up debt and getting themselves in to financial difficulty but fundamentally I believe in the free market. It isn't the place of government or regulators to dictate how a business is funded beyond ensuring that it is within the law. If a club wants to gamble and it fails then it will go the way of Leeds. If someone with a lot of money wants to buy a club and invest in it then they should be allowed. There is no prerogative that says there should be a level playing field. There never has been and never will be. The FFP rules simply serve to ensure the maintenance of the status quo. The Madrid's, Barcelona's, Utd's and Bayern's of this world will continue to dominate. Little wonder that there is support for the initiative amongst the top European clubs.

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For my sin's I am an accountant, and I have worked with (although not done it myself) people who have audited premier league clubs.

Seems to be a grey area regarding the amortisation of players transfer fees. My gut instinct knowing the rules around amoritsation of assets well (yawn yawn) that you would naturally amortise over the life of the contract (as per the piece above) , and maybe impair the asset should the players performance drop (subjective) or injury ??....... I don't know how Chelsea do this. There is an argument for some players to appreciate, i.e. we should put a postive figure to the P&L because we will sell them for more eventually. I am consumed with interest over this because it does effect the profit of clubs, I assume all clubs have to follow the financial rules, but blimey for accoutants it is a nightmare really.. .how do you value the asset of a player that a club holds. One of my ex-colleagues claimed that they write off straight to P&L because it was impossible, but then some clubs hold valuable assets. Maybe they just work on a cash basis on players, so realise the profit when sold on... who knows :-)

Having said all this, my point is I dont think that transfer fees are a good messure of a clubs financial fair play. They do however need the cash flow to make the payment of cash to another club, this is where it is interesting that Chelsea spend this money after announcing positive cash flow.

If anyone has some futher knowledge I would be interested.

Right back to my spreadsheet ::ChElSeaFLag::

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Ive mentioned many times about our biggest salaries all coming off the books by 2013, but I didnt realise that rule means we are knocking nearly 100mil off the wage structure in regards to the FFP setup.

Another consideration, which is also in direct relation, is that any players sold after a set date ( I can not recall) will have their sales counted as 100% profit, even if just bought the transfer window below. So when Drogba/Anelka/Malouda etc move on, if sold past that date those sales will be 100% profit revenue allowing us to spend even more within the rules....So in theory, if that date is in the summer and we decide for whatever reason to sell Torres for a massive loss at 25mil, thats counted as a 25mil profit towards the new rules.

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Ive mentioned many times about our biggest salaries all coming off the books by 2013, but I didnt realise that rule means we are knocking nearly 100mil off the wage structure in regards to the FFP setup.

Another consideration, which is also in direct relation, is that any players sold after a set date ( I can not recall) will have their sales counted as 100% profit, even if just bought the transfer window below. So when Drogba/Anelka/Malouda etc move on, if sold past that date those sales will be 100% profit revenue allowing us to spend even more within the rules....So in theory, if that date is in the summer and we decide for whatever reason to sell Torres for a massive loss at 25mil, thats counted as a 25mil profit towards the new rules.

Edit: As we all know this setup is flawed from the get go. Owners who pour money into the sport, ala Roman?Sheik, are not harming the sport despite popular belief, it only hurts the traditional "big club" rivals. What hurts the sport is clubs who spend outside of their means and thus pump money out of the sport due to interest payments. Who care if us or City spend 250million in players during 1 window? We can afford to do so.

They can claim its unsustainable, that if Roman left we'd crash. Yet thats flawed for 2 reasons.

First, Roman is a shrewd business man, you can not dispute that. No matter how he got his cash, ethical or not, you have to be quite intelligent and crafty to become and stay billionaire, even when spending so lavishly on toys like Roman does..... The type of person capable of that will not walk away on a "nearly 1 billion pound" investment without a means of recouping atleast the majority of that.....Simply put, he will sell the club to someone with deep pockets in order to garauntee maximum return on his investment..... and as we have seen, their does not seem to be a shortage of megawealthy individuals/corps who want to buy a club thats a English/European power house and now a household name worldwide within the "football community".

Second, I dont get the logic. They are trying to ensure 2 things, finiancial fairness? Thats such a joke I wont even delve into that. The second, more noble "motivaton" is to provide stability to the finiancial scene in football, make sure its "sustainable" without a "sugar daddy". Yet, I dont see anyone giving UEFA head execs crap for spending lavishly on the things they like such as hotels/cars/etc etc. Its "unsustainable" without their rather large salaires, no? So, by the same logic, UEFA should not allow their employees to spend that kind money because if they lose their "sugar daddy" salaries, they wouldnt not be able to maintain that lifestyle...It would provide unstable! I cant comprehend how they dare to try and tell Roman/Sheik how they can spend their cash!

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I have just seen this posted on another forum and thought it summed the situation up brilliantly.

So in essence - those who wish to put money INTO football are barred but those who suck money OUT of football are allowed
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I have just seen this posted on another forum and thought it summed the situation up brilliantly.

sums up how currupt the governing bodies are really. Anyone without regular champions league and a 70k seater stadium will suffer, if they try to improve their squads via the transfer Market.

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I have just seen this posted on another forum and thought it summed the situation up brilliantly.

So in essence - those who wish to put money INTO football are barred but those who suck money OUT of football are allowed

You didnt have to go on another forum to read that, it's in this thread ...

Some club owners are so filthy rich that you know they are not in football for the money, only for the glory. Where as owners like Gilette/Hicks, Glazers, Lerner, Henry are all in it for one thing and one thing only $$$$$$$$$$$$$$$$$$$$$$$$$

Uefa are not going to stop people like Roman and Sheikh Mansour from pumping £££ into football, not when owners like Glazers continue to take the money away from football.

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You didnt have to go on another forum to read that, it's in this thread ...

Ok clever arse..... ::clap2::

It just shows how ridiculous it is though doesnt it. If anything this far play thing will make it even harder for a club to rise above its current station without financial input as the clubs in the champions league are going to be massively better off as long as they stay make the top in our country. How is that fair play?

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What makes me laugh are owners like Henry up at slumfield, who continue to go crying to the media that it's "not a fair playing field" (like it ever was), but as soon as the media are gone he is there with his hand out taking the £50m cash, and then goes to the north east and offers over the odds £ for their star man, what a f**king hypocrite.

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What makes me laugh are owners like Henry up at slumfield, who continue to go crying to the media that it's "not a fair playing field" (like it ever was), but as soon as the media are gone he is there with his hand out taking the £50m cash, and then goes to the north east and offers over the odds £ for their star man, what a f**king hypocrite.

Ah but all their money has came from themselves, they earned it dont you know and definitely were never backed by any rich people like all those gauche clubs are now. Their club is rife with hypocrisy, the mere fact they slag us off or doing pretty much what they did in the 70`s is proof of that.

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The latest football rich list shows Barcelona and Real Madrid well on top, largely as a result of the uneven distribution of broadcasting rights from domestic competitions. Liverpool fans will no doubt be in denial over the fact that they again earned less than ourselves.

article-1355310-0D1C43EE000005DC-461_306x498.jpg

LINK

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I see, so if i got this, a club with a large expenditure would just play accountant tricks to balance the books for the FFP (i heard mention of amortisation, removel of player wages ?), if this was the case then it wouldnt really effect these clubs anyway ?, essentially becoming un-enforcable and would only really show an effect if your income and expenditure cant be fiddled with enough when you make huge signings ?.... it also wouldnt stop a businessmen with dubious background to pile debt onto a club and let it sink, because essenitially its loaded against income and expenditure anwyays ?, with or without FFP.

if this is the case, then whats the point ? :P, it does have a goal, to stop spending, i can see that clearly, with it trying to benefit the larger fanbased clubs.... but could this perhaps offer a layer of protection for a club like chelsea or city ?, having your books balanced should roman or the sheikh do a runner ? (im not saying either will)

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Here's some more detail. The Daily Heil version is a bit simplistic:

http://www.guardian....purs?intcmp=239

Interesting to note that only Hamburg, Man U and Arsenal receive a higher percentage of their income from matchday revenue than ourselves. The effects of new, improved sponsorship deals, naming rights and so on, should see an improvement in the current figure of 27% earned from commercial sources.

Of course statistics can be deceptive when taken out of context. That Villa receive 58% of their total income from broadcasting rights surely reflects a lower overall income, rather than a massively greater amount of extra income earned in this area.

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Interesting to note that only Hamburg, Man U and Arsenal receive a higher percentage of their income from matchday revenue than ourselves. The effects of new, improved sponsorship deals, naming rights and so on, should see an improvement in the current figure of 27% earned from commercial sources.

Of course statistics can be deceptive when taken out of context. That Villa receive 58% of their total income from broadcasting rights surely reflects a lower overall income, rather than a massively greater amount of extra income earned in this area.

I seem to remember hearing Bruce Buck saying we have a good income already with the stadium we have and they were looking for ways to boost it without moving, maybe this shows it can be done after all.

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I seem to remember hearing Bruce Buck saying we have a good income already with the stadium we have and they were looking for ways to boost it without moving, maybe this shows it can be done after all.

I know they've been taking about the naming rights to Stamford bridge, maybe this is one of the avenues theyl go down to improve income. don't think any of us would be happy about it but if it can honestly help us compete at the highest level then maybe itl be possible.

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