An FFP Question

[P3te]

Something just popped into my mind regarding financial fair play and I was hoping someone might have an answer for it. We know that clubs are allowed to overspend by a maximum of £45m per season domestically, but that the owner has to put that entire sum back into the club in a form that cannot be a loan (ie: they have to give the money to the club with no strings attached), with a total of £105m allowed per 3 season period. That's now well established, but I've never seen anyone  address one potentially huge factor in FFP:

What happens if a club stockpiles its profit?

 

Let's say Club A decides that they're going to go down the austerity route, and having gotten up to break even, they decide to release a little more money for the playing side, but still want to be generating profit of around £20m per season. Next, they go and get a monster sponsorship deal and sell stadium rights which is worth an additional £20m per season to them. They're generating £40m profit per year, but not spending any of it. After 5 years has passed they decide that now that they've got £200m in cash sitting in the bank they want to spend it.

 

Can they?

 

Or are they stuck to the rules mentioned in the first paragraph and can still only spend £45m more than they bring in per season, which needs to be covered by the owner? 

 

None of the FFP documentation I've read raises this at all, and it seems like it'd be a massive screw up if a club was well run over a long period, stockpiling cash to go on a major push for trophies only to find they're not allowed to spend it

Edited June 6, 2014 by P3te

[The_Rev]

I guess that depends on whether you think FFP is designed to stop clubs going bust or it is designed to keep the clubs that are currently at the top of the game at the top of the game forever. 

[P3te]

That's the thing, I don't think it knows what it wants to be itself. I don't think it makes the top end untouchable long term though, it'll just take very very good management from other teams financially to get there, but when they do you'd have to think they'd be at an advantage given the fact that they got there the hard way.

IMO a team managed properly could break in in a decade and they wouldn't likely move for a long time after that

[kurtsimonw]

I don't see how teams can compete, Pete. Now, teams that dont make much money can spend what they like and they still can't break in. When rules come in that limit their spending, they'll be ****. A lot of the top clubs will 1) have more to spend already and 2) start demanding silly money for sponsorship to make even more. The gap will get bigger, not smaller.

[RunRickyRun]

Couple of points

 

i) 200m of profit over x years will not equate to 200m of cash. The profit and loss account and cashflow are two separate entities. You can have a company which is profitable but which is also overdrawn at the bank (not an ideal position though). Companies don't generally stockpile large sums of cash. It would probably be released to the owner/shareholders or invested in other assets.

 

ii) If a club goes on a spending spree the losses will not necessarily be incurred in the season in which the money is spent. The losses posted by Aston Villa this year are more down to spending under previous regimes. At the point of sale you are effectively swapping one asset (cash) for another (A player - which I'd imagine would be listed as an intangible asset). Losses will incur when the players value depreciates over the course of his contract and as the wage bill rises.

 

Therefore a club could spend more than its means and the resulting losses would be incurred over a number of years.Though being able to forecast such losses would be very difficult (as we have found!).

Edited June 6, 2014 by RunRickyRun

[Straggler]

Speaking of ffp did you see that red star belgrade have been banned from the champs league for breaching ffp rules. Pending the inevitable appeal ofcourse, but it is interesting to see who they are prepared to ban.

[Rovers13]

Speaking of ffp did you see that red star belgrade have been banned from the champs league for breaching ffp rules. Pending the inevitable appeal ofcourse, but it is interesting to see who they are prepared to ban.

I'm gonna do something I usually wouldn't and defend financial fair play. They aren't banned for the overspending portion of FFP, they're banned for not paying players and employees. Completely deserved IMO.

[ender4]

What happens if a club stockpiles its profit?

 

Let's say Club A decides that they're going to go down the austerity route, and having gotten up to break even, they decide to release a little more money for the playing side, but still want to be generating profit of around £20m per season. Next, they go and get a monster sponsorship deal and sell stadium rights which is worth an additional £20m per season to them. They're generating £40m profit per year, but not spending any of it. After 5 years has passed they decide that now that they've got £200m in cash sitting in the bank they want to spend it.

Can they?

 

None of the FFP documentation I've read raises this at all, and it seems like it'd be a massive screw up if a club was well run over a long period, stockpiling cash to go on a major push for trophies only to find they're not allowed to spend it

 

You can't stockpile profit and spent it later.

Each monitoring period of FFP is over 3 years, so whilst you can do it in the short-term, you can't do it over more than 3 years.

 

The monitoring periods go like this:

2013-2015

2014-2016

2015-2017

2016-2018

2017-2019

and so on...

 

So you could spend very little in say 2014 and 2015, and then spend big in 2016.

But the big spend in 2016 will affect 3 monitoring periods:

2014-2016 (which you will be fine with because you spent less in 2014 & 2015)

2015-2017 (which means you'll need to really cut back spending in 2017)

2016-2018 (which means no spending in 2017 nor in 2018)

 

And as transfer costs are spread over a contract periods anyway, by spending big one year, you'll have increased costs for the next 2-3 years anyway.

 

Basically, stockpiling profit doesn't work.

[villa89]

Bump.

 

Interesting to note that a group of players agents are taking UEFA to court in Belgium over their FFP rules and I think Man City and PSG are also taking them to court in France. Hopefully they win and the moronic FFP rules are scrapped. They are clearly anti-competitive and just serve to maintain the monopoly and status quo that currently exists. A more sensible rule would be to limit the amount of debt a club can have or some protection so that clubs can't go bust. If a sheikh want's to waste his money on a club then that's fine as long as it's out of his own pocket, not the clubs. 

[lapal_fan]

One of the only things Randy has done right in his reign as Villa owner is by NOT voting for the FFP rules.. **** me, if Randy Lerner can see it's a stupid idea, why didn't everyone else that isn't Man Utd?