The AVFC FFP thread

[KMitch]

Just now, MaVilla said:

thanks.

A salary cap is going to be shocking if its not done correctly, as it will cement the "big" clubs without the "smaller" clubs being able to close the gap.

We need to up our revenue(s), in any way(s) possible asap.

It will be interesting to see if breaking this cap will incur points deductions/competition bans etc for breaking it, or just fines or "luxury taxes", if its the latter, that might be a wholly different scenario, allowing rich owners to "luxury tax" the clubs wages.

Will be interesting to see how it goes.

It's easier said than done... Generating revenue for football clubs comes only a in a few main ways:

• Broadcasting rights
• Match day revenue
• Sponsorships
• Merchandise
• Transfers
• Prize Money

Broadcasting rights are split equally among Premier League clubs now.  Prize money comes directly from performance on the pitch.  You need to be successful on the pitch in order to grow your fanbase and win more prize money.  The bigger your fanbase is locally, the more money you can generate from matchday revenue.  The bigger your fanbase is globally, the more revenue you can generate from sponsorships/merchandise sales. It's a Catch-22 situation where you need to perform well on the pitch in order to make more money, but because you don't make a lot of money, you aren't allow to spend consistently more than you take in because of FFP rules.  This leads us down the discussion of transfer strategy and recruitment.  The number 1 biggest way for clubs outside of the top 6 to make money while following FFP rules is to play the transfer market well and continue to generate steady profits off of player sales.  Excluding Jack's transfer to Man City, Villa have done a terrible job selling players over the past 15 years.  We've lost so much money because of paying too much for the wrong players (both in transfer fees and wages over long contracts), paying peanuts for players who aren't good enough, extending poor performers on big contracts, and not developing/flipping our youth team players well enough.  Everyone is playing "Moneyball" these days, so it's becoming harder and harder to have a statistical advantage in recruiting players than ~10 years ago when Southampton/Swansea burst into the Premier League flipping unknown talents to the big clubs and reinvesting into more quality, season after season.  

That said, there is one significant untapped area of revenue which really hasn't been saturated by all of the big clubs at the moment, besides Man City and Chelsea, and that's academy recruitment/development.  Man City and Chelsea have dominated the youth team market for a while now and consistently recruit the best talent from across England and Europe, develop them, then loan them out and get them exposure.  They then sell them at a profit, with a buy-back clause and a sell on fee, allowing them to go back in for someone if they actually turn into the superstar they hoped they would be.  Look at how many players Chelsea has sent out on loan and flipped over the years.  They currently have 22 players out on loan, and had over 40 on loan last year.  Adopting their business model will allow us to generate the funds necessary to improve our squad and break into Europe, but it will take several years for our new strategy to start paying dividends and we need to be patient and stick with the plan until then.  

 

 

[Peter Griffin]

On 04/09/2021 at 14:39, villa4europe said:

£80-100m is within our means based on revenue, TV money etc I would expect us to keep spending that much 

 

Where are u getting 80m-100m from? Our last published revenue was 112m. Our costs are huge with all the player amortised payments and salaries. We are nowhere close to 80m-100m based on our revenue unless we can sell a 100m player every season

[Peter Griffin]

2 hours ago, Czarnikjak said:

In this post I will try to summarise our 2021 Summer transfer window from financial point of view. I will show how it affected 3 particular aspects of our finances:

1. Premier League Profit & Sustainability calculation (often referred to as FFP)

2. Wages

3. Cash Flow

 

PS. I base my calculations only on publicly available information, so a certain degree of inaccuracy is to be expected.

 

Premier League Profit & Sustainability calculation

Having sailed dangerously close to the FFP limits over last few years, Aston Villa achieved £82.4 swing in positive direction this summer. As per the transactions below:

 

It is worth remembering however, that the £100m sale profit on Grealish is a one-off injection and will disappear from our FFP balance in 3 years time. Therefore a better representation of our actual FFP situation would be splitting the £100m into 3 years and including only £33m from JG sale this year. This still leaves us with £15.4m surplus on FFP balance (29.4+33-47). This is a welcomed breathing space, allowing us some flexibility in next transfer windows.

Had there been any willing buyers for our fringe players (Kalinic, Hourihane, Gilbert), our position could have been even better. Unfortunately only another set of loans was secured for these players, not changing our FFP situation in comparison to last year.

 

Wages

For season 21/22 I estimate our total wages to be around £122m*. This is an increase from £109m reported in 19/20 accounts (our first season in Premier League). This figure puts us in 9th place in the league (behind Big 6, Everton and Leicester), on par or very close to West Ham. Wages to Revenue ratio will be around 70%. Its interesting to note that the 70% ratio is widely accepted as an upper limit for a sustainable club and its reported to be the Salary Cap limit UEFA is looking to introduce in the future.

It will be a challenge for the club to keep improving playing squad in the future while keeping the wages in check. More academy products and less expensive transfers are probably to be expected.

*estimated by adjusting 19/20 figure with incoming and outgoing players and new contracts given to Konsa, Mcginn, Target and Mings. The actual figure is most likely to be higher as it doesn't include new non-playing staff (coaches, physios, admin, etc) and academy players added since then as the club grows.

 

Cash-flows behind the transfers

The actual flow of cash behind each transfer is very difficult to estimate as the terms of payments are very rarely published. We can only estimate to some degree and make some assumptions. Lets try the following scenario:

It has been reported that Man City are paying us £75m up front and the remaining £25m over the next 2 years.

Lets assume the same structure for our incoming transfers (75% upfront, 12.5% after one year, 12.% after two years).

In this case our cash received this summer is £75m and our cash spend is 75% of 2021 purchases + 12.5% of 2020 purchases + 12.5% of 2019 purchases.

That gives us cash spent on transfers this summer: £101m (£70m + £12m + £19m). 

The actual cash is still flowing out of the club faster than it comes in, £26m deficit. This is pretty conservative scenario, the actual cash spent might be higher if we include performance related bonuses to former clubs for players like Mings or Watkins that could trigger this summer (for Mings alone, we transferred £6m cash payment this summer to Bournemouth).

Take Sky's "Net Spend" figures with a pinch of salt, they do not represent any meaningful information if you want to asses the situation correctly.  Very likely that another cash injection from NSWE will be required this season to cover the transfer spend and operating loses. Although nowhere near the level that was required in previous years, where NSWE had to inject circa £100m each season.

 

What about the amortisation costs related to Sanson, Traore, Watkins, Wesley, Luiz and all the others we bought. We have to pay the amortisation costs every year and not just in year 1

Edited September 5, 2021 by Peter Griffin
Fixed a typo

[Czarnikjak]

1 minute ago, Peter Griffin said:

What about the amortisation costs related to Sanson, Traore, Watkins, Wesley, Luiz and all the others we bought. We have to pay the amortisation costs every year and not just in year 1

I am not sure which part of my post you're referring to.

Amortisation is not a cash expense, so you don't actually "pay" it. It only appears on the Profit and Loss account.

[Peter Griffin]

1 minute ago, Czarnikjak said:

I am not sure which part of my post you're referring to.

Amortisation is not a cash expense, so you don't actually "pay" it. It only appears on the Profit and Loss account.

I understand how amortisation works. But we bought Ollie last year for say 30m on a 4 yr deal. That is to be amortised at 7.5m per yr for each of the 4 years of his contract. So the 2021 amortisation costs you have listed should have Ollie in at 7.5m and all of the other players costs in for this year too. Those figures contribute to this year's accounts for P&L calculation and this determines where we are in relations to FFP/P&S.

Also, the current set of P&S is over 4 years and not the usual 3 years. Years 3 and 4 for the purpose of P&S are to be averaged to give a single profit / loss which is then used with the preceding 2 years to give the 3 year calculation. This was introduced to help clubs as a result of Covid

[Czarnikjak]

7 minutes ago, Peter Griffin said:

So the 2021 amortisation costs you have listed should have Ollie in at 7.5m and all of the other players costs in for this year too. Those figures contribute to this year's accounts for P&L calculation and this determines where we are in relations to FFP/P&S.

I'm not listing the amortisation amounts of the whole squad, only the differences between this and last season. Olie was already on our books last year so there's no difference there.

I'm showing the FFP swing this transfer window caused in comparison to last year. Last year we were pretty much on the FFP limit, so any swing in this window will show you how far from the limit we are now.

Edited September 5, 2021 by Czarnikjak

[Peter Griffin]

10 minutes ago, Czarnikjak said:

I'm not listing the amortisation amounts of the whole squad, only the differences between this and last season. Olie was already on our books last year so there's no difference there.

I'm showing the FFP swing this transfer window caused in comparison to last year. Last year we were pretty much on the FFP limit, so any swing in this window will show you how far from the limit we are now.

If u are just looking at swing, I think you need to include Samatta on that list too, we sold him at the start of the summer. Samatta and Engles need to have their entire amortisation costs written down in this set of accounts. We bought Engles for a reported 7.2 on a 4 yr contract. So we have 3.6m to write down this season and Transfermarkt says we sold him for 3.15m so that is about a 500k loss this year. Same thing with Samatta, I think we paid about 10m so need to write down about 6.25m this season. TMK say we sold for 5.4m so that will be a loss of about 1m. Also, my understanding is that football is treated slightly differently to normal amortisation and the revenue on sales is accounted for when the cash is actually received as opposed to when the player is sold, Jack would only be +75m for this year's accounts. 

Last point. when we refer to being on the FFP limit etc that is putting the baseline at losing 105m over 3 years. That is not sustainable which is where CP said he wants the club to be

[blandy]

2 hours ago, MaVilla said:

in the "old days" you would get £100m for a player (in this scenario), and you have that in your back pocket for whenever you might need it, even if that be in 5 years time, 8 years time, or whatever, the money doesnt "vanish".

However in the current scenario, that 100m windfall, coupled with losing our best player, can only benefit us for 3 years, and then its as if it never happened.

It's never been like that, in all honesty. Transfer fees for a long time have been broken down into instalments. So payment would occur across a year or multiple years.

The other thing (and I know @Czarnikjakdisagrees with this analysis) is that with really big deals like Grealish, the club(s) involved may use the spread payments to their tax and FFP advantage. If the fee is spread across 3 years, say - 50 mill, 30 and 20*, Villa may in the accounts list the earnings of 50, 30 and 20 over those 3 years and the FFP calculation is different. It may be beneficial for tax reasons as well. It would also help Manchester City's FFP accounting too.

We do not know that this is not allowed. The Profit and Sustainability rules use "profit/loss on transfer of players..." in the Earnings calculation. Villa may claim the profit on JG over the (say) 3 payments in whatever 2 or 3 years. I believe this is not only permitted, but fairly common. For example windfalls can arise as a result of a player sold being capped for their nation, or playing X number of first team games - it's standard/permitted therefore for earnings from a transfer to be spread across the payment plan agreed at the time of the transfer.

We'll see what Villa do next May, or the May after, even, when the accounts are presented.

The premier league appears to be pretty flexible when it comes to the PSR (FFP) regs they implement.

*The figures I've used are examples, not factual.

[Czarnikjak]

@Peter Griffin Thanks for your comment and the scrutiny! Appreciated :)

38 minutes ago, Peter Griffin said:

We bought Engles for a reported 7.2 on a 4 yr contract. So we have 3.6m to write down this season and Transfermarkt says we sold him for 3.15m so that is about a 500k loss this year.

He was signed on 5 year contract leaving us with £4.32m net book value remaining. I had his sale value listed as £2.88m (3m euros), hence look in my table, we made a loss on his sale of £1.44m

38 minutes ago, Peter Griffin said:

Same thing with Samatta, I think we paid about 10m so need to write down about 6.25m this season. TMK say we sold for 5.4m so that will be a loss of about 1m

Signed for £10m on 4.5 year contract. Netbook value at the time of sale - £6.6m. Sold for £5.4m, so £1.2m loss on the transaction. But that would be offset by £2.2m of amortisation we don't have this year for him (his wages were already off the books last year when he was on loan so no swing here). So in total, we might have saved £1m by letting him go, should have included him, but its a small value relatively speaking.

38 minutes ago, Peter Griffin said:

Also, my understanding is that football is treated slightly differently to normal amortisation and the revenue on sales is accounted for when the cash is actually received as opposed to when the player is sold, Jack would only be +75m for this year's accounts. 

This is incorrect. The whole £100m will appear on our Profit account this year. I know @blandy disagrees with this point but we will find out in 2023 when full accounts for this year are published

38 minutes ago, Peter Griffin said:

Last point. when we refer to being on the FFP limit etc that is putting the baseline at losing 105m over 3 years. That is not sustainable which is where CP said he wants the club to be

I think we will all agree on that point

Edited September 5, 2021 by Czarnikjak

[Peter Griffin]

4 minutes ago, blandy said:

2 hours ago, MaVilla said:

However in the current scenario, that 100m windfall, coupled with losing our best player, can only benefit us for 3 years, and then its as if it never happened.

 

It doesn't only benefit us for 3 years. We get 100m into our bank account. We can invest that money, it helps to keep the club running and it shows profitability to keep our owners happy. From a P&S perspective it only contributes for 3 accounting periods but it is still our 100m after that period. Also, there isn't a chance we will carry over 100m profit in years from now. We are loss making if we exclude the outlier of Jack's sale

[Peter Griffin]

10 minutes ago, Czarnikjak said:

This is incorrect. The whole £100m will appear on our Profit account this year.

42 minutes ago, Peter Griffin said:

I think that is up to interpretation. I can't recall the specific wording but it specifically states amortisation can be based on cash flow of transfers

[blandy]

7 minutes ago, Peter Griffin said:

I think that is up to interpretation. I can't recall the specific wording but it specifically states amortisation can be based on cash flow of transfers

I don't think it quite does, but from the PL handbook ( I have a pdf)

Quote

“Cash Losses” means aggregate Adjusted Earnings Before Tax after:

(a)  write back of:

(i)  amortisation and/or impairment of Players’ registrations; and

(ii)  profit or loss on the transfer of Players’ registrations; and

(b)  inclusion of net cash flow in respect of transfers of Players’ registrations;

The "profit" on the sale of Jack can be accounted for over the years for which the parts of the fee are paid. In my interpretation (others may view it differently).

[Peter Griffin]

31 minutes ago, blandy said:

I don't think it quite does, but from the PL handbook ( I have a pdf)

The "profit" on the sale of Jack can be accounted for over the years for which the parts of the fee are paid. In my interpretation (others may view it differently).

Yep, I agree with that which would mean 75m this season

[Peter Griffin]

We also have a 20m tax bill on the sale of Jack, youth / development players are treated as assets like CGT and it is 20%. So only 80m not 100m we get

[Peter Griffin]

1 hour ago, Czarnikjak said:

@Peter Griffin Thanks for your comment and the scrutiny! Appreciated :)

He was signed on 5 year contract leaving us with £4.32m net book value remaining. I had his sale value listed as £2.88m (3m euros), hence look in my table, we made a loss on his sale of £1.44m

Signed for £10m on 4.5 year contract. Netbook value at the time of sale - £6.6m. Sold for £5.4m, so £1.2m loss on the transaction. But that would be offset by £2.2m of amortisation we don't have this year for him (his wages were already off the books last year when he was on loan so no swing here). So in total, we might have saved £1m by letting him go, should have included him, but its a small value relatively speaking.

This is incorrect. The whole £100m will appear on our Profit account this year. I know @blandy disagrees with this point but we will find out in 2023 when full accounts for this year are published

I think we will all agree on that point

For completeness you should probably add in 2m for Sanson too

[Czarnikjak]

5 minutes ago, Peter Griffin said:

For completeness you should probably add in 2m for Sanson too

Yes, you are right. To be super precise I would need to look at the exact date when a given player was signed and only count their wages from that date etc…too much detail to work through.

For Samson, who was on our books for about 40% of last accounting period, to calculate the difference to this year I would need to add 60% of his yearly wage and amortisation.

[Peter Griffin]

1 hour ago, Czarnikjak said:

Yes, you are right. To be super precise I would need to look at the exact date when a given player was signed and only count their wages from that date etc…too much detail to work through.

For Samson, who was on our books for about 40% of last accounting period, to calculate the difference to this year I would need to add 60% of his yearly wage and amortisation.

The 2m is just an estimate / rounding of the amortisation costs for half a season. If you go down to dates and do not round it will probably be pushing towards 2.3m. I didn't include half a year's wages in the post but it is probably closer to a third of a year's wages. Back of a fag packet calculations and it is going to be close to 3m loss from an accounting perspective 

[Czarnikjak]

13 hours ago, Peter Griffin said:

Yep, I agree with that which would mean 75m this season

@blandy

From horses mouth, aka Swiss Ramble, guru of football finances:

"Any profit made from selling players is immediately booked to the accounts"

 

 

Edited September 6, 2021 by Czarnikjak

[Peter Griffin]

9 minutes ago, Czarnikjak said:

@blandy

From horses mouth, aka Swiss Ramble, guru of football finances:

"Any profit made from selling players is immediately booked to the accounts"

 

 

I understand your perspective but I do think it is open to interpretation. Swiss says profit made from selling a player is immediately written to accounts. I believe he is incorrect on this when considering the total profit on the player sale. However, as the club receives cash for a player sale this is then immediately written to the accounts. So for Jack 75m now and then 12.5m + 12.5m. The payments beyond the initial payment could be treated like addons which are only paid at a later date. The wording in the ruling is quite clear in that is takes into account cash flow.

If it is not the case then what does the ruling "inclusion of net cash flow in respect of transfers of Players’ registrations" mean?

[Follyfoot]

On 18/08/2021 at 14:07, CVByrne said:

 Exactly, so we need to accept the big teams own football success now. A domestic cup, 2nd or 3rd tier European trophy or a one off Champions League qualification is the only success we will ever see as Villa fans

Sickening