Transfers

[Keef Chedwyn]

I'm not a lecturer so tend to use jargon. But to simplify it it the transfer fee is written off over the period of the contract if you like. As I said, the initial point was made that the cost is spread, which is exactly what happens.

The Pigs transfer dealings last year for example won't give rise to an additional huge loss made up of all the players they bought last season. Which could help with FFP

Like a mortgage?

 

[Sean Thornton]

Like a mortgage?

No.

 

[MobileBlade]

Just to do some back of fag packet calculations on the Wendy situation.

Their accounts for 16/17 won't be released until after Christmas but in 15/16 (the first of this set of 3 years under FFP) they lost £9.8m on revenue of £22m with a £17.1m wage bill. They can offset some of their youth development and women's football (have they got one?) against those losses but these are generally said to be no more than £0.5m so to be lenient to them we will say £9.3m. They brought in 12 players with transfers fees of £12m, some free transfers (signing on fees) plus a number of loans (Sasso has a loan fee of £111K to Braga). Their chairman paid £1m in sponsorship money to them. They introduced 3 year season tickets that year and whilst the income for these would be spread across three years, the cash flow would have helped them.

Last season they spent circa £9m on transfer fees but their wage bill ...... ?? Forestfairy got a big pay increase, they brought in Adam Reach for £5.02m (honestly!) plus the like of Stephen Fletcher and David Jones on Free Transfers but no doubt with hefty signing on fees (and Fletcher is supposed to be on £40K per week).

It's fair to say that the £13m allowance for last season will have been spent plus probably the £3m carried over from the season before and a good chance some more on top. They got away with no punishment last season because their losses for 14/15 were £4.4m so they had £9m to play with last season.

But that £4.4m has dropped off. With Rhodes costing £9,95m (on a 3 year contract so £3 million in this seasons accounts) - they are going to be running things pretty close.

They have until the end of February to submit their accounts for 16/17 (they were a day late last year). In March they introduced £25m of new capital into the business through a shares issues (McCabe has done this to us a few times to write off loans) - they will tell us much about their spending for this season and whether they will miss FFP.

Worth noting that from last season the punishment for failing FFP could mean that if you are promoted automatically you can be reduced to a play-off place and if in a play-off play taken out of the play-offs altogether.

 

[BushBlade]

Like a mortgage?

No. I'll try to go back to first principles.

If you own a business, for taxation purposes, your expenditure is divided into running costs and capital expenditure. Running costs are things like rent, telephone bills, petrol. Capital expenditure could be something like a car or van, or computer.

When you do your tax return you calculate your net profit. This is income less running costs. You can then claim depreciation on your capital expenditure, as a further 'expense'. So if you buy a van for £40k and 'amortise' it over 4 years, you can claim £10k a year depreciation for 4 years. (You can write it off over a longer period and using a more complicated calculation but that's for accountants, I'm just doing basic principles).

So, for FFP purposes, if you buy a player for £40m on a four year contract he only 'costs' you £10m per year over four years.

And, (this is the bit I didn't quite catch on the radio so could be wrong) I think you can count your transfers out, up front. So if you've sold £20m of players and bought one for £40m, you 'made' £10m, for FFP purposes.

Yeah, bollocks isn't it but that's the rough principle behind it. I'm not interested in arguing whether it's morally right or wrong, I don't make the rules.

 

[Balham]

Chali 2na Sean Thornton has done a pretty good job of explaining the treatment of transfer fees from an accounting perspective but maybe this will help?

All businesses have practices (amortisation or depreciation) to spread the cost of an asset (in this case, Rhodes' registration) over the UEL (useful economic life - basically how long you expect to use it for). In this case, that's the length of Rhodes' contract: say 4 years.

30/6/17 Year 0: Wednesday's balance sheet has a £10m asset on it - the P&L (where FFP is focussed) shows zero

30/6/18 Year 1: Rhodes is valued at £7.5m. The £2.5m difference is charged to the P&L as amortisation.

30/6/19 Year 2: Rhodes' balance sheet value is now £5m. Another £2.5m is charged to the P&L.

and so on.

It changes if the player signs a new contract or is sold: this roughly what happened with Jamie Murphy for us. The fee was undisclosed at the time but lets say it was £290k. Murphy's contract was 3.5 years (coincidentally 29 months)

30/1/13 Year 0: new asset recognised on balance sheet £290k
30/6/13 Year 0: five months after he signed, Murphy valued at £240k, £50k on the P&L
30/6/14 Year 1: Murphy valued at £120k
30/1/15 Year 2: Murphy valued at £50k but signs a 2 year contract extension. This changes the amortisation from £10k a month to £2k a month (as the UEL is extended from 5 months to 29 months)
30/6/15 Year 3: Murphy valued at £40k
30/8/15 Year 4: Murphy valued at £36k (two months into 15/16) but is sold to Brighton for £1.8m. The P&L would show £4k of amortisation then a "profit on disposal of asset" of £1.764m.

Clear as mud, eh?

So, for FFP purposes, if you buy a player for £40m on a four year contract he only 'costs' you £10m per year over four years.

And, (this is the bit I didn't quite catch on the radio so could be wrong) I think you can count your transfers out, up front. So if you've sold £20m of players and bought one for £40m, you 'made' £10m, for FFP purposes.

Yeah, bollocks isn't it but that's the rough principle behind it. I'm not interested in arguing whether it's morally right or wrong, I don't make the rules.

Not quite: you can only recognise the difference between a player's book value and the selling price. If Wednesday sold Rhodes in two years' time for £5m they'd not make any profit. If they sold him for £3m they'd have to take another £2m hit.

 

[Chali 2na]

Chali 2na Sean Thornton has done a pretty good job of explaining the treatment of transfer fees from an accounting perspective but maybe this will help?

All businesses have practices (amortisation or depreciation) to spread the cost of an asset (in this case, Rhodes' registration) over the UEL (useful economic life - basically how long you expect to use it for). In this case, that's the length of Rhodes' contract: say 4 years.

30/6/17 Year 0: Wednesday's balance sheet has a £10m asset on it - the P&L (where FFP is focussed) shows zero

30/6/18 Year 1: Rhodes is valued at £7.5m. The £2.5m difference is charged to the P&L as amortisation.

30/6/19 Year 2: Rhodes' balance sheet value is now £5m. Another £2.5m is charged to the P&L.

and so on.

It changes if the player signs a new contract or is sold: this roughly what happened with Jamie Murphy for us. The fee was undisclosed at the time but lets say it was £290k. Murphy's contract was 3.5 years (coincidentally 29 months)

30/1/13 Year 0: new asset recognised on balance sheet £290k
30/6/13 Year 0: five months after he signed, Murphy valued at £240k, £50k on the P&L
30/6/14 Year 1: Murphy valued at £120k
30/1/15 Year 2: Murphy valued at £50k but signs a 2 year contract extension. This changes the amortisation from £10k a month to £2k a month (as the UEL is extended from 5 months to 29 months)
30/6/15 Year 3: Murphy valued at £40k
30/8/15 Year 4: Murphy valued at £36k (two months into 15/16) but is sold to Brighton for £1.8m. The P&L would show £4k of amortisation then a "profit on disposal of asset" of £1.764m.

Clear as mud, eh?



Not quite: you can only recognise the difference between a player's book value and the selling price. If Wednesday sold Rhodes in two years' time for £5m they'd not make any profit. If they sold him for £3m they'd have to take another £2m hit.

After re-reading your post 4 times, I finally understand.

Apologies to Bush and Sean

 

[Slim Man]

Pigs do seem to be struggling transfer wise this season since Rhodes though.
Boyd in on a free, struggling to agree a small fee for Alan bloody Hutton, linked with Mulgrew but only 100k so that was batted straight out and now linked with free agent Johan Djourou.

 

[Scooter_mcgavin]

Pigs do seem to be struggling transfer wise this season since Rhodes though.
Boyd in on a free, struggling to agree a small fee for Alan bloody Hutton, linked with Mulgrew but only 100k so that was batted straight out and now linked with free agent Johan Djourou.

Of course....that 10m for Rhodes (and his obscene wages) will have given them a real hit in the spuds.

 

[Sean Thornton]

No. I'll try to go back to first principles.

If you own a business, for taxation purposes, your expenditure is divided into running costs and capital expenditure. Running costs are things like rent, telephone bills, petrol. Capital expenditure could be something like a car or van, or computer.

When you do your tax return you calculate your net profit. This is income less running costs. You can then claim depreciation on your capital expenditure, as a further 'expense'. So if you buy a van for £40k and 'amortise' it over 4 years, you can claim £10k a year depreciation for 4 years. (You can write it off over a longer period and using a more complicated calculation but that's for accountants, I'm just doing basic principles).

So, for FFP purposes, if you buy a player for £40m on a four year contract he only 'costs' you £10m per year over four years.

And, (this is the bit I didn't quite catch on the radio so could be wrong) I think you can count your transfers out, up front. So if you've sold £20m of players and bought one for £40m, you 'made' £10m, for FFP purposes.

Yeah, bollocks isn't it but that's the rough principle behind it. I'm not interested in arguing whether it's morally right or wrong, I don't make the rules.

If the UK clubs FFP rules are the same as accounting practice, any fees in are set against the balance of the intangible asset at that date. If you sign a player for £20m on a four year contract and after year one you have written one fourth, you have a value of £15m remaining if you sell in year 2 for £20m you have a profit to P&L of £5m. If you sell for £5m, you have a loss of £15m in the year of sale.



Edit.
Err, as previously explained by Balham Blade ,

Sorry.

 

[BushBlade]

If the UK clubs FFP rules are the same as accounting practice, any fees in are set against the balance of the intangible asset at that date. If you sign a player for £20m on a four year contract and after year one you have written one fourth, you have a value of £15m remaining if you sell in year 2 for £20m you have a profit to P&L of £5m. If you sell for £5m, you have a loss of £15m in the year of sale.



Edit.
Err, as previously explained by Balham Blade ,

Sorry.

Yeah, I didn't want to over complicate things. The £20m was for Brooks.

I think I heard on the radio that FFP matches the accounting practice of the country it's being applied, i.e. FFP in France is calculated in accordance with French accounting practice, FFP in England calculated in accordance with English accounting practice etc.

 

[Sean Thornton]

Yeah, I didn't want to over complicate things. The £20m was for Brooks.

I think I heard on the radio that FFP matches the accounting practice of the country it's being applied, i.e. FFP in France is calculated in accordance with French accounting practice, FFP in England calculated in accordance with English accounting practice etc.

Coming up

"Accounts fiddle, books say David Brooks sold for £20 million. Weers munni gone"

Well done BB

 

[Keef Chedwyn]

No. I'll try to go back to first principles.

If you own a business, for taxation purposes, your expenditure is divided into running costs and capital expenditure. Running costs are things like rent, telephone bills, petrol. Capital expenditure could be something like a car or van, or computer.

When you do your tax return you calculate your net profit. This is income less running costs. You can then claim depreciation on your capital expenditure, as a further 'expense'. So if you buy a van for £40k and 'amortise' it over 4 years, you can claim £10k a year depreciation for 4 years. (You can write it off over a longer period and using a more complicated calculation but that's for accountants, I'm just doing basic principles).

So, for FFP purposes, if you buy a player for £40m on a four year contract he only 'costs' you £10m per year over four years.

And, (this is the bit I didn't quite catch on the radio so could be wrong) I think you can count your transfers out, up front. So if you've sold £20m of players and bought one for £40m, you 'made' £10m, for FFP purposes.

Yeah, bollocks isn't it but that's the rough principle behind it. I'm not interested in arguing whether it's morally right or wrong, I don't make the rules.

Cripes. Cheers for the reply. Just glad that stuff like this never crosses my tiny mind.

 

[BushBlade]

Watch this space. FFP may be subject to a legal challenge from PSG.