Financial fair play

[kentish wolf]

Forgive me in case it has been mentioned elsewhere. But what financial restrictions will the club have in the transfer window?

 

[VancouverWolf]

Forgive me in case it has been mentioned elsewhere. But what financial restrictions will the club have in the transfer window?

Good question. What with our transfers last window, I‘m not sure what we can spend.

 

[hollo]

Maybe the gibbs white sale bought us some wiggle room as his sale was pure profit.
Maybe we can offload hwang and raul and get some loan to buys.

 

[thetwistedsock]

Gibbs-White wasn't all up front though?

 

[Wisdomwolf]

Gibbs-White wasn't all up front though?

Sales wash through in year of sale whereas purchases span length of contract plus in Morgan’s case this is all profit.

 

[Sergeant Hakeswill]

I think it's measured over a 3 year period and we've spent very little until this summer, so probably no effect.

 

[Darvo]

None.

We either spend, try to survive and pay any penalty if needed ... or go down.

 

[waggys left foot]

Chelski caught out bending the rules with very long contracts .Uefa to restrict to five years .

Uefa to CHANGE transfer rules for FFP after Chelsea's January transfer spree

CHELSEA’S January transfer policy is set to see a change in Uefa rules – to stop clubs manipulating Financial Fair Play regulations. The Stamford Bridge club’s eye-popping £400million spendin…

www.thesun.co.uk

 

[SteveBullsKnee]

Chelski caught out bending the rules with very long contracts .Uefa to restrict to five years .

Uefa to CHANGE transfer rules for FFP after Chelsea's January transfer spree

CHELSEA’S January transfer policy is set to see a change in Uefa rules – to stop clubs manipulating Financial Fair Play regulations. The Stamford Bridge club’s eye-popping £400million spendin…

www.thesun.co.uk

The sceptic in me is always amazed after one of the “big 6” goes on a spending spree do they close a particular loophole to stop others exploiting it and catching up. I imagine if we’d done what they have been doing there would be a fine on it’s way along with a points deduction

 

[JR WAS KING]

I'm no expert on this, but I don't see how you can tell a club what length of contract they can give to an employee. You wouldn't get away with it in any other industry.

 

[Oh Robbie Robie]

I'm no expert on this, but I don't see how you can tell a club what length of contract they can give to an employee. You wouldn't get away with it in any other industry.

In a normal situation but clubs sign up to play in a league and the league has rules in place. It's open to another Bosman case IMO. The minute it gets challenged in Court, the whole system changes again.

 

[Bawtry Wolf]

I'm no expert on this, but I don't see how you can tell a club what length of contract they can give to an employee. You wouldn't get away with it in any other industry.

You can have any length of contract but it can only be amortised over a maximum of 5 years rather than the length of the contract. UEFA are setting the accounting rules rather than the contract rules.

 

[TriumphWolf]

You can have any length of contract but it can only be amortised over a maximum of 5 years rather than the length of the contract. UEFA are setting the accounting rules rather than the contract rules.

that is the way I see it as well, plus UEFA are acknowledging that Chelski haven’t broken any current rules and the action has no retrospective element.

 

[Northampton_wolf]

I'm no expert on this, but I don't see how you can tell a club what length of contract they can give to an employee. You wouldn't get away with it in any other industry.

They can give as long as contract as they want but for amortisation they are capping it at 5 so 100m over 7 years will still be 20m a year

 

[Fenrir_]

Forgive me in case it has been mentioned elsewhere. But what financial restrictions will the club have in the transfer window?

Regards to FFP (for this season at least), we have nothing to worry about, obviously spending a lot of money will have a knock on effect if we don't claw a big chunk back each season, whether that be through sales (we got good money for MGW this season) or building other revenue streams. So further down the line we might have a problem, but this season we're fine

 

[Boss Hogg]

If we can sell someone in June (eg Neves for £50m) we would be fine I imagine

 

[Mile End Wanderer]

We have to sell someone in the summer ie Neves or Nunes then we can spend again higher

 

[Bryce]

The sceptic in me is always amazed after one of the “big 6” goes on a spending spree do they close a particular loophole to stop others exploiting it and catching up. I imagine if we’d done what they have been doing there would be a fine on it’s way along with a points deduction

I hate the big 7 as a rule but I actually see what Chelsea have done and ask why no non big 7 did the same? I know you see a fine and a points deduction but surely that would only happen if youre guilty of something. Chelsea are not guilty of anything other than exploiting a loophole. Its a gamble though as paying up 8-10 year contracts could bankrupt you!

 

[Fenrir_]

We have to sell someone in the summer ie Neves or Nunes then we can spend again higher

Can't necessarily spend higher, our amortisation costs were about £62m last released finances, that won't have gone down by much before we started spending again and with the signings we've made it could be as high as £100m now, could even be over that. So that increase in yearly outgoings needs taking into account before throwing more money at it. Selling Neves could just mean we break even

There are more forces in play of course, but best not to think we can go and spend higher again just because we sell a valuable asset

 

[Hot Fuss]

The sceptic in me is always amazed after one of the “big 6” goes on a spending spree do they close a particular loophole to stop others exploiting it and catching up. I imagine if we’d done what they have been doing there would be a fine on it’s way along with a points deduction

Another poster develops victim mentality. Points deduction???

Surely the (very sensible) decision to close this loop hole will disadvantage the super rich clubs who can afford 8 year, 200k a week contracts rather than Wolves or Fulham or Brentford?

 

[waggys left foot]

I hate the big 7 as a rule but I actually see what Chelsea have done and ask why no non big 7 did the same? I know you see a fine and a points deduction but surely that would only happen if youre guilty of something. Chelsea are not guilty of anything other than exploiting a loophole. Its a gamble though as paying up 8-10 year contracts could bankrupt you!

Some did just differently.

Prem are still investigating ManC who found alleged under the counter and over the top payments from sponsors to fund transfer activity.At one time some of the big six were agitating to get them a ban on Champions League but it's all gone very quiet.Somehow ManC avoided sanctions from Uefa who also investigated them.

I would expect the same in the course at Newcastle and at Liverpool if they get bought by Dubai.

When you are owned by a nation state strange things start to happen and the privately owned rest can't compete financially.

 

[Mile End Wanderer]

Can't necessarily spend higher, our amortisation costs were about £62m last released finances, that won't have gone down by much before we started spending again and with the signings we've made it could be as high as £100m now, could even be over that. So that increase in yearly outgoings needs taking into account before throwing more money at it. Selling Neves could just mean we break even

There are more forces in play of course, but best not to think we can go and spend higher again just because we sell a valuable asset

Well we go into a new year so if we sell someone for 50m for example should let us spend 75m but then it has a knock on effect following season. Hence why Everton are in the creek with no paddle point taken. If we stay up it won’t be big spending unless we revamp the whole squad and I wouldn’t bet against that either. Julen is known for overhaul

 

[Sussex Wolf]

I hate the big 7 as a rule but I actually see what Chelsea have done and ask why no non big 7 did the same? I know you see a fine and a points deduction but surely that would only happen if youre guilty of something. Chelsea are not guilty of anything other than exploiting a loophole. Its a gamble though as paying up 8-10 year contracts could bankrupt you!

I think you hit the nail on the head with your final sentence. One of the differences between the big six and most of the rest, is that their risk of relegation is remote, so they can fairly safely rely on future PL incomes to balance their books. The rest of us need to keep one eye on relegation and potential life in the EFL with massively less income. Even with normal length contracts, we saw how that affected our finances last time we went down, and how difficult it was to offload some of our higher wage stars. Make the contracts even longer and you are essentially limiting the number of clubs who could buy your higher paid stars in the event you needed a relegation fire sale.

 

[Fenrir_]

Well we go into a new year so if we sell someone for 50m for example should let us spend 75m

Not how it works. Amortisation is a yearly 'bill' and any player you've ever bought that is still at the club will be adding cost to that bill. Crude example is if we were at £60m costs and upped that to around £100m with the signings we've made, we covered that increase by selling MGW, Dendoncker and Vinagre. But next year, despite it being a new year we still have that new £100m cost, if our regular finances mean we can only cover £70m of it, we could sell Neves for £30m and it just covers the deficit, it doesn't give us leeway over and above to spend again

 

[Northampton_wolf]

You could suggest gomes replaces neves, and

you get urgate to replace nunes

 

[SingYourHeartsOut]

I feel a bit thick that I still don't get these rules, maybe someone can help me out!

We buy a player for £50m tomorrow (no. 9 please) on a 5 year contract, so you'd imagine we've spent £50m but have a player worth the same, so the value of the club is the same. It looks like for FFP we've spent £50m and we can't spend more than 70% of turnover. However what we actually do it pay £10m a year for 5 years. Each year we knock that £10m off the book value of the player as his contract runs down (I thought that was what amortisation was?). So if we have say £150m turnover we can spend £105 (including wages) but we are still paying e.g. for Semedo £6m a year towards that, but Cunha is only costing us £9m for this year's FFP? So Chelsea can only do this if the selling clubs have agreed to take payments over 8 years?

 

[Northampton_wolf]

I feel a bit thick that I still don't get these rules, maybe someone can help me out!

We buy a player for £50m tomorrow (no. 9 please) on a 5 year contract. We've spent £50m but have a player worth the same, so the value of the club is the same. However for FFP we've spent £50m and we can't spend more than 70% of turnover. However what we actually do it pay £10m a year for 5 years. Each year we knock that £10m off the book value of the player as his contract runs down (I thought that was what amortisation was?). So if we have say £140m turnover we are still paying e.g. for Semedo £6m a year towards that, but Cunha is only costing us £9m for this year's FFP? So Chelsea can only do this if the selling clubs have agreed to take payments over 8 years?

Your not far off

Basically they have amortised the 88m for Murdyk over 8 years

Lets say 11m a year rather than say a typical 5 year contract which would be 15mish

What are the new regulations?​

Given their name, it is no surprise that the key objective of the new regulations is to achieve financial sustainability. These will be achieved through three key pillars: solvency, stability, and cost control.

For solvency, the new no overdue payables (towards football clubs, employees, social/tax authorities, and UEFA) rule will ensure better protection of creditors. Controls will be performed every quarter and there will be less tolerance towards late payers.

The new football earnings requirements are an evolution of the existing break-even requirements and will bring greater ability to club finances. To ease the implementation for clubs, the calculation of football earnings is similar to the calculation of the break-even result. While the acceptable deviation has increased from €30m over three years to €60m over three years, requirements to ensure the fair value of transactions, to improve the clubs’ balance sheet, and to reduce debts have been significantly strengthened.

The biggest innovation in the new regulations will be the introduction of a squad cost rule to bring better cost control in relation to player wages and transfer costs. The regulation limits spending on wages, transfers, and agent fees to 70 per cent of club revenue. Assessments will be performed on a timely basis and breaches will result in pre-defined financial penalties and sporting measures. The new regulations will come into force in June 2022. There will be gradual implementation over three years to allow clubs the necessary time to adapt.

What are the new rules?​

UEFA's executive committee has approved new financial sustainability rules to replace Financial Fair Play from this June. The rules have three pillars - No Overdue Payment Rule, Football Earnings Rule and Squad Cost Rule. The No Overpayment Rule means clubs' accounts will be checked every quarter to make sure all bills are being paid on time.



The Football Earnings Rule will allow clubs to lose €60m over three years - double what was permitted under Financial Fair Play. Clubs will be allowed to sustain an extra €10m in losses a year if they are deemed to be "in good financial health".

As part of The Squad Cost Rule spending on wages (players and head coaches), transfers and agent fees will be capped at 70 per cent of a club's revenue. This will be assessed over a calendar year and not a season, so spending in the summer transfer window will be included in the calculations.



So Chelsea were at £434.9m this year - so by the end of this phase in they could spend £304m per calender year under squad cost rule


But the actual losses of the business will allow up to 60m over 3 years now

 

[SingYourHeartsOut]

Looking up the EPL seems to have written more lax rules than UEFA, so teams can try to 'compete with the Big 6'. How will that work when someone breaks UEFA rules in order to get into European football?

 

[Northampton_wolf]

Looking up the EPL seems to have written more lax rules than UEFA, so teams can try to 'compete with the Big 6'. How will that work when someone breaks UEFA rules in order to get into European football?

UEFA sanctions i would expect

 

[Notsoslimshady]

I don't really think the amortisation (or whatever) shpuld be a factor. To me, whatever has been spent on transfer fees, wages etc in that year should be part of your FFP. If you buy someone for 20m, with 10m this year. And the other 10m in installments, i think the 10m should go on this year, regardless of length of contract. Given players often leave before the end of their contract or get given new ones, or cancelled, it seems like it is just a way to manipulate figures. I get the player can be seen as an 'asset', if boight an asset outright for £1000 today and planned to have it for 10 years, i still pay £1000 in 2023, not 100 for 10 years. I would have the potential to sell the asset, but wouldn't see that money until any transaction.

Maybe it is a too simple way of thinking, but to me it is 'what have you paid out this year and what money have you received' the difference being your profit/loss

 

[Bill S Preston Esq.]

The sceptic in me is always amazed after one of the “big 6” goes on a spending spree do they close a particular loophole to stop others exploiting it and catching up. I imagine if we’d done what they have been doing there would be a fine on it’s way along with a points deduction

Chelsea have done nothing wrong. It's not a loophole that's been exploited, it's common sense being used.

It's why I'm paying for my house over 25 years and not 10 years. It's infinitely more affordable, and means I can buy other things like cars and holidays and clothes and food.

 

[Eastyorksyeltz]

I don't really think the amortisation (or whatever) shpuld be a factor. To me, whatever has been spent on transfer fees, wages etc in that year should be part of your FFP. If you buy someone for 20m, with 10m this year. And the other 10m in installments, i think the 10m should go on this year, regardless of length of contract. Given players often leave before the end of their contract or get given new ones, or cancelled, it seems like it is just a way to manipulate figures. I get the player can be seen as an 'asset', if boight an asset outright for £1000 today and planned to have it for 10 years, i still pay £1000 in 2023, not 100 for 10 years. I would have the potential to sell the asset, but wouldn't see that money until any transaction.

Maybe it is a too simple way of thinking, but to me it is 'what have you paid out this year and what money have you received' the difference being your profit/loss

Unfortunately that's not the way you draw up accounts for any business. Revenue and capital expenditure are different matters. If FFP used different accounting principles you wouldn't easily be able to view or control it using the normal financial statements, which would still need to be prepared.

 

[Notsoslimshady]

Unfortunately that's not the way you draw up accounts for any business. Revenue and capital expenditure are different matters. If FFP used different accounting principles you wouldn't easily be able to view or control it using the normal financial statements, which would still need to be prepared.

I appreciate you have your own experience, and i am not foreign to accounting, i'm just saying, for me, that the bread and butter is what has physically gone out of the bank and what is physically coming in to the bank

 

[Superted]

I don't really think the amortisation (or whatever) shpuld be a factor. To me, whatever has been spent on transfer fees, wages etc in that year should be part of your FFP. If you buy someone for 20m, with 10m this year. And the other 10m in installments, i think the 10m should go on this year, regardless of length of contract. Given players often leave before the end of their contract or get given new ones, or cancelled, it seems like it is just a way to manipulate figures. I get the player can be seen as an 'asset', if boight an asset outright for £1000 today and planned to have it for 10 years, i still pay £1000 in 2023, not 100 for 10 years. I would have the potential to sell the asset, but wouldn't see that money until any transaction.

Maybe it is a too simple way of thinking, but to me it is 'what have you paid out this year and what money have you received' the difference being your profit/loss

It doesn't work like that because in the process of paying the transfer fee you acquire an asset of the same monetary value so your P&L is 0 until he end of that year when you have to depreciate the asset.

The player has a value as he can be sold for a fee in the same way they were acquired. If players weren't considered assets then there's no way anyone would be able to buy them as the club would be making ridiculous losses year-on-year to the point where they would all go bust.

If companies couldn't consider assets in their accounts then no company would ever invest in anything, tangible or intangible they would simply hold on to the cash at bank and try and avoid paying anything to anyone.

You can't just consider cash in vs. cash out.

 

[Eastyorksyeltz]

I appreciate you have your own experience, and i am not foreign to accounting, i'm just saying, for me, that the bread and butter is what has physically gone out of the bank and what is physically coming in to the bank

But it isn't when some, most, of those outgoings are spent on high value assets that either depreciate or, occasionally, gain in value and are not generally purchased with the intention of making a profit in a particular trading period. Players are not trading stock. It would be like a logistics company showing its purchase and sale of trucks in the profit and loss account. It would completely distort any view of the company performance in those periods where they invested in the assets that enabled them to undertake thier trade. Similarly not writing down the value of those assets over the period they were in use would result in a distortion of the value held on the balance sheet.

 

[epic]

I hate the big 7 as a rule but I actually see what Chelsea have done and ask why no non big 7 did the same? I know you see a fine and a points deduction but surely that would only happen if youre guilty of something. Chelsea are not guilty of anything other than exploiting a loophole. Its a gamble though as paying up 8-10 year contracts could bankrupt you!

So it's the "Big 7" now ? .............. It used to be "Top 4" then "Sky Six" and now "Big 7" .................. and still the Government do nothing about this inflation !!

 

[Ironfistedmonk]

Regards to FFP (for this season at least), we have nothing to worry about, obviously spending a lot of money will have a knock on effect if we don't claw a big chunk back each season, whether that be through sales (we got good money for MGW this season) or building other revenue streams. So further down the line we might have a problem, but this season we're fine

Sales of Guedes and possibly Neves should see us more than OK FFP wise I'd imagine

 

[Notsoslimshady]

You can't just consider cash in vs. cash out

I didn't say that for one minute. And i didn't insinuate investment can't be taken account. I merely csme here to state my opinion on how i think it should be in ffp, not to be condescended. Anyway, to use a business term, if i'm allowed, i'm out

 

[Superted]

I didn't say that for one minute. And i didn't insinuate investment can't be taken account. I merely csme here to state my opinion on how i think it should be in ffp, not to be condescended. Anyway, to use a business term, if i'm allowed, i'm out

Apologies if it came across that way that wasn't my intention.

Problem is that the clubs won't want to be preparing two completely different sets of documentation based on two completely different accounting systems comes year end.

 

[Eastyorksyeltz]

Apologies if it came across that way that wasn't my intention.

Problem is that the clubs won't want to be preparing two completely different sets of documentation based on two completely different accounting systems comes year end.

Very true, but even more than this, it is the intention of FFP regulations to look at the amount of "investment" in player assets in that context of the actual turnover and worth of the clubs as an ongoing business. So the idea that you could use a cash in cash out basis to adjudge FFP is flawed in itself, irrespective of the understanding of accounting practice.
Our replies might both have come across to the OP as condescending, but they were valid counters to his stated opinion and it is always difficult to know what the extent of understanding is behind the argument being made and consequently how to pitch a response. I also apologise for seeming condescending.