WolfLing
Just doesn't shut up
- Joined
- Jun 29, 2016
- Messages
- 15,539
- Reaction score
- 28,274
"Why aren’t we doing as many ‘bits’ as other clubs?"
"Why have Fosun turned the taps off?"
"Why do we have to sell to buy?"
"Our owners have no interest in our club anymore!"
Some things posted on there all the time, amongst many other criticisms of our lack of spending and overall strategy.
But why? What’s changed for Fosun?
I don’t think anything has changed with Fosun other than their plan. Like with any other business, an analysis of the market conditions will drive that plan.
Football is changing. The changes have already been introduced this month, with a 3 year run in period.
Part of the new UEFA FFP regulations limits spending on wages, transfers, and agent fees to 70% 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 and will be phased in over a 3-year period.
All a bit wishy-washy at the moment, but it’s the 70% rule that’s the complete game-changer in my opinion. Here's why.
If the new rules were imposed this month in full, rather than with the 3-year phased implementation, us and 9 others currently in the Premier League would fail the test on wages alone. Spurs are currently the lowest on 57%, although I would imagine Conte is pushing for that to change!
We are just above the 70% on wages alone, with our wage bill 72% of our turnover.
Palace (93%), Southampton (90%), Everton (89%), Leicester (85%), Watford (80%) Newcastle (79%), Brighton (78%), Chelsea (77%), Burnley (75%), Villa (75%), Norwich (75%) and Arsenal (73%) all sat above us last season.
At the moment, these rules will only apply to clubs in European competitions, but anyone not in a relegation battle could potentially qualify for Europe if they have a good season, so clubs will need to pay close attention to them regardless, or risk being burned by 'pre-defined financial penalties and sporting measures' if they do qualify.
The Premier League rules have not been updated or published yet either, so whether they will be changed and how close they will look to the UEFA rules is unknown, but I would expect something will come out soon on this.
What does this mean for us?
Fast-forward 3 years from now when the rule is fully in place. We would fail any tests without spending another penny, as our wage bill is already 72% of our revenues. I would imagine with releasing the players we have since this was published, this would come down, so if a test was done tomorrow, we would probably be fine.
But assuming we push the wages to the maximum 70%, as most clubs will, any money for new transfers and new wages has to be generated by profits or player sales.
No real change for us!
Fosun can spend money if they want to, they have spent money in the past, so why the change in more recent strategy?
I think people are too quick to throw around accusations of lack of planning or lack of foresight from our owners, when if anything, they appear to be very shrewd operators, that look at how a market will change and develop before making strategic decisions.
If we get our house in order before everyone else, surely that puts us in a very strong position in the future?
What does it mean for others?
Villa are a good club to use as an example, as they are often held on a pedestal about how their owners throw money around like confetti. To me they are owners that are in it for vanity reasons and don’t really mind if their club makes a loss, as they will cover it as best they can. Nothing wrong with that currently, but obviously a different approach to Fosun and an approach that will need to be tweaked going forward.
UEFA’s break-even rule for sustainability (the one we were stung by) has also been changed (probably to accommodate PSG), so clubs can now lose €60m a season (approx. £51m). How clubs could use this to manipulate the 70% rule, I’m not sure (any suggestions welcome), as I don’t think any cash injection to cover losses, or any loans would positively impact revenues.
I suspect that even at a club where owners inject the maximum amount of capital allowed to cover losses, will still have to comply with the 70% rule.
So someone like Villa, who are currently at 75% wages to revenues, would need to shed 5% off their wage bill to comply.
Then any spending on new transfers and new wages has to be generated by profits or player sales. They don’t make a profit, as their owners inject capital to cover their losses, so player sales is their only avenue for raising funds.
Newly promoted clubs will have an advantage in the transfer market, as they will have a massively increased turnover and a relatively small wage bill, so more room for manoeuvre initially after promotion.
The big powerhouses of football, with turnovers 2 or 3 times that of most other clubs will have an advantage in terms of overall spending power, but I think that advantage will be narrowed by their excessive wage bills.
Take Man United as another example, the highest net spend in the last 10 years (£903m). Turnover of £500m+, with a wages to turnover ratio of 65%. They have 5% of their revenue to spend on fees and wages to take them to the 70% level. A grand total of £25m
If you assume transfer fee will be accounted for in a similar way to how they are now, by dividing the transfer fee over the term of the contract, they could spend £125m on players on 5 years contracts (5 x 25), assuming they free up some wages of players leaving or being out of contract.
But overall, their spending ability will probably be lower than it is currently. Could this be why Man City and Liverpool have both taken the decision to spend big on young strikers now before the new rules fully bite?
What’s the best strategy for now?
If I were running a football club, with these changes coming into force already and being phased in over the next 3 years, I would be looking to get my house in order as soon as possible.
Dos
Don’ts
They either hope that a youngster can develop enough in those 4 years to replace his level of contribution, sign another older player on a free transfer on similar wages, or they go into the following season with a hole they are unable to fill.
That’s an extreme example, but one that illustrates how important succession planning for your first team is becoming, as it will become more difficult to go out and just buy players to fill a gap, without planning for it!
What does the future hold?
I think a lot of clubs will push this right to the wire. They will continue ploughing forward with their broken business models until the very last minute and then panic when the regulations take full hold (especially if they qualify for Europe unexpectedly!).
3 years from now, I can see a summer window like never before. Record amounts of players being released from their contracts and players being allowed to leave for well below their market value, just so clubs can shift players off their books to comply.
Longer term, I think this is a positive move, as it is effectively a soft cap on wages and transfer fees, which are getting out of control.
It also makes the hoarding of large, highly paid squads of players less likely, with bigger clubs unwilling to pay bigger wages to those that aren’t playing. That could be a good thing for clubs like us, as players that could be a star player for us, won’t be sitting on the benches of bigger clubs. Potentially a good thing for the progression of youngsters too.
So transfer fees reducing, wages reducing, an increase in available higher-quality players, more evenly distributed amongst clubs.
That’s hopefully what we will see, as I can't see any negatives in those things.
The next few years for us will be about treading water and maintaining our Premier League status.
We already have our house in order, and we are already doing the right things for the future. If we make sure our house is in better order than most, we are in the best possible position to capitalise when the panic sets in.
Short-term however, that might mean a competitive disadvantage as we adopt a stricter model to the rest of the market. But this should change to a competitive advantage longer term.
In my opinion, we are playing a waiting game. Waiting for football to financially implode on itself and being one of the few clubs in a position to pick up some of the pieces.
That’s certainly not a mouth-watering prospect for the next few years, but one that fills me with some confidence for the future beyond that.
The real risk is that the conditions to tread water become impossible, the currents become too strong, the competitive disadvantage becomes too wide and we sink.
But if you look at the long-term, I really don’t see that there’s a viable alternative.
This brings together a few discussion from a few different threads, but also worth checking out @cannockwolves thread on sustainability (Sustainability)
"Why have Fosun turned the taps off?"
"Why do we have to sell to buy?"
"Our owners have no interest in our club anymore!"
Some things posted on there all the time, amongst many other criticisms of our lack of spending and overall strategy.
But why? What’s changed for Fosun?
I don’t think anything has changed with Fosun other than their plan. Like with any other business, an analysis of the market conditions will drive that plan.
Football is changing. The changes have already been introduced this month, with a 3 year run in period.
Part of the new UEFA FFP regulations limits spending on wages, transfers, and agent fees to 70% 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 and will be phased in over a 3-year period.
All a bit wishy-washy at the moment, but it’s the 70% rule that’s the complete game-changer in my opinion. Here's why.
If the new rules were imposed this month in full, rather than with the 3-year phased implementation, us and 9 others currently in the Premier League would fail the test on wages alone. Spurs are currently the lowest on 57%, although I would imagine Conte is pushing for that to change!
We are just above the 70% on wages alone, with our wage bill 72% of our turnover.
Palace (93%), Southampton (90%), Everton (89%), Leicester (85%), Watford (80%) Newcastle (79%), Brighton (78%), Chelsea (77%), Burnley (75%), Villa (75%), Norwich (75%) and Arsenal (73%) all sat above us last season.
At the moment, these rules will only apply to clubs in European competitions, but anyone not in a relegation battle could potentially qualify for Europe if they have a good season, so clubs will need to pay close attention to them regardless, or risk being burned by 'pre-defined financial penalties and sporting measures' if they do qualify.
The Premier League rules have not been updated or published yet either, so whether they will be changed and how close they will look to the UEFA rules is unknown, but I would expect something will come out soon on this.
What does this mean for us?
Fast-forward 3 years from now when the rule is fully in place. We would fail any tests without spending another penny, as our wage bill is already 72% of our revenues. I would imagine with releasing the players we have since this was published, this would come down, so if a test was done tomorrow, we would probably be fine.
But assuming we push the wages to the maximum 70%, as most clubs will, any money for new transfers and new wages has to be generated by profits or player sales.
No real change for us!
Fosun can spend money if they want to, they have spent money in the past, so why the change in more recent strategy?
I think people are too quick to throw around accusations of lack of planning or lack of foresight from our owners, when if anything, they appear to be very shrewd operators, that look at how a market will change and develop before making strategic decisions.
If we get our house in order before everyone else, surely that puts us in a very strong position in the future?
What does it mean for others?
Villa are a good club to use as an example, as they are often held on a pedestal about how their owners throw money around like confetti. To me they are owners that are in it for vanity reasons and don’t really mind if their club makes a loss, as they will cover it as best they can. Nothing wrong with that currently, but obviously a different approach to Fosun and an approach that will need to be tweaked going forward.
UEFA’s break-even rule for sustainability (the one we were stung by) has also been changed (probably to accommodate PSG), so clubs can now lose €60m a season (approx. £51m). How clubs could use this to manipulate the 70% rule, I’m not sure (any suggestions welcome), as I don’t think any cash injection to cover losses, or any loans would positively impact revenues.
I suspect that even at a club where owners inject the maximum amount of capital allowed to cover losses, will still have to comply with the 70% rule.
So someone like Villa, who are currently at 75% wages to revenues, would need to shed 5% off their wage bill to comply.
Then any spending on new transfers and new wages has to be generated by profits or player sales. They don’t make a profit, as their owners inject capital to cover their losses, so player sales is their only avenue for raising funds.
Newly promoted clubs will have an advantage in the transfer market, as they will have a massively increased turnover and a relatively small wage bill, so more room for manoeuvre initially after promotion.
The big powerhouses of football, with turnovers 2 or 3 times that of most other clubs will have an advantage in terms of overall spending power, but I think that advantage will be narrowed by their excessive wage bills.
Take Man United as another example, the highest net spend in the last 10 years (£903m). Turnover of £500m+, with a wages to turnover ratio of 65%. They have 5% of their revenue to spend on fees and wages to take them to the 70% level. A grand total of £25m
If you assume transfer fee will be accounted for in a similar way to how they are now, by dividing the transfer fee over the term of the contract, they could spend £125m on players on 5 years contracts (5 x 25), assuming they free up some wages of players leaving or being out of contract.
But overall, their spending ability will probably be lower than it is currently. Could this be why Man City and Liverpool have both taken the decision to spend big on young strikers now before the new rules fully bite?
What’s the best strategy for now?
If I were running a football club, with these changes coming into force already and being phased in over the next 3 years, I would be looking to get my house in order as soon as possible.
Dos
- Running in profit to increase the amount you have to spend and natural increases in your wage bill.
- Operating a controlled, tiered wage structure.
- Concentrating most of your resources on your first XI and buying younger players with high potential on long-term, relatively low pay contracts as backup. This keeps the average age and overall wage bill down and also future proofs you going forward (as you need to spend less on replacements).
- Growing off-field revenues to improve revenues and profitability.
Don’ts
- Spending over the odds for any player in terms of fee and wages (United)
- Having a large squad of older, over-paid, average players, on long term contracts (Everton)
- Paying transfer fees for older star players on high wages with no re-sale value, as by the time their contracts have finished, you will not have any available resources to replace them, assuming you are maxed out at the 70% for wages (Villa)
They either hope that a youngster can develop enough in those 4 years to replace his level of contribution, sign another older player on a free transfer on similar wages, or they go into the following season with a hole they are unable to fill.
That’s an extreme example, but one that illustrates how important succession planning for your first team is becoming, as it will become more difficult to go out and just buy players to fill a gap, without planning for it!
What does the future hold?
I think a lot of clubs will push this right to the wire. They will continue ploughing forward with their broken business models until the very last minute and then panic when the regulations take full hold (especially if they qualify for Europe unexpectedly!).
3 years from now, I can see a summer window like never before. Record amounts of players being released from their contracts and players being allowed to leave for well below their market value, just so clubs can shift players off their books to comply.
Longer term, I think this is a positive move, as it is effectively a soft cap on wages and transfer fees, which are getting out of control.
It also makes the hoarding of large, highly paid squads of players less likely, with bigger clubs unwilling to pay bigger wages to those that aren’t playing. That could be a good thing for clubs like us, as players that could be a star player for us, won’t be sitting on the benches of bigger clubs. Potentially a good thing for the progression of youngsters too.
So transfer fees reducing, wages reducing, an increase in available higher-quality players, more evenly distributed amongst clubs.
That’s hopefully what we will see, as I can't see any negatives in those things.
The next few years for us will be about treading water and maintaining our Premier League status.
We already have our house in order, and we are already doing the right things for the future. If we make sure our house is in better order than most, we are in the best possible position to capitalise when the panic sets in.
Short-term however, that might mean a competitive disadvantage as we adopt a stricter model to the rest of the market. But this should change to a competitive advantage longer term.
In my opinion, we are playing a waiting game. Waiting for football to financially implode on itself and being one of the few clubs in a position to pick up some of the pieces.
That’s certainly not a mouth-watering prospect for the next few years, but one that fills me with some confidence for the future beyond that.
The real risk is that the conditions to tread water become impossible, the currents become too strong, the competitive disadvantage becomes too wide and we sink.
But if you look at the long-term, I really don’t see that there’s a viable alternative.
This brings together a few discussion from a few different threads, but also worth checking out @cannockwolves thread on sustainability (Sustainability)