UEFA Financial Fair Play

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UEFA Financial Fair Play

Post by BeautifulGame on Wed Aug 03, 2011 12:15 pm

After lot of confusion about Financial fairplay rules I thought a thread and link would be useful to explain it and footballing accounting principals once and for all (hopefully).

The following link uses Chelsea as an example and is a long read so will cut and paste a few relevant parts.

http://swissramble.blogspot.com/2011/02/chelseas-financial-fair-play-challenge.html

Some commentators have speculated that the reason for Chelsea’s burst of activity is to somehow beat the UEFA Financial Fair Play rules, as the next set of accounts (2010/11) is the last year where the numbers are excluded from UEFA’s break-even calculations, but this merely betrays a lack of accounting knowledge. The reality is that when a player is purchased, his cost is capitalised on the balance sheet and is written-down (amortised) over the length of his contract. Importantly, this means that the cost of Chelsea’s recent purchases will be included under Financial Fair Play via the amortisation charge.

In this way, amortisation can have a big influence on a club’s results. For example, Manchester City’s player amortisation has grown significantly from £6 million in 2007 to £71 million in 2010. On the other hand, the slow-down in Chelsea’s transfer spend has seen their amortisation fall from £83 million to £38 million in the last five years.

Although a few journalists have suggested some accounting trickery, whereby clubs would choose to book all the huge transfer spend now as a cost, so that it would not impact future accounts, this seems extremely unlikely to me. While it is true that UEFA's regulations do allow football clubs to choose "an accounting policy to expense the costs of acquiring a player’s registration rather than capitalise them", the key point is that this must be "permitted under their national accounting practice."

This is highly technical, but in my view this is where their argument falls down. Ever since the introduction of IFRS (International Financial Reporting Standards), in particular FRS10 on Goodwill and Intangible Assets, major clubs have used the capitalisation and amortisation method to account for player transfers, so it would be difficult for Chelsea (or anybody else) to argue that the "income and expense" method had suddenly become appropriate.

UEFA have all but confirmed this in a recent statement, when they clarified the issue: “There is no doubt that transfers now will impact on the break-even results of the financial years ending 2012 and 2013 – the first financial years to be assessed under the break-even rule.” This was further underlined by Andrea Traverso, the Head of Club Licensing and Financial Fair Play at UEFA, who explained, “All clubs must amortise all transfer fees.”
I suppose that there is always the possibility of a club booking a massive impairment provision in 2010/11, which would dramatically reduce the value of their players in the accounts, but have the advantage of reducing future expenses. However, this has the whiff of earnings manipulation and is unlikely to be accepted by UEFA.


However, they don’t need to be absolutely perfect by then, as wealthy owners will be allowed to absorb aggregate losses (so-called “acceptable deviations”) of €45 million (£39 million), initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions. The maximum permitted loss then falls to €30 million (£26 million) from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount). Note that these sums represent aggregate losses, not a yearly loss, as I have seen some people erroneously report.

For how new signings will be calculated into FFP read this as an example......



2. New Signings

The 2009/10 accounts ran up to 30 June 2010, so do not include the cost of any new signings after that date, which means that we need to add the wages and amortisation for Torres, Luiz, Ramires and Yossi Benayoun. Taking Torres as an example, his wages have been estimated at £150,000 a week, which works out to £8 million a year, while the annual amortisation is £9 million (£50 million transfer fee divided by the 5.5 years of his contract), giving a total of £17 million. Although players’ salaries are not divulged, we can make reasonably accurate estimates for the others, which give us a total of £36 million of additional costs for these four players.

The £17m is what Torres is costing them per year in expenses including his transfer fee.
P.S.

I copied this from a Liverpool forum and also posted the link for anyone interested in reading the whole article.

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Re: UEFA Financial Fair Play

Post by fatman123 on Wed Aug 03, 2011 12:24 pm

100% boss article, i only read the bit you quoted but i saved the link and will read the rest later

cheers

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Re: UEFA Financial Fair Play

Post by Art Morte on Wed Aug 03, 2011 1:11 pm

The Swiss Ramble Heart
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Re: UEFA Financial Fair Play

Post by TalkingReckless on Wed Aug 03, 2011 3:53 pm

one of the best blogs ever for football financials
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Re: UEFA Financial Fair Play

Post by free_cat on Wed Aug 03, 2011 6:15 pm




However, they don’t need to be absolutely perfect by then, as wealthy owners will be allowed to absorb aggregate losses (so-called “acceptable deviations”) of €45 million (£39 million), initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions. The maximum permitted loss then falls to €30 million (£26 million) from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount). Note that these sums represent aggregate losses, not a yearly loss, as I have seen some people erroneously report.


This part it's the only part that actually talks about financial fair play, rest is about accounting that I already was aware of. However, this leaves a lot of doubts:

1) Is this approved?
2) How will UEFA control the accounts? Will they hire their own auditors or they will rely on club's auditors? Club's auditor's have been proved to be extremely easily influenced by the Club to show the financial results the Club wishes.
3) How can they avoid creative ways to go around the injection of equity? E.g.: If your loss surpasses the 45m€ in three seasons, you ask a Qatari friend to close a sponsorship deal with your Club and you pay him in the Cayman Islands the difference.

My veredict: FFP rules will barely have any effect. We might not see 100+ milion losses a season as Man City or Chelsea did for a few seasons, but they can in reality be close to that, but actually showing much less.

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Re: UEFA Financial Fair Play

Post by Art Morte on Wed Aug 03, 2011 6:29 pm

@free_cat wrote:



However, they don’t need to be absolutely perfect by then, as wealthy owners will be allowed to absorb aggregate losses (so-called “acceptable deviations”) of €45 million (£39 million), initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions. The maximum permitted loss then falls to €30 million (£26 million) from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount). Note that these sums represent aggregate losses, not a yearly loss, as I have seen some people erroneously report.


This part it's the only part that actually talks about financial fair play, rest is about accounting that I already was aware of. However, this leaves a lot of doubts:

1) Is this approved?
2) How will UEFA control the accounts? Will they hire their own auditors or they will rely on club's auditors? Club's auditor's have been proved to be extremely easily influenced by the Club to show the financial results the Club wishes.
3) How can they avoid creative ways to go around the injection of equity? E.g.: If your loss surpasses the 45m€ in three seasons, you ask a Qatari friend to close a sponsorship deal with your Club and you pay him in the Cayman Islands the difference.

My veredict: FFP rules will barely have any effect. We might not see 100+ milion losses a season as Man City or Chelsea did for a few seasons, but they can in reality be close to that, but actually showing much less.

1. Approved, yes, it's coming in effect.

2. UEFA have their own people, but I'd expect that they'll be mostly going through information that clubs release - and they have to release this info. Manipulating those financial statements? Well, it's not only UEFA that are interested in clubs' finances, but national tax authorities, too, and giving out false info to the taxman is, well, illegal, and I doubt anyone will fancy the chance of some nice jail time for misleading the tax authorities ^^

3. If you read the article, or the FFP rules from UEFA's website, you'll learn fascinating stuff about "fair value" deals and prohibitions about deals that involve members of the family or close associates of the club owners etc Thumbs up

My verdict: If UEFA really are serious about the FFP and are willing to go down hard on the clubs, then these rules will change the financial landscape of football and will have a significant impact in European football. If UEFA do that. That's a big if at this point.
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Re: UEFA Financial Fair Play

Post by Guest on Wed Aug 03, 2011 6:37 pm

Salary cap, luxury tax and revenue sharing is the only way to create fair play. There's a reason why almost every NFL team in the US is worth over $1 billion, regardless of location... it's an impossible task to monitor financial performance unless you force the clubs to follow US-style public-company reporting requirements.

I think this is going to fail miserably.

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Re: UEFA Financial Fair Play

Post by Art Morte on Wed Aug 03, 2011 7:22 pm

@sportsczy wrote:Salary cap, luxury tax and revenue sharing is the only way to create fair play. There's a reason why almost every NFL team in the US is worth over $1 billion, regardless of location... it's an impossible task to monitor financial performance unless you force the clubs to follow US-style public-company reporting requirements.

I think this is going to fail miserably.

But clubs (at least in England, probably elsewhere in Europe, too) are required to publish their financial statements. They can't go about their business hidden from the public eye. UEFA will be able to closely monitor clubs' financial performances.

A salary cap won't work in football. Sports leagues in the U.S. are working in one "smooth" area and market, that of the United States / North America. You cannot implement one salary cap in European football because there's so many countries involved and so many leagues with very different income streams.

Revenue sharing takes place very evenly already in Barclay's Premier League, for example. The TV monies the league receives are very evenly distributed among those 20 teams. Yet it would make no sense whatsoever to put all Matchday Income and Commercial Income into one big pool and share that evenly as well. Arsenal earn £100m annually from Matchday income and Stoke City make £10m a year, but Arsenal should pay 45m to Stoke to make it even steven £55m for each club? No, revenue sharing shouldn't be taken too far.

I'm surprised at how many people have very little faith in FFP. I think UEFA have really thought this through, have taken their time to work on the rules to close all possible loopholes and are ready and capable to force these rules on clubs. They can do it, they've got the tools. No question about it. What is another matter is that do they really have the balls and desire to take drastic measures and leave big clubs outside of Europe and Champions Leagues if needed and that remains to be seen, but I think it's clear that UEFA can pull this off successfully as long as they're truly willing to.
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Re: UEFA Financial Fair Play

Post by windkick on Wed Aug 03, 2011 7:55 pm

Correct me if I am wrong, but don't Ligue 1 teams get relegated instantly if they get in serious debt? Which is a reason why you rarely see French teams going crazy spending cash they don't have

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Re: UEFA Financial Fair Play

Post by Guest on Wed Aug 03, 2011 7:57 pm

@windkick wrote:Correct me if I am wrong, but don't Ligue 1 teams get relegated instantly if they get in serious debt? Which is a reason why you rarely see French teams going crazy spending cash they don't have

They just need enough capital to cover debt payments... there's a required debt coverage ratio. You can inject capital as much as you need. Most clubs don't buy because they don't have access to that kind of capital.

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Re: UEFA Financial Fair Play

Post by windkick on Wed Aug 03, 2011 8:09 pm

ahh ok, thanks! I knew I heard something like that, thank's for clearing that up

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Re: UEFA Financial Fair Play

Post by BeautifulGame on Sat Oct 08, 2011 2:39 pm

Another good article i saw about how FFP is already adjusted to protect clubs like City and Chelsea and hence why it wont affect them as many here think.

Will UEFA’s Financial Fair Play help Arsenal?

Many fans believe that the FFP regulations will benefit Arsenal, as they force clubs to live within their means if they wish to compete in Europe. The theory was that this would lead to the demise of the big spending, benefactor model, while encouraging those teams who adopted a self-sustaining approach. Clearly, Arsenal will have no problem complying with the new rules, but other leading clubs are maybe not so badly placed as once feared.

Real Madrid and Bayern Munich have been consistently profitable, thanks to their huge revenue, while Barcelona have also reported regular profits except when there is a change in club president. Even Manchester United now make profits despite their ample interest payments.

Clearly, FFP will be more of a challenge for clubs like Manchester City and Chelsea, who make huge losses, but UEFA have made it easier for such clubs to conform. First, UEFA’s break-even calculation is not exactly the same as a club’s statutory accounts, as it excludes certain expenses, including depreciation on tangible fixed assets and expenditure on youth development and community development activities.

"Most ox-cellent"

Second, wealthy owners will be allowed to absorb aggregate losses (so-called “acceptable deviations”) of €45 million (£39 million), initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions.

If that wasn’t enough, clubs will be allowed to exclude wages from players signed before June 2010, so long as they are reporting an improving trend in their accounts. Granted, that “loophole” only exists for the first two monitoring periods (2013/14 and 2014/15), but it will buy the clubs time to improve their finances.

Finally, there has to be a concern that accountants and lawyers will look to bend the rules. Wenger accused Manchester City of doing just this with their £400 million Etihad deal, “They give us the message that they can get around it by doing what they want. It means financial fair play will not come in.”

In short, FFP may not prove to be the cavalry coming over the hill that some imagined for Arsenal. If it is, then it will be a good few years before it bites.

http://swissramble.blogspot.com/2011/10/arsenals-finances-21-questions.html


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Re: UEFA Financial Fair Play

Post by fatman123 on Sun Oct 09, 2011 1:12 am

the wages of players signed before June 2010 dont count! thats nearly our whole squad Cool

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Re: UEFA Financial Fair Play

Post by Lex on Sun Oct 09, 2011 1:15 am

It sounds like it's going to be a giant headache to actually enforce, especially since clubs are going to find a dozen sleazy way to weasel their way through the loopholes they'll obviously find

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Re: UEFA Financial Fair Play

Post by El Chelsea Fuerte on Sun Oct 09, 2011 1:32 am

@Lex wrote:It sounds like it's going to be a giant headache to actually enforce, especially since clubs are going to find a dozen sleazy way to weasel their way through the loopholes they'll obviously find

Yeah, but it will at least control some spending. Especially in the latter years when clubs can report fewer and fewer losses.

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Re: UEFA Financial Fair Play

Post by BeautifulGame on Sun Oct 09, 2011 4:17 am

The only big achievement i think this FFP can do is stop any more Suger daddy come in do a City.I dont think any new owner can come and spend 500 mil like City did and meet FFP criteria.

But i dont think it will affect the likes of City as many want here tbh.

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Re: UEFA Financial Fair Play

Post by zizzle on Sun Oct 09, 2011 8:41 am

and i thought my accounting degree was useless

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Re: UEFA Financial Fair Play

Post by Adit on Mon Dec 19, 2011 2:20 pm

Cant wait to see how big of a sponsors deal city are gona sign

FFP was a trap aimed for ManCity but the one fell is Inter Milan lol Razz

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Re: UEFA Financial Fair Play

Post by arabprince on Mon Dec 19, 2011 2:42 pm

Are big baths legal under IFRS? I know they aren't under GAAP.

If this is all about accounting, then teams won't suffer. An accountants job is to know the numbers and shot things connect, they'll be able to fudge numbers no problem.

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Re: UEFA Financial Fair Play

Post by free_cat on Mon Dec 19, 2011 2:49 pm

@arabprince wrote:Are big baths legal under IFRS? I know they aren't under GAAP.

If this is all about accounting, then teams won't suffer. An accountants job is to know the numbers and shot things connect, they'll be able to fudge numbers no problem.

That's not an accountant's job.

An accountant's job is to reflect in a comprehensible way, in this case using named accounts and numbers, the real financial situation of a company (in this case club) as accurate and truthfully as possible.

What you are describing is the job of a fraudulent accountant/auditor.

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Re: UEFA Financial Fair Play

Post by windkick on Mon Dec 19, 2011 3:08 pm

This will be awesome for all of the smaller clubs in Europe IF indeed UEFA has the balls to start knocking out the likes of Barca, City, United etc out of the UCL

Personally I hope they do

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Re: UEFA Financial Fair Play

Post by zizzle on Mon Dec 19, 2011 4:54 pm

@free_cat wrote:
@arabprince wrote:Are big baths legal under IFRS? I know they aren't under GAAP.

If this is all about accounting, then teams won't suffer. An accountants job is to know the numbers and shot things connect, they'll be able to fudge numbers no problem.

That's not an accountant's job.

An accountant's job is to reflect in a comprehensible way, in this case using named accounts and numbers, the real financial situation of a company (in this case club) as accurate and truthfully as possible.

What you are describing is the job of a fraudulent accountant/auditor.


we dont :coffee:

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Financial Fair Play is being enforced?!

Post by Forza on Tue Sep 11, 2012 10:35 am

UEFA is withholding Europa League champion Atletico Madrid's prize money from this season's competition while it investigates the club for breaching ''financial fair play'' rules.

UEFA says Atletico is among 23 clubs whose prize money from this season's Champions League or Europa League could be stopped because of overdue payments of transfer fees, wages and social taxes up to the end of June.

Malaga, Sporting Lisbon and Fenerbahce also are being investigated.

The list of offending clubs was drawn up by Jean-Luc Dehaene, the former prime minister of Belgium who heads the panel appointed by UEFA to prosecute financial fair play cases.

UEFA says the clubs have until Sept. 30 ''to provide an updated situation.''
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Re: UEFA Financial Fair Play

Post by Die Borussen on Tue Sep 11, 2012 10:42 am

malaga qualified for the CL with a main purpose of receiving money to solve their financial problems
this will make it worse

also that falcao deal for atletico still hunts them, not surprised they have problems paying the rest of the squad now

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Re: UEFA Financial Fair Play

Post by Onyx on Tue Sep 11, 2012 10:54 am

Yeh Atletico's is probably due to Falcao.

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