RandomAccessMemory

Just so we’re clear, these were the original 5 respects in which the EFL said our amortisation was contrary to FRS 102.

1. Was dropped before the IDC when the EFL realised they had misunderstood our approach and that we didn’t have a non-zero value at the end of their contracts, ie. when they are worth zero because of Bosman.

2. IDC dismissed, LAP substituted their decision below.

3 and 4. Dismissed by both the IDC and the LAP.

5. IDC original decision stands.

These are the two things the IDC have to decide on ‘punishment’ (from the list I posted before) for.

What happens next is anyone’s guess, but this is not (at least at this point) about us having overspent in that 3 year period.

The way I understand it is if the IDC simply says we need to restate our accounts for that period, as our ‘punishment’ for the 2 decisions above, to make them compliant, only then (if we have gone over the P&S limit) is the point at which a new charge would be bought for that.

So, I guess this is about what punishment we should get for having non compliant accounts for those years, and what, if any, mitigating factors there are for that.

Just now, BramcoteRam84 said:

I’m seeing talk of points deductions and the EFL wanting to implement them this season. From chatter On here yesterday we seem pretty confident that despite having to change our amortisation policy we would still be within the £39m limit and if that’s the case we won’t get any deduction. Am I missing something? 

I don’t think so.

It seems to be up to the original IDC to decide what happens next, what ‘punishment’ there should be for the second and fifth particulars of the second charge.

From https://www.efl.com/-more/governance/efl-rules--regulations/section-8---offences-inquiries-commissions-disputes-and-appeals/ this could be pretty much anything.

Quote

92 Decisions 

92.1  The Disciplinary Commission may at any time make a decision, and may make more than one decision at different times on different aspects of the matters to be determined. 

92.2  A decision may:

92.2.1  order a party to do or refrain from doing anything; 

92.2.2  order a specific performance; 

92.2.3  make a declaration on any matter to be determined; 

92.2.4  issue a reprimand or warning as to the future conduct of a party; 

92.2.5  order the payment of compensation to The League, any Club, any other club, Player or other person; 

92.2.6  order a suspension of membership of The League; 

92.2.7  order a deduction of points; 

92.2.8  impose a financial penalty payable to The League; 

92.2.9  recommend expulsion from membership of The League; 

92.2.10  order a withdrawal or loss of benefit otherwise available to members of The League e.g. basic award or ladder payment; 

92.2.11  impose an embargo on registration of Players; 

92.2.12  order any other sanction as the Disciplinary Commission may think fit; and 

92.2.13  order that interest be payable on any sums awarded under this Regulation for such period and at such rates as the Disciplinary Commission thinks fit. 

92.3  These sanctions may be imposed immediately or may be deferred or suspended for such period and on such terms as the Disciplinary Commission shall decide. 

92.4  At any time a Disciplinary Commission may determine (either of its own accord or as a result of representations from a person, Club or club and in any event in its sole discretion) that if the complaint is upheld, it may wish to exercise the power under Regulation 92.2.5 to award compensation. If the Disciplinary Commission so determines, it shall notify the parties to the proceedings and the potential recipient(s) of this fact. The Disciplinary Commission may then make appropriate directions as to the receipt of evidence of loss from the relevant recipient(s) as well as directions on the receipt of evidence in response from the parties to the proceedings.

92.5  The Disciplinary Commission shall have the power to abridge the time period set out in Regulation 94.3 (time limits for appeal) if there is a compelling reason why the appeal (if any) needs to be concluded expeditiously. 

92.6  Any financial sanction and any order for costs shall be paid to The League within 14 days of the date on which the sanction or costs were imposed. Any compensation shall be paid in accordance with the order of the Disciplinary Commission.

5 minutes ago, duncanjwitham said:

The offer was to adjourn just for the second charge. We could have got the stadium one sorted and dealt with the second one when we were ready.  There are no excuses for it

(For clarity, I still think the decision is wrong we should not be charged or punished for it. But it's seemingly mostly down to us screwing up that we didn't win, which is incredibly frustrating.)

Ahh, yes, sorry I missed that bit. Might that have incurred more costs? I’m still not clear on who pays for these things, I thought it would be the losing party, however at the end of some of the other documents, such as the Boro one it suggests that should be agreed between the parties.

1 minute ago, duncanjwitham said:

But if that's ultimately what's led to us losing, we'd have been better off taking the extra time and doing it properly.

It's actually irrelevant though - reading down the original report further, the issue of consumption of economic benefits through disposal was in the original charge letter, so it wasn't sprung on us at the last minute.  We had ample time to prepare and provide an expert witness, and chose not to.

Maybe if the IDC was only for the amortisation charge we might have done that, don’t forget it was also for the stadium charge, and we’d already got our ducks in a row for that one.

7 minutes ago, duncanjwitham said:

I've just checked back on the report from the original decision. We were offered the chance to seek an adjournment for the second charge, to prepare our case better, and chose not to.  Lack of preparation is entirely on us.

Because it had already gone on long enough by that point? Goodness knows how long the original IDC would have taken if we’d have taken the chance to adjourn it.

10 minutes ago, duncanjwitham said:

That may have been the case, but that comes back to not knowing the rules of the game. The report from the appeal makes it clear - our accountant was there as a factual witness, not an expert one (i.e. there to speak on what we did, not what the law/accounting rules are, so his evidence on accounting regs was worthless), and presumably the same applies to the accountant on the panel.

I get what you’re saying, but isn’t that a technicality?

Did we know it would go to an appeal in front of a panel without an accountant and can we put forward a new witness once we know this?

The EFL’s expert put forward an example which includes a tangible asset which doesn’t use amortisation, not an intangible one which does, that’s not relevant to the issue at hand, yet they reference it because it’s come from the expert. So just because he is the only expert witness anything he says goes even if it’s irrelevant, how does that work?

3 minutes ago, duncanjwitham said:

This was the previous panel.  The EFL put up Professor Pope who apparently knows nothing about day-to-day accounting. We put up nobody.  The only thing the appeals panel could do was basically say if the previous panel had made a technical mistake (i.e. got the law  or procedure wrong).  They decided that the previous panel hade made a mistake in ignoring Professor Pope because he was the only expert in the room and so accepted his word as gospel.  It basically came down to a matter of accounting expertise and we had no experts to argue our corner at all.  The only explanations I can think of are we either didn't understand the rules of the game we were playing, we couldn't be bothered to do it properly, or we tried to cheap out and get by without an expert. And I don't know which of those is worst.

Or as there was an accountant on the IDC and we knew that he would actually understand accounting and we felt as it was completely in line with the rules we didn’t need to have someone there just to labour that point to someone who would already be aware of it?

4 hours ago, Animal is a Ram said:

The LAP seems to think not:

(p46, 82d)

However, from the original IDC report, by Pope’s own admission, it does appear some clubs are using methods other than straight-line amortisation, so there must be other methods that are seen as permissible?

They seem to be implying that because no one else has ‘ever’ done it, or thought to do it, then we shouldn’t either. One of the problems with that is that numerous accountants have thought it was an ok method to use, one academic didn’t, and they, a trio of lawyers, decided to go with the academics view, rather than that of the actual accountants.

Also, surely everything anyone ever does had a starting point somewhere, someone had to be the first to do it, otherwise things would never have happened and things will never evolve any further if everyone takes that stance.

Point 74 doesn’t make any sense, does it? It states many times in FRS 102 that consumption of future economic benefits includes both its use and its disposal, this isn’t ‘an appeal to common sense’ it is written plainly in black and white, how else are you supposed to take it?

Point 75, again I’m confused and feel like I must be missing something, surely it’s more that he couldn’t have done otherwise because there was evidence of other clubs financial statements apparently using different methods? Isn’t this because the wording of 18.22 makes it permissible? Why would you want him to be able to have done otherwise if it wasn’t right?

For anyone that wants a bit more reading (don’t worry they’re much shorter!) the other decisions, that the EFL, and Boro, failed on are here

https://www.efl.com/-more/governance/judgments/judgments-202021/

1 minute ago, duncanjwitham said:

Their argument is that you can't guarantee that you can sell a player, because another club might not want to buy, or the player might not want to leave, so you can't assume he has any value at all.  But that literally rules out future economic benefits from disposal for anything at all ever, so I don't understand how it makes any sense.

As was referenced by the IDC, it only has to be a expectation, not as Pope referenced an entitlement, so no guarantees necessary.

To be recognised as an asset in the first place there has to be an expectation of future economic benefits, future economic benefits include disposal of an asset, so I don’t think they can exclude disposal as future economic benefit as it’s inextricably linked?

I also don’t understand Pope’s point here

It is referenced all the way through FRS 102 that disposal of an asset is consuming a future economic benefit, so how has he come to the conclusion above and how have they completely ignored what FRS 102 says to come to the conclusion that Pope is right because he’s the ‘expert’?

Isn’t it better to conclude that Pope’s ‘expert’ evidence doesn’t reflect how FRS 102 is supposed to work and is therefore inadmissible, which appears to be what the IDC are being told they did wrong?

46 minutes ago, duncanjwitham said:

From page 42 of the document. I could be misunderstanding, but are they really saying that if you buy a house you have no expectation of being able to sell it at all?  And after 40 years a house is effectively worthless? And then saying players are basically the same? Because that's an insane position to take.

I’d like to know why he, Professor Pope, the EFL’s ‘expert’ accountant, is using an example of a house, a property, a tangible asset, which depreciates, as opposed to an intangible asset which amortises to explain his point.

I was under the impression they weren’t one and the same?

Could that be the reason why the IDC, which did contain an accountant, dismissed his evidence as they realised, due to that containing of an accountant that it was utterly irrelevant to the issue at hand?

So now we’ve been found guilty on account of a misunderstanding by a bunch of lawyers instead which we cannot now appeal?

If so you really couldn’t make it up could you?

20 minutes ago, JfR said:

Having looked over the original decision again, it seems that the appeal relates to the original panel's decisions as laid out in sections 250-254. This relates to what the term "future economic benefits" means in relation to an intangible asset. The original panel found that this consisted of both the "use" of an asset and it's "disposal" i.e. how much the club expected to sell a player for. The EFL believed, and (rightly or wrongly) in the second panel's opinion were right to believe, that "future economic benefits" referred only to the benefits a club received while the club made "use" of a player's registration, and that his potential future resale value could not be included. 

https://www.dcfc.co.uk/media/get/EFL Derby County Decision Document.pdf

I find this interesting. The original decision does not go into detail as to how the club decides upon the "consumption of future economic benefits" of a player, but do mention they do so "reliably" under the panel's assumption that this refers to both the "use" and "disposal" of an asset. Is it therefore potentially the case that the club could still "reliably" determine the "consumption of future economic benefits" purely based upon the player's "use" even if their "disposal" is not considered? If so, could the club still use a non-straight line method of amortisation under these circumstances?

Just spotted this tweet from Alan Nixon, it appears he has a copy of the decision report. I wonder how he has that as they've not released it yet?

So, it appears it was the second particular, and that ONLY which the EFL won on appeal.

Quote

(I) The substance of the Second Charge

i) The precise terms of the Second Charge

232) Paragraph 2.5 of the Charge Letter identified 5 respects in which, it was said by the EFL, the Club’s approach to amortisation is contrary to the requirements of FRS 102:

a) First, because the approach ‘assumes non-zero residual values when amortising registration rights and transfer fee levies where residual values cannot be reliably determined’

b) Secondly, because the approach ‘does not amortise on a straight line basis nor does the amortisation schedule reflect the expected pattern of consumption of future economic benefits from the intangible asset’

c) Thirdly, because the approach ‘anticipates an economic benefit that the Club does not fully control arising from the sale of an intangible asset’

d) Fourthly, because the approach ‘reassesses the estimated residual values of intangible assets where the residual values cannot be reliably estimated’

e) Fifthly, because the Club did not ‘adequately disclose in its financial statements the nature and/or the effect of the changes in its residual value estimates’

I don't understand how it can be impermissible to take into account the possible resale value of players when it clearly states in FRS 102, as mentioned in the original decision, that future economic benefits from the intangible asset include use OR disposal?

Quote

2.17 The future economic benefit of an asset is its potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity. Those cash flows may come from using the asset or from disposing of it.

Quote

18.26 An entity shall derecognise an intangible asset, and shall recognise a gain or loss in profit or loss:

(a) on disposal; or

(b) when no future economic benefits are expected from its use or disposal.

Quote

18.22 Amortisation begins when the intangible asset is available for use, ie when it is in the location and condition necessary for it to be usable in the manner intended by management. Amortisation ceases when the asset is derecognised. The entity shall choose an amortisation method that reflects the pattern in which it expects to consume the asset’s future economic benefits. If the entity cannot determine that pattern reliably, it shall use the straight-line method.

Quote

Cost model

18.18A Under the cost model, an entity shall measure its assets at cost less any accumulated amortisation and any accumulated impairment losses. The requirements for amortisation are set out in paragraphs 18.19 to 18.24.

From the original report

Quote

a) Aside from certain possible anomalies in the Audit Findings Report for the year ended 30 June 2019 (which is not a year to which the Second Charge relates) over how the contracts of 3 players with significant net book values (and so presumably positive ERVs) had ended without transfer fees being received, that evidence did not demonstrate

i)that the Club’s approach had proved unreliable, or

ii) that the realities of

(1) when a Club disposed of players’ registrations, and/or

(2) the economic benefits derived by the Club from the disposal of players’ registrations differed markedly from the pattern that the Club had ‘expected’ when setting ERVs, applying its amortisation policy to individual player registrations and so forth

So if it wasn't an unreliable pattern for the years under scrutiny, why do we have to use the straight-line method?

If we don't have to use the straight-line method, given the expected consumption of future economic benefits includes disposal, it shouldn't be impermissible to take into account the resale value, and it being the 'cost model' should make no difference.

1 hour ago, Spanish said:

You are right and 2.e charge was found against us by the tribunal.  The auditors?  Easy to manipulate from my experience, allegedly, according to a friend

What about the auditors regulator?

Quote

d) The fact that Smith Cooper’s audit file for a financial year since the change in amortisation policy has occurred has been picked for review by the ICAEW and approved as compliant.

That quote is from the original decision.

I find it astonishing that the club, its auditors, their regulators and the original IDC (which included an actual accountant - imagine that!) can be under the impression it's all fine and dandy, totally in line with FRS 102. But a new panel, none of which are accountants, can apparently say it's not, and their decision is final...

Unbelievable, absolutely unbelievable.

42 minutes ago, NottsRam77 said:

So is this good or bad 

 

totally lost with it all now 

It’s difficult to know whether it’s good or bad in relation to each 3 year period, as we don’t know 1. what a player was actually bought/sold for (not including any add ons that you never pay/receive), and 2. what ERV’s have been given to who and when.

I think you can relatively safely suggest that every player will have a somewhat higher (than the straight line value last year norm) ERV given to them at the start, although it may be not too different for the older ones, as you’d expect a player to come in, do well and keep their value (dependent on their age at the time of purchase) otherwise why buy them. But when this changes with injuries/form, it’s difficult to calculate how much difference it has made.

Over the course of a contract or until a sale (generally 3-5 years + extensions) there is zero difference in the amount accounted for as we still have to account for it all at some point, it’s just back loading the amounts, rather than spreading them out equally.

As I understand it, any profit made from a sale firstly cancels out what is left to amortise and then what’s left after that is the profit, so when you back load with an ERV and it equals a higher value on the books it equals less profit on the books.

£4m player on a 4 year contract, sold for £4m at the beginning of Year 4.

Straight line basis:

Year 1 £1m

Year 2 £1m

Year 3 £1m

Year 4 £1m

Profit = £3m

ERV of £3m given at the start:

Year 1 £333k

Year 2 £333k

Year 3 £333k

Year 4 £3m

Profit = £1m

Probably been posted before but the below quote is from the original decision document. It makes sense that we haven’t filed any accounts since the ones under scrutiny because their claim was that we breached the rules just by filing the accounts with the ERV method of amortisation, as opposed to straight line amortisation. Had we submitted accounts for 2018/19 and 2019/20 and continued to use that method, and they won their appeal, as appears to be the case, we would likely also be in further trouble for that.

It also doesn’t mention breaching spending limits as a part of this charge, it was part of the first charge which we won and they didn’t appeal, so I’d have thought that would have to be a new charge, if we have breached the £39m limit on submission of restated accounts, a new decision panel, and surely therefore the ability to appeal any decision?

Quote

11) The Second Charge relates to the approach to amortisation of the capitalised costs of player registrations adopted by the Club in its financial statements for the years ended 30 June 2016, 30 June 2017 and 30 June 2018. In essence the EFL contends:
a) That the approach to amortisation of capitalised costs of player registrations adopted by the Club
in those financial statements did not comply with FRS 102;
b) That as a result, the ‘Annual Accounts’ submitted by the Club for those years were not (as is
required by the P&S Rules) ‘prepared ... in accordance with all legal and regulatory requirements
applicable to accounts prepared pursuant to section 394 of [the Companies Act 2006]’, and
c) That the consequent submission by the Club of non-compliant Annual Accounts for those years
placed the Club in breach of the P&S Rules.

@Ghost of Clough has already mentioned, when you alter the amortisation, it may also alter the profit made on certain players. Off the top of my head this might affect the transfers of Ince, Vydra and Weimann, the first 2 could be quite a significant profit difference if their ERV at time of sale was high in the accounts submitted. I don’t know if Kieran Maguire has factored this into his figures.

The original forecast losses mentioned for the accounts not yet submitted in the decision document would also change. Partly because if players weren’t able to be sold for their ERV, then the difference between the ERV and zero was to be amortised in the final year, where with the straight line method this would be much smaller in that final year. Partly because it depends whether we were carrying on with the ERV method of amortisation for the players acquired after 2017/18, if yes, then their amortisation would have been low in the early years, if not, then it would be higher anyway.

Another thing, if we have gone over for any of the years between 2015/16 and 2017/18, once punishment is handed out, those years should be reset to the maximum for each year over the limit shouldn’t they? So £13m max for each one, I think that’s what happened before with Birmingham, so you’re not punished for that same year being over the limit twice, as it is included in every set of 3 years (now 4 with covid counting 2019/20 and 2020/21 as one) whether it is year 1, 2 or 3.

Another one, who won't be cheap, signed up down the A52 - and these frankly ridiculous stats

3 hours ago, Ghost of Clough said:

Popular belief is a loan has been lined up, but nothing has been stated so far. I imagine if he was injured, someone at the club would have mentioned it.

I assumed he was injured as I think he was with the first team for pre season until the Sheffield United game, when I recall being surprised he wasn't listed as we were missing a lot of forwards. From then on I don't think I've seen mention of him being involved with either the first team or the U23s?

Shame to see Martin go, although if this Telegraph article from the end of April was right (it wasn't John Percy so not sure) it's hardly surprising that the club were wary about any new contract offer.

https://www.telegraph.co.uk/football/2020/04/28/Derby-county-players-agree-wage-deferrals-club/

Quote

The expectation is that the club’s wage bill will fall by about £10 million this summer as contracts expire.

From memory the only players whose contracts 'expired' were Anya, Huddlestone and Martin. If they were pulling in £10m a year between them then..yikes! ?

Seems Filimon has gone to Sheffield Wednesday

https://www.swfc.co.uk/news/2020/august/seven-new-scholars-on-board/