Mel Morris’s money and Financial Fair Play

[ramblur]

Hi Ramblur - I take your point about funding through sales. I did know that already, but somehow didn't allow the logic of it to find its way into my post.

 

The bit I don't quite get about your answer is the bit above,

 

My understanding is that the FFP figures are based on the individual year's trading - so cash in the bank doesn't mitigate the loss. That also stops this season;s extra income from being counted in the FFP calculation, The current allowable loss is £8m - with up to £3m of this allowed to be funded by debt, so the remainder needs to be funded by equity, Presumably there is no compulsion to take on the debt, so the rules seem to allow for £8m of equity to be introduced.

 

Now I do get that the owners could just randomly put £50m into the club's bank account - but that wouldn't be used in the FFP calculation (above the £8m allowed)?

 

So from my understanding (which at this point I'm betting is incorrect) there is an FFP cap of £8m i=on inward investment. So, where have I missed the point?

 

I wonder if it now also makes sense to pay off the loan on the stadium? OK, the interest rate is low, but would getting rid of the payment not reduce the outgoings and thus,allow an equivalent amount to be added to the wage bill? Or does it just count as spending on infrastructure and fall outside FFP?

Hi Cornwall.I got booze in for tonight's game and I've wolfed most of it already,so I'm not in the best state to answer either your post or the other fella's,so will return to these tmw.

 

I will however answer the easy part.Paying off the stadium loan would release about £450k of annual interest charges,which could then be utilised elsewhere for FFP purposes.From our owners' point of view,I'm not sure the attraction of doing this would outweigh the benefit of having very cheap finance in place 

[mikeG]

I've got the solution guys!

Sell one season ticket at a price of 50,000,000 to Mel/Bret.

[climbon]

I've got the solution guys!

Sell one season ticket at a price of 50,000,000 to Mel/Bret.

What about Candy crush shirt sponsor seriously though is that possible for a ridiculous amount of money...say derby put a box for sale for 50mil...could a director buy it?? Forest do it with shirt sponsor!!

[needles]

I think these ideas to get around FFP are outflanked by the "market rate" argument. I think FFP is dead on its arse anyway though. If it was designed to do anything it must surely have been to stop clubs doing a QPR and running at an £80m deficit. They have no sanction, so where can it possibly go from here.

 

That said, I'd like to see us stick to the principles. You know that way you're not going to get high court drama or the three amigos situation again. Who'd want to be florist or leeds facing winding up petitions every week.

[Herdwick Ram]

£150,000 for 3 matches. For a total of £450,000 which means roughly £1.5 gate receipts for three sell out matches. In which we roughly get 50%. Total gate about 92,000. Divided by two equals 46,000. £1.5m /46,000 = £32. average ticket price. 

 

Adult season ticket prices for Chelsea were £20 while non season tickets were £25 and for Brighton it was £25 and £32. So the average was probably somewhere around £25. So without considering any other revenue the total figure comes to approximately £1.6m. So my figure of £2m off the top of my head was quite good. But that all depends on people's translation of optimistic. Regardless it all adds up. 

 

Just to clarify the situation re gate receipts ;

 

For the play-off semi finals the four games are aggregated and the Football League gets half, which means that each of the four teams effectively get just 1/8 each. When you take off all the various costs, Derby's share was £150k to £250k - so as Ramblur said ... very little.

 

With the FA Cup the receipts are split 3 ways between the two teams & and the FA. Say for the sake of simplicity 30,000 @ £20 = £600k + £150k tv money = £750k. Then you have to take off costs again and split it by three.

 

I'd be amazed if Derby "made" £1/2m out of those three games - as opposed to the £2m suggested ?

 

Every bit helps obviously - but as Sam Rush said, these were treated as one offs and will help the current years figures.

[LeedsCityRam]

 

You could well be right in suggesting that FFP limits might rise significantly, if matched in the main by equity injections,the aim being to prevent accumulating debt.However,in this situation I don't really see a point in imposing limits at all.As another poster has pointed out,this would do nothing to stop spiraling wages,however his examples of other sports don't include the thorny issue of massive parachute payments.Leagues 2 and 3 work on the basis of salary cap,yet we followed another route-why?Presumably the clubs wouldn't have it.

 

I'm also not happy with the watering down of FFP but I do think the principle of stopping clubs running up unsustainable debt is the most important principle of it. The nature of football will always attract over-ambitious owners but I can live with their spending sprees if the cash is coming from their own pockets (in the form of equity), not frontloading the positive aspects of their spending whilst leaving the debt for the clubs to clean up long after they've gone.

 

Re spiralling wages - a battle long lost I'm afraid. Far too much self-interest within the top 2 division in this country for it to ever be workable. And although League 1 and 2 have adopted wage caps, it didn't seem to deter or punish Notts County under the "Munto Finance" regime.

[Grantona]

First club to get an FFP transfer embargo? Forest and Blackburn favourites?

[ramblur]

Hi Ramblur - I take your point about funding through sales. I did know that already, but somehow didn't allow the logic of it to find its way into my post.

 

The bit I don't quite get about your answer is the bit above,

 

My understanding is that the FFP figures are based on the individual year's trading - so cash in the bank doesn't mitigate the loss. That also stops this season;s extra income from being counted in the FFP calculation, The current allowable loss is £8m - with up to £3m of this allowed to be funded by debt, so the remainder needs to be funded by equity, Presumably there is no compulsion to take on the debt, so the rules seem to allow for £8m of equity to be introduced.

 

Now I do get that the owners could just randomly put £50m into the club's bank account - but that wouldn't be used in the FFP calculation (above the £8m allowed)?

 

So from my understanding (which at this point I'm betting is incorrect) there is an FFP cap of £8m i=on inward investment. So, where have I missed the point?

 

 

I think the best way I can explain this is by making up a fictitious example.Let's say that a club recorded an £8m FFP loss in 12/13 and that this year was last year of contract for a few players.The club didn't want to try to extend any of these contracts,but intended bringing in fresh blood.The annual aggregate amortisation and wages for these players had been £2.5m and £2m respectively,both of which had impacted the 12/13 FFP result,but neither would now impact 13/14 onwards.

 

The club had earmarked replacements for combined fees of £10m and intended dishing out 4 year contracts (meaning annual amortisation of £2.5m) and intended to spend in full the wages freed up by the departures.Unfortunately,all of the selling clubs were cash strapped and insisted on full fees paid up front -in order to get the deals over the line,the club agreed to this.This £10m capital investment was to be financed by the injection of £10m of equity,but of course it wouldn't be the £10m that would count against the FFP result in 13/14,but the £2.5m amortisation.

 

If all other things remained unchanged (a tall order,but we're talking fiction),the savings on amortisation/wages would be matched equally by new amortisation/wages and thus the £8m FFP loss would be repeated in 13/14, hence complying.Let's now say that the actual cash loss relevant to this FFP loss was £7m and that the intention was again to finance same via a further £7m equity injection.You'll now see that £17m of equity would have been injected,yet FFP would only have compelled the injection of £5m.

 

One flaw in your post was in saying that an £8m FFP loss had to be financed.In actual fact financing would only be required for the cash loss-very rarely would this equate in full to the FFP loss.

[ramblur]

£150,000 for 3 matches. For a total of £450,000 which means roughly £1.5 gate receipts for three sell out matches. In which we roughly get 50%. Total gate about 92,000. Divided by two equals 46,000. £1.5m /46,000 = £32. average ticket price. 

 

Adult season ticket prices for Chelsea were £20 while non season tickets were £25 and for Brighton it was £25 and £32. So the average was probably somewhere around £25. So without considering any other revenue the total figure comes to approximately £1.6m. So my figure of £2m off the top of my head was quite good. But that all depends on people's translation of optimistic. Regardless it all adds up. 

Both Herdwick Ram and davenport appear to have covered a lot of the points I would have made,although as far as the Cup is concerned I think both clubs received over 40%,with the FA receiving a much smaller percentage.With regards to the play offs,after first stripping out 1/6th of total receipts to extract VAT and then deducting allowable expenses,the League take 3%.It's only then that the 4 participants equally share 50% of the remainder.

 

I wouldn't begin to try and calculate the income from cup and play off semi,but what I would say is that I think the aggregate of the 2 could struggle to make £1m.

[ramblur]

I'm also not happy with the watering down of FFP but I do think the principle of stopping clubs running up unsustainable debt is the most important principle of it. The nature of football will always attract over-ambitious owners but I can live with their spending sprees if the cash is coming from their own pockets (in the form of equity), not frontloading the positive aspects of their spending whilst leaving the debt for the clubs to clean up long after they've gone.

 

Re spiralling wages - a battle long lost I'm afraid. Far too much self-interest within the top 2 division in this country for it to ever be workable. And although League 1 and 2 have adopted wage caps, it didn't seem to deter or punish Notts County under the "Munto Finance" regime.

The only way I could see Championship wages being tackled would be if the Premier League became a closed shop.Without the massive riches to chase,Championship clubs might then voluntarily get round to tackling this issue.It's a sobering thought that even with our own approach,we'd probably have to cut players' wages by over 30% just to achieve cash break even.Players are simply paid far more than the various business incomes allow,and I could well understand how our owners would find the whole thing absolutely mind boggling.

[LeedsCityRam]

The only way I could see Championship wages being tackled would be if the Premier League became a closed shop.Without the massive riches to chase,Championship clubs might then voluntarily get round to tackling this issue.It's a sobering thought that even with our own approach,we'd probably have to cut players' wages by over 30% just to achieve cash break even.Players are simply paid far more than the various business incomes allow,and I could well understand how our owners would find the whole thing absolutely mind boggling.

 

Or if the top clubs went off & formed the much mooted European Super League - as a closed shop. That's probably just as depressing as wage over-inflation, for different reasons!

 

The only other way in theory would be for the Government to introduce legislation as I think it very unlikely there would ever be effective voluntary agreement by the clubs, nor effective sanction by football's governing bodies due to various threats of legal action. That said, the Government are probably more concerned with the going concern viability of clubs rather than whether Rooney earns twice in one week what the PM earns in a year & to be fair, FFP looks to be addressing this. Also I'm not sure of the implications of political involvement from UEFA & FIFA.

 

From Derby's point of view, a deliberate & pre-meditated cyclical process whereby we develop talent within the club, sell at their theoretically highest value and/or most extreme wage demands (irrespective of results/league position) & replace with homegrown/cheaply sourced talent is the only way I could ever see us getting close to cash break even. Impressive though our Academy has been, it would probably need to be developing players at an even greater rate that that currently to achieve this utopia. And I'm not entirely sure some of the more impatient elements of our fanbase would tolerate it!

[Grantona]

A salary cap - for example in the highly competitive US sports like grid iron, baseball, ice hockey and basketball, - is the only way teams outside the current top 5/6 will ever win the Premier League again.

 

In grid iron, my team Washington Redskins have one of the richest owners, but have been useless for about the last 15 seasons because the owner is NOT allowed to spend what he wants. Washington have one of the highest paid players in Robert Griffin III, but because of his wage they have LESS to spend on the rest of the squad. I am sure if the owner had spread the allowable wages more evenly among the players, the team would have had more success.

 

Seattle are a team of few stars, but won the Super Bowl this year because, with no huge earners, they could afford more good players and their squad had greater depth than Washington's.

 

If Man City had to operate with a salary cap, they would only be able to employ 2/3 superstars instead of the 8/9 they currently have.

 

So the surplus players would end up at other clubs on probably LOWER wages.

 

It works in America, so it would work here.

[Stive Pesley]

Interesting post,CornwallRam-always good to know what folks are thinking.On FFP,I was sure this was supposed to be on the agenda for Championship clubs at the recent AGM,yet there's been zilch news since.

 

I was thinking the same thing.

 

The two things that were reported to be on the agenda were the FFP rules and the Prem "B" Team situation.

 

I've seen no reporting on either topic since the AGM last week.

 

Mind you - I'm pretty sure the AGM is mainly an excuse for all the chairmen to get drunk and play golf in the Algarve...

[CornwallRam]

A salary cap - for example in the highly competitive US sports like grid iron, baseball, ice hockey and basketball, - is the only way teams outside the current top 5/6 will ever win the Premier League again.

 

In grid iron, my team Washington Redskins have one of the richest owners, but have been useless for about the last 15 seasons because the owner is NOT allowed to spend what he wants. Washington have one of the highest paid players in Robert Griffin III, but because of his wage they have LESS to spend on the rest of the squad. I am sure if the owner had spread the allowable wages more evenly among the players, the team would have had more success.

 

Seattle are a team of few stars, but won the Super Bowl this year because, with no huge earners, they could afford more good players and their squad had greater depth than Washington's.

 

If Man City had to operate with a salary cap, they would only be able to employ 2/3 superstars instead of the 8/9 they currently have.

 

So the surplus players would end up at other clubs on probably LOWER wages.

 

It works in America, so it would work here.

A salary cap would be the best and fairest system to ensure both the sustainability of clubs and competitive football. Unfortunately, apart from probably being illegal, the global nature of football makes it pretty unworkable. If the English leagues introduced such a cap then much of the talent would migrate to Italy or Spain, if it was Europe-wide, then Japan, the US and Australia would suddenly gain a host of top-class stars for their leagues.

Salary caps work for American sport because few outside North America are interested in their sports.

[R@M]

A salary cap - for example in the highly competitive US sports like grid iron, baseball, ice hockey and basketball, - is the only way teams outside the current top 5/6 will ever win the Premier League again.

It works in America, so it would work here.

A nice idea but there are two very important ingredients to the success of the American system for all sports that England ( or anywhere else ) cannot have.

1. All American sports teams have roughly the same fan base due to the immense catchment areas of their teams meaning similar basic spending power.

2. Most importantly, they have a steady stream of (relatively) cheap new young players through the college system and subsequent drafting process. A wage cap here would mean even more young talent would go to the top clubs.

[Grantona]

Salary caps are not exclusive to American sports. In England, there are salary caps in rugby league, rugby union and cricket.

 

In rugby union, the French salary cap is twice as much as the English salary cap, so a few top players like Jonny Wilkinson moved to the French clubs for financial reasons...but it was only the really top players.

 

The same would apply in soccer...and it would gradually bring down wages for average players who are currently paid too much - like Championship players on £20k-plus a week.

 

In Italy's Serie B, they are introducing a top wage of £5k-a-week. They should do the same here.

[Stive Pesley]

All this talk of Salay Caps gets me thinking about my master plan to nationalise the football industry. It's clearly screwed as a private enterprise

[Grantona]

Salary caps would not be a lot different from the pre-1960 days of the maximum wage when a lot of clubs had roughly the same chance of winning the league or FA Cup.

 

The big-money before England abolished the maximum wage was In Italy when you had players like Jimmy Greaves, John Charles, Joe Baker, Denis Law and Gerry Hitchens going there for the money.

 

The same might happen again if a salary cap was introduced here, but would that be such a bad thing for the average football fan? Only a few players - the likes of Wayne Rooney, Steve Gerrard, Frank Lampard - would be lost to the English game.

[Martyn]

A salary cap would be the best and fairest system to ensure both the sustainability of clubs and competitive football. Unfortunately, apart from probably being illegal, the global nature of football makes it pretty unworkable. If the English leagues introduced such a cap then much of the talent would migrate to Italy or Spain, if it was Europe-wide, then Japan, the US and Australia would suddenly gain a host of top-class stars for their leagues.

 

So you're saying it would be a win-win situation then?

 

Sounds all good to me.

[Tombo]

What about Candy crush shirt sponsor seriously though is that possible for a ridiculous amount of money...say derby put a box for sale for 50mil...could a director buy it?? Forest do it with shirt sponsor!!

Can't be done. They would look at it and balance the costs of the sponsor and weigh up whether the deal makes sense.

 

So if we put Candy Crush on the front of our shirts in a £50mil deal and Candy Crush doesn't make £50mil (or within a few mil because they can equate for someone just being a good/bad businessman) on the back of the extra exposure of being DCFC shirt sponsors, then we've broken FFP and will be punished.