EFL appeal

[Indy]

1 minute ago, Animal is a Ram said:

Also, appears to be a shame that the DCs decision to exclude Pope's evidence was overturned by the LAP.

Them pointing out that he sounds a bit dense and the metaphors weren't anywhere near the same thing as football players wasn't enough of a reason.

And he didn’t understand the role of an expert witness 

[duncanjwitham]

I'd love to know if any other clubs are using future economic benefits from disposal for anything at all (I mean literally anything, not just players), because if they're expressly banned by the EFL's head-canon version of FRS102, then they're all due a big punishment too.

[Rev]

37 minutes ago, Angry Ram said:

Loads. He lives in the South by the sea. He got the right hump when I got chip grease on his Bentley seats.. 

 

I'm not surprised.

I wouldn't let my driver eat in the car either.

[Gee SCREAMER !!]

We declined to permit EFL to adduce evidence of the draft 2019 accounts which were delivered to EFL the day after the DC decision, and the very substantial impairment in relation to player amortisation costs which they showed. It was unnecessary to admit that evidence as it had been apparent to the DC as a result of cross-examination by EFL of the Club’s factual witnesses that the following year accounts would show a substantial impairment in relation to player cost amortisation.

Bankers even tried to add some more based on draft accounts from 2019 after the decision and were told it wasn't relevant to proceedings.  

[Animal is a Ram]

3 minutes ago, duncanjwitham said:

I'd love to know if any other clubs are using future economic benefits from disposal for anything at all (I mean literally anything, not just players), because if they're expressly banned by the EFL's head-canon version of FRS102, then they're all due a big punishment too.

The LAP seems to think not:

Quote

No other club has ever adopted the treatment utilised by the Club for amortisation or anything similar. Whilst that does not of itself indicate that the treatment adopted by the Club was wrong, it is a very striking feature of this case that the Club were seeking to do something no one else seems ever to have considered permissible

(p46, 82d)

[duncanjwitham]

8 minutes ago, Animal is a Ram said:

The LAP seems to think not:
"No other club has ever adopted the treatment utilised by the Club for amortisation or anything similar."

(p46, 82d)

I think that's still just referring to players though. No other club has used this method of valuing players for amortisation or anything similar.

That said, I'm not sure what intangible assets a football club would have that had resale value - their club branding etc probably won't, for example.

[Ghost of Clough]

11 minutes ago, Gee SCREAMER !! said:

We declined to permit EFL to adduce evidence of the draft 2019 accounts which were delivered to EFL the day after the DC decision, and the very substantial impairment in relation to player amortisation costs which they showed. It was unnecessary to admit that evidence as it had been apparent to the DC as a result of cross-examination by EFL of the Club’s factual witnesses that the following year accounts would show a substantial impairment in relation to player cost amortisation.

Bankers even tried to add some more based on draft accounts from 2019 after the decision and were told it wasn't relevant to proceedings.  

The original hearing stated impairment could be £19m for 18/19. The draft report suggested it could be a bit higher (£22m) so the new evidence didn't really provide anything new.

[BramcoteRam84]

I’ve read a good chunk of the document, will go back and read the rest later. Trying to be objective about this, it seems the main contention is not just the fact we didn’t use a straight line method for amortisation, but also the convoluted way we use ERVs which potentially over inflated the values of some of our players as it’s hard to determine what the ERV should be, we also didn’t clearly explain our methods for calculating ERV, furthermore we didn’t actually account this way in practice. None of this is in the rules and no other club has done it, while it isn’t wrong from an accounting standpoint. 
 

Through potentially over inflating values of some players through our method for calculating ERV (which seems to be the main issue)  and not using a straight line method, we’ve limited/deferred losses out of the three year period being analysed giving us much more headroom to spend, none of the other clubs have done this and it goes against the spirit of the rules. Is this the case because if so this Is very different to our accounting being deemed acceptable but we should have just made it clearer?

Based on this, then whatever your views on the principles of this case, FFP rules and whether they adequately address the issues which I covered in my previous post, on these particulars ....we’re screwed aren’t we? Please tell me im missing something? It seems we just have to hope despite these changes we still fall in line with the £39m loss. 
 

I’ve also seen in the club arguments they’ve gone down the procedural route again with its contentions. Every single one of the procedural arguments raised last time was dismissed so again it’s not hopeful these will be considered by the DC?

Edited May 12, 2021 by BramcoteRam84

[RadioactiveWaste]

I also liked that they asked for a retrial on the basis they weren't prepared and didn't like the result. Dismissed.

[RadioactiveWaste]

2 minutes ago, BramcoteRam84 said:

I’ve read a good chunk of the document, will go back and read the rest later. Trying to be objective about this, it seems the main contention is not just the fact we didn’t use a straight line method for amortisation, but also the convoluted way we use ERVs which potentially over inflated the values of some of our players as it’s hard to determine what the ERV should be, we also didn’t clearly explain our methods for calculating ERV, furthermore we didn’t actually account this way in practice. None of this is in the rules and no other club has done it, while it isn’t wrong from an accounting standpoint. 
 

Through potentially over inflating values of some players through our method for calculating ERV (which seems to be the main issue)  and not using a straight line method, we’ve limited/deferred losses out of the three year period being analysed giving us much more headroom to spend, none of the other clubs have done this and it goes against the spirit of the rules. Is this the case because if so this Is very different to our accounting being deemed acceptable but we should have just made it clearer?

Based on this, then whatever your views on the principles of this case, FFP rules and whether they adequately address the issues which I covered in my previous post, on these particulars ....we’re screwed aren’t we? Please tell me im missing something? It seems we just have to hope despite these changes we still fall in line with the £39m loss. 

I think that's about the size of it.

[Woodley Ram]

32 minutes ago, Animal is a Ram said:

After reading the document...

Derby have been particularly naive in trying to 'systematically' and 'reliably' predict player values - which seems to be the main contention for the club trying to use ERV rather than a straight line - especially when it appears that no other club does this.

Having said that, as pointed out in earlier posts, how can it be that the only 'economic benefits' of a player is that they play? Is this based on a statistic somewhere that the majority of players leave a club on a free transfer?

 

Wasn't the issue about the fact that we did not use a straight line amortisation approach. 

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

so with the sale of PP which I think had a £14m profit to it, it would be good to know if you readjust the figures to a straight line approach and then introduce the £14m would we have been over the FPP limit and if so my how much?

I think any penalty will be based on how much we are over the FFP limits, for instance if we are still within the limits then I don't see how we can be deducted points, any others where we are over the limit will need to be based on historical evidence of previous penalties. 

So in a nutshell, is this an accounting error that doesn't impact our FFP (due to the sale of PP) or does the error take us over the FFP threshold. I have a feeling its the former.

[Spanish]

3 minutes ago, Woodley Ram said:

 

Wasn't the issue about the fact that we did not use a straight line amortisation approach. 

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

so with the sale of PP which I think had a £14m profit to it, it would be good to know if you readjust the figures to a straight line approach and then introduce the £14m would we have been over the FPP limit and if so my how much?

I think any penalty will be based on how much we are over the FFP limits, for instance if we are still within the limits then I don't see how we can be deducted points, any others where we are over the limit will need to be based on historical evidence of previous penalties. 

So in a nutshell, is this an accounting error that doesn't impact our FFP (due to the sale of PP) or does the error take us over the FFP threshold. I have a feeling its the former.

Not sure why the ref to PP?  

[duncanjwitham]

4 minutes ago, BramcoteRam84 said:

Through potentially over inflating values of some players through our method for calculating ERV (which seems to be the main issue)  and not using a straight line method, we’ve limited/deferred losses out of the three year period being analysed giving us much more headroom to spend, none of the other clubs have done this and it goes against the spirit of the rules. Is this the case because if so this Is very different to our accounting being deemed acceptable but we should have just made it clearer?

It's kind of both. From a purely accounting point of view, our ERV method probably does better reflect the way we intend on using players (buying them, developing them, selling them on for profit).  But it does have the effect - particularly for players on long (4+ year) contracts - of deferring the amortisation of players beyond a 3-year FFP window.  It was up to the tribunal to decide if we were genuine in our reasons or were deliberately trying to evade the rules, and they seemed to settle more on the first.

[ariotofmyown]

59 minutes ago, Angry Ram said:

Loads. He lives in the South by the sea. He got the right hump when I got chip grease on his Bentley seats.. 

 

So you "met" someone you thought looked like Clooney, then got "chip grease" on his Bentley seats. I think the rest of us in the car park saw something a little different. Was a good night out though.

[BaaLocks]

20 hours ago, LE_Ram said:

You can allocate a residual value to an intangible asset under FRS102, provided that:

- There is a commitment by a third party to buy it at the end of its useful life, OR

- There is an active market for the asset, and its residual value can be determined by reference to the market, and the market will exist at the end of the asset's useful life.

 

So it looks like Derby are saying - there's clearly an active market for players, and we buy players with the expectation of selling them at the end of their contracts, so it's not fair to allocate a RV of nil because that's ultimately not representative of the true situation. But the EFL says, well at the end of the contract, the player can leave on a free, so you need to amortise down to a RV of nil.

Without looking at the detail for each player it's tough, because some players (probably someone like Jozwiak), DCFC will expect to sell before his contract is up, and so will have some sort of RV; but some like CKR will probably not be sold and should be amortised down to nil value.

There's ultimately a lot of judgment around it because the RV should be set at the amount that Derby will eventually get for the player - who knows how much we'll sell Joz for in a few years, there are so many factors. But in terms of whether it's allowable under FRS102 to allocate a non-nil residual value to an intangible, yes it is.

What there is no doubt about is that the club has tried to limit losses now to allow more to be spent before contravening FFP. Do you expect that we will now have to restate our accounts, or at least comply with the new format going forward? That's going to be messy as both the higher rate of amortisation on existing playing staff means we will have to now account for that - for example, we bought Tom Lawrence for £5m but said he will be worth £4m in five years, that equals £200k a year of amortisation. But if the EFL now ask us to restate that becomes £1m a year of amortisation, adding £800k of debt a year to our books. Or will we be allowed to only consider this on new contracts going forward as existing ones are already stated?

BTW - in the way Derby were proposing to do this, how would it work - from an accouting perspective - if we believed we would sell a player for more than current worth (e.g. Sibley) or does accounting prudence forbid this? Second one, what happens when a player signs a new contract? As we were proposing it surely then RV has to be written off, so that would be debt we would take on the books in that year? 

I have to say, and I am not an accountant as you can tell, the EFL way of doing it does seem to be a more consistent methodology. I get that we tried to get around it, and Mel has always been vocal on his dislike for FFP, but it feels like we have once more borrowed from tomorrow and not delivered so now have to pay for what hasn't come to pass.

[Animal is a Ram]

6 minutes ago, Woodley Ram said:

 

Wasn't the issue about the fact that we did not use a straight line amortisation approach. 

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

so with the sale of PP which I think had a £14m profit to it, it would be good to know if you readjust the figures to a straight line approach and then introduce the £14m would we have been over the FPP limit and if so my how much?

I think any penalty will be based on how much we are over the FFP limits, for instance if we are still within the limits then I don't see how we can be deducted points, any others where we are over the limit will need to be based on historical evidence of previous penalties. 

So in a nutshell, is this an accounting error that doesn't impact our FFP (due to the sale of PP) or does the error take us over the FFP threshold. I have a feeling its the former.

Pretty much.

Not using a straight line isn't against FRS102. The issue is that Derby's assumptions and reasons for using ERVs instead are faulty - in the eyes of the expert witness Professor Pope.

[BramcoteRam84]

I think the best we can hope for is we don’t get done for the period ending 17/18 but probably we’ll get done for period ending 18/19. @Ghost of Clough please tell me I’m wrong. Is there a chance we can be done twice? 
 

As for anything beyond 18/19 we won’t get done because half the league will fail it and they’ll probably scrap the rules - ironically the period where we’ve really tried to cut our cloth accordingly. 

[Angry Ram]

41 minutes ago, Rev said:

I'm not surprised.

I wouldn't let my driver eat in the car either.

He is a bit of a Diva..

[Ghost of Clough]

13 minutes ago, BaaLocks said:

What there is no doubt about is that the club has tried to limit losses now to allow more to be spent before contravening FFP. Do you expect that we will now have to restate our accounts, or at least comply with the new format going forward? That's going to be messy as both the higher rate of amortisation on existing playing staff means we will have to now account for that - for example, we bought Tom Lawrence for £5m but said he will be worth £4m in five years, that equals £200k a year of amortisation. But if the EFL now ask us to restate that becomes £1m a year of amortisation, adding £800k of debt a year to our books. Or will we be allowed to only consider this on new contracts going forward as existing ones are already stated?

BTW - in the way Derby were proposing to do this, how would it work - from an accouting perspective - if we believed we would sell a player for more than current worth (e.g. Sibley) or does accounting prudence forbid this?

Value in the books can only be equal to or lower than the total costs (transfer fee, agent's fee, signing on bonus, etc..). It's a reasonable assumption to assume academy graduates and free agents have zero value (they'll have something assigned, but impossible for us plebs to guess)

13 minutes ago, BaaLocks said:

Second one, what happens when a player signs a new contract? As we were proposing it surely then RV has to be written off, so that would be debt we would take on the books in that year? 

Then the book value is readjusted (remaining amortisation plus new fees), with the ERV also adjusted.

13 minutes ago, BaaLocks said:

I have to say, and I am not an accountant as you can tell, the EFL way of doing it does seem to be a more consistent methodology. I get that we tried to get around it, and Mel has always been vocal on his dislike for FFP, but it feels like we have once more borrowed from tomorrow and not delivered so now have to pay for what hasn't come to pass.

The thing is, the EFL appear to be doing us a favour. With our method, I was seriously worried about failing P&S over the next couple of years. With us reverting to a standard method, those issues are eased by about £10m a year!

[Animal is a Ram]

21 minutes ago, BaaLocks said:

BTW - in the way Derby were proposing to do this, how would it work - from an accouting perspective - if we believed we would sell a player for more than current worth (e.g. Sibley) or does accounting prudence forbid this? Second one, what happens when a player signs a new contract? As we were proposing it surely then RV has to be written off, so that would be debt we would take on the books in that year? 

Sorry to be picky, but Sibley would be a poor example, due to him being an academy product, his registration cost (I believe) would be £0, so you're always selling for a profit.

Jozwiak is a better choice.

But I would imagine it would work the same as under straight line - if you sell a player you spent £3m on in year 2 of 3 (value £2m) for £3m, then you've sold for more than they're worth in that year.

**Never mind, looks like I've misunderstood the q.**

Edited May 12, 2021 by Animal is a Ram