EFL Verdict

[Ghost of Clough]

2 hours ago, duncanjwitham said:

That's not the core of it though, is it?  The LAP found that we couldn't use ERVs at all.  They were disparaging about our methods for doing the calculations, but choose not uphold any of the appeals on that issue because the original DC made no mistakes (didn't "err in law" or whatever it was). The only thing they upheld (beyond the issue from the DC about not being clear in the accounts) was that the DC ignored the professors testimony, which was specifically on the use of ERVs at all. The EFL's argument was basically that you cannot use ERVs unless you have a guaranteed purchase (which players will never have) and that's what the LAP ruled was correct.  So it wouldn't matter if we had a perfect, 100% reliable method for calculating them, because we cannot *guarantee* that we can sell a player for that ERV, we cannot expect to gain any economic benefit from it.

We can use ERVs if (and only if), we use a reliable method of arriving at the ERV for each player.

[Oldben]

Stokecentinel article "Derby County chaos is unravelled by a football finance expert", very revealing and helpful.

Interesting to learn about the auditor who did the Derby county books, in their site it says he is a Derby county fan, as the article says odd as auditors are meant to be independent.

The Athletic wrote: "To be clear, the EFL believes it does not need any new breach to ask for a points penalty: the intention to game FFP by using a prohibited amortisation method is enough to merit punishment, perhaps as much as three points for every season the method was used. Nine points, then?

"But, to be equally clear, the disciplinary commission disagrees and thinks a fine is sufficient."

Derby are currently under a transfer embargo meaning they can only sign free agents on wages that are deemed 'sensible' - and only if they have fewer than 23 established players on the books. They have a crisis of numbers at centre-back in particular.

Without being able to buy any quality players it seems to me Derby face relegation next season. They can't even compete to sign free agents.

I read that if Derby were relegated that would cost the club 10 million. 

For Wycombe, id assume their relegation costs them maybe 2 million.

 

[RadioactiveWaste]

2 minutes ago, Oldben said:

 

Interesting to learn about the auditor who did the Derby county books, in their site it says he is a Derby county fan, as the article says odd as auditors are meant to be independent.

 

It "looks bad" but has absolutely zero bearing - was the company hired to audit the accounts independent and having no conflict of interest with DCFC is what matters.

If the person who did it did a bad job "because he's a Derby fan" that'd be him sacked and financial career over.

 

[Tamworthram]

36 minutes ago, Oldben said:

 

Interesting to learn about the auditor who did the Derby county books, in their site it says he is a Derby county fan, as the article says odd as auditors are meant to be independent.

 

I think “independent” only means the auditors are not part of Derby County or any of it’s associated companies. Provided they fulfil their role professionally it shouldn’t matter which team they support. 

[duncanjwitham]

1 hour ago, Ghost of Clough said:

We can use ERVs if (and only if), we use a reliable method of arriving at the ERV for each player.

That’s not what the LAP said:

”79. We are therefore left in the position that Professor Pope gave the unqualified and coherently reasoned opinion that it was impermissible to take into account the possible transfer of the registration under the cost model because that model was (unlike the revaluation model) concerned with the consumption of the future economic benefits of the asset represented by the player registration.”

There’s other sections in their written reasons as to why we cannot use the revaluation model.  It’s very, very clear that they believe football clubs cannot do any form of accounting that relies on them being able to count on selling a player in the future. You have to work on the assumption every player plays out his contract and leaves on a free.

[Van der MoodHoover]

9 minutes ago, duncanjwitham said:

That’s not what the LAP said:

”79. We are therefore left in the position that Professor Pope gave the unqualified and coherently reasoned opinion that it was impermissible to take into account the possible transfer of the registration under the cost model because that model was (unlike the revaluation model) concerned with the consumption of the future economic benefits of the asset represented by the player registration.”

There’s other sections in their written reasons as to why we cannot use the revaluation model.  It’s very, very clear that they believe football clubs cannot do any form of accounting that relies on them being able to count on selling a player in the future. You have to work on the assumption every player plays out his contract and leaves on a free.

If the EFL are going to work to a single interpretation then they should write that as an efl rule rather than assume everyone would reach the same conclusion from their own analyses. 

The accounting rules are drafted to be very general and cover a huge range of Intangible assets like intellectual property, patents and all sorts. 

 

[Ghost of Clough]

21 minutes ago, duncanjwitham said:

That’s not what the LAP said:

”79. We are therefore left in the position that Professor Pope gave the unqualified and coherently reasoned opinion that it was impermissible to take into account the possible transfer of the registration under the cost model because that model was (unlike the revaluation model) concerned with the consumption of the future economic benefits of the asset represented by the player registration.”

There’s other sections in their written reasons as to why we cannot use the revaluation model.  It’s very, very clear that they believe football clubs cannot do any form of accounting that relies on them being able to count on selling a player in the future. You have to work on the assumption every player plays out his contract and leaves on a free.

You appear to be reading something that isn't there. That statement simply said Pro Pope gave a convincing argument.

After all, it's the DC who issue the penalty. The only statements we have to go off both suggest that we don't have to stick to the standard straight-line method.

[Gringo]

2 hours ago, Oldben said:

Stokecentinel article "Derby County chaos is unravelled by a football finance expert", very revealing and helpful.

Interesting to learn about the auditor who did the Derby county books, in their site it says he is a Derby county fan, as the article says odd as auditors are meant to be independent.

The Athletic wrote: "To be clear, the EFL believes it does not need any new breach to ask for a points penalty: the intention to game FFP by using a prohibited amortisation method is enough to merit punishment, perhaps as much as three points for every season the method was used. Nine points, then?

"But, to be equally clear, the disciplinary commission disagrees and thinks a fine is sufficient."

Derby are currently under a transfer embargo meaning they can only sign free agents on wages that are deemed 'sensible' - and only if they have fewer than 23 established players on the books. They have a crisis of numbers at centre-back in particular.

Without being able to buy any quality players it seems to me Derby face relegation next season. They can't even compete to sign free agents.

I read that if Derby were relegated that would cost the club 10 million. 

For Wycombe, id assume their relegation costs them maybe 2 million.

 

The article is just a summary of Kieran Maguire on the price of football podcast and is exactly the same as the Derby evening telegraph printed yesterday.

If you a want to understand the context behind this summary listen too the podcast it is free

[duncanjwitham]

8 minutes ago, Ghost of Clough said:

You appear to be reading something that isn't there. That statement simply said Pro Pope gave a convincing argument.

After all, it's the DC who issue the penalty. The only statements we have to go off both suggest that we don't have to stick to the standard straight-line method.

That’s the entire crux of their argument though. It’s why they granted the appeal in the EFLs favour.  Their expert said that you cannot use the revaluation model because there isn’t an “active market” for players, so you have to use the cost model. And that means you have to use straight line amortisation (less impairment etc). You cannot use expected recoverable values with the cost model. The LAP took that expert evidence as fact, and have ruled that accounts must comply with it to meet FRS102. I know we haven’t seen their written reasons yet, but it would be astonishing if the DC had subsequently ordered us to do something that went against the LAP decision, and no doubt the EFL would be appealing it straight back to them.  

[duncanjwitham]

One more final point. This is the conclusion to the LAP written reasons:

”In the event we allow the appeal on the sole ground that it was impermissible in amortising under the cost model for the Club to take into account possible resale values of players and in consequence we find the second charge proved“

[Van der MoodHoover]

55 minutes ago, duncanjwitham said:

That’s the entire crux of their argument though. It’s why they granted the appeal in the EFLs favour.  Their expert said that you cannot use the revaluation model because there isn’t an “active market” for players, so you have to use the cost model. And that means you have to use straight line amortisation (less impairment etc). You cannot use expected recoverable values with the cost model. The LAP took that expert evidence as fact, and have ruled that accounts must comply with it to meet FRS102. I know we haven’t seen their written reasons yet, but it would be astonishing if the DC had subsequently ordered us to do something that went against the LAP decision, and no doubt the EFL would be appealing it straight back to them.  

That's a very eloquent and comprehensive elucidation of the argument against dcfc. 

You'd have to say though that the statement "there is no active market for players" appears highly conjectural. 

And you have to accept and agree with that to create the logical flow from which you arrive at the conclusion. 

I would be of the opinion that the term "active market" is arguable and without any statement of guidance from the EFL, it is not obvious to me that it is true. 

[duncanjwitham]

10 minutes ago, Van der MoodHoover said:

That's a very eloquent and comprehensive elucidation of the argument against dcfc. 

You'd have to say though that the statement "there is no active market for players" appears highly conjectural. 

And you have to accept and agree with that to create the logical flow from which you arrive at the conclusion. 

I would be of the opinion that the term "active market" is arguable and without any statement of guidance from the EFL, it is not obvious to me that it is true. 

It’s defined quite precisely in the written reasons:

“Active market” is defined in the Glossary as follows;
“A market in which all the following conditions exist:
(a) the items traded in the market are homogeneous;
(b) willing buyers and sellers can normally be found at any time;
and (c) prices are available to the public.”

certainly, to my eyes anyway, players don’t meet any of those conditions. Although I have no idea exactly how those definitions are normally used in accountancy, or how they would be applied in our case.

[Van der MoodHoover]

Just now, duncanjwitham said:

It’s defined quite precisely in the written reasons:

“Active market” is defined in the Glossary as follows;
“A market in which all the following conditions exist:
(a) the items traded in the market are homogeneous;
(b) willing buyers and sellers can normally be found at any time;
and (c) prices are available to the public.”

certainly, to my eyes anyway, players don’t meet any of those conditions. Although I have no idea exactly how those definitions are normally used in accountancy, or how they would be applied in our case.

B) would appear to be the most arguable by virtue of imposing transfer windows. 

But I'll wager that implication was never thought through at the time. 

The whole thing stinks though. As a regulatory authority the EFL should be trying to provide guidance and interpretation ex-ante, not coming along ex-post and working backwards to find small print to fit their retrospectively determined desired outcome. 

This is why they are not fit for purpose. 

[Ghost of Clough]

1 hour ago, duncanjwitham said:

That’s the entire crux of their argument though. It’s why they granted the appeal in the EFLs favour.  Their expert said that you cannot use the revaluation model because there isn’t an “active market” for players, so you have to use the cost model. And that means you have to use straight line amortisation (less impairment etc). You cannot use expected recoverable values with the cost model. The LAP took that expert evidence as fact, and have ruled that accounts must comply with it to meet FRS102. I know we haven’t seen their written reasons yet, but it would be astonishing if the DC had subsequently ordered us to do something that went against the LAP decision, and no doubt the EFL would be appealing it straight back to them.  

My interpretation is that they ruled against our current method, not against all methods. If anyone finds a way to reliably estimate ERVs, then it becomes a possibility IMO.

I cannot think of any way to reliably estimate them, so it seems a very unlikely possibility anyway.

[duncanjwitham]

6 minutes ago, Ghost of Clough said:

My interpretation is that they ruled against our current method, not against all methods. If anyone finds a way to reliably estimate ERVs, then it becomes a possibility IMO.

I cannot think of any way to reliably estimate them, so it seems a very unlikely possibility anyway.

The bit from the conclusion I posted after this post seems pretty clear to me. They claim it’s straight up impermissible to use resale values for player amortisation.
 

Having skimmed through the actual FRS102 regs it’s much less clear IMO. There are definitely areas where the LAP conclusions just don’t match the regs, by my surface reading. You can absolutely factor in a residual value for assets using the cost model, and reassess it regularly when it’s use or market conditions change (which is basically what we were doing). But that again comes down to “active markets” and like you say, it’s unlikely that a method exists for estimating them for footballers. And even then, it doesn’t matter what the regs actually say now, it matters what the LAP think they say.

[The Scarlet Pimpernel]

The whole thing stinks. It's a disgrace from the EFL. 

[Van der MoodHoover]

1 hour ago, duncanjwitham said:

The bit from the conclusion I posted after this post seems pretty clear to me. They claim it’s straight up impermissible to use resale values for player amortisation.
 

Having skimmed through the actual FRS102 regs it’s much less clear IMO. There are definitely areas where the LAP conclusions just don’t match the regs, by my surface reading. You can absolutely factor in a residual value for assets using the cost model, and reassess it regularly when it’s use or market conditions change (which is basically what we were doing). But that again comes down to “active markets” and like you say, it’s unlikely that a method exists for estimating them for footballers. And even then, it doesn’t matter what the regs actually say now, it matters what the LAP think they say.

You posted the definition of an active market earlier, which had 3 subclauses. 

I've seen elsewhere markets defined in an economic sense as a place where buyers and sellers can exchange goods at agreed prices.

For many such markets, the "price" will simply be that achieved by negotiation. But that doesn't mean that there aren't indicative market values available for eg commercial properties, that are readily accepted by accounting bodies.

I don't see why the same couldn't be true for professional footballers. To simply dismiss it out of hand is overly simplistic.

I simply don't understand why the EFL are so desperate to try to unpick accounting rules to justify their desire. They coul  simply say "this is the rule for football clubs".

[Van der MoodHoover]

12 hours ago, duncanjwitham said:

One more final point. This is the conclusion to the LAP written reasons:

”In the event we allow the appeal on the sole ground that it was impermissible in amortising under the cost model for the Club to take into account possible resale values of players and in consequence we find the second charge proved“

That is a completely tautologous statement which looks like it is just there for a legal flourish. 

Nobody I think is claiming that you can use what now appears to be called the "cost model" but amortize cost in some non linear way are they?

Our case was built around being able to use a "sale model" which is the subject of the dispute. 

[hintonsboots]

13 minutes ago, Van der MoodHoover said:

That is a completely tautologous statement.

Word of the year.

[Spanish]

8 hours ago, Van der MoodHoover said:

You posted the definition of an active market earlier, which had 3 subclauses. 

I've seen elsewhere markets defined in an economic sense as a place where buyers and sellers can exchange goods at agreed prices.

For many such markets, the "price" will simply be that achieved by negotiation. But that doesn't mean that there aren't indicative market values available for eg commercial properties, that are readily accepted by accounting bodies.

I don't see why the same couldn't be true for professional footballers. To simply dismiss it out of hand is overly simplistic.

I simply don't understand why the EFL are so desperate to try to unpick accounting rules to justify their desire. They coul  simply say "this is the rule for football clubs".

Do you think that the reason the EFL lean so heavily on accounting standards is because they had no intention in drawing up exhaustive rules when industry ones exist?  Perhaps I am giving them too much credit?

If indicative market values were available and I don't know of any (?) it would have been sensible to wrap them within the club's methodology.

Not that I have any knowledge of this because the details are not published but the theory that players have a residual value may not be practically correct given our recruitment experiences.  Corporate governance is based on industry and business experience and amortisation should surely lean on that heavily I would think.  There is no point on having a policy that is not fit for purpose unless the point of it is to delay the hit until something comes along to save you errr...... like selling your stadium.

All this would be very fascinating if it wasn't so serious for the club.  I am very worried about the threat and the impact of the long embargo