FFP was put on hold, back on again

[Butthead]

EPPP

Endless Penile Penis Plop@?

[uttoxram75]

Eventual Premiership Power Profits.............

[McRamFan]

Extermination of potential professional players

[uttoxram75]

Evil ****** Pinching Players

[ramblur]

I've sought clarification from the League about certain points,with the following results:-

In any given year,the figure given for acceptable deviation+that given for allowable equity investment represents the amount over and above (in terms of losses) the "FFP result" of break even that a club can make without penalty.However,to take advantage of the equity element,the club has to inject the amount of equity used as an allowance.In other words,if the equity allowance were £3m and losses over and above the acceptable deviation of £3m were incurred,£3m would have to be injected to avoid penalty (you could incur losses below this figure,but must match any such losses pound for pound).

Depreciation of fixed assets (excluding amortisation of players' regs)is excluded from the FFP result,as is net expenditure on youth development (I believe that the Prem League give some funding to League academies,the funding they threatened to withdraw).Promotion bonuses are also excluded,as are certain items of exceptional expenditure.

For our purposes,depreciation comes in at a fairly stable c£2m,so this figure may be subtracted from our published loss,as can a figure for youth development,which we will never know,unless told.

Now onto the bit that may surprise some.As I suspected (which is the reason I sought clarification),the restrictions only apply to the revenue (operations) side of the business-on the capital side a club may introduce as much equity (and,surprisingly to some,introduce as much debt) as it likes,but it can only introduce equity to cover losses up to the limits given for any year.As far as the debt goes,this isn't particularly surprising,as a club may want to fund a new ground,or make improvements or additions to an existing one.The thing to note is that debt can't be used to fund losses on the revenue side.

As far as equity investment goes,it seems that a club may inject equity to fund (for instance) the purchase of players,and some may feel this is unfair.However,if this is done the amortisation that ensues does reflect on the revenue side within the FFP result,which is therefore a limiting factor on what could be done.

For instance,if a club spent £15m on players involving 3 year contracts,annual amortisation of £5m (on top of existing amortisation) would be introduced,which might then send the club's losses over the acceptable FFP limits,thus a club would have to work out what it could spend to stay within such limits.

Finally,there's some confusion over when sanctions start (the statement that they start in 14/15 is confusing).In actual fact it's the 13/14 results on which sanctions are first based,and these sanctions will be applied in 14/15.

[ramblur]

Having read throgh my last post,I see that part may be misleading.If,for instance,in a particular year the allowable equity investment were £3m and a club injected,say,£15m of equity in that year,then only £3m of this £15m could be used to cover losses-the balance would have to be used on the capital side of the business (or,possibly,some may be retained as cash).

[ramblur]

Cancel my last post-this isn't as straightforward as I first thought.Whilst it seems clear that a club's owners may inject as much equity as they like in a given period,and that if the equity allowance is used in full or in part in relation to the FFP result,then the club must inject equity at least up to the level of equity allowance utilised,it seems unclear to me how any losses resulting from utilisation of the acceptable deviation allowance may be funded.

Because of this uncertainty,I can no longer say that debt couldn't be used to fund any losses at all (which is what I implied in my original post).It should however be noted that a negative FFP result doesn't imply a cash loss of the full amount.As the 'paper' transaction of amortisation forms part of the result,then it's quite likely that for most (if not all)clubs the actual cash loss will be less than the FFP result.As any loss relating to utilisation of the equity allowance must be met in full by an equivalent injection of equity,then logic suggests that the other element of loss to be funded would be that associated with the acceptable deviation,and that in cash terms amortisation may be deducted from this figure.Apologies-this isn't easy to explain!

[CornwallRam]

Hi Ramblur, thanks for the info.

I know this is a big ask, but I'm trying to understand what this is likely to mean in reality. I wonder if you would be able to give an illustration of the sort of budgets that the club would be working with under the FFP system if it had been in place during the period of the recently published accounts?

[ramblur]

Hi Ramblur, thanks for the info.

I know this is a big ask, but I'm trying to understand what this is likely to mean in reality. I wonder if you would be able to give an illustration of the sort of budgets that the club would be working with under the FFP system if it had been in place during the period of the recently published accounts?

Not massively difficult,Cornwall-it just depends which year's FFP result allowances you want to work to.I'll assume that you mean the 2015/16 level of £5m,the time when the allowances level out (in other words £5m in every year thereafter).

We recorded a £7.7m loss in 10/11.To convert this to a FFP result,you have to deduct depreciation of £2m,which brings the figure to £5.7m.Then comes the difficult bit because you can also deduct net expenditure on youth development and we don't know that figure.However,it's probably safe to assume it would probably have brought our FFP figure below £5m,hence avoiding sanctions.If the figure had been exactly £5m,then £3m of equity would have needed to be injected into the club to avoid sanctions (in fact any figure over £2m would have required equity injection).These accounts apparently reflected a players' wage bill of just over £9m.

Glick appears to be saying that we need to break even,but the problem is he doesn't specify whether or not he means cash break even.The FFP result includes the amortisation of players' regs,which is a 'paper' transaction.If he didn't mean cash break even,but FFP break even,then you can see that savings of c£5m may have to be made (and we can guess where the bulk of that may come from).As our amortisation came in at c£2.5m in 10/11,if he meant cash break even we'd only have to make savings of c£2.5m-the FFP result would be minus £2.5m,but it would all be paper (non cash).It should be noted however that even in this scenario an equity injection of £0.5m would have needed to be made.

Of course the other thing we don't know is the extent to which the 10/11 accounts may have been affected by contract buyouts,which one would like to think would be of a non recurring nature (in future).

What all of this does illustrate is that we would be at a competitive disadvantage if we aimed for break even (of either variety) whilst other clubs might operate to the £5m limit.You could never safely do this,however,as you need to leave some leeway to cater for possible falling attendances/bad run of injuries leading to more loan signings than budgeted, and anything else I'm too lazy to think of.

[ramblur]

Whilst I'm in the groove,I can give an example of why the ability to inject as much equity as you like doesn't necessarily help in certain circumstances.Let's say our imaginary club with ambitious owners is approaching the 2015/16 season,after narrowly failing to secure promotion in 14/15.At current staffing levels,their forecasts for 15/16 would indicate an FFP result of minus £3.5m,but they'd like to bring in a top striker for £3m on a 3 year contract,on annual wages of £700k.If they went this route (buying the player through an equity injection),additional annual amortisation of £1m would be incurred and unless they could ditch a player/players to make room in the wage bill,the extra £700k would also count.Thus you've suddenly got a new forecast FFP result of minus £5.2m,already over limit and with no leeway.Do you risk it?

This is why I said in an earlier post that amortisation would be a constraining factor on potential big spenders (along with additional wages).You might have all the cash in the world,but it would be no good if you couldn't use it.

[CornwallRam]

Not massively difficult,Cornwall.

Speak for yourself 'http://www.dcfcfans.co.uk/public/style_emoticons/<#EMO_DIR#>/biggrin' class='bbc_emoticon' alt=':D' />

Thanks Ramblur

Given that spending on the stadium is outside the FFP rules (I'm fairly sure I heard that), I wonder who the first player will be to be paid £500 pw for playing and £14,500 pw for painting a square inch of the stadium?

[curb]

I think I'll start watching cricket instead 'http://www.dcfcfans.co.uk/public/style_emoticons/<#EMO_DIR#>/sad' class='bbc_emoticon' alt=':(' />

[ramblur]

Speak for yourself 'http://www.dcfcfans.co.uk/public/style_emoticons/<#EMO_DIR#>/biggrin' class='bbc_emoticon' alt=':D' />

Thanks Ramblur

Given that spending on the stadium is outside the FFP rules (I'm fairly sure I heard that), I wonder who the first player will be to be paid £500 pw for playing and £14,500 pw for painting a square inch of the stadium?

Depends if you classify painting as a capital expense or a revenue expense (maintenance)-I'll let others argue over that one if they wish!It's the depreciation of fixed assets that's excluded from the FFP result

as the actual capital costs have nothing to do with the revenue(operations) side of the business,other than generating a depreciation charge against profits (but not FFP result).

Anyway,I nominate Maguire,if he can be taught to hold the brush properly 'http://www.dcfcfans.co.uk/public/style_emoticons/<#EMO_DIR#>/biggrin' class='bbc_emoticon' alt=':D' />

[blackNwhites]

http://blog.devonschreiner.com/wp-content/uploads/2011/09/lib-head-explode

[McRamFan]

http://blog.devonschreiner.com/wp-content/uploads/2011/09/lib-head-explode

And for that reason, I have left it to people like Ramblur to pick it appart - Just don't over do it and look after yourself!

[ramblur]

No rest for the wicked I'm afraid,McRamFan.Just realised that in some of my examples I've made a basic assumption that the acceptable deviation is the loss allowance that is first used up before tucking into the equity allowance.It doesn't actually specify this anywhere in any of the rules I've seen.However,we could examine the possible alternatives:-

1)You must first use up the equity allowance (before tucking into the acceptable deviation).If you had a situation where you made a £2m FFP loss,most if not all of this could be generated by the non cash item of amortisation.In this situation you would effectively be forcing a club to inject £2m of equity when there is no cash loss to cover.Hence I find this scenario extremely unlikely.

2)Clubs allowed to opt for the mix of losses (whilst staying within the set limits for each class).As clubs can actually inject as much capital as they like,I'd see little point in opting for equity allowance over deviation-you could choose deviation first and still cover deviation losses with equity-in other words not much point in choosing one over the other.

The term "equity allowance" is rather unfortunate as I can well see how it's led some to believe that it represents a restriction on the amount of equity a club may inject.What it really means is a quota of allowable losses (other than acceptable deviation) which,if utilised in full or in part,must be met by an equivalent injection of equity,to avoid sanctions.It doesn't represent a cap on the amount of equity a club may inject overall.

[p.shilton]

We all appreciate this Ramblur but speaking for myself and probably a few other (all?) members on here we don't have a clue what yu are talking about.

In your opinion is FFP a good thing, a bad thing or a pointless thing (as it is too easy to get around)

[Martyn]

He's trying to work it out for us... 'http://www.dcfcfans.co.uk/public/style_emoticons/<#EMO_DIR#>/smile' class='bbc_emoticon' alt=':)' />

[ramblur]

We all appreciate this Ramblur but speaking for myself and probably a few other (all?) members on here we don't have a clue what yu are talking about.

In your opinion is FFP a good thing, a bad thing or a pointless thing (as it is too easy to get around)

Tbf Shilts,it isn't the easiest of things to explain-as I've already said calling something an "equity allowance" hasn't helped.

In answer to your question,the goal of FFP must surely have been break even-I never thought this would be voted in,so when I found out that it had been voted in I went looking for the sops.I'll first try and tackle the issue of "acceptable deviation".If you've prepared forecasts for the season ahead,it's mighty difficult to actually land on your target (or better it).You could,in good faith,budget for break even and suddenly have a poor season with reduced attendances (just one example of several things that could adveresly affect your best laid plans),so to give a degree of leeway is perfectly reasonable (though I think the eventual level of £2m is over generous,if it's solely for this purpose).

Now we get onto the contentious issue of the equity allowance.Why is this there if clubs didn't want it?Given that there's a £2m allowance for deviation,does our own model require this extra allowance? It seems to me that its very existence indicates that some ambitious clubs would be keen to utilise it,as evidenced by the following:-

[url=http://www.gazettelive.co.uk/boro-fc/boro-fc-news/2012/04/26/boro-backing-pledge-to-mowbray-in-rules-shake-up-84229-30844911/]http://www.gazettelive.co.uk/boro-fc/boro-fc-news/2012/04/26/boro-backing-pledge-to-mowbray-in-rules-shake-up-84229-30844911/

So Mowbray is to be given maximum possible backing in the transfer market,and he'll be backed to the hilt within the limits of the rules (which I take to be using allowances to the full).This situation still allows Steve Gibson to be ambitious for the club,yet he has the comfort of knowing that there's a limit to what he'd have to put in each year (he can only finance transfers to the extent that wages and amortisation keep the club within FFP limits).

If the likes of Leicester (probable) and Ipswich take the same attitude as Boro,then you can immediately see that we'll be at a competitive disadvantage if we aim for break even.It was said that other clubs would have to go through the same pain that we've experienced when FFP came in-not so if others took full advantage of allowances.£5m is an awfull lot of fire power.

I happen to think that FFP in its present form does at least give an ambitious club room to manoeuvre,and I prefer this to a strict break even model.Unfortunately we may be living within our own little FFP world when push comes to shove.

[p.shilton]

Tbf Shilts,it isn't the easiest of things to explain-as I've already said calling something an "equity allowance" hasn't helped.

In answer to your question,the goal of FFP must surely have been break even-I never thought this would be voted in,so when I found out that it had been voted in I went looking for the sops.I'll first try and tackle the issue of "acceptable deviation".If you've prepared forecasts for the season ahead,it's mighty difficult to actually land on your target (or better it).You could,in good faith,budget for break even and suddenly have a poor season with reduced attendances (just one example of several things that could adveresly affect your best laid plans),so to give a degree of leeway is perfectly reasonable (though I think the eventual level of £2m is over generous,if it's solely for this purpose).

Now we get onto the contentious issue of the equity allowance.Why is this there if clubs didn't want it?Given that there's a £2m allowance for deviation,does our own model require this extra allowance? It seems to me that its very existence indicates that some ambitious clubs would be keen to utilise it,as evidenced by the following:-

[url=http://www.gazettelive.co.uk/boro-fc/boro-fc-news/2012/04/26/boro-backing-pledge-to-mowbray-in-rules-shake-up-84229-30844911/]http://www.gazetteli...84229-30844911/

So Mowbray is to be given maximum possible backing in the transfer market,and he'll be backed to the hilt within the limits of the rules (which I take to be using allowances to the full).This situation still allows Steve Gibson to be ambitious for the club,yet he has the comfort of knowing that there's a limit to what he'd have to put in each year (he can only finance transfers to the extent that wages and amortisation keep the club within FFP limits).

If the likes of Leicester (probable) and Ipswich take the same attitude as Boro,then you can immediately see that we'll be at a competitive disadvantage if we aim for break even.It was said that other clubs would have to go through the same pain that we've experienced when FFP came in-not so if others took full advantage of allowances.£5m is an awfull lot of fire power.

I happen to think that FFP in its present form does at least give an ambitious club room to manoeuvre,and I prefer this to a strict break even model.Unfortunately we may be living within our own little FFP world when push comes to shove.

ah, so the system is open to interpretation and allows teams to spend decent money just not ridiculous money. As you say though, we are still likely to be bottom of the league table on spending