What’s PSG to a City like me

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There’s a new term which is taking the football world by storm – no it’s not Crystanbul it’s FFP, otherwise known as Financial Fair Play. This week Manchester City rejected the punishment equating to 49 million and a 21 man squad size restriction proposed by football’s European governing body UEFA for breaking the FFP rules. Before I start I’d like to congratulate Manchester City on winning another Premier League title this season – a fantastic show of mental and technical ability over the course of the 38 game marathon.

I’m not going to go in to too much detail Lekz has already done so here but I will focus on the FFP’s definition of the ‘valuation’ of a footballer.

“Financial Fair Play is intended to improve the overall health of European club football” – FIFA

Ok the above definition doesn’t really give much away. But let’s not talk Barcelona let’s talk business. I would define a healthy business as a business that has a solid current/acid test ratio. Simply speaking that means that their Assets can, in a worst case scenario pay off all the liabilities. Now let’s transfer that to football. Financial health is defined in a nutshell by spending within your means – so clubs can’t spend ‘much’ more than what they make. The rules have been drawn up to primarily avoid another Portsmouth/Leeds situation and secondly try to even out the playing field and increase competition. This is not a knee jerk reaction by the top dogs; it had been on the pipeline for years and it’s importance should not be dismissed. Something needed to be done to ensure that the astronomical fees and wages received do not become over-inflated.

Clubs with poor financial management aren’t expected to work miracles overnight also – the rules will be phased in over the following years to come. By 2018, it is expected that clubs would only be allowed to make losses amounting to 25million. But that being said, projects relating to youth development and infrastructure amongst other things are exempt from the rules. Also the value of a player (Asset) who is bought is amortised over the life of his first contract. Let me explain…..

Arsenal sign Josh Bright from Capital Moments FC in the summer of 2014 for 100 million on a ten year contract. Arsenal agree with Josh to pay him 5 million a year. That means that every year for the next 10 years he will cost

100million(value of transfer)/10years= 10m + 5million = 15 million each year. The longer an asset is held the more it depreciates (loses value). The FFP’s definition of the ‘value’ of the player in 2014 is 15m, even though he was bought for 100m.

If however 6 years through Real Madrid decide to put in a 72.5m offer for Josh, Arsenal now have to pay up the remaining amount due to Capital Moments FC and account for any unpaid wages that need to be reported. If he left in the January window I.e half way through the season, Arsenal would make a profit of
72.5m – 40m (remaining amount due) – 2.5m (half of Josh’s wages for the season) = 30m

Simply put the way that annoying uncle that always comes over to watch football at your house because he removed his sky subscription explains players values is very likely to be different to the FFP definition. The length of a contract and the wage bill of clubs are just as important as the agreed transfer figure.

It will be interesting to see how the FFP develops. From the outset it looks like a great idea to ensure the long term stability of football clubs – the FA have implemented the FFP all the way down to League 2. An issue I see straight away is that many clubs, especially the privately owned ones may continually attempt to game the system. There will be a lot of investment by some of your bigger clubs into finding loopholes in rules implemented. Both Manchester City and PSG are believed to have broken the FFP rules with sponsorship deals related to each clubs’ owners.

Abu Dhabi-owned City have a £40m-a-year deal with Etihad Airways, while Qatar-owned PSG have a backdated deal with the Qatar Tourist Authority worth up to (£165m) a year, which UEFA valued at about £100m. To be honest putting a valuation on these deals will be very difficult, however UEFA feel that these clubs are using affiliate sponsorships to get around the FFP, creating a sense of an indirect financial doping issue.

Another question I do have is whether the fixed depreciation on the value of a player each year is the best method. Players peak at different ages depending on the position they play, and the value they may contribute to the club in year 2 may be very different to the value in year 5. But then judging the “market value” of a player is like beating me of FIFA on the PS4 – Impossible!

I will be going on @Thetopcorner to talk about finance in football so watch out for that soon! Capital Moments website coming soon also…

@capitalmoments

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