A look at the impact of the new 2022 Financial Fair Play Rules on Man Utd

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andersj

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1. The forecast just mirror 21/22 with known changes and trends (described in the post).

2. Nah, I am not an accountant, but a monetary item is for example a loan or something else that gives you a right to a certain amount of money of a certain currency. A non-monetary is for example goods, inventory etc. This is what -- should -- be included, i.e. foreign exchange results no matter if they are realised or not:
k. Foreign exchange result
The net of gains and losses on monetary items, whether realised or unrealised.


This is what not should be included:
Foreign exchange gains and losses on non-monetary items, whether realised or unrealised, are non-monetary items and must be excluded from football earnings (see Annex J.2.1 (l) and Annex J.3.1(l)).

I think you read that parts a little fast! ;) Or?

Most of the debt, 425$ million comes from the 'senior secured notes' with fixed interest (3.79%, I think). For the rest of the debt the interest is not fixed, and the margin also increases if our indebtness exceeds certain provisions.



3. Good catch!I see now that there is a mistake in the spreadsheet for the 23' and 24' forecast. The intent was to have Operating expense plus Finance costs minus Depreciation–property, plant and equipment, but for 23' and 24' all three are just added together.

Also, Ronaldo's salary had been excluded but I had missed to remove Ole's severance. I also fine tuned the Finance Income figures for 23' and 24' (we hold securities that increase in value if the dollar gains value against the pound, to partly hedge our debt against such changes since the debt is in USD, hence financial income should decrease as the currency losses decreases).

Its getting better! Here is the new calculation:


Did anything else stick out to you guys?
I’m not sure. I do think wages is likely do be even lower (before adding anyone) and revenue higher. And I do think a new owner is very likely to refinance and remove much of the debt. At least the part related to the last ownership change. (Dont even see that as «gifting the club», it is rather a change in capital structure.)

With a restructure of capital like that we would basically be at zero in your calculation. All else equal (revenue and wage cost).

That is interesting as it would imply selling AWB, Maguire and Donny at book cost (£9 mill, £26 mill and £14 mill) would allow the club to spend at least £100 mill this summer given that the player we sign is on a five year contract.

The yearly ammortisation of Maguire (£13 mill), AWB (£9 mill) and Donny (£7-8 mill) amounts to close to £30 mill. Over five years that is £150 mill.
 
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Messier1994

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[1]I’m not sure. I do think wages is likely do be even lower (before adding anyone) and revenue higher. [2]And I do think a new owner is very likely to refinance and remove much of the debt. At least the part related to the last ownership change. (Dont even see that as «gifting the club», it is rather a change in capital structure.)
1. I am not sure about the salaries being lower, our wages for the 1st quarter was 82.2m and I have counted on 330m for the year. Last season the wages for the first quarter was 88.5m, which would project to 354m over a full year, but we ended up with a staggering 381m (any severance to Ralf and Ole excluded). Could be a slight difference, injured players are insured, the 1st quarter to a smaller extent depends on transaction done during that quarter, i.e. if someone was signed 1 July or 30 August. Performance bonuses could come later in the year. Ronaldo was of course here for the entire 1st quarter but are off the books now. It is also important to remember that we employ over 1,000 people outside of coaches and players. Cutting 10% of player salaries will result on perhaps a 6% reduction in overall salaries.

2. Hopefully, some contribution must come in one form of another. With the "gifting money" part, I just referred to the fact that if you for example subscribe for more shares in a share issue, it does not impact our revenue or performance under these rules. Like Juventus just raised 400m EUR and are in a good shape looking at their cash position. But a share issue doesn't impact their earnings. If it can be labeled as sponsorship, it counts as a revenue. And even if we "just" get a capital contribution, we can of course for example pay of debt and save money on our interest money which affects earnings.

3. I looked at our debt situation from a sensitivity analysis perspective with regards to FX fluctuations. This could have a big impact. The sterling has rebounded against the US dollar, and our Q1 hopefully is "rock bottom":


Since this has a huge impact on our earnings, I mapped the impact on our debt:


In short, we know the US dollar to sterling exchange rate of the last day of Q2 (i.e. yesterday), it will be 1.2050. On 30 Sep it was 1.1173. This means that our debt will total 639m after Q2 compared to 681m after Q1, i.e. a 42m profit. About 10% of our earnings comes in USD and we have some hedging measures, so it won't be 42m in profit, but perhaps 38-40m.

That means that we basically are back to even in terms of FX gains/losses for the 22/23 season, but who knows what will happen with the GBP/USD rate during the remaining 6 months. I don't think we at this point can look at the FX changes being money in the bank.
 
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andersj

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1. I am not sure about the salaries being lower, our wages for the 1st quarter was 82.2m and I have counted on 330m for the year. Last season the wages for the first quarter was 88.5m, which would project to 354m over a full year, but we ended up with a staggering 381m (any severance to Ralf and Ole excluded). Could be a slight difference, injured players are insured, the 1st quarter to a smaller extent depends on transaction done during that quarter, i.e. if someone was signed 1 July or 30 August. Performance bonuses could come later in the year. Ronaldo was of course here for the entire 1st quarter but are off the books now. It is also important to remember that we employ over 1,000 people outside of coaches and players. Cutting 10% of player salaries will result on perhaps a 6% reduction in overall salaries.

2. Hopefully, some contribution must come in one form of another. With the "gifting money" part, I just referred to the fact that if you for example subscribe for more shares in a share issue, it does not impact our revenue or performance under these rules. Like Juventus just raised 400m EUR and are in a good shape looking at their cash position. But a share issue doesn't impact their earnings. If it can be labeled as sponsorship, it counts as a revenue. And even if we "just" get a capital contribution, we can of course for example pay of debt and save money on our interest money which affects earnings.

3. I looked at our debt situation from a sensitivity analysis perspective with regards to FX fluctuations. This could have a big impact. The sterling has rebounded against the US dollar, and our Q1 hopefully is "rock bottom":


Since this has a huge impact on our earnings, I mapped the impact on our debt:


In short, we know the US dollar to sterling exchange rate of the last day of Q2 (i.e. yesterday), it will be 1.2050. On 30 Sep it was 1.1173. This means that our debt will total 639m after Q2 compared to 681m after Q1, i.e. a 42m profit. About 10% of our earnings comes in USD and we have some hedging measures, so it won't be 42m in profit, but perhaps 38-40m.

That means that we basically are back to even in terms of FX gains/losses for the 22/23 season, but who knows what will happen with the GBP/USD rate during the remaining 6 months. I don't think we at this point can look at the FX changes being money in the bank.
That was my point. Looking at your numbers, paying of that debt (and thereby removing the interest cost) would put us in a decent position for the next three years. Combined with selling Maguire, Donny and AWB for a combined fee of £50 mill that would put us in a position to spend a decent amount next summer.

Regarding the point about salary/wages, I just think that the squad is somewhat bloated at the minute.
 

Messier1994

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Can you do Chelsea's with Enzo and Nkunku?
They have not published their annual report yet... I am looking forward to seeing their results. Back in July, Todd Boehly said “Financial fair play is starting to get some teeth and that will limit ability to acquire players at any price". But it certainly doesn't look like it, especially if we look at their rumored signings... But at the same time, they do a great job of selling players, so would need to see their report at least for 21/22, the last we report for them that we have is for 20/21...
 

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Good posts. Certainly adds weight to my thoughts that we won’t be splashing the cash anytime soon (despite the hopes of the muppet population)
 

Messier1994

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People are catching up:
https://www.telegraph.co.uk/footbal...-must-sell-to-buy-summer-even-get-new-owners/
Manchester United must sell to buy in the summer – even under new owners
...[
The] Telegraph Sport understands a change of ownership will make little difference to Ten Hag’s summer transfer kitty if revenues are not significantly boosted by the return of Champions League football – which looks more important than ever – and player sales. He may have to choose between a pedigree striker or midfielder given the impact of Uefa’s new Financial Sustainability rules ...

Ducker has obviously been told by the impact from people at the club, and in general makes the correct assumptions, but he attributes it a bit incorrectly (the deferred transfer payments and the Squad Cost Rule doesn't pose the biggest challenges for us, as covered above).

However Ducker's assumptions and what he has been told by his sources at the club basically confirms our conclusions above, i.e. the spending we could do when a new owner comes in, will certainly be restricted by the new FFP regulation. The question is only how much.

I am looking into Chelsea as we speak and will soon publish a new complete update for Manchester United. What is interesting is that Chelsea actually saves a fair amount by singing players to 7 year deals right now. Initially -- its only a short term gain, it cost you more later -- the amortization cost for giving a 100m signing a 5 year deal instead of a 7 year deal is 40% higher. So they save amortization costs by 29% short term by using 7 year deals. Naturally, they also has big earnings from their sale of players.
 

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People are catching up:
https://www.telegraph.co.uk/footbal...-must-sell-to-buy-summer-even-get-new-owners/
Manchester United must sell to buy in the summer – even under new owners
...[
The] Telegraph Sport understands a change of ownership will make little difference to Ten Hag’s summer transfer kitty if revenues are not significantly boosted by the return of Champions League football – which looks more important than ever – and player sales. He may have to choose between a pedigree striker or midfielder given the impact of Uefa’s new Financial Sustainability rules ...

Ducker has obviously been told by the impact from people at the club, and in general makes the correct assumptions, but he attributes it a bit incorrectly (the deferred transfer payments and the Squad Cost Rule doesn't pose the biggest challenges for us, as covered above).

However Ducker's assumptions and what he has been told by his sources at the club basically confirms our conclusions above, i.e. the spending we could do when a new owner comes in, will certainly be restricted by the new FFP regulation. The question is only how much.

I am looking into Chelsea as we speak and will soon publish a new complete update for Manchester United. What is interesting is that Chelsea actually saves a fair amount by singing players to 7 year deals right now. Initially -- its only a short term gain, it cost you more later -- the amortization cost for giving a 100m signing a 5 year deal instead of a 7 year deal is 40% higher. So they save amortization costs by 29% short term by using 7 year deals. Naturally, they also has big earnings from their sale of players.
Glad to have you on this forum. Learning a lot about what's coming before the media I follow report it. Hope you'll stay active throughout the sale process over the coming months
 

Giggsyking

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People are catching up:
https://www.telegraph.co.uk/footbal...-must-sell-to-buy-summer-even-get-new-owners/
Manchester United must sell to buy in the summer – even under new owners
...[
The] Telegraph Sport understands a change of ownership will make little difference to Ten Hag’s summer transfer kitty if revenues are not significantly boosted by the return of Champions League football – which looks more important than ever – and player sales. He may have to choose between a pedigree striker or midfielder given the impact of Uefa’s new Financial Sustainability rules ...

Ducker has obviously been told by the impact from people at the club, and in general makes the correct assumptions, but he attributes it a bit incorrectly (the deferred transfer payments and the Squad Cost Rule doesn't pose the biggest challenges for us, as covered above).

However Ducker's assumptions and what he has been told by his sources at the club basically confirms our conclusions above, i.e. the spending we could do when a new owner comes in, will certainly be restricted by the new FFP regulation. The question is only how much.

I am looking into Chelsea as we speak and will soon publish a new complete update for Manchester United. What is interesting is that Chelsea actually saves a fair amount by singing players to 7 year deals right now. Initially -- its only a short term gain, it cost you more later -- the amortization cost for giving a 100m signing a 5 year deal instead of a 7 year deal is 40% higher. So they save amortization costs by 29% short term by using 7 year deals. Naturally, they also has big earnings from their sale of players.
What happens if the next owner comes and decides to pay off the transfer debt?
 

LawCharltonBest

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What happens if the next owner comes and decides to pay off the transfer debt?
Also @Messier1994 - with the shirt sponsorship available for the prospective new owner(s) - could this be a way around FFP?

Example is Dubai Royal Family buy United, make a deal with their friends back home to put 'Visit Dubai' on the shirts who then pay United a ridiculous amount to sponsor them ...?

They could then have this new sponsorship put onto the very next home shirt, assuming it's done by the Summer
 

Rawls

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I can't say I'm an expert on this but unless there are rules formally forbidding owners paying off debt, I don't see any issue as long as it's an equity injection. I think one of the main reasons why FFP was brought in was to put an end to the stuff that happened to the likes of Portsmouth i.e. Owner comes in, spends a lot of money but makes the club borrow to fund their transfers, club starts going south, owner flees, and now the club cannot sustain their spending. That's the advantage of equity funding over debt funding. If you borrow money, there is always likely some form of contract stipulating that you have to pay it back. On the other hand, if you receive increased equity funding, there is no formal rule stipulating that you have to pay the money back. Or at least that's my understanding.
 

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If Citeh have the highest revenue in football, I am confident that with some creative accounting, we can circumvent this if we have an ambitious new owner.

The other thing that may be possible (and this is pure speculation on my part), can't they package the transfers arrears into the club debt and it can then be paid off as part of the takeover?

All in all, this once again shows the incompetence at the highest levels but now it'll have real-world repercussions.
 

Messier1994

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Many thanks guys!

If Citeh have the highest revenue in football, I am confident that with some creative accounting, we can circumvent this if we have an ambitious new owner.

The other thing that may be possible (and this is pure speculation on my part), can't they package the transfers arrears into the club debt and it can then be paid off as part of the takeover?

All in all, this once again shows the incompetence at the highest levels but now it'll have real-world repercussions.
Yeah, the rules in relation to "fake" sponsorship are toothless. Any income from sponsorship may only be counted at "fair value". But what is fair value for the name right of City's stadium?
 

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If Citeh have the highest revenue in football, I am confident that with some creative accounting, we can circumvent this if we have an ambitious new owner.

The other thing that may be possible (and this is pure speculation on my part), can't they package the transfers arrears into the club debt and it can then be paid off as part of the takeover?
Phew.
 

Rightnr

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It means that's a relief. A good point, thank you.
I wouldn't take my take as gospel whatsoever :lol:.

It's loads of speculation and also presumption of good ownership and quick change.

The base case is we're fecked :lol:
 

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I wouldn't take my take as gospel whatsoever :lol:.

It's loads of speculation and also presumption of good ownership and quick change.

The base case is we're fecked :lol:
There's at least a chance we will have a new owner that puts money in instead of taking it out. A huge step forward financially, if it happens.
 

Messier1994

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Update 12 January 2023
So under the new FFP rules, Financial Sustainability Rules (will probably go by "FSR" soon), we will mainly be impacted by two rules, the Football Earnings Rule and the Squad Cost Rule. The other rules are covered by the OP if anyone is interested.

But first, to understand the impact of these rules, it is essential to consider how they are sanctioned. This information is in the OP, but I will repeat the key parts here and expand a bit on the implications this have.

The impact of how the Rules are Sanctioned
How is the Squad Cost Rule sanctioned?
The Squad Cost Rule is a "soft" rule, that is meant to steer clubs to act in a proper way, while the Football Earnings Rule is a strict with sanctions designed so that it should be impossible to constantly breach it (see below).

If a Club breaches the Squad Cost Rule, a fine will be calculated in relation to the extent its breached -- if a Club may say spend 300m on salaries, and instead spends 310m, the extent of the breach is 10m. If you exceed the rule with under 10%, a fine of 25% of the extent is breached will be given (2.5m in our example). If a club constantly breaches the rule, additional sanctions may be determined. But nothing states that they shall be progressive. It seems like it is perfectly possible to breach the rule with say 5% yearly forever.

How is the Football Earnings Rule sanctioned?
The Football Earnings Rule is heavily sanctioned and cannot be disregarded by a Club. What will happen if a club breaches the Football Earnings Rule?

As a first step, the club will be forced to enter into a Settlement Agreement with UEFA. In the Settlement Agreement, the UEFA will establish an action plan to get the club back in compliance with the Rule. The settlement agreement will include one or more sanctions such as fines and restrictions on number of players that can be used in tournaments as well as obligations for the club to clear up its economy. If the conditions of the settlement agreement is not met -- the sanctions are progressive and will ultimately lead to the club being banned from participating in UEFA tournaments.

Looking at the settlement agreements ("SA") entered into by the clubs in breach of the FFP last summer, they require that a club gradually must move to comply with the Football Earnings Rule over a period of three years and that the rules must be complied with after three years. The Club's compliance with the rule will be monitored every 6 months. These SA include a fine equal to 15% of the clubs income from UEFA tournaments. If the Club fails to comply with the provisions of the SA, i.e. for example after 6 months has not reached the set target, the remaining 85% will be withheld. If the breaches continue -- new sanctions shall be imposed on the club, that are stricter than the mentioned sanctions. What is stricter than withholding for example Juventus entire income from participating in the CL? And remember, fines counts as an expense and further restricts a clubs performance under the Football Earnings Rule.

Since the Football Earnings Rule is fairly strict, it only allows for a aggregate loss of 60m over 3 years -- Juventus deficit has been 250m per year the last years and PSG's deficit has been 370m -- I think all clubs must shore up their earnings.

Manchester United's Compliance with the Squad Cost Rule

General
A player impacts our finance in two ways. Firstly, the players wages (including bonuses etc) is a direct cost. Secondly, the Transfer Fee is Amortized over the players contract. If we sign a player for 100m and pay him 10m per year on a 5 year contract, the player's Squad Cost will be 100/5+10m=30m.

The Squad Cost Rule will be implemented in three stages, next year its 90%, the year after that its 80%, before finally going to 70% the year after that.

Performance
This is my projected performance under the Squad Cost Rule:


We are probably up towards 80% this season, like Ducker's estimates, but I am not worried about our performance under the Squad Cost Rule. We are a big club with our 1,000 employees and high revenues. If our squad accounts for 80-90% of our income -- we will have much bigger problems with the Football Earnings Rule.

Manchester United's Compliance with the Football Earnings Rule

General

The Football Earnings Rule is in principle really simple. It is measured over a period of 3 years. During those three years, a Club's loss may not exceed 60m (EUR). In practice it is a bit more complicated -- because not all incomes and expenses are counted under the Football Earnings Rule. So a club can be run with a constant loss -- as long as a large enough extent of the expenses are "good" expenses. "Good" expenses are mainly costs for the Youth Academy (including transfer fees for youth players), the Womens Team and the Stadium.

In addition, all items relevant for the Football Earnings Rule, are not reported separately in our Financial Reports. So any projects must be based on estimates. What is our cost for the Youth Academy and Womens Team? Etc.

We will be measured in relation to the Football Earnings Rule for the first time in the summer in 2024, based on our performance during the 22/23 season and 23/24 season. So our financial performance this and next season will determine if we are compliance with the rule in 2024. Hence these rules must be taken into account as of today, and certainly during next summers' transfer window.

Performance
The last three years we have had a loss of 20m, 92m and 115m (2022). During 22/23 and 23/24 our aggregate loss may only total 60m (EUR). In our last financial year, during which we played in the Champions League, our loss was 115m. Since then we have lost the income from the CL and spent 240m more in the transfer market. Our result for the Q1 this season was minus 24m. Over the coming seven quarters, it can it total hence not be more than 60-24=36m. Complying with the Football Earnings Rule will be a challenge for us. The question is only how big.

This is my estimates -- during which I assume that we will finish Top 4 (which I didn't in my last forecast):


The Conclusion is that we only may occur additional costs of 21m next season. In reality, if we do not sell anyone, it means that we could only sign one player with a combined cost of approximately Lissandro Martinez (18.8m per year). Remember, this is under the assumption that we finish top 4 and make it to the Champions League. If we don't, with the lost money from the Adidas deal and the CL money, we basically have to save 50m just to comply with the rule, without signing a single player.

We are in a bind -- what can help us?
It is as simple as this -- we must sell players to be able to sign players. And we must sell many players.

So how are our earnings impacted if we sell a player? It impacts our earnings in three ways. First of all, the right to register each player is an "intangible asset" in our Balance Sheet. This asset is written down -- amortized -- over the length of the players contract. The amount it is written down with, is an expense. We sign a player for 100m and give him a 5 year contract, the amortization is 20m per year. Second of all, a player is paid a salary which is a direct cost. If we sell the player, we don't have to pay his wages. Third of all, the price we are paid for a player exceeds the players' remaining book value, the exceeding amount is a profit. So in the example above, if we sell the 100m player 2 years into his contract, he will have a remaining book value of 100 - 20 - 20 = 60m. If we sell the player for 80m its a 20m profit, if we sell the player for 40m its a 20m loss (but overall it would still impact our earnings positively since in Y3 we won't be hit with the players amortization cost and wages).

Under the assumption that we sell the following players for the following fee, we would clear up another 100m for next summer. The transfer fees are perhaps modest, but at the same time we haven't exactly been stellar selling players and if we fail to sell a player or two of the below listed it should at best even up.
Harry Magure -- Sold for 25m
Dean Henderson -- Sold for 20m
Donny van de Beek -- Sold for 12m
Aaron Wan-Bissaka -- Sold for 10m
Fred -- Sold for 7.5m
Pellestri -- Sold for 5m



As a result, we could now incur additional costs totaling app. 120m next summer.

What does 120m -- in additional costs -- buy you?
Generally, the players we sign impacts our earnings significantly. I have seen how Chelsea have signed at least some of their new signings to 7 year deals, while we often go with 5 year deal. By doing that, you of course reduce the amortization cost fairly significantly (short term).

Looking at what our current players have cost us, Casemiro's total yearly impact on our earnings are a minus 30m per year in Amortization and Salary, Jadon Sancho minus 35m per year, Antony is minus 26m, Martinez minus 18m a year.

So if we (a) finish top 4 and (b) sell the above players -- we could basically sign an expensive striker and an expensive midfielder, a cheaper depth CB and RB. That would be great.

But what about all the money a new owner can give us?
In brief:
1. Any contribution from a new owner will not improve our earnings per se. If a new owner gifts 681m, we can pay off all our debt. That should save us 40m per year in financing costs. Ultimately, that is only "one" Sancho like signing.

2. What -- some types -- of new owner can do is to sponsor us. Like Abu D does with City. Buy the naming rights for the stadium. Replace Team Viewer as a sponsor. But remember -- such sponsorships may only be calculated at "fair value". It cannot be easy to determine what is fair value, but for a shirt sponsor, it could hardly be double what we make today. And remember, many type of buyers could not sponsor us (like a investment consortium).

3. What a new owner -- can -- do, is what City and Chelsea are doing. I.e. finance good "costs" that doesn't not count in relation to the Football Earnings Rule. If we buy 10 youth players for 150m (15m each), and then sell them after 4-5 years for a total of 50m, it is not a 100m loss but a 50m profit. The investment in the Youth Academy does not count, but any income from selling those players counts.

In addition, if we invest 1.5bn in a new stadium -- which gives us 30m more in revenue per year, it doesn't take 50 years for the investment to be profitable. The 1.5bn does not count as an expense, but the 30m counts as an income. Good expenses doesn't count.

This is a more of a long-term project. But what really will pay off.
 

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Fierce amount of thankless work there, Messier1994.
Difficult to be too precise in these kind of projections as the deviation (which will be pretty small) is the difference between 2 very large numbers. Small movements in one or the other could shotgun your estimate. For instance, possible movements in net finance costs either way (notoriously volatile) would have a huge impact on your estimate.
Ordinarily, we generate 15-20m profit a year from player sales (and loans). I would include it (at least the 16m from q1 2023). I know you are trying to determine what player sales we might need going forward, but I'd be inclined to project our regular position and see where that leaves us before we sell all the silverware.
I would also use the club's own outlook (for 2023) for revenues and expenses (implied) from the latest q1 report.
Our actual cash position next summer will be, I reckon, as crucial as our compliance position. 200m on the credit card and massive player debt make for a real cash problem.
 

UNITED ACADEMY

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I'm not expert on this so it's very nice to learn something about how the finance involved in Football Club, thanks. Hoping Forest to stay up will increase our chance of them spending 20m or more on Dean.
 

Son

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IF our debt gets wiped out that will be incredible. Like a new club.

I understand it will take 3 years or so to set everything up but we really can do business after that. Bigger sponsorships, higher capacity stadium and state backing on top we’d be incredibly strong as a club.

Maybe the strongest a club has ever looked financially.

…We all know they’ll just make a super league soon though because Madrid are desperate for a slice of the Middle East pie too. That club is as greedy as it gets.

La Liga tried to sue Mbappe for staying at PSG for example which is insane. They get jealous very easily on the continent and won’t take kindly to our club getting state backing.
That to Madrid means war I imagine.
 
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A bit off topic but McTominay gets a lot of stick by the fans and I am always amazed when I see his salary compared to others. Tuanzebe is on the same salary and he never plays where McTominay plays regularly and we never here any complaints from his camp. He might not be a superstar but I do still think he has been great value for the club if you take his salary into consideration.
 

Messier1994

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Another 7 year player contract signed by Chelsea. Will this become a thing?

First of all, let’s look at the difference between signing a player to a 5 year contract and a 7 year contract, let’s say for a 100m player making 200k a month (from the FFP/FSR perspective), here is the total cost per year:
Five-year deal
Y1 - 30m
Y2 - 30m
Y3 - 30m
Y4 - 30m
Y5 - 30m
Total: 150m

Seven-year deal
Y1 - 24m
Y2 - 24m
Y3 - 24m
Y4 - 24m
Y5 - 24m
Y6 - 24m
Y7 - 24m
Total: 170m

It is not something earth shattering, but the amortization costs for a player on a 5 year deal is 40% higher per year than the amortization costs for a player on a 7 year deal. The total cost, including wages, is in our example above 25% higher.

This is a one-off gain — that will last for 5 years if you make a change going from 5 year to 7 year contract. In Y6, the club giving out 5 year deals will have amortized the entire value of the player, while 7 year contract club will still be hit with 24m.

Second of all, let’s speculate a bit on trends we could end up seeing. Ultimately, what will happen on the market is always a result of how desperate and short sighted teams are.

That is impossible to know, but let’s look at what have happened in other sports. The mechanic of the FFP/FSR are very similar to what we have seen in some pro sports in the US. When the NHL introduced a “salary cap” that had the same mechanic — ie it paid off short term to smear costs out over a long period — contracts started to get longer and longer before this happened:
https://www.espn.com/nhl/news/story?id=5392170
Kovalchuk has signed a 17-year, $102 million deal [with the New Jersey Devils]. The Devils will absorb an annual salary cap hit of $6 million -- the average amount per season. However, Kovalchuk will remain on the books through the 2026-27 season. Kovalchuk will earn $6 million each of the next two seasons, $11.5 million for the following five seasons, $10.5 million in the 2017-18 season, $8.5 million for the 2018-19 season, $6.5 million in 2019-20, $3.5 million in 2020-21, $750,000 the following season and $550,000 for the final five years of the unprecedented deal. Should Kovalchuk play until the end of the deal, when he'll be 44, a source clarified to ESPN.com's.

After this, the rules changed. For a while, all winners of that league had players on these type of “cap circumventing deals”, but there is a totally different level of parity in those league so it’s of course not comparable in that sense. But facts are, a team that under the FFP/FSR cost can afford to sign one player for 100m under a 5 year contract, could basically afford to sign 2 players for 100m each — if they given them 10 year contracts. It all comes down to how stupid and short sighted clubs are, and if history is any proof for future behavior — I wouldn’t be surprised to see 10+ year contracts…
 

Chinchy98

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Another 7 year player contract signed by Chelsea. Will this become a thing?

First of all, let’s look at the difference between signing a player to a 5 year contract and a 7 year contract, let’s say for a 100m player making 200k a month (from the FFP/FSR perspective), here is the total cost per year:
Five-year deal
Y1 - 30m
Y2 - 30m
Y3 - 30m
Y4 - 30m
Y5 - 30m
Total: 150m

Seven-year deal
Y1 - 24m
Y2 - 24m
Y3 - 24m
Y4 - 24m
Y5 - 24m
Y6 - 24m
Y7 - 24m
Total: 170m

It is not something earth shattering, but the amortization costs for a player on a 5 year deal is 40% higher per year than the amortization costs for a player on a 7 year deal. The total cost, including wages, is in our example above 25% higher.

This is a one-off gain — that will last for 5 years if you make a change going from 5 year to 7 year contract. In Y6, the club giving out 5 year deals will have amortized the entire value of the player, while 7 year contract club will still be hit with 24m.

Second of all, let’s speculate a bit on trends we could end up seeing. Ultimately, what will happen on the market is always a result of how desperate and short sighted teams are.

That is impossible to know, but let’s look at what have happened in other sports. The mechanic of the FFP/FSR are very similar to what we have seen in some pro sports in the US. When the NHL introduced a “salary cap” that had the same mechanic — ie it paid off short term to smear costs out over a long period — contracts started to get longer and longer before this happened:
https://www.espn.com/nhl/news/story?id=5392170
Kovalchuk has signed a 17-year, $102 million deal [with the New Jersey Devils]. The Devils will absorb an annual salary cap hit of $6 million -- the average amount per season. However, Kovalchuk will remain on the books through the 2026-27 season. Kovalchuk will earn $6 million each of the next two seasons, $11.5 million for the following five seasons, $10.5 million in the 2017-18 season, $8.5 million for the 2018-19 season, $6.5 million in 2019-20, $3.5 million in 2020-21, $750,000 the following season and $550,000 for the final five years of the unprecedented deal. Should Kovalchuk play until the end of the deal, when he'll be 44, a source clarified to ESPN.com's.

After this, the rules changed. For a while, all winners of that league had players on these type of “cap circumventing deals”, but there is a totally different level of parity in those league so it’s of course not comparable in that sense. But facts are, a team that under the FFP/FSR cost can afford to sign one player for 100m under a 5 year contract, could basically afford to sign 2 players for 100m each — if they given them 10 year contracts. It all comes down to how stupid and short sighted clubs are, and if history is any proof for future behavior — I wouldn’t be surprised to see 10+ year contracts…
depending on the discount rates applied, the 7 year deal could effectively be cost neutral vs 5 year cheaper deal, with better cash flow properties
 

Garethw

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We can’t be the only big team in this position?
 

Messier1994

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Before seeing the 21/22 books it is hard to say anything definite. But it basically boils down to this:
"Failure to qualify for [the CL] would mean Chelsea would be hamstrung in the summer 2023 transfer window."

I have a very hard time seeing a scenario were they wouldn't be hamstrung next summer if they miss the CL, which seems more or less a given right now. Chelsea can only record a loss of 60m over this and next season. Without money from the CL next season and having spent 425m on transfers this season, there is just no way they will be in anything but a terrible shape next summer when they set their spending costume for that season. What I cannot establish, without the 21/22 figures and 20/21 figures being Covid infected, is if that means that they have to save 150m or 300m or something in between. We lost 120m last season. If we lose 120m this season, and since we can only be 60m minus after this and next season, we must go from 120m loss to 60m profit next season. That is 180m in increased revenues or decreased costs. Chelsea will have better numbers this year since they are in the CL. But just missing out on the CL and the shortfall in PL money from finishing mid-table instead of at the top of the table is 100m. Lets say they finish this year say minus 50m and would finish next season minus 150m without doing something, they must save 140m. If they finish minus 100m this year, it would be minus 200m next year with the same costume, meaning that they must save 240m.

But they can of course achieve a lot by selling players. But even if they do, I can guarantee that they can't spend like 400m on Gvardiol, Enzo Fernandez and Oshimen next summer. And I wouldn't at all rule out they won't be able to reach the relevant thresholds due to running into problems when trying to off-load these underperforming players. Is anyone paying a lot of money for Sterling? Honestly, Sterling has not impressed the last season.
 

Messier1994

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Hi guys,

I have reviewed Chelsea's position to get a clearer picture what they can do this summer. And as a United fan, I dear to say that the results are very positive. :)

Why Todd Boehly and Chelsea -- will be done -- after the January window 2023

1. Again, a little recap.
The Swiss Ramble have looked at how Chelsea will fare when they are reviewed this summer (https://swissramble.substack.com/p/will-chelseas-transfer-spend-break). That can be of interest, of course, but it has nothing to do with how much they can spend this summer. In the summer of 2024, Chelsea will be reviewed based on how it has performed in 22/23 and 23/24. We of course do not have the data from either one of those seasons, but in the following I will piggy back on the Swiss Ramble's estimates for 22/23 and assume that they will be the same for the 23/24 season with the difference that I calculate with 70m less revenue for Chelsea due to missing out on the Champions League. So the heading above and and the below assumptions are based on Chelsea missing the Champions League. Chelsea are "only" 10 pts out of the CL spots. Given the crazy schedule, if they have a good run they can make up ground in a hurry. With that said, they are not doing well presently at all, and if this gap widens in the coming weeks, it could soon become really tough.

In addition -- I have a calculated on a much bigger share of Chelsea's expenses being of the good type, i.e. not counting against its earnings under the Football Earnings Rule, than the Swiss Ramble have. The Swiss Ramble totals Chelsea's deductible expenses to 29m, and I have counted on 54m. Simply due to err on the right side of caution, i.e. rather have Chelsea's numbers look better than expected than the other way around, and Chelsea have definitely focused on investing in the Academy and so forth.

2. So the bottom line is, the highest possible Acceptable Deviance for Chelsea is minus 70m. This is how it adds up given the above assumptions:


So Chelsea comes in at minus 281,800,000 when they only can be minus 70,000,000. That is not good.

3. But, so far, we have not calculated on Chelsea selling -- any -- players this summer. Without any doubt, that is and has always been part of their strategy. It is also what they do better than anyone else. As a starting point, I am going to use the figures suggested by @Rnd898 in another thread on this topic. I do think these estimates are really good and well balanced.
- Aubameyang: release on a free and no salary compensation -> £8M a year saved but still have to take a loss on the remaining amortisation (£5M)
- Pulisic: sell for £15M and pay £50K/wk salary compensation for a year -> £18M a year saved
- Ziyech: loan out for a year with a £2M loan fee and the loan club paying full salary (£100K/wk) -> £7M a year saved
- Azpilicueta: release on a free and no salary compensation -> £8M a year saved
- Jorginho: release at the end of contract -> £16M saved
- Hudson-Odoi: sell for £15M -> £6M a year saved in salary and a one-off £15M profit on the fee
- Gallagher: sell for £30M -> £3M a year saved in salary and a one-off £30M profit on the fee
The total saving+additional income on the sale of these players are:
NameIncome+reduced expense
Aubameyang
3​
m
Pulisic
18​
m
Ziyech
7​
m
Azpilicueta
8​
m
Jorginho
16​
m
Hudson-Odoi
21​
m
Gallagher
33​
m
Total
106​
m

So with these sales, Chelsea is improving their earnings with 106m for the 23/24 seasons. But since they would be 211m below the accepted deviance before them, they must still save a hefty 105m. But -- here we see kind of the plan for Chelsea. Had they made the CL, its another 70m and they would only be 35m below.

So what more can Chelsea do? Chelsea can still do a ton. Even with the above signings, they still have a massive 19 player squad of established players (including the players out on loan today) and excluding the youths:
SalaryMarket value
Raheem Sterling
16 900 000​
70 000 000​
Romelu Lukaku
16 900 000​
55 000 000​
Kalidou Koulibaly
15 340 000​
35 000 000​
Reece James
13 000 000​
70 000 000​
Wesley Fofana
10 400 000​
65 000 000​
Ben Chilwell
9 880 000​
38 000 000​
Marc Cucurella
9 100 000​
55 000 000​
Kepa Arrizabalaga
7 800 000​
15 000 000​
Kai Havertz
7 800 000​
70 000 000​
Mykhailo Mudryk
7 500 000​
40 000 000​
Ruben Loftus-Cheek
6 240 000​
25 000 000​
Malang Sarr
6 240 000​
8 000 000​
Tiemoué Bakayoko
5 720 000​
4 000 000​
Mateo Kovacic
5 200 000​
40 000 000​
Benoit Badiashile
5 000 000​
40 000 000​
Mason Mount
4 160 000​
75 000 000​
Edouard Mendy
2 860 000​
25 000 000​
Trevoh Chalobah
2 600 000​
4 000 000​
Armando Broja
2 080 000​
30 000 000​
764 000 000​

Remember, selling guys like Sterling, Lukaku, Havertz and co does not mean that the obtained transfer fee is a "profit", since these guys are on the balance sheet as a registration right meaning that the price they were bought for is accounted for as an asset, that is amortized in a straight line during the term of the contract.

Can Chelsea cut so much costs, that it can comply with the Football Earnings Rule in 2024? Sure it can, but it probably take them selling Reece James or Mason Mount.

4. I think Chelsea, Juventus, Inter, PSG and co have done a proper analysis of the situation and simulated all potential alternatives. And when doing this -- it would not surprise me at all if the scenario were you spend as much as you can, before violating the rules the first time, is the most attractive.

So lets say that Chelsea comes in with an aggregate loss that is 200m under the accepted deviance -- what will UEFA do? The relevant UEFA body will compel Chelsea to enter into a Settlement Agreement with UEFA. We know fairly well what that agreement would include. First of all, Chelsea would have to pay a smaller fine, the Swiss Ramble has made a summary over the issued fines so far:

Chelsea would come in between Milan and Juventus, about 20m.

An example of a summary of a Settlement Agreement can be found here (https://editorial.uefa.com/resource...-year_settlement_agreements_-_august_2022.pdf).

It will include:


In summary, UEFA will say something along the lines of, OK, you are 150m below the acceptable deviance, in 1Y it must be 100m, in 2Y it must be 50m and in 3Y you must comply with the rule. This is not the end of the world. If you keep violating the Settlement Agreement, you will get into trouble. The rules stipulates that the sanctions for violating the Football Earnings Rule shall be progressive, so they will be made stricter every 6th month when the progress is monitored. But violating them the first time is not the end of the world.

5. Lets just refresh the situation for Manchester United, which is made under the assumption that we do finish Top 4.

For us, this mean that we must sell to be able to buy next summer. Preferably sell a lot, because the cost for adding one "Antony" is around 30m per season. With 20m in leeway, we could sign a "Martinez".

But it does illustrate just how grave Chelsea's situation is, since they would be a whopping 211m below, while we are 21m above the limit.

6. If Chelsea crash head first into the new FSR, I still wouldn't rule out that they could make a signing next summer if they sell a lot. Remember, they would be given a 3 year period to correct the violation. The first year, they could still be like 150m under the accepted deviance, as long as they just are 100m the year after and meet all intermediary targets.

But -- there is no way Chelsea signs like Oshmien, Gvardiol and Enzo Fernandez for 400m next summer. No way. The insane spending spree we are seeing right now, is -- to the best of my guessing ability -- because they know the party is ending after this window.
 

Messier1994

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Why Liverpool FC is the model Europa League Club
So far Chelsea FC is clearly the PL club in the worst shape vis-á-vis the new Financial Sustainability Rules while we need to sell players to be able to be active on the market next summer even if we finish Top 4 and get new owners (unless they can sponsor us heavily). So how does Liverpool FC match up? I am still going to look at City and Arsenal, but I think its safe to say that Liverpool is the club in the PL in best shape vs UEFA's new regulation.

This is under the assumption that LFC does not finish top 4, and of course built on a forecast for both this and next season:


The marginals are small. LFC is basically right now spending at the exact threshold they can spend to comply with the rule and regularly finish outside the top 4. As a top 4 club -- and as of next year, its enough to be top 5 right with the new CL -- they can grow their balance sheet to a fairly large extent. Say a Bellingham and another expensive player.
 

Messier1994

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Arsenal FC -- the smaller big club
Arsenal didn't play in Europe last season for the first time in decades. Despite a heavily reduced wage bill, they finished the year (21/22) with a 45.5m loss with total football revenues just amounting to 370m, with a wagebill of 212m and amortization of 127m. This year, a big investment in the squad has paid of big time.

With higher incomes this year from the EL', and even much higher next year from the CL, as well as just a moderately increased Squad Cost, I get the following result for Arsenal FC:



Short term, winning the PL and getting back into the CL, does not dramatically change the outlooks for Arsenal. But they can certain afford to "back the manager".

Caveat: All data are estimates made by me and mine interpretations of a complex set of rules.
 

Messier1994

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Many thanks guys! Tottenham and Manchester City is coming up!

Spending the night with my kid at the hospital and we got some good news about his treatment earlier today so I am feeling really energetic, and there is not much else to do with this view.... :)
 

Messier1994

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Tottenham Hotspurs FC -- the winner?
Think I spoke too soon naming Liverpool FC the winner of the FSR competition, Totteneham is in great shape.

So Tottenham is a club that makes yearly losses, and have for some time. They have not been a big spender on the transfer market. How can they be in great shape? Tottenham's finance situation is heavily impacted by their new stadium. Tottenham's yearly cost for its stadium is 40m (interest) and 70m (depreciation) = app. 110m. Since any costs associated with the improvement of the stadium is excluded from the Football Earnings Rule, it of course has a big impact on turning Tottenham's financial loss into a profit in relation to the FER.

The following is under the assumption that Tottenham miss the CL next season. But since this exercise is intended to provide information on how much a team can spend in the Summer of 2023, its of less importance. Tottenham's spending is limited by Levy, not UEFA. QSI pushing in a bunch of money into Tottentham -- could however change the club's situation drastically.

 

Messier1994

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Last but not least, here comes Manchester Citeh
So City pockets as much money as anyone else in the game in price money but what stands out when you look at their books is the commercial income of 310m. Those figures could see a big hit when they are tested under the new Financial Sustainability Rules the first time. I.e., if some are not deemed to be accounted for at "fair value". But they won't be slashed by 90%. But just a 50-100m reduction would have a big impact. But we are probably years ahead of getting this tested. We all know City and Pep shamelessly cheat in this regard.

Anyway, what is interesting when you look at Man City's books is how big of an impact the profit they make on player sales have on their bottom line. If City -- despite all cheating -- did not sell players they would have problem with these rules. But when you sell players for a profit of 60-120m every season, it is of course huge. We say that we 'must sell to buy' next summer, but the same is absolutely true for CIty. They would be in a horrible shape if they didn't sell players with a profit regularly.



The above figures indicate that City has a lot of room still to improve the squad, but that is not quite true from my point of view. Or they could do it -- if they kept winning. If they go from winning the PL to finishing 2nd, and from winning every other Cup they participate in, the marginal for the bottom line earnings would be eaten up pretty fast. You also know that City cannot be 110% sure that whatever numbers they submit to UEFA -- will be accepted. So I am sure that they also want to keep a bit of a margin.
 
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