We actually don't owe £258 million in transfer fees

[Fridge chutney]

Very high level summary of accounting for players in general. Let’s take one made up scenario as an example.

I sign Paul Pogba for £100m.
I agree a 5 year deal.
I agree that if he plays 10 or more career international games I will pay the seller another £20m in fees.
I agree to pay £50m today and £50m next year.

There’s three accounting sides to this.

1) Accounting for the transfer fee excluding his potential £20m extra:

I paid £50m today so my cash goes down by £50m.
I still have to pay £50m so that increases my trade payables £50m. Until I actually pay them that cash it remains as £50m in trade payables.

2) Accounting for the asset (Pogba).

When I buy Pogba I’m not receiving all the benefits of that purchase today. I’m receiving it over the life of his contract.
I got an asset that cost £100m so I increase my asset on day one by £100m.
He has a 5 year deal and therefore if he doesn’t sign a new deal he will be worth nothing to the club after 5 years as he could walk away for a free transfer. Therefore the asset is AMORTISED over the length of his contract and so every year I charge £20m as an expense in my income statement and correspondingly reduce the asset by £20m.
Say Pogba signs a new deal after year three. The asset amount is currently £40m after 3 years of amortisation. Say his new deal is 5 years long, all that means is that the remaining £40m of asset is amortised over the new 5 year period I.e £8m a year.

3) Accounting for the 20m fee.

When I buy the asset it is not guaranteed that he will play those caps. Ignoring for a second if it’s probably or possible that he will, assuming it’s onky possible and not probable, the way Accounting works is that this does not hit any balance sheet line. Instead it’s just disclosed as a contingent liability I.e one which may be paid but it’s only possible it will be paid.

To link this back to this article, the article is saying as at 30 June 2018 we had £258m in fees payable. I.e the accounting discussed in 1) above. If you look at a United audited financial statements for the year ended 30 June 18, that figure is 100% correct.

In Q1 (30 Sept. 18) that was down to approx. £130m. In terms of contingent fees (as discussed in 3) above) that is about £66m.

Bottom line though is that none of this matters. If the amount was obscenely high it could show we were buying players without the cash to afford them. But that’s exactly the same as taking on debt. You can do it properly (I.e using a credit card and pay it off each month) or poorly (let the credit card bill rack up and continue spending even though you can’t afford it and eventually get fecked).

Ultimately I’m sure we have fees receivable in our trade receivable line which would net this off a lot. And if you consider Uniteds financial position there’s just nothing to worry about. It’s a standard way clubs do business. And it’s just a click bait article.

Excellent explanation. Thank you. I think that the journalist and professor were trying to sensationalise United's accounts and it's pretty sad.

 

[HackeyC]

As above, this is just sensationalist clickbaiting. Having looked at the accounts it is clear that there are more than sufficient cash reserves to virtually meet all outstanding liabilities. I would challenge the journalist to count the number of FTSE100 companies in this position, I can guarantee that they will be few and far between.

 

[DanClancy]

United in a great position this summer when you look at the cash position and the reduction of the amortisation in the accounts.

Shaw, Herrera, Martial & Mata will all likely get new contracts; This will probably reduced the amortisation figure in the accounts by 16m. That gives room to buy a player for £80m on a 5 year contract and the amortisation figure in the accounts wouldn't increase.

 

[cyril C]

United in a great position this summer when you look at the cash position and the reduction of the amortisation in the accounts.

Shaw, Herrera, Martial & Mata will all likely get new contracts; This will probably reduced the amortisation figure in the accounts by 16m. That gives room to buy a player for £80m on a 5 year contract and the amortisation figure in the accounts wouldn't increase.

That is before DDG, Mata, Martial, Shaw, Herrera and possibly Pogba renew their contract, right? What about the increase in wage? Only Young will renew on the same no.

 

[Revan]

That is before DDG, Mata, Martial, Shaw, Herrera and possibly Pogba renew their contract, right? What about the increase in wage? Only Young will renew on the same no.

Unless we are incompetent fools, there is no way that Mata, Herrera and Shaw will get an increase in their salary.

Additionally, there is a long overdue of selling players that are surplus to requirements. Fellaini, Rojo and Darmian should lead the process, and if we can get 40-50m from them on fees (+15m/year or so savings in salary) it would mean that we can invest that money in more useful players.

Of course, the big elephants in the room are Sanchez and Lukaku. They are too valuable to sit on the bench. They should either start or be sold.

 

[cyril C]

Unless we are incompetent fools, there is no way that Mata, Herrera and Shaw will get an increase in their salary.

Additionally, there is a long overdue of selling players that are surplus to requirements. Fellaini, Rojo and Darmian should lead the process, and if we can get 40-50m from them on fees (+15m/year or so savings in salary) it would mean that we can invest that money in more useful players.

Of course, the big elephants in the room are Sanchez and Lukaku. They are too valuable to sit on the bench. They should either start or be sold.

Mata might be OK to sit on the same wage but Herrera just short on the 30th mark, highly unlikely to extend without some incentive. And Shaw will renew at the same wage, are you joking. You might as well put Sanchez in the market for 100m and hope some sucker might come in.

 

[Revan]

Mata might be OK to sit on the same wage but Herrera just short on the 30th mark, highly unlikely to extend without some incentive. And Shaw will renew at the same wage, are you joking. You might as well put Sanchez in the market for 100m and hope some sucker might come in.

They have hardly set the world on fire (they weren't even starting until recently, and Shaw spends half of the time injured), neither big clubs are going to be interested in them. Not every new contract means an automatic salary increase.

One of the worst things we have done as a club has been to overpay squad players. We match the likes of Real and Barca in wages, despite our top players don't earn anywhere as near as their top players, but our squad players earn much more than theirs.

 

[ClaytonBlackmoorLeftPeg]

Herrera and Mata won’t make more money elsewhere, so I don’t see any significant increases in wages for those two.

The big stumbling block will be length of contract, they could probably get a 3-4 year contract at other clubs, but can’t see why we would offer more than 2 years.

 

[cyril C]

They have hardly set the world on fire (they weren't even starting until recently, and Shaw spends half of the time injured), neither big clubs are going to be interested in them. Not every new contract means an automatic salary increase.

One of the worst things we have done as a club has been to overpay squad players. We match the likes of Real and Barca in wages, despite our top players don't earn anywhere as near as their top players, but our squad players earn much more than theirs.

Recruiting Medicore players is 1 thing, allowing player to lapse their contract is another. Any free agent would be able to secure 150K-200K from anywhere else, simply for their free status. IMO we should let Mata leaves for free this summer since I don't see much contribution from him, but Herrera is becoming more useful nowadays, certainly worth a modest pay rise.

 

[Revan]

Recruiting Medicore players is 1 thing, allowing player to lapse their contract is another. Any free agent would be able to secure 150K-200K from anywhere else, simply for their free status. IMO we should let Mata leaves for free this summer since I don't see much contribution from him, but Herrera is becoming more useful nowadays, certainly worth a modest pay rise.

No way that some club is paying 150-200k/week for Shaw or Herrera. They come free, but clubs have a salary structure. Give that salary to them, and then 10 other players in the club who are better than them will demand the same, or more. As you hear the rumours from De Gea and Pogba camp that they want parity with Sanchez.

 

[HackeyC]

No way that some club is paying 150-200k/week for Shaw or Herrera. They come free, but clubs have a salary structure. Give that salary to them, and then 10 other players in the club who are better than them will demand the same, or more. As you hear the rumours from De Gea and Pogba camp that they want parity with Sanchez.

Something which I find quite strange is that players expect basic wage parity in very simplistic terms. Sanchez's salary benefit from a purchase price discount of around £30m reflected by the late stage of his contract with Arsenal. That saving is effectively returned to the player through a higher salary. The underlying wage was based on what Sanchez was expected to deliver on the pitch over 4 years. The fact that he isn't delivering is irrelevant in terms of his salary.

Fictitiously, if Pogba and Sanchez were the same age, same ability and signed on the same day for the same length of contract, I would expect Sanchez to earn £18m more than Pogba over the course of that contract. This fairly reflects the better contractual position that he was in with just 1 year left.