A lot has been said about Leeds United players with relegation loan clauses in their contracts, most of it negative bull peddled by Leeds-hating media and social media trolls designed to divide the club and thwart a promotion campaign ... what has been surprising, and very disappointing, is Denial Farke jumping on the bandwagon and using it as an excuse before the season's fkn started
So let's have a look at why the relegation loan clauses exist
Yes, it can be a good thing for players as it gives them the opportunity to continue to play at a higher level, especially good if they are internationals wanting to get into national squads for tournaments ... nothing wrong with that at all, even if it means Leeds lose them for a season at least
Now let's look at it from the club's point of view ... the first issue Leeds had to confront upon relegation was loss of revenue, a minimum of £50m that creates financial problems immediately
The second issue is around player values and FFP, and let's be clear that FFP in the EFL is a very real threat that needs to be taken care of ... this means that simply selling off players isn't actually an option ... yes, it sounds crazy but there's a reason for this, AMORTISATION
I'll try and explain it using Aaronson as an example ... Leeds signed Aaronson for £25m on a five year contract ... his value is amortised over the five years a £5m loss in value a season ... if after one season Leeds sell him for £15m because his value has dropped because of relegation, there's a £10m loss that goes against FFP, so better to loan him and only show a £5m amortised loss
So let's say Aaronson stays out on loan for a second season, Leeds show another £5m loss and his value drops to £15m on the books ... Aaronson has a great season and Union Berlin make it to Champions League ... now they have money and decide to buy Aaronson for £30m to keep him as part of their squad ... now Leeds have a £15m profit to go against FFP and it's all good ... if Aaronson didn't do that well on loan and Leeds sold him for £15m, then at least the books are balanced
The good thing about a loan clause is it helps to get the player's wages off the books, so a player on £50k a week will save the club around £2m that season, a fair chunk towards FFP
Add on a loan fee of £1m on (a very low) average per player per season and suddenly eight loans turns into at least £24m towards FFP ... how on earth is this bad business for a relegated club needing to cut it's cloth accordingly?
Yes, it can interfere with sorting the squad out, but you can only loan out or sell players that other clubs actually want or are willing to pay the asking price for ... Leeds lost a lot of bargaining power once relegated, and the loans actually helps the club to get wages off the books without losing money on selling players below value
Leeds don't actually need the hard cash in the bank for player sales that come with a big loss in value, they need the smaller amortised losses to help towards FFP ... it may sound silly, but this is how I understand it
If there's an accounting brain out there who wants to do a deeper dive into FFP and it's rules, please do
So let's have a look at why the relegation loan clauses exist
Yes, it can be a good thing for players as it gives them the opportunity to continue to play at a higher level, especially good if they are internationals wanting to get into national squads for tournaments ... nothing wrong with that at all, even if it means Leeds lose them for a season at least
Now let's look at it from the club's point of view ... the first issue Leeds had to confront upon relegation was loss of revenue, a minimum of £50m that creates financial problems immediately
The second issue is around player values and FFP, and let's be clear that FFP in the EFL is a very real threat that needs to be taken care of ... this means that simply selling off players isn't actually an option ... yes, it sounds crazy but there's a reason for this, AMORTISATION
I'll try and explain it using Aaronson as an example ... Leeds signed Aaronson for £25m on a five year contract ... his value is amortised over the five years a £5m loss in value a season ... if after one season Leeds sell him for £15m because his value has dropped because of relegation, there's a £10m loss that goes against FFP, so better to loan him and only show a £5m amortised loss
So let's say Aaronson stays out on loan for a second season, Leeds show another £5m loss and his value drops to £15m on the books ... Aaronson has a great season and Union Berlin make it to Champions League ... now they have money and decide to buy Aaronson for £30m to keep him as part of their squad ... now Leeds have a £15m profit to go against FFP and it's all good ... if Aaronson didn't do that well on loan and Leeds sold him for £15m, then at least the books are balanced
The good thing about a loan clause is it helps to get the player's wages off the books, so a player on £50k a week will save the club around £2m that season, a fair chunk towards FFP
Add on a loan fee of £1m on (a very low) average per player per season and suddenly eight loans turns into at least £24m towards FFP ... how on earth is this bad business for a relegated club needing to cut it's cloth accordingly?
Yes, it can interfere with sorting the squad out, but you can only loan out or sell players that other clubs actually want or are willing to pay the asking price for ... Leeds lost a lot of bargaining power once relegated, and the loans actually helps the club to get wages off the books without losing money on selling players below value
Leeds don't actually need the hard cash in the bank for player sales that come with a big loss in value, they need the smaller amortised losses to help towards FFP ... it may sound silly, but this is how I understand it
If there's an accounting brain out there who wants to do a deeper dive into FFP and it's rules, please do
