The "official" all things Suarez thread

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jenners04 said:
accounting principles are the same in any industry you work in, only dif may be that because football clubs generally deal with larger amounts of money (ie millions not thousands) their accountants probably know better ways to show profit and loss.
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look it will appear yes on the blaance sheet but its the P&L that matters lets look at arsenal as for me they are the most open and professional club for reportig

http://www.arsenal.com/assets/_file...1380277138_Arsenal_Holdings_plc_-_Annual_.pdf


in 2013 they show on page 15

2013

Group turnover 280.4
Operating profit before amortisation, depreciation and player trading 29.6

Player trading 1.6
Amortisation of goodwill and depreciation (12.4)
Joint venture 0.9
Net finance charges (13.0)

Profit before tax 6.7

Its this profit before tax that in effect gets taxed right?

so for example... they had 29.6 mil profit in the group before all the nicities that gets to knock that down. they actually made a profit on player sales in 2013.. then made a mil on some joint venture and then have depreciation which is likely stadium or capital related and good will is a fun one to explain but that knocks off 12.4 mil and they have finance charges of 13mil to pay.

So they only have to pay tax on 6.7million pounds.

Imagine if you will LFC had such good finances... <laugh> then Imagine you throw 75mil sterling into the equation and can only spend 50mil of it.. or whatever. then the tax man coems and asks for a big chunk of the remaining 25 mil

however if you spread the load over next 2 years you can spend it as you go and targets become available... that is my theory anyway, it suits most clubs to have this system as it helps in terms of cash on hand/short term loans and it helps on the tax side too.
 
There is absolutely zero benefit in installments unless we are charging barca an outrageous interest rate. £1 now is always preferable than £1 in the future etc etc
 
i think, don't quote me on it lol, but its just how you interpret your cash flow and debtors and creditors, and that obviously has an effect on what tax you pay for the year.

i never got that advanced into accounting (although i did reconcile million pound a/c's, but that was just the tip of the iceberg as i worked in a bank, talking trillions), but its just a question of how you interpret the numbers so the tax man is the loser, but obviously done in a legal way, and clubs will have some of the best accountants around you can get considering they are dealing with large numbers.

its why ffp i dont think will work, well properly anyway, as someone will find a way round to manipulate something so it benefits the club.
 
I've never seen a football clubs accounts, but I can imagine that Player Transfers would be considered assets and included on the balance sheet rather than tax-deductible expenses. To use your example of 75m but can only spend 50m on players. If the club has made 75m as profit, it doesn't matter whether they spend 50m or all of it on player acquisitions, the taxman will want tax paid on the 75m.
 
Some confusion between balance sheet and P&L here chaps.

You pay corporation tax on the net profit declared in the accounts at the end of the financial year.

However, what you choose to put to profit from asset sales is in essence up to you. Players are classed as intangible assets and are put on the balance sheet at the purchase price, this amount is amortised (written down) over the contract length. It is the amortisation that is the cost that goes to the annual P&L. So for example if you bought a player for £10m on a 4 year contract, you'd amortise his asset value @ £2.5m per annum.

If you sold that player 2 years into his contract for say £20m, then he'd sit on your balance sheet at £5m at that point and you'd in theory be making a £15m profit on his sale. However, during the same period you will have bought and sold other players and will be amortising their contracts in the same financial period, so it is far too simplistic to say that the £15m is 'net profit. as it isn't, it's merely a balance sheet adjustment.
 
Lucas Talking said:
I've never seen a football clubs accounts, but I can imagine that Player Transfers would be considered assets and included on the balance sheet rather than tax-deductible expenses. To use your example of 75m but can only spend 50m on players. If the club has made 75m as profit, it doesn't matter whether they spend 50m or all of it on player acquisitions, the taxman will want tax paid on the 75m.
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Do you reckon transfers are plus VAT? EG...if a club has to pay £75m for a player, its actually £75m+VAT? If they were done in this way then the buying club can claim the VAT back and the selling club gets their fee plus the VAT so aren't out of pocket.
 
Gerrez said:
Do you reckon transfers are plus VAT? EG...if a club has to pay £75m for a player, its actually £75m+VAT? If they were done in this way then the buying club can claim the VAT back and the selling club gets their fee plus the VAT so aren't out of pocket.
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If it's between 2 British clubs then VAT will be chargeable imo. But it'll be reclaimed anyway so it's irrelevant really.

There's a 5% levy by the FA on all transfers though
 
Tobes said:
If it's between 2 British clubs then VAT will be chargeable imo. But it'll be reclaimed anyway so it's irrelevant really.

There's a 5% levy by the FA on all transfers though
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Pretty much my point Tobes <ok>

The 5% on £75 is £3.75m. Bit **** that they get to spunk all that up the wall...<doh>
 
Gerrez said:
Do you reckon transfers are plus VAT? EG...if a club has to pay £75m for a player, its actually £75m+VAT? If they were done in this way then the buying club can claim the VAT back and the selling club gets their fee plus the VAT so aren't out of pocket.
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Someone far more knowledgeable than I, on another website, posted this in response to how transfers work and where money is spent:
The buying club pay:
(a) Transfer fee - the big number.
(b) Any levy applied by the local FA &#8211; 5% for the EPL.
(c) Tax due on the transfer fee &#8211; typically this will be VAT (at varying rates across Europe) some or all of which should be reclaimable.
(d) Agent fees &#8211; this may be to one or more agents (as an example, Liverpool have spent £25M plus VAT on agent fees over the past three years leading to this window).
(e) Tax due on the agent fees &#8211; typically this is VAT at the local rate where the agent bills from &#8211; it is not reclaimable.
(f) Intermediary fees &#8211; this may be to one or more sponging leeches.
(g) Tax due on the Intermediary fees &#8211; typically this is VAT at the local rate where the Intermediary bills from &#8211; it is not reclaimable.
(h) Signing on fee to the player (possibly including non-reclaimable VAT if the player is VAT registered).
(i) Legal fees.
(j) VAT on legal fees which is reclaimable.
(k) Moving/relocation costs for the player.
(l) VAT on moving/relocation costs which is reclaimable.
(m) Paying up insurance costs to the selling club (sometimes waived).

What is paid by the selling club would typically include:
(a) If the player is under 24, a Solidarity contribution paid to his previous clubs responsible for his training - this is 5% of the transfer fee received.
(b) Any monies owed to the player if he did not request a transfer &#8211; again this is 5% of the transfer fee received.
(c) Any monies owed to the player in terms of his contract (typically outstanding owed wages (not future wages) and bonuses).
Source, http://www.liverpool-rumours.co.uk/search.php

Basically, what is quoted in the papers is nowhere close to what is actually spent.
 
http://tomkinstimes.com/2014/07/ffp-and-the-amortisation-of-suarez/

Suarez, Liverpool’s Potential £70m+ Profit and Financial Fair Play

With Luis Suarez now close to moving to Barcelona for a reported £70-80m, this piece aims to shed light on how clubs account for the sale and purchase of players and why it is important for Financial Fair Play (FFP) compliance. I have previously written on the value of the David Luiz transfer to PSG which can be accessed here (http://www.danielgeey.com/football-amortisation-chelseas-50m-luiz-profit/). Parts of that blog are republished here to explain the transfer amortisation accounting process.

How purchasing clubs account for their spending

In sexy accounting speak [that's what we call a deliberate oxymoron ;) - Ed], “when a player is purchased, his cost is capitalised on the balance sheet and is written-down (amortised) over the length of his contract.” In layman’s terms, transfer fees for accounting purposes are spread over the length of a player’s contract. If we take Barcelona’s proposed purchase of Suarez as an example, £75m over a five-year contract is amortised by a club in its accounts to the value of £15m per season.

A transfer occurring in the summer after the 2013-14 season (depending on Barcelona’s accounting year-end) will have an impact on a club trying to break-even for FFP purposes in subsequent seasons. As noted above, Barcelona will amortise Suarez’s transfer fee over the length of his contract. If we assume a 5-year contract, Barcelona will have four further £15m amortisation charges in their 15-16, 16-17, 17-18 and 18-19 accounts. All of those amortisation costs will have FFP significance.

How selling clubs account for their Income

The other important amortisation issue is the accounting procedure when a player is sold. On this topic I defer to the Swiss Ramble who uses the ex-Manchester City player Robinho as an example:

“[H]e was bought for £32.5 million in September 2008 on a four-year contract, so annual amortisation was £8.1 million. He was sold after two years, so cumulative amortisation was £16.2 million, leaving a value of £16.3m in the books. Sale price to Milan is reported as £18 million, so City will report a profit on sale of £1.7 million in the 2010/11 accounts. Therefore, City will show an annual profit improvement of £18.1 million after this deal: £8.3 million lower wages + £8.1 million lower amortisation + £1.7 million profit on sale.”

This demonstrates how clubs write-off the transfer value of a player over the life-time of their contract and also illuminates that because Robinho was worth £16.3m two years into his four year deal, Manchester City actually made an accounting profit on his transfer of £1.7m. Fans would see the sale of a player for £18m bought two years previously for £32.5m as bad business. The club in their accounts will class it as a £18.1m profit improvement.

Potential Suarez profit for Liverpool

Liverpool originally purchased Suarez on a 5.5 year deal from Ajax in the January 2011 transfer window for a reported £22.8m. Suarez’s transfer fee was amortised to around £4.1m annually (£22.8m / 5.5 years).

Suarez then signed a (presumed) new 5-year contract in August 2012. The remaining book value of the transfer fee at the time of his new deal was £16.65m as around 1.5 years of the original transfer fee (£6.15m) had been amortised. Therefore £16.65m amortised over the new 5-year deal meant a new amortisation cost of £3.33m per season.

Then in December 2013, he signed a new 4.5 year deal. Almost 1.5 years of his re-amortised total figure of £16.65m had been amortised which reduced his total unamortised value by £4.99m (£3.33m x 1.5 years) to £11.66m His annual amortisation cost became £2.57m (£11.6m / 4.5 years) or £214,000 per month.

If you are still with me (!), depending on the exact figures that Barcelona are willing to pay for Suarez, an initial conservative £70m transfer fee minus the remaining £8.89m (£11.6 – £1.71m) which is 8 months further amortisation (£214,000 x 8 months December ’13 to July ’14 inclusive) gives Liverpool a total accounting profit on the Suarez sale of £61.11m. Therefore, with £9.6m in lower wages [1], £2.57m lower amortisation costs and £61.11m estimated profit on the sale, Liverpool may show an annual profit improvement of around £73.2m.

FFP Compliance

As readers of the TTT will be well aware, as Liverpool did not participate in UEFA club competition in the 13-14 season, they did not need to submit a license application and its accounts to UEFA for FFP break-even purposes. However, as Liverpool will play in the 14-15 Champions League competition, UEFA will be assessing Liverpool’s accounts for the very first time for break-even compliance.

By way of brief recap, FFP break-even rules will start to bite from the 2013-14 season. The rules need to be borne in mind however from the 2011-12 season onwards because the 2011-12 and 2012-13 season accounts are used to determine a club’s licence application in the 2013-14 season.

Acceptable deviation is the term used to describe break-even. Acceptable deviation allows clubs to pass the FFP break-even test without actually breaking even. The acceptable deviation provisions allow a club with some losses over a certain number of seasons to ‘break even’ and therefore pass the FFP regulations. The below table sets this out.

Explanation Table for Acceptable Deviation

Acceptable Deviation Levels
Monitoring Period Number of Years Years Included Acceptable Deviation (€m)
T-2 T-1 T Equity Investment Non Equity Investment
2013-14 2 N/A 2011-12 2012-13 45 5
2014-15 3 2011-12 2012-13 2013-14 45 5
2015-16 3 2012-13 2013-14 2014-15 30 5
2016-17 3 2013-14 2014-15 2015-16 30 5
2017-18 3 2014-15 2015-16 2016-17 30 5
2018-19 3 2015-16 2016-17 2017-18 <30 5
The table shows that the acceptable deviations (i.e. losses) vary quite considerably. The first point to stress is that if an owner does not put any money into a club by way of cash for shares, each club’s acceptable deviation (loss), by reference to the last column in the table, is a mere €5m over three years (i.e. €1.3m per season).

Suarez celebration

For the 2013/14 season when the FFP rules come into force, an owner can inject up to €45m over two seasons to cover the losses of the club. After the 2013-14 season an owner can on average exchange only €15m worth of cash for shares each year to spend on transfers and wages. That figure is reduced to €10m per season (€30m over three seasons) for the 2015-16 season. Should a club wish to pass the FFP break-even requirement, and it makes for example a €35m combined loss for the first monitoring period (13-14), the owners will have to inject €35m worth of equity into the club. If they do not, that club will breach the rules.

The CFCB has the power to sanction clubs for breaches of the FFP rules. Such sanctions include a reprimand, a fine, withholding of prize monies, points deductions, refusal to register players for UEFA competition, reducing a club’s permitted squad size, disqualification from competitions in progress and/or exclusion from future competitions. As has been seen lately, clubs like Manchester City and PSG among others have been severely sanctioned with salary freezes, transfer and squad size reductions as part of UEFA’s settlement agreement with nine clubs.

As such, based on the above table, Liverpool will submit their 11-12, 12-13 and 13-14 accounts for the 14-15 monitoring period. The club will only be allowed to make a maximum loss of €45m. Should the club exceed that limit, UEFA has the power to sanction the club accordingly. As Liverpool were not in the 2013-14 Champions League or Europa League competition, they were not obliged to submit their accounts to UEFA. It is likely by early Spring 2015, that UEFA will have received the three years’ worth of accounts and will then take a decision on whether to investigate the club further. It is worth noting that all three accounting years submitted to UEFA relate to periods the club was not in the Champions League.

As a result of the likely Suarez deal, such profit will no doubt put Liverpool in a stronger position to spend big this summer, but as Liverpool’s accounting year end is 31 May, transfer revenue from the Suarez deal will only appear in the club’s 2014-15 accounts thus not one of the periods (i.e. 11-12, 12-13 and 13-14) that UEFA will use to assess the club for FFP break-even purposes during the upcoming Champions League campaign. Therefore, the large transfer profit will not directly help Liverpool comply with UEFA’s break-even requirement in their first season back in the Champions League.

[1] Assuming £200k a week equalling around £9.6m per year.
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Tobes said:
Some confusion between balance sheet and P&L here chaps.

You pay corporation tax on the net profit declared in the accounts at the end of the financial year.

However, what you choose to put to profit from asset sales is in essence up to you. Players are classed as intangible assets and are put on the balance sheet at the purchase price, this amount is amortised (written down) over the contract length. It is the amortisation that is the cost that goes to the annual P&L. So for example if you bought a player for £10m on a 4 year contract, you'd amortise his asset value @ £2.5m per annum.

If you sold that player 2 years into his contract for say £20m, then he'd sit on your balance sheet at £5m at that point and you'd in theory be making a £15m profit on his sale. However, during the same period you will have bought and sold other players and will be amortising their contracts in the same financial period, so it is far too simplistic to say that the £15m is 'net profit. as it isn't, it's merely a balance sheet adjustment.
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thanks tobes.

There are different methods for sure. For example the arsenal do put the amortisation over time on balance sheet but also profit on the trades within the year on P&L http://www.arsenal.com/assets/_file...1380277138_Arsenal_Holdings_plc_-_Annual_.pdf page 30,31.

so would you say that the one transfer, in this case suarez could

a) appear as a total profit or loss on trading within the financial year e.g. Profit on disposal of player registrations. would it be in your view all player sales in period - all player purchases in period OR profit on suarez registration only?
b) the 23mil paid by lfc in 2011 could still be being "paid down" via amortisation. could be only a quart fo this left for example
c) the resulting payment to LFC would then or not be included in "Intangible fixed assets" as the value of players as this would not longer be our value but coudl be on debtors within one or more years as that type of asset?
 
thanks also to sir red. The player pruchase end is clear on amorisation over the period and the red per giving new longer contracts allows the amortisation of the fee to go over longer period and lower amounts.

the selling club proift with an installment system is not so clear.

for example

"depending on the exact figures that Barcelona are willing to pay for Suarez, an initial conservative £70m transfer fee minus the remaining £8.89m (£11.6 &#8211; £1.71m) which is 8 months further amortisation (£214,000 x 8 months December &#8217;13 to July &#8217;14 inclusive) gives Liverpool a total accounting profit on the Suarez sale of £61.11m. Therefore, with £9.6m in lower wages [1], £2.57m lower amortisation costs and £61.11m estimated profit on the sale, Liverpool may show an annual profit improvement of around £73.2m.2

this assumes you take 70million and subtract the remaining value of suarez on our books and come up eith a total profit of 66mil lets elave it at that as wages and amortisatino hit different elements of the P&L.

wages hit operating expanses for example

my question/point is the incoming money this year is say oh i dunno 45million. therefore the P&L has to show profit on the trade of 45- this 8.89 (if you take it as read) therefore LFC can say 36.11mil profit... lets see how much we can offset... eg. lallana over 5 years = 5mil amortised this year? can = whatever etc etc... THEN the next 30mil of the fee could be paid in installments and come in each year.

But surely this is taxable profit and must be in P&L, no?
 
Doesn't FFP only look at the last three seasons? If we get a lump some as expected, do we have to spend it all within that three years or can it be carried over still?
 
moreinjuredthanowen said:
thanks tobes.

There are different methods for sure. For example the arsenal do put the amortisation over time on balance sheet but also profit on the trades within the year on P&L http://www.arsenal.com/assets/_file...1380277138_Arsenal_Holdings_plc_-_Annual_.pdf page 30,31.

so would you say that the one transfer, in this case suarez could

a) appear as a total profit or loss on trading within the financial year e.g. Profit on disposal of player registrations. would it be in your view all player sales in period - all player purchases in period OR profit on suarez registration only?
b) the 23mil paid by lfc in 2011 could still be being "paid down" via amortisation. could be only a quart fo this left for example
c) the resulting payment to LFC would then or not be included in "Intangible fixed assets" as the value of players as this would not longer be our value but coudl be on debtors within one or more years as that type of asset?
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The net profit from the sale would be the total fee minus charges, minus the remaining asset value on the balance sheet for him.

If the fee wasn't all paid in one lump, the calculation of the profit would remain the same, but the outstanding amount of unpaid fee would go into your debtors section of the balance sheet.

In terms of the declared net profit, it's the profit from the entire periods player trading / amortisation that matters, not the single transaction, so without knowing what you had / will have due during the full financial year it's impossible to quantify.

Given you're going to have spent more than the fee received during the period anyway, combined with what you've spent in recent seasons, the conversation is probably moot, as it's highly likely that there'll be no net profit when it's all collated.
 
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