Fifa financial rules

Just a thought

Is there anything to stop the Man City owner going out and ordering 1,000,000 Man City shirts from the club shop and then counting that as revenue generated by the club?

 

I had almost this exact thought. There'll be some loophole, I mean its a rich guy + a corrupt organisation.

 

I read that they will check things properly to prevent stuff like that happening (or more things like sponsorship deals etc.) but I guess time will tell if they actually properly enforce these rules

 

I would have thought that it would not be allowed.

Within the regulations of the OECD (Organisation for Economic Co-operation and Development) there are rules against something called "transfer pricing". This refers to the practice of goods, services, property or moneys being transferred from one party to another for the benefit of effecting the profit or taxability of one of the parties.

Haven't read the FIFA regs but I would be amazed if there are not similar regulations within it. If so it would mean that clubs and owners could not set up bogus income streams from commonly owned companies purely for the benefit of transfering income/revenue to the club.

I could be wrong, but it is a good question because if the regs do not stop this then the chances of the fairplay rules actually working as planned would be hit very hard.

I will make it a project of mine to read up on the regs if I can get them and will let you know what I find.

 

I remember reading somewhere about this, like the possiblity of selling corporate boxes to there own companies for stupidly expensive prices or even selling them to other companies and creating some sort of crazy paper trail back to themselfs.

the owners are rich and can find ways to get away with it aswell, we just have to hope fifa put a good system in place to keep track *worried face*

 

Agree with Smudger
suppose we will have to wait and see but with the FIFA you cant take anything for granted.

 

I was thinking about it because if it works how Fifa want it to then we could be one of the teams that really benefits from it.

 

Right guys just read all 91 pages of the FIFA Financial Fair Play rules so I will get this out before I fall asleep.

Firstly there are far too many relevant points for me to copy them all here so I will just summarise my thoughts and will suggest that anybody who is interested enough and has a high boredom threashold might want to read the whole thing. Link here: http://www.uefa.com/MultimediaFiles/Download/Tech/uefaorg/General/01/50/09/12/1500912_DOWNLOAD.pdf

Main points that I have found;
1 Accounting Assessment - I think the rules are pretty comprehensive. They seem to cover all the main points you would expect and hope to see. The accounting standards are specified and the relevant quotes to International Financial Review Standards (IFRS's) are included.

2 Auditing - The returns from clubs will have to be audited by auditors appointed by FIFA. Anybody familiar with the Andersons fiasco will be happy with this.

3 Related Party Transactions - There are specific clauses stipulating that all related parties have to be disclosed. Furthermore all transactions made between the club and related parties have to be disclosed and also have to undergo review to ensure that they are made at "fair value". This means that income has not been paid at above market value and expenses charged at below market value. Where this occurs the extra income must be deducted or additional expenses added as appropriate. (More on that later).

4 Calculation of the Break-even Result - Here is a copy of it for those interested. I have highlighted the clauses relevant to (3) above.

ANNEX X: Calculation of the break-even result
A. Summary of the calculation of the break-even result
1. The break-even result for a reporting period is calculated as relevant income
less relevant expenses (see Article 58).
2. Relevant income is equivalent to the sum of the following elements (detailed in
part B):
a) Revenue – Gate receipts
b) Revenue – Sponsorship and advertising
c) Revenue – Broadcasting rights
d) Revenue – Commercial activities
e) Revenue – Other operating income
f) Profit on disposal of player registrations (or income from disposal of player
registrations)
g) Excess proceeds on disposal of tangible fixed assets
h) Finance income

Relevant income is decreased if the elements a) to h) in paragraph 2 include any
items below (detailed in part B):
i) Non-monetary credits
j) Income transaction(s) with related party(ies) above fair value
k) Income from non-football operations not related to the club

3. Relevant expenses are equivalent to the sum of the following elements (detailed
in part C):
a) Expenses – Cost of sales/materials
b) Expenses – Employee benefits expenses
c) Expenses – Other operating expenses
d) Amortisation/impairment of player registrations and loss on disposal of player
registrations (or costs of acquiring player registrations)
e) Finance costs and dividends
Relevant expenses are increased if the elements a) to e) in paragraph 3 include
the item below (detailed in part C):
f) Expense transaction(s) with related party(ies) below fair value.

Relevant expenses are decreased if the elements a) to e) in paragraph 3 include
any items below (detailed in part C):
g) Expenditure on youth development activities
h) Expenditure on community development activities
i) Non-monetary debits/charges
j) Finance costs directly attributable to the construction of tangible fixed assets
k) Expenses of non-football operations not related to the club

5 Notes to explain clauses above;

j) Income transaction(s) with related party(ies) above fair value

For the purpose of the break-even result, the licensee must determine the
fair value of any related party transaction(s). If the estimated fair value is
different to the recorded value then the relevant income must be adjusted
accordingly, bearing in mind, however, that no upward adjustments can be
made to relevant income.

Examples of related party transactions that require a licensee to demonstrate
the estimated fair value of the transaction include:
• Sale of sponsorship rights by a club to a related party;
• Sale of corporate hospitality tickets, and/or use of an executive box, by a
club to a related party; and
• Any transaction with a related party whereby goods or services are
provided to a club.

Examples of related party transactions that must be adjusted because they
must always be excluded from relevant income are:
• Monies received by a club from a related party as a donation; and
• Settlement of liabilities on behalf of the club by a related party.
Contributions from a related party may only be taken into consideration in the
determination of the acceptable deviation (as defined in Article 61) as part of
the assessment of the break-even requirement, as further described in part
(D) of this annex.
The definitions of related party, related party transactions and fair value of a
related party transaction are provided in part (E) of this annex.

f) Expense transaction(s) with related party(ies) below fair value

For the purpose of the break-even calculation, the licensee must determine
the fair value of any related party transaction(s). If the estimated fair value is
different to the recorded value then the relevant expenses must be adjusted
accordingly, bearing in mind, however, that no downward adjustments can be
made to relevant expenses.
For additional definitions of fair value of related party transactions refer to
part (E) of this annex.

e) Finance costs and dividends

Finance costs include interest and other costs incurred by an entity in respect
of the borrowing of funds, including interest on bank overdrafts and on bank
and other loans, and finance charges in respect of finance leases.
Dividends are distributions to holders of equity instruments. If dividends are
recognised in the financial statements then, regardless of whether the
dividends are presented in the profit and loss account or an alternative
statement, the amount of dividends must be included as relevant expenses.

6 Conclusion: So where does this leave us?

I think the primary rules and regs are in place and the auditing procedure is outlined. It will largely come down to does FIFA and its Auditors have a greater will and ability to enforce than the Club Owners and their Creative Accountants to find ways around the rules?

Personally I think they will find some loopholes but the main ones will be covered by the rules as they stand. I am most concerned that they may find ways to reduce their wage bills by striking individual endorsement deals with players to reduce the amount of the salary that the club itself has to pay. This may be covered by the rules under player registration though so I may be concerned for nothing.

Note re Owner gifts of capital. There are regs (mentioned above) that state the if the owner gifts money to the club, that money will not count towards the break even calculation so it cannot be used to enable the club directly to break even. However, it does not say the the Owner cannot give the money. All expenses relating to Tangible Assets such as Stadium and Training Facilities are not included in the calculation so there would be nothing to stop and owner gifting the money necessary to build a massive new stadium or to invest in other money making capital ventures such as the Highbury Property Development. Although I think the expenses involved in building a non-football related property would be taken into account so it would impact on the calculation until the project was up and running and the income flowing.

I need time to think about the full implications of what I have read to be honest but I hope I have given you food for thought. I'll post any more thoughts as I get them.

Sorry for the long and boring read!!

 

Didn't really understand that much (from a quick scan of what seemed interesting) but have some (admittedly a tiny amount) rep for the frankly ridiculous effort!

 

Cheers Donkey Toon, didn't understand everything but your commentry helped!

People much smarter than us will probably find ways around it but from what you've said these rules are very promising. Although it doesn't look like it will stop the teams the teams at the top staying there and the teams at the bottom never challenging which is the biggest problem in most of the top leagues.

 

I read "auditors appointed by FIFA" and lost all faith.

 

Haha ... that is actually a good thing!

In the real world auditors are appointed by the company they are auditing. But auditing companies are a business and therefore need to keep their clients sweet in order to guarantee repeat business. It means that the objectivity of the auditor is compromised by their willingness to give the client a favourable report so that they will get the gig again the following year.

If FIFA is the appointer then they can be fully objective and will therefore do a better job of making sure that the regs are being followed. In fact they will be more likely to bow to pressure from them, which could well be to make sure that the big clubs they don't like don't get away with anything.

 

One thing I meant to put in my long boring post but forget by the time I got to the conclusion.

There is one stipulation that will go against us as it stands. The ruling on "expense transactions with related parties below fair value" makes reference to finance costs. As it stands at the moment we have considerable loans from MA which are interest free.

As I understand it this would fall foul of this rule so for the benefit of the "break even calculation" we would have to add an interest charge expense calculated to reflect the cost we would have incurred had we borrowed this from a bank or other loan provider (i.e. fair market value interest rate). Note: this doesn't mean we actually have to pay anything to MA we just have to add back in a value to the break even calculation to reflect it. Thereby meaning that our expenses will increase and it will make it harder to break even.

This means that there is a definite need for NUFC to, over a period of time, clear the debt owed to MA and therefore is very relevant to our discussions about whether the £35m will or should all be spent.

 

does that mean MA can add a interest of just say 0.1%

 

Nope. The base interest rate specified by the Bank of England is currently 0.5% but of course Banks add a number of points (known as basis points to this). I would think that the auditors would probably insist on something like 2.0% over base, or even higher, so i'm thinking we would probably have to calculate in a minimum of 2.5% interest on the loans.

Now obviously that is actually very low at the moment so it would be in the clubs best interests to clear this debt whilst the interest rates are the lowest we have had pretty much since the Great Depression. If the interest rates start to go back to the levels of before the crisis in 2008 then we could before long be paying upward of 5% on these loans.

 

Mike Ashley might lend NUFC many millions of £££s at 0%, but he wouldn't lend it to me at any price.
____________________________________________________________________________________

I don't know why not Sid, I would!

 

And if like me Sid you have had dealings with auditors there is a great deal of negotiation and/or argument before audit reports and the required changes are signed off on.

I am sure though that the auditors will be mandated to focus alot of their attention on the related party clauses because they are the ones which will be open to abuse and FIFA do have an agenda here which goes beyond standard financial regulations.

 

Thanks for reading and summarising it DT! I tried googling it a few weeks back but there's no articles summarising like you did.. you should send it into a football website that lets people write articles
Failed rep but I'll remember next time

 

It's amazing what crossing somebody's palms with silver can do.