Saints are 'increasingly hopeful' on Victor Wanyama signing a new deal at St. Mary's

But if you're going to argue that it's a shell game, and actually funded by player sales, you have to show that Player Y was actually sold. Where are the many tens of millions of pounds worth of players that West Ham sold? Who are they, and where did they sell them to? Because the only ones for whom I can find a record are Diame, Downing and Jarvis, who combined were sold for about the same amount they spent on Payet alone, and they have bought about a dozen other players over that span, for more than five times the transfer fees overall.

 

Ah, realized part of the problem. "Profit on player sales" =/= difference between players sold and players bought. It's an accounting metric which has importance in terms of FFP (where it is an offset) but doesn't actually reflect the amount of money taken in and sent out in transfers in a given year, because the 'profit' is the player's initial purchase price, less whatever has been amortized over the course of their contract, compared against their sale price. Academy products/players acquired via free transfer are valueless on the books until they are sold. Thus, as an example, our profit on player sales rather much exceeds our actual net transfer spend, because we sold several players who were worthless for an awful lot of money.

From the same link:

 

Right.

West Ham is the exception, because of their ridiculous stadium windfall.

They probably are taking losses right now. But they are using amortization to write off their transfer spending over several years. So like, instead of being down -30m for transfers the year they spent on them, they are instead down only -5m in transfers each for the next 6 years.

So in real life, you could say they are 30m in deficit. But on their financial statements, they're just spreading the losses out/pushing them forward. So even though it is debt, it doesn't show up as debt.

The trick for West Ham though, is that when those expenses start to actually show up on paper in a few years and it would start to look really bad for them, they will already be in their shiny new stadium making crazy amounts of money so it will be no big deal.

Which is I guess somewhat fair in a way. Because West Ham really isn't in much financial trouble despite their net transfer spend out. They're not really in debt and can totally pay everything. But then, it's totally unfair because the reason they aren't really in debt is because they have a guaranteed windfall coming to them.

 

But where rubber meets road between accounting treatment and debt accrued is in the published total of money they owe to creditors, and cash on hand. And that's flat...it's true that they owe a fairly substantial sum in transfer payments down the road, but the same thing was true two years ago, and there's no indication of it catching up to them as a debt bomb.

Worth noting: we're the opposite. As of the last published accounts, we were owed quite a bit more in future transfer money than we owed. That shift over the past couple years is a large part of the reason our debt has increased while making large profits.

 

I could be wrong, but I thought that Gold and Sullivan paid off their debt. Otherwise West Ham might already be in administration. When they bought the team, they got rid of a lot of big wage earners, paid off what was owed to various creditors, and restored the club to fiscal stability.

So it's like they started with a clean slate at that point with all debts off the books, allowing them to buy players and push the costs down the road. But to avoid that debt bomb from piling up they should be on a smaller budget than they are. Except for the stadium. If for some crazy reason, that stadium got taken away, then West Ham would be in trouble all over again in a few years.

But that's not going to happen. So West Ham is actually fiscally stable, they're just spending part of their inheritance before they get it. Which is not a problem because they are pretty much guaranteed to get it. They've included that revenue stream in their planning.

 

http://swissramble.blogspot.ca/2015/11/west-ham-new-gold-dream.html

Looks like that original debt is simply now owed to Gold and Sullivan, rather than it being converted to equity. It never left the books. Their debt jumped in the Championship and their first season back, as one would expect, and the net debt has declined since.

And whether they're planning on that money or not isn't really germane to the fact that they are stable on current income, despite spending way more in transfer fees than they are paying out. That is true for a lot of clubs, and it is true for us as well; a large portion of our debt simply owes to the fact that we built a (badly overbudget) training ground, but by all indications we're not going to be undertaking any big infrastructure projects.

And come next season, having a 1:1 ratio of transfer fees paid to transfer fees received would mean not merely being financially stable, but being exceptionally profitable. Fixed costs are fixed, and wages haven't been rising commensurate to income (check the wages to turnover ratios teams are sporting this year versus, say, 2010). Keep transfers at a net of zero and you'll be swimming in cash.

 

Looking at West Ham's statement, Gold and Sullivan have pumped in 49m, the bulk of it when they first took over.

Presumably that debt went to pay off transfer/wage related stuff, and between that and getting rid of their high earnings that is why their player amortization went way down in 2011-12.

Now it's rising again, rapidly. So all that amortization is going to hit them a couple of years down the road.

Saints won't have a 1:1 ratio next year. They will probably take the extra TV revenue and spend it on transfers. My point is that so will everyone else. So all that extra spending won't actually improve the club relative to other teams. We have 20m or whatever more to spend on players but so will the teams we compete against, so the result will just be a bidding war and rising transfer costs and inflation. You are talking about raw purchase $ (or pounds). I'm talking about purchasing POWER.

To me, that's what those charts are showing. The relevant ratio is not net transfer in vs net transfer out. It's net transfer spend vs profit.

Most teams are relatively even in net transfer spend or slightly ahead. And most teams are at break even or slightly ahead. So if everyone gets more revenue, everyone just spends more.

So yeah, we will have more money to spend this summer. And we'd better spend it or we fall behind. That's just inflation.

As a long term strategy for improving the club's standing though, we have to spend comparatively more than others (or purchase better but that's a different can of worms). Which means we need to have a revenue source they don't. And since we are not getting a windfall of a new stadium, and we can only expect our marketing revenue to increase incrementally over time, and it's unlikely we finish higher in the table than we did last year... the only other source of revenue is player sales.

Most teams are going to be in the same boat. They'll get more TV money. Most won't finish that much higher or lower (and the ones that do will even each other out). Most aren't getting or expanding stadiums. Most are not going to take a massive leap in terms of supporter base.

You can look at us as an example. We've increased our revenue maybe more than any other club due to promotion, exciting play/press, bettering our record each year, etc. And even after all that, we are still heavily reliant on transfer revenue to make profit.

It's on that Swiss Ramble site (which I love). "Without these profitable sales, Southampton would have reported losses of £32 million."

So, we basically may have some extra money to spend this year because of previous player sales (if we don't pay down the debt). But going forward, how much we have to spend is still going to be heavily based on how much we generate from selling players/getting wages off the books.

 

The amortization might hit them in paper losses, but what ultimately matters in terms of their financial well-being is whether or not they have more money going out than coming in. And that's very stable; they have something like 5m more in owed transfer fees than they did a couple years ago, but their debt has declined by about the same. They're in very good shape, particularly given how dire their situation looked a few years ago, something that is mentioned by Swiss Ramble in that article.

Okay, that's a very different thing than I believed we were talking about.

However, I fail to understand how selling our better players increases our purchasing power, which is what touched this off.

No, they aren't relatively even in net transfer spend. The median net spend from the start of the 2014-15 season was £40m. Newcastle was at £62m. Everton sits at £51m. West Brom at £45m. Palace at £41m. Leicester at £40m. Sunderland at £28m. Bournemouth at £24m. Watford at £19m. Villa at £16m.

Every team but five have a very significant deficit. There's Spurs, who look likely to depart from the grouping soon. There's Stoke. There's Norwich, who spent last season in the Championship and thus aren't the best point of comparison. There's Swansea, the only other team with a net transfer surplus, at -£3m. And then at -£26m, £23m removed from the nearest competition in that department, you'll find us. We're the outlier. We're miles away from the clubs who are miles away from the median. Even if this doesn't account for Austin, we're still well beyond any other club.

We would have recorded large losses, yes. However, guess what the figure for infrastructure spending (mostly on the training ground) was for the period of 2013-15? £32 million! We are not going to be building a succession of other training grounds going forward. Consequently, that expenditure, while absolutely real and meriting inclusion, also paints a somewhat less than accurate image of the sort of year-to-year financial results we can expect.

And again, that was also while simultaneously shifting our future transfer fees owed by about £35m in the past year and a half. That's money that doesn't yet show up in the books.

 

But you're saying that we took the money from player sales (32m) and put it into the training ground (32m). Therefore we kind of zero'ed out and don't have a ton of liquid cash in reserve.

So going forward, our revenue has not increased. Rather it is that our expenses have decreased. So the revenue stream that was going into the ground can go somewhere else. That somewhere else is player acquisition. So yes, we could increase out spending on players quite a bit given the same revenue stream.

But where was that revenue stream coming from? Player sales. All that is happening is that instead of using the player sales to pay off debt accrued from infrastructure development, we are using player sales to fund player acquisition. Thus, our ability to buy players is still very much dependent upon our ability to sell players. .

 

Our expenses have decreased. Our revenues, as you agree above, are about to increase. The net result? We can spend more without having to fund it through the sale of players. There's absolutely a threshold at which point one would need to sell in order to buy further, assuming one intends to keep our financial situation flat. But that point isn't the first transfer. It's, like, 25m or more of transfers down the road in any given season. Possibly quite a bit more; if we assume that our 'safe' spending level is somewhere in the lower ranges of other teams rather than -10m+ a year, then add the new TV money and our new shirt and kit sponsorships, and even with higher wages we end up with a large wedge of cash that can be spent on transfer fees annually while remaining a very sustainable enterprise.

Which isn't sell-to-buy. It's 'sell if you have already bought quite a bit but like another player more than the one you have, or you have a roster imbalance, or someone is inexplicably willing to overpay by such an amount that you really have no other rational choice, but you don't actually need to sell as a rule', which is not used as shorthand for very good reason I suppose, but is vastly different than what I thought you were getting at regarding Wanyama. And it's vastly different as it pertains to our options for squad construction, because it leaves open the possibility of merely adding to what we have a couple players at a time and selling rarely, rather than the large influx and outflux we have seen each year, and also outflux is a word whether Chrome likes it or not, dammit.


Related: I'm interested in seeing how the new TV deals affect transfers between PL teams. The top clubs can always offer massive wages, to be sure, but the imbalance between the PL and other leagues has changed the game for the midtablers and might start to give some of the top teams pause, as well. The Southamptons and Evertons and Stokes etc of the world can demand a lot of money now...many European clubs cannot. At some point that "proven Premier League player" premium is going to get absurd enough that even the big spenders might prefer to hoover up talent from overseas rather than pay 40m for a pretty good but not world class transfer target.

 

So all this is real interesting and all.

Does it ultimately mean Vic is staying or going?

 

Indeed. Accountancy aside, do we still need someone to sit in front of the back 4, now that we no longer use a back 4? (I'd say yes, myself).

 

What that little exchange did confirm to me, is that whoever was the first person/group of people to create accountancy "rules" was/were a crook(s).

 

Yeah. There are really only two things that aren't accounting fluff: how much money do you have/did you have/will you have, and where did the money go/come from.

A good lawyer begins with reality and embellishes as necessary. A good accountant will lay out quite convincingly that reality has never existed outside a post office box in the Isle of Man, except for that one time it sold itself to an Irish florist that was the parent company of an American oil conglomerate based in Bermuda whose profits are booked in the Netherlands.

 

West Ham's hands are tied because they haven't been getting money from player sales. They have wages stuck on their books for players they don't use or can't sell and they have had to write off huge amounts for players like Jarvis and Downing.

It isn't just about the transfer fee. If you sell a player for 50p you are gaining what you would have paid him for the remainder of his contract so you can quite easily sell for example Osvaldo for 50p yet you gain millions in wages you would have paid. That is as good as transfer money in.

 

I think the club should have a big savings box with divisions....then we could make sense of it. Worked for me when I was budgeting.

 

I'm also not so sure of West Ham's 'windfall' The reason they have been spinning the idea that they are thinking about fans and offering cheaper tickets is because they know they won't be able to sell them at full price. It makes them look good and 'thinking about fans' when the reality is their hand is forced otherwise they will have empty seats.

 

Absolutely: sell on the wildly overpaid and underperforming at every turn. No issue with that. It's selling our better players as a matter of course that I disagree with.

 

They will have a hard time filling that stadium, but it doesn't matter. They don't even pay for much of the staff, maintenance or upkeep. Just 2.5m a year. It's a steal. If they only sell half the seats it is probably still an extra 15-20m a year in revenue, easily.

 

No. We aren't.

Stop worrying about other clubs for a second. Just look at our own books. We're really not that well off. In fact, we have kind of a high level of debt for a club our size. We're not in any fiscal danger, but we are at the point where to be safe we really don't want to run that debt higher, and in fact want to work towards gradually paying some of it off.

If you can't run a deficit, it means every dollar out has to be matched by a dollar coming in. We will probably make a bit more from sponsors etc., but it's not going to be that significant.

The major inflow of funds will be from the new TV deal. Which could send as much as 40-50m our way. So in that sense, we don't have to sell to buy. We have a 45m cushion. So yeah, in that sense you could expect a spending spree. We can sell no one and still buy 45m of players.

BUT every other team we are competing with will ALSO have 40-50m more to spend. So, spending that money won't actually improve our club relative to our competitors. It's just keeping up with the neighbors.

You can slice it however you want. We are free of the 32m we spent from the stadium, but if we don't sell, we also lose 32m in revenue. Liquidity-wise, we have transfer funds coming in from teams that are paying us in stages. But we also have transfer funds going OUT, because we are also paying in stages for players we purchased. On the books, we made a big profit on players, but our player amortization costs are rising and that's a drag on our future.

Wanyama is not free. We are extending him, which is like a new signing. Unless he and his representatives are idiots, they know we and everyone else are flush with cash, and so wages will be inflated. Given who his agent is, I don't believe he's inclined to give us a hometeam discount.

The other thing is, one player in/one player out isn't just a function of budget restraints. It's a practical matter of roster consideration. Wanyama isn't going to want to sit on the bench. Neither is whoever we bring in. So, if we re-sign Wanyama, he's our starter. If we want better than Wanyama, then we have to sell him.