Liverpool Message Board
Not sure if this one went under the radar, but thought I'd post for those who still think FFP is a figment of the accountants’ imagination.
One thing I think is important to point out who think clubs are getting away with breaking the rules, this makes it clear who would have been punished in the past if the rules had been in effect, which is a warning to clubs now, as the rules start going into effect.
It’s also interesting to see (although we don't have the full financial reports yet) which clubs have spent heavily in the past, but seem to have gone very quiet over the past 2 transfer windows. We need to think about that when complaining that we don't spend enough relative to other so called big spenders.
Noo Noo, maybe a better way to explain this to Sofa is to ask him if he thinks he personally can carry as much debt in an overdraft or on a credit card than say a large business like British Telecom.
The rules of the game (the market) apply to both him and the company the same, if they can't afford the interest payments they risk bankruptcy, but the amounts each can borrow differ greatly.
Sofa, I think you need to get yourself a basic understand of what debt is, and how it’s managed before you draw a red line on this issue.
Debt itself is not an issue, so long as it’s managed within reasonable sustainable limits relative to income. Yes Utd have a huge debt and on anyone else’s balance sheet (other than City and Chelsea) it would sink the club. But Utd also have the largest income of any prem club, so it’s manageable.
Think of it this way, the vast majority of people have and use overdrafts as well as credit cards. Some get into trouble because they borrow more than they can pay, but most people use the instruments of debt very well. The vast majority of businesses use debt also, and spend at least some portion, some a great portion of any given year in debt. In fact if they did not have the ability to borrow they'd go under as often times they have to pay their bills before getting paid themselves. It’s no different for a football club.
Personally I'm disappointed the league has gone down the path of defining a set amount of debt for its version of FFP. First debt is easy to hide on a balance sheet, and second if you’re going to use debt it should be as a percentage of earnings rather than a fixed amount. More than half the debt Utd currently has almost forced us into receivership, while only a third of that is what took Pompy down.
I'd say a better measure would be to ensure clubs don't exceed a certain debt to earnings ratio, or even forget debt and go more in line with FFP and allow clubs to carry as much debt as they like, but over a given period (3 years for FFP) clubs need to break even. That would allow clubs to deficit spend for short periods of time, and carry debt to help manage their business, but ensure they did it within manageable levels.
you've missed the point completely. United as a club and a business generate so much money the interest payments on their loan is very very affordable.
Liverpool as a club and a business does not generate anywhere near the same level of money and therefore cannot operate with a debt anywhere near Uniteds
The rules are the same but you are trying to compare two clubs or businesses that are miles apart in terms of the cash they make. It has nothing to do with the owners either. If anything Uniteds owners, the Glazers are worse than FSG beacuse they take money out of the club. FSG don't!!!
FSG aren't the problem here. You need to look way back to the beginning of the Premier League. United embraced the market and media concept the PL brought. We sat on our hands.
Yet FSG are operating a tight ship and still can't compete.. Despite FSG claiming otherwise..
FSG / Henry claim to be able to match other clubs in the transfer market, yet the reality clearly isn't the case is it?
United debt isn't a problem to them Armchair because they can easily afford the interest payments on that overdraft and still make a profit. That is the horrible truth about how far behind we are financially as a club. It's not about how much money the owners have. Truth be told the Glazers aren't exactly rich like the City's owners or Abramovich. They use United to prop up their other businesses. The club simply generates so much money through its on and off field activities that it can afford to be run this way.
The scary thought is if and when the Glazers clear the debt and all of the cash flows back into the club. They would then have the cash to afford what you want to happen at Liverpool.
So is it fair then other clubs are forced to keep a tight ship or they'll go under whilst Man U are allowed to remain in debt yet still spend huge sums on transfers & wages?
Insisting on zero debt would be very difficult to legally enforce because it could be seen as a restriction of trade. Its not unusal for a company to take out loans to secure a takeover nor is it unusal for a business to take out a loan to cover new investment, indeed the banks are often attacked because they aren`t lending enough money to small businesses. The issue isn`t the loan but whether a business has the assets to cover the repayments and their operating costs and clearly United are able to do both. The other issue is that some of United so called debt isn`t in the strictest sense of the word theirs. The initial loans were taken out not by United but by the Glazers to finance their takeover so its their debt. Its is United`s misfortune that they are the economically strongest part of the Glazers business empire so they are saddled with helping the family meet their repayments. Some restructing has taken place which involves the issuing of stocks and shares in United`s name and therefore the club is directly responsible for that portion of the debt but again this is built around United having the assets to pay the necessary dividends whilst covering their operating costs. Also and crucially issuing stocks and shares is a normal business practice and to punish any club for doing what many other businesses do could be seen as a restriction of trade.
Robert wouldn’t it be denying basic established economic thinking to deny that large spending by one club has no impact on other clubs? It’s basic wage inflation.
If one bank pays high salaries and bonuses to attract the best financial minds, then other banks have to follow suit unless they don't want to also attract the best minds, therefore causing all compensation in the financial sector to rise.
The same applies to football. The suggestion that other clubs don't have to match what Chelsea and City pays would imply either you don't think inflation exists, or that all the other clubs would just decide not to complete in a business which is supposed to be all about competition.
Robert, I'd agree with you that its wages that are really the issue that can weaken a clubs finances, while the transfer fee's while headline grabbing are really not a major issue. But not sure they are really a zero sum game, as they still are payments that have to be paid, and therefore impact the bottom line. For some clubs (buying clubs) they are a drag on profitability, while I do agree for others (selling clubs) they are an important source of income.
So for example, and I may not have the figures exactly correct as I'm doing this from memory, but for the Torres transfer, Chelsea paid out 50M as a transfer fee, and pay him around 200K a week (I'm guessing on that number), over a 5 year contract. So for the club books that's a 10M charge per year of his contract for the transfer fee, and just over 10M cost for his salary. Of course that's using simple sums which be different when transfer fee's involved scheduled payments, bonuses, or a makeweight is in place, but one way or another they need to be accounted for on the books.
But on what you'd recommend actually I don't think they are far from what FFP will actually do. FFP does allow clubs to operate with a loss, but they need to balance the books over a 3 year accounting period. So if a club wants to deficit spend in order to try to move to the next level (from mid table to EL qualifying, or to push for a top 4 finish) they are allowed to do that, however will need to make up for that deficit spending at some point during that accounting period.
The only real difference is that they do need to include transfer fees (amortized over the length of the contract). For me that is appropriate.
But at the end of the day, one key thing to remember is that FFP is not about leveling the playing field between the rich and not so rich clubs. Successful clubs who generate large revenues will always have more to spend on salaries and transfer fees than less successful clubs. It’s also not something to prevent a club investing to try to move to the next level, whether (if similar rules are applied domestically) to gain promotion or to gain access to the lucrative income European football provides. But what it’s supposed to do is ensure that investment is done in a measured way and we try to prevent owners taking down clubs which punishes fans much more than owners if they use risky strategies.
What its suppose to prevent, or limit is what almost happened to us with owners willing to buy the club using debt, and borrowed to buy players like Torres, taking the club a gnats hair away from liquidation when the bet went sour. Or the borrowing Portsmouth did to gain a bit of silverware only to see things implode when the owner loss interest and decided to walk away. I'm pretty sure Alexandre Gaydamak still has a few pennies to rub together while football fans on the south coast still feel the pain he caused.
FFP may or may not help us compete with the richer clubs in Europe, but the fact we are very lucky not to be in Portsmouth shoes after the Toxic Texan is a very good reason I think FFP or something with the same goal is a very good idea. If Roman ever decides to play with another of his toys and ignore CFC the way Gaydamak did, I think Robert you might start thinking the same way.
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