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Arsenal Finances

DanDare

Emoji Merchant and Believer-In-Chief
Trusted ⭐

Player:Saliba
lets say that instead of selling the player in his final year, we manage to extend his contract and keep him.

then, his value on the balance sheet (i.e intangible assets) will go up by the sum total of his new wages over the length of his new contract. this amount will then get amortized on a straight-line basis.

why is this a problem? the player's new value on the balance sheet reflects wages ONLY and is not a reflection of the player's fair value on the market (remember that when we first bought him, his balance sheet value reflected the transfer fee and his wages). therefore, any amortization based on this new value is purely cosmetic and, frankly, out of touch with the reality of the situation.

similarly, any income statement "profit" we make when we eventually sell the player will again be a function of the player's misstated balance sheet value.

overall, the income statement gets thrown out of whack quite hard.


So why is it all done this way?
 

Fallout

Active Member
So why is it all done this way?
the standard accounting ruleset used in most industries is being forcefully applied to this industry.

this is done despite the existence of key differences in terms of:
(a) the magnitude of intangibles relative to other assets on the balance sheet
(b) the way those intangibles are recorded -- i.e. since football clubs buy players, the players have to be recorded as "investments" on the balance sheet, subjecting their accounting valuation to all the forces we've discussed previously (whereas normal companies don't "buy" workers under normal accounting interpretation).

most football clubs don't trade on stock exchanges, so there is no incentive for accounting bodies to develop a unique accounting ruleset for football clubs (since retail investors don't have money at stake and theoretically don't care about doing a proper valuation of the club). plus, it's a relatively small industry in the grand scheme of things.

some industries that have a lot of large publicly-traded companies (e.g. insurance) do have their own accounting rulesets because the fundamentals of the business differ so markedly from other industries.
 
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DanDare

Emoji Merchant and Believer-In-Chief
Trusted ⭐

Player:Saliba
the standard accounting ruleset used in most industries is being forcefully applied to this industry.

this is done despite the existence of key differences in terms of:
(a) the magnitude of intangibles relative to other assets on the balance sheet
(b) the way those intangibles are recorded -- i.e. since football clubs buy players, the players have to be recorded as "investments" on the balance sheet, subjecting their accounting valuation to all the forces we've discussed previously (whereas normal companies don't "buy" workers under normal accounting interpretation).

most football clubs don't trade on stock exchanges, so there is no incentive for accounting bodies to develop a unique accounting ruleset for football clubs (since retail investors don't have money at stake and theoretically don't care about doing a proper valuation of the club). plus, it's a relatively small industry in the grand scheme of things.

some industries that have a lot of large publicly-traded companies (e.g. insurance) do have their own accounting rulesets because the fundamentals of the business differ so markedly from other industries.

So from an accounting point of view a purchase isn't seen as an immediate loss because of asset gain but how does FFP view it? If we spent all our cash reserves on 3 players say. Would we need to just generate enough to balance their yearly cost as well as all our other costs?
 

Fallout

Active Member
So from an accounting point of view a purchase isn't seen as an immediate loss because of asset gain but how does FFP view it? If we spent all our cash reserves on 3 players say. Would we need to just generate enough to balance their yearly cost as well as all our other costs?
unfortunately you've maxed out my knowledge on the matter ... i have no clue how FFP analyzes transfers (i.e. whether it's an income statement approach or a cash flow approach). if it's income statement, then your theory could possibly be correct.
 

Gooner Zig

AM's Resident Accountant
Trusted ⭐

Country: Canada
unfortunately you've maxed out my knowledge on the matter ... i have no clue how FFP analyzes transfers (i.e. whether it's an income statement approach or a cash flow approach). if it's income statement, then your theory could possibly be correct.

I'm not an FFP expert but my understanding is that it's income statement approach (i.e. amortisation)
 

Gooner Zig

AM's Resident Accountant
Trusted ⭐

Country: Canada
maybe there are some operational issues during mid-season where we are spending a lot more cash than we take in, but it's tough to make a case for that being a problem given how little cash other teams are holding.

If that was truly the case then why wouldn't the club make use of it's £50m line of credit facility - that's precisely what it's for, working capital requirements.

The club is far too conservative.
 

DanDare

Emoji Merchant and Believer-In-Chief
Trusted ⭐

Player:Saliba
If that was truly the case then why wouldn't the club make use of it's £50m line of credit facility - that's precisely what it's for, working capital requirements.

The club is far too conservative.


Hopefully they have learned that their conservative approach has been harmful
 

squallman

Still Pining for Wenger
I've been noticing this phenomenon online and offline that's starting to disturb me.

People talking about spending 40M pounds on a player and stating that we have to pay all the money up front.

Then there's the group that thinks just because we bid 40M for a player but pay something like 8M pounds a year, we could buy 5 players worth 40M in one summer............

Are these common misconceptions? As far as I'm aware no club has ever paid a transfer fee all upfront. Even the ones that have the money to do so.

Secondly, transfer budgets aren't calculated based on paying by installments.

Ah yes, it was an article in the Sun where I saw this notion, on their back page earlier this week, there was an article about how Palace was fuming that we proposed a deal for Zaha where we would pay 40M over a five year period. I was just thinking, isn't that how each and every single transfer is done?

For example, I'm fairly certain that Barcelona took years to pay us for Cesc.
 

Hunta

Established Member
Trusted ⭐

Country: England
I've been noticing this phenomenon online and offline that's starting to disturb me.

People talking about spending 40M pounds on a player and stating that we have to pay all the money up front.

Then there's the group that thinks just because we bid 40M for a player but pay something like 8M pounds a year, we could buy 5 players worth 40M in one summer............

Are these common misconceptions? As far as I'm aware no club has ever paid a transfer fee all upfront. Even the ones that have the money to do so.

Secondly, transfer budgets aren't calculated based on paying by installments.

Ah yes, it was an article in the Sun where I saw this notion, on their back page earlier this week, there was an article about how Palace was fuming that we proposed a deal for Zaha where we would pay 40M over a five year period. I was just thinking, isn't that how each and every single transfer is done?

For example, I'm fairly certain that Barcelona took years to pay us for Cesc.
Yeah most are paid in instalments, bar maybe release clauses. It’s not as simple as saying we’ll pay £20m a year for 4 years when you buy a player for £80m though. The selling club might only accept £40m year one, £30m year two, £5m year three/four etc.
 

Manberg

Predator
Yeah most are paid in instalments, bar maybe release clauses. It’s not as simple as saying we’ll pay £20m a year for 4 years when you buy a player for £80m though. The selling club might only accept £40m year one, £30m year two, £5m year three/four etc.

Do you have proof of this? Most release clauses have a high fee that requires paying up front. It wouldn’t make sense that clubs are paying huge fees upfront and smaller fees in installments.
 

Maybe

You're wrong, no?
I've been noticing this phenomenon online and offline that's starting to disturb me.

People talking about spending 40M pounds on a player and stating that we have to pay all the money up front.

Then there's the group that thinks just because we bid 40M for a player but pay something like 8M pounds a year, we could buy 5 players worth 40M in one summer............

Are these common misconceptions? As far as I'm aware no club has ever paid a transfer fee all upfront. Even the ones that have the money to do so.

Secondly, transfer budgets aren't calculated based on paying by installments.

Ah yes, it was an article in the Sun where I saw this notion, on their back page earlier this week, there was an article about how Palace was fuming that we proposed a deal for Zaha where we would pay 40M over a five year period. I was just thinking, isn't that how each and every single transfer is done?

For example, I'm fairly certain that Barcelona took years to pay us for Cesc.
People get their education through newspapers like The Sun, and as soon as they read some stupidity there, they come to the forum to write crap.
It gets even worse these days with all the Twitter rumours.

You are probably right about paying by installments although we can't be sure because none of us ever worked on dealing with football transfers.
Every year newspapers set the budget for us and people blindly follow that without taking things that you're saying into consideration.
There is also a wage problem nobody mentions. People think that we take a chunk of reported transfer budget and that's enough to make a deal, but what about the wages that we're going to pay for the next 5 years and agent fees? Do they magically appear every time we take a chunk of our transfer budget to buy a new player? Guess not, and I think this club struggles more with wages than with actual transfer budget. I think that's where Özil's contract really kicks in. When you have a contract like that you will struggle to keep the players you have as much as you will struggle to sign new players for a fair salary.
 

ChefMan21

Well-Known Member
Doesn’t make good reading
Good. It means the club is forced to find new revenue streams not dependent on player sales of Champions League qualifications.

The best time to reform is before a recession; a recession is often the time reforms occur.
 

bingobob

A-M’s Resident Hunskelper
Trusted ⭐

Country: Scotland
we need big stadium because we have big fan base but you clearly want an owner that will care about the club.
The Emirates was the single worst decision that i can think off.

Other than being new and holding in excess of 60k it hasnt delivered anything else that it was forecast to do so. Its done the complete opposite. Players are nearly as expensive as what that stadium cost. Absolute shambles of a decision that has set us back massively on and off the pitch.
 

Iceman10

Established Member
The Emirates was the single worst decision that i can think off.

Other than being new and holding in excess of 60k it hasnt delivered anything else that it was forecast to do so. Its done the complete opposite. Players are nearly as expensive as what that stadium cost. Absolute shambles of a decision that has set us back massively on and off the pitch.

It was mainly about the long-term commercial deals the club tied itself down to, for "revenue certainty", against the "risk" of the stadium move. Commercial revenue therefore was pretty static until 2014 while other clubs were seeing theirs rise, so the advantage of having expanded stadium capacity ahead of most of the rest in the PL was somewhat lost. I also think there was quite a bit of underestimation of just how much TV revenues and prize money would rise in general, which would have rendered the more conservative approach, tying down to long-term commercial deals, somewhat unnecessary. In summary, it was therefore not so much about the new stadium, but more how we went about it.

https://www.forbes.com/sites/bobbymcmahon/2016/10/04/tracking-the-impact-of-arsenals-move-to-emirates-stadium-ten-years-on-was-it-worth-it/
 

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