Daniel Levy's Transfer Policy Revealed

[screen nayim]

Re: Andre Villas-Boas - Head Coach

I beg to differ and refer you to any reputable definition of amortisation. It also refers to the reduction of debt through regular payments.

Look it up, if you doubt me.

And, no, there isn't any confusion between cash-flow and effect on P&L - other than, perhaps, that you might have misunderstood what I wrote?

OK I'll try and look it up. Can you refer me to a reputable definition of amortisation?

 

[jimmyb]

Re: Andre Villas-Boas - Head Coach

OK I'll try and look it up. Can you refer me to a reputable definition of amortisation?

FT:

http://lexicon.ft.com/Term?term=amortisation

 

[screen nayim]

Re: Andre Villas-Boas - Head Coach

FT:

http://lexicon.ft.com/Term?term=amortisation

OK, thanks for putting that up, I see where your confusion is coming from. That article refers to both amortisation of debt, by using a sinking fund, as well as amortisation of intangible assets, which is what we're interested in regarding player contracts. Both types of amortisation refer to a charge to the P&L account, neither result in a cashflow out of the company.

Here's an example of how a player contract affects a club split between cashflow and P&L:

Spurs (I wish) buy Cavani from Napoli on a five year deal for £30m on £1m pa wages. Deal is structured at £15m up front, £10m on the first anniversary and £5m on the third.

The contract will be amortised on a straight line basis over the life.

YEAR 1
Cashflow is £15m (1st fee payment) + £1m (wages).

P&L is £6m (amortisation charge - non cash) + £1m (wages - cash)

YEAR 2
Cashflow is £10m (2nd fee payment) +£1m (wages)

P&L is again £7m as above.

YEAR 3
Cashflow £5m (Final fee payment) + £1m (wages)

P&L is £7m as above.

YEAR 4 & 5
Cashflow is £1m wages

P&L is £7m each year as above.

By the end of the contract we have paid out £35m in cash total fee and wages. This has been passed through the P&L in five equal amounts of £7m, although the cashflows are significantly more lumpy than this. Also Cavani can now leave on a Bosman but we have won four Premierships and two CL finals while he's been here.

But you can see from this that the amortisation charge does not require any cash to cover it.

 

[jimmyb]

Re: Andre Villas-Boas - Head Coach

OK, thanks for putting that up, I see where your confusion is coming from. That article refers to both amortisation of debt, by using a sinking fund, as well as amortisation of intangible assets, which is what we're interested in regarding player contracts. Both types of amortisation refer to a charge to the P&L account, neither result in a cashflow out of the company.

I know that we're not talking about amortisation of debt in this thread. That's why I only added reference to it as an asterisked footnote!

Here's an example of how a player contract affects a club split between cashflow and P&L:

Spurs (I wish) buy Cavani from Napoli on a five year deal for £30m on £1m pa wages. Deal is structured at £15m up front, £10m on the first anniversary and £5m on the third.

The contract will be amortised on a straight line basis over the life.

YEAR 1
Cashflow is £15m (1st fee payment) + £1m (wages).

P&L is £6m (amortisation charge - non cash) + £1m (wages - cash)

YEAR 2
Cashflow is £10m (2nd fee payment) +£1m (wages)

P&L is again £7m as above.

YEAR 3
Cashflow £5m (Final fee payment) + £1m (wages)

P&L is £7m as above.

YEAR 4 & 5
Cashflow is £1m wages

P&L is £7m each year as above.

By the end of the contract we have paid out £35m in cash total fee and wages. This has been passed through the P&L in five equal amounts of £7m, although the cashflows are significantly more lumpy than this. Also Cavani can now leave on a Bosman but we have won four Premierships and two CL finals while he's been here.

But you can see from this that the amortisation charge does not require any cash to cover it.

Yes, I know!

I used an example in which the entire transfer fee was paid up front - unrealistic, perhaps, given that most transfer fees these days involve staged payments, but the principle is the same and it simplifies the explanation.

And I wasn't suggesting that amortisation requires cash to cover it. I was merely explaining why, from a purely accounting perspective, buying players for a total of £30 million and selling players for a total of £15 million in one financial year wouldn't mean that a club had made a profit of £15 million on player trading.

 

[screen nayim]

Re: Andre Villas-Boas - Head Coach

I know that we're not talking about amortisation of debt in this thread. That's why I only added reference to it as an asterisked footnote!



Yes, I know!

I used an example in which the entire transfer fee was paid up front - unrealistic, perhaps, given that most transfer fees these days involve staged payments, but the principle is the same and it simplifies the explanation.

And I wasn't suggesting that amortisation requires cash to cover it. I was merely explaining why, from a purely accounting perspective, buying players for a total of £30 million and selling players for a total of £15 million in one financial year wouldn't mean that a club had made a profit of £15 million on player trading.

No, it would mean they've made a loss of £15m in the year.



(only kidding).

 

[jimmyb]

Re: Andre Villas-Boas - Head Coach

No, it would mean they've made a loss of £15m in the year.

Oops! Typo. Switch "buying" and "selling"!

Whichever way round you had it, it wouldn't be a £15m loss or profit on player trading.

 

[jimmyb]

Re: Andre Villas-Boas - Head Coach

(only kidding).

Ah! Only just seen your edit.

 

[thfcsteff]

On a different track...

If FIFA really gave a fudge, the first thing they would do in reshaping football finance is to absolutely hammer non-verified agents. It is amazing to think a verified agent can have a player as a client for 4 years, and the moment a renegotiation/potential move is on the cards, some fly-by-nighter steps in, un-licensed, and convinces the player that paying them will cost less than paying their official agent, and thus places themselves in the middle. Said agent can then also ride the club for a % on that end. Now you KNOW Levy isn't having that, and neither should he, I don't give a brick WHO it means we miss out on. it's dirty and disgraceful. Ultimately, if FIFA ever get real about cleaning the game up, this should be a primary area to get involved in. Say what you like about Levy, but he tried damn hard to play by the rules. Even the Fryers thing, however shaky, was NOT hidden or illegal. In fact, that Levy even WENT there with that deal suggests to me he is trying to get 'harder' and less naive whilst still remaining 'legal'...

 

[indianspur]

On a different track...

If FIFA really gave a fudge, the first thing they would do in reshaping football finance is to absolutely hammer non-verified agents. It is amazing to think a verified agent can have a player as a client for 4 years, and the moment a renegotiation/potential move is on the cards, some fly-by-nighter steps in, un-licensed, and convinces the player that paying them will cost less than paying their official agent, and thus places themselves in the middle. Said agent can then also ride the club for a % on that end. Now you KNOW Levy isn't having that, and neither should he, I don't give a brick WHO it means we miss out on. it's dirty and disgraceful. Ultimately, if FIFA ever get real about cleaning the game up, this should be a primary area to get involved in. Say what you like about Levy, but he tried damn hard to play by the rules. Even the Fryers thing, however shaky, was NOT hidden or illegal. In fact, that Levy even WENT there with that deal suggests to me he is trying to get 'harder' and less naive whilst still remaining 'legal'...

Spurs have been one of the higher payers of agent fees in recent years, dont think Levy hasnt had to get involved in this shady business

agree that FIFA has to do something about it though

 

[thfcsteff]

Spurs have been one of the higher payers of agent fees in recent years, dont think Levy hasnt had to get involved in this shady business

agree that FIFA has to do something about it though

I'd wager that some of the deals which people complain about NOT going through have not done so precisely because Levy wouldn't throw in a 'sweetner'...I agree he's doubtless had to swim in murky waters, but I suspect he's avoided the dirtiest dealings...