Tuesday 1 February 2011

Financial fair play

If everyone are criminals, then crime did not existed.

Here is the rule and how the European giants smack UEFA.

In the one hand Chelsea announced its operating loss of 2009/10 season was £68.6M, its broken the British domestic transfer record of £50M on the same day. Just like hiking, when you think you reached the peak, a long road is waiting for you to finish.

The rule will started from 2011/12 and the check will on 2013 for reviewing the aggregate result of 2 previous season. However, seems not everyone listen and started their reform.

And it is easy to cheat. Juventus once sponsored by FIAT, its sister company. For Manchester City, the UAE tycoon is one of the sons of UAE president and Emir (king) of Adu Dhabi, it is much easy to find a shirt sponsor. Who knows the economic effect is positive or not in the Airlines account? They just want to say i am rich. Italian once used a method of cross-trading to false accounting. A rubbish player tagged for a few billion, both club exchanged it, made it asset became larger. Clubs may now use a method of trading footballers and non-football asset. A tiny land worth 1000 billion and exchanged with a player worth 1000 billion, generate 1000million football related revenue and non-football related investment. However this method only benefited one club. If the figure became smaller, such as 1 to 2 million euro, it should help to narrow the gap without finding irregularity.

If there is a law but no one comply and no one get caught, the law does not existed. If everyone is a robber, they it is fool not to robbery.

In the other hand, did every European giant spent wiser? Real Madrid only signed the Togolese troublemaker, but he is famous for his greed. Wages also counted in the fair play and will he stay? Bayern Munich had a big pocket for future signing, but the long term break-even differ from short-term fluctuation. Manchester United operating profit (EBITDA) was positive in 2008/09 season Arsenal wage cost was increased in 2009/10 season but its football related profit (EBIT) was £44.8M For Liverpool, the Uruguayan and the Toon soldier were actually paid by Chelsea, by acquiring the Spaniard. So the net investment is small. For the Cinderella, Džeko is expensive and the club wage cost exceeded its income. But the club could use a tricky way to balance the book. It hired many good players and selling them counted as football-related income. If they successfully loaned out, it cost zero to the club but before that their value should be write down to zero, i.e. no amortization cost required. So a record breaking loss in 2010-11 season may created a false break even in the following 2 seasons. However it cannot last long.

Go to Italy. Inter was quiet in the summer but became the big spender in the winter. To lead the race under financial fair play, building a team before the transfer fess are counted. The amortization is high in the first year, but by extending and extending the contract, the amortization cost could be lower until a sudden increase of writedown by the retirement or selling. The rule blocked any team to spend too much in one season (as it would increased the amortization suddenly), but a team could spent a lot in one season and then keep not spending in the following season, if it is good enough. (i.e. the amortization raise in the first year and then decrease/constant as old player life span rate is difference) Despite under the rule, they only required a aggregate breakeven of a certain period, it is still risky to spend too much in one window. (note that income did not reflect immediately after player investment as sponsorship and TV revenue were pre-agreed, and not all the team winning the champions league and/or local title and got the prize money, dividends of TV watcher increase depends on contract and the only effect is on the season ticket and shirt sale) Juventus re-build its squad in 2007 and 2008 , but in exchange they were flops. Remember Tiago and Amauri? The clubs just can't predict they can closed their pocket. So in January 2011 became the last spending chance. Gamble the last chance the amortization was not counted. In the other hand. The old age of Milan cannot prevent the big spending in the following year, or you think Milan still has a world-class young defensive line? Only Thiago Silva counts. The good news is UEFA has a provisional measures: the loss could be covered by the decrease of shareholder equity (and such likes) of a certain degree. But saving this season profit as reserve for future season , could not prevent the future decrease of shareholder equity (and such likes). Fine tune a team is safer than big spending. Lastly, Juventus net loss of 2009-10 season was 10 million euro and they had a net investment of 24million in the summer "calcio mercato" and could raise to 66.6million if all the buy option excised. While Roma was 22 million net loss .

UEFA did not allowed clubs to cover the loss by the blank check of banker, and selling land and hotel. Portuguese seems deal with the rule with issue new share (but claiming the shareholder equity clause again and again?) and issue bonds. Porto is good at buy-low sell-high and they may survived.

Would all the clubs failed the break-even condition and no big clubs in UEFA Champions League? Would there be a new G-14 league? Lets see.