To run a business, you need money. If the company had a negative equity (liability great than total asset) and a continuous net loss, the company may be in the state of bankruptcy. Either the shareholder re-capitalized immediately, or the bank wait for the economic recovery.
In the case of Chelsea FC plc, the club had a negative equity for years but it just owe the owner money. And the Russian converted all the debt to equity in recent years, to make plc debt free (but not the holding company of the plc: Fordstem Ltd.)
What composite the asset of a football club? Usually it was the stadium (which only Juventus only owns its) and intangible asset (brand name, player contract) . In the past the Italian sold its own brand to its subsidiaries, which just means the club write a new "fair value" to its brand. However, the Italian banks accepted the new "market value" of the brand and borrow money to the club, and the club itself had to amortize the brand in years. The result? Roma, Milan had a positive equity as a separate company but a huge negative equity as a group. And Internazionale even did not had a consolidated accounts for the club and the company "Inter Brand"! It is because the repayment of debt was much slower than the "weathering" of the asset value of the brand! The only club had a positive equity as a group of these company was SS Lazio. The club sold its brand to subsidiary "SS Lazio Marketing & Communication S.p.A." and the club still had a positive equity of 10 million EURO. While Roma, also sold its brand to "Soccer S.A.S. di Brand Management s.r.l.", now had a negative equity of 43 million (2010-11 result)
No one wanted to liquidate the club, as the bank would got nothing but the "brand name". However it is a problem if the club had a negative equity for a long time. Would FIGC forced the owner to inject the right amount to save the club, or the bank write-down the debt? Roma was a special case as the whole Sensi Group was taken by the bank in return of just 30 million. Is that anymore club administrated by the bank in the future?
Another way to "save" the club was player-exchange. The asset value of a player was based on the acquire cost. Thus, Barcelona probably was always under-valued as they had one of the most successful youth system in the world. However, if Barca exchange star player with Man.Utd. or Real Madrid, thus both clubs had a mutual benefit as both clubs now had a real market value on his youth product. That's nothing immoral, as the youth system did not produce star players in every position, and without exchange deal, the player probably sold to a third club for cash in order to buy a new player from the fourth. A little drawback of this method was, the transfer fee in the exchange deal despite did not involve cash, the deal may still had a value for both players, and the profit on selling the youth product (usually equal to the increase in total asset or the transfer fee), had to offset by the amortization cost in the next few years (consider it was the cost of weathering of the players) So it just borrowed the future money to "create" the selling profit.
So, that the relation of false accounting of Italian clubs and player exchange? In the past Italian club exchange youth product that did not became a professional in order to create enough asset for the routine check every year. FIGC fined the clubs but no charge for the adult players, as it is hard to prove the aim of valued the players price so high was evil. However, we saw Roma lost Bovo in this trick.
And the player exchange is back. As Serie A "small" clubs predicted they would probably get a increase in TV revenue by collective agreement (bad news for big club). Clubs were targeting to stay in Serie A as well as minimal re-capitalization, why not borrow the increased money to save the current season?
Let's have a look in Chievo account. On 30 June 2010, Chievo (AC ChievoVerona s.r.l.) had a positive equity of about 600,000 EURO. However, Mattia Minesso already worth 2 million. Who is he? Transfermarkt only estimated him below 300,000 EURO. (Despite transfermarkt did not had a real academic criteria to estimate the value). On that deal the book of Chievo also had a player "worth" 1 million: Daniele Rosania. And On 30 June 2011, despite the club had a net loss, it was counter-weight by a capital increase of 250,000 EURO, and the equity stood at about 600,000.
However, on the asset, which consist of about 20 million EURO of player asset. Which contains (we cannot got the full list as it was not attached to the financial report) Hetemaj (2.8M) Amedeo Benedetti (2M, recently returned from Vicenza), Alessandro Bassoli (3M, recently signed from Bologna), Filippo Tanaglia (1M, recently return from Ascoli), Andreolli (1M), Iunco (198,000), Amedeo Calliari (at most about 350,000, assume contracted until 2015 the max. length) Moreover, Chievo had a toxic asset of another half of Enrico Alfonso, which worth 1.9 million in accounting. Inter would be fool to buy the another half but it may pushed Chievo to bankruptcy .
Among, the player asset, only Hetemaj and Andreolli were in true accounting and market value, there other? Lack of Serie A and even Serie B debut, they may prove their value in the future or just another toxic asset just aimed to inflate the equity level to positive. For Iunco, his return to Chievo was an accident, but without the fool of Torino president, he only brought 20,000 EURO to Chievo. For Andreolli, despite he had a fair player history, without the help of Inter, his accounting value should be weathered down from 800,000 to 640,000 (assume 5-year deal) or even 533,333 (assume 3-year deal as reported). On the good side Roma forced to sell him in 2010 as he would became free agent in 2011, so 1 million may be his true market value if he preformed well. To sum up, if deducting Benedetti (2M), Bassoli (3M) and EURO 160,000 of Andreolli, Chievo already had a negative equity of 4.5 million.
Would FIGC and the department of justice of Italy (what's the exact name of the dept?) do something. Or do nothing but after the club bankrupted?
P.S. Coming up would be a little research on Parma, Genoa, Bologna and Milan account.
