Tuesday 6 August 2013

Basic maths problem in Parma FC financial report 2011-12

At first, you need to get a copy to follow my post. Or you had to rely on the screen capture i uploaded.

It is crazy to know that such as tiny club had a player selling profit of over 50 million EURO, which the best player in human market, such as Porto and Arsenal only had this kind of gain for 29,133,050 Euro (note 26 in report) and 65.456 million pound sterling respectively.

Also, partially it was the weakness of the accounting standard to present the co-ownership deal of Giovinco, who returned to Juventus for 11 million EURO (Parma booked a revenue of 22 million assume it is a full ownership and book a co-ownership cost of 8 million as well as decrease in co-ownership debt of 3 million), thus the true profit less Giovinco was 42,448,451 EURO. However, if we had to half the revenue of co-ownership, then we had to half Pambianchi (thus 125,000) Coppola (thus 655,500), Galli (thus 1,937,500), Doumbia (thus 484,400) , Galuppo (thus 1,200,000), Lapadula (1,399,853.5), Defrel (1,174,032), Finocchio (1,000,000), Colomba (950,000), Mantovani (900,000) and Borini (1,671,420), which the profit would be around 31 million. However, the residual value of the player would also affected by co-ownership, for example, Giovinco cost Parma 3 million only, with 25% weathering (excised 1 out of 4 year of the contract), the residual cost should be 2.25 million, thus the profit should be 8.75 million for the 50% registration rights. However, the profit presented was 9.5 million (17.5 million minus 8 million co-ownership cost), why? It is because Parma had to weather 1.5 million instead of 0.75 million.

Why assume the retained 50% registration rights had the same value as the rights actually sold? Lazio and Juventus treated the co-ownership better to reflect the actual situation. Co-ownership somewhat a bonus clause, in rare case the club got nothing if they did not pay the residual (Miccoli from 7 million to 2.39 million, rumor to be the error of Fiorentina or cash flow problem), or luckly a third club buy the player and club A and B fifty-fifty the revenue. Most of the time the mother club eventually gave up the co-ownership for free. It is a double-edged sword that both value of production (selling profit) and cost of production (amortization) increased, if all co-ownership were treated as full ownership. But Italian FA (FIGC) had been using a few financial indicator as a criteria for license, thus you will judge why value of production was so importance and why club made deal so often in the transfer market but the players were often loaned out......

Moreover, most of Parma's profit except Borini and Giovinco were from player swap, mostly without cash. It is a zone of morality or even false accounting as the "market" price (or nominal money price) of barter economy mostly based on valuation of the both club, instead of made reference to similar player in the cash market, thus easily create false asset. If value all barter deal to peppercorn, Parma short term result would be chaos but in long term cost of production would be saved. However value valuable player for peppercorn also caused under estimation of asset and false alarm of negative net equity. It is another thesis to use tools such as transfermarkt to estimate the true financial position of Parma.

 Last but not the least, refer to the title, why i'm saying Maths? After reading Parma's accounts, seems they prepared the tables in a hurry.



Friday 14 June 2013

Pazzini-Cassano and the Milan derby

Not everyone thing Pazzini-Cassano is a wise deal, or it is polarized by which team they support.

To me, it is another derby in UEFA Financial Fair Play. Firstly, it was so surprised that Milan balanced their book in 2012 calender year, which if excluding the ~30M EURO profit from Silva and adding Silva and Zlatan were left in mid-2012  thus saved a large sum of wage for half a year, the result was magnificent . However on Inter side, failed to sell Julio Cesar, Maicon and Sneijder for the right time, were only a few minor mistake. More mistake was on buying old age striker such as Palacio, as well as long delay of replacing Milito.

It is logical that selling Pazzini to save cost. Pazzini's transfer fee was 19 million and 4/1/2 year contract, thus, a 4.222 million amortization was on Pazzini. However either Pazzini was a flop, or Inter did not suit him, selling him for 13 million EURO is wise (13 minus residual accounting value 12.666, still some profit). However, the direct replacement of Pazzini was Cassano and/or  Cassano+Palacio seems not a maths of 2 under quality striker is better than 1.

Nothing wrong in Cassano deal. 5.5M transfer fee and 2-year contract, thus 2.25M amortization, lesser than 4.222 million to compensate the undisclosed wage gap between Cassano and Pazzini. However adding Palacio and Milito into consideration, three old forward (or unbiased term: in downwards slope) with star-level wage, the result would be horrible injury crisis of this season.

Football is crazy. There were reliable few years ago, but did not prove the were still energetic in their 30s. Moreover, except Real Madrid and Barca  had one of the top super strikers (and YOUNG except Villa), not every team could shown a maths that add up of 3 reliable strikers means more reliable. It did not have any thing to backup the thought that 3 players had difference rise and down period.

Football should be mean. Milito was a average buy in 2009 as it cost 28M in 4-year contract (plus 2M unknown cost shown in 2009-10 Inter audit report), the treble should made that year amortization be 14M not 7M (eventually Milito extended a year in during that season), as Milito should always a front loaded asset, every time he celebrate his birthday is bonus to the team.

However in football club the accountants seldom use impaired clause. It is not logical that Milito still "worth" 12M on 30 June 2012, still, some crazy man willing to offer the transfer fee and also meet the wage demand. Inter should offload him long ago instead of let go of Livaja. The let go of Milito save cost, and moreover, grow more young striker that Inter missed, such as Destro for only 4.5 Million, which current raised to 15 million, or more. Inter should aimed for UEFA FFP, that, should have more balanced wage structure to be more competitive. Inter with Messi nor Brazilian Ronaldo did not proven success, as the era of Beckham(or Figo)-Pavon policy have proven football is a team sports, 1 star and 10 players from lower divisions would not a champion team. With a huge net loss in 2011-12 season, how Inter could improve immediately is nearly a crazy agenda. The new blueprint of Inter, should be avoid the loophole of kick out from UCL thus without income, without income cut cost (as FFP prevent fresh "investment" from owner to cover net loss), cut cost than more difficult to go back to UCL. MM may think FFP was a tool to kick out Milan, Chelsea and Manchester City thus they support the idea, but he did not notice that, high chance to be kicked out, was Inter.

Monday 3 June 2013

True value of Falcao

Football market was venerable to money laundering. Apart from that, tax evasion is a global trend of corporate culture. Recently Falcao multi-million transfer to AS Monaco FC, but is that his final destination, and how parties other than his former clubs to have a share in that insane figure?

Falcao arrived Porto in 2009. As a public company, Porto had to disclosure the financial detail of their transfers. On 15 July 2009, Porto announced that Falcao was signed for EURO 3.93 million for 60% economic rights. We did not know when the 40% gone, is that River Plate already cash-in the 40% earlier, or a financial trick to store the transfer fee offshore, or looting from the board of director or even Falcao had an "agent" since starting his football career and ask for money from every club Falcao had played. The latter was most common in Brazil and even whole Latin America, entrepreneur or even gang member borrow money to young talent in order to avoid them to become child labour in the factor but footballers, in exchanged for lifetime revenue to the lender.

We could not found "River Plate" in the 2009, which probably the deal was paid in COD basis (cash-on-delivery). Despite it is a public company, unlike Italy which they attached a player identification table to the audit report, which, on the table had contract value, capitalized acquire fee, amortized amount of capitalized fee, selling value and player loss and profit, Portuguese regulation was looser. In Portugal, there is difficult to trace every transfer fee paid and received in the report. As many deal were paid in COD, the sum of current and non-current debt /credit could not reflect the true fee.

Then how Porto acquired the remain 35% economic rights? In the report, Porto sold all its 60% economic rights of Bolatti to Natland Financieringsmaatschappij BV for EURO 1.5 million, and operação realiza da no âmbito do processo de aquisição da parcela de 40% do passe do jogador Falcao which Porto despite disclosed Falcao was related to Bolatti, it did not disclose the actual fee Porto acquire Falcao from Natland. More mystery was 40% became 35% as 5% was resold to terceira entidade. Is that Natland was the middle man, which Natland actually acquire Falcao from the true investor and retained 5%, as the case of fellow Monaco player Moutinho?

Then Falcao's record in the net had attracted many European clubs. Porto immediately, increase the release clause in the player contract, to EURO 45 million, with an agent fee EURO 6,585,150. A month later, Falcao was sold for EURO 40 million plus bonuses. It sounds profitable, but adding 3.93 + 1.50 + 6.59 = 12.02 (Porto revealed that it was 10.629 M after amortization), its means, in 2009 Falcao probably cost 8.1M  EURO in order to amortized to 4.05M in July 2011, which the revenue also had to deduct the agent fee again (3,705,000) and the portion to Natland (1,805,000), and lastly solidarity contribution (2M). Moreover, as the payment was in zero interest installments, a further 1,690,000 had to be deduct to be reflect the present value of the transfer revenue to 2011 year, which, after overall deduction, only 16.11 million profit in historical value basis, or 20.3M in amortization method. The latter was more realistic as 4 million amortization in 2-year was impaired with the goals Falcao bought.

Lastly, 12,095,150 agent fee within 2 months, is that really provide service or using contract extension to hide the true proportion of third parties ownership? In the debt table of 2011-12 audit report, Orel BV, Natland, and Mendes' Gestifute, all involved in both extension and selling. Adding up the sum, would find 5,247,650 million was paid in COD and the rest was 6.8475M debt:

consider Falcao fee was actually paid in installments, such high priority to receive 10 million within 2 year, shown how profitable the agent industry is and how messy of Portuguese football by involvement of double faced agent-investor.