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.