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Derby charged for a breach of spending rules


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10 minutes ago, Davefevs said:

So let’s take Tom Lawrence, signed for £5m in 2017 on a 5 year deal.

As we currently stand, 2.5 (1/2) years into his contract, his value would be £2.5m.  Let’s take that to the end of the season, and now valued at £2m.

Each season has cost Derby £1m in amortisation.  However Mel might undertake an end of season valuation and say he’s still work £5m.  In that scenario Lawrence hasn’t cost Derby anything in the book.  Multiply that across several players, or on shorter contracts, and you can see how advantageous that is....when comparing it to the accounting policies of the other 70 EFL clubs.

 

Mel Morris's version of sustainability!

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45 minutes ago, Davefevs said:

So let’s take Tom Lawrence, signed for £5m in 2017 on a 5 year deal.

As we currently stand, 2.5 (1/2) years into his contract, his value would be £2.5m.  Let’s take that to the end of the season, and now valued at £2m.

Each season has cost Derby £1m in amortisation.  However Mel might undertake an end of season valuation and say he’s still work £5m.  In that scenario Lawrence hasn’t cost Derby anything in the book.  Multiply that across several players, or on shorter contracts, and you can see how advantageous that is....when comparing it to the accounting policies of the other 70 EFL clubs.

Now imagine sacking Lawrence for his drink-driving:

- EFL method, Derby write off £2.5m

- Mel method, Derby write off £5m ?

Agreed...a potentially notable advantage right there! 100%.

I suppose it has to be accounted for at some point, which is what I assumed the stadium sale and leaseback was to cover...summers 2019 and summers 2020- because though @DerbyFan mentioned the residual method etc, it feels a bit like kicking the can down the road.

Perhaps their plan was to reach PL and then take the hit in summer 2019 or 2020- or sooner in the PL or with Parachute Payments..if there is no big writeoff or big loss on residual value or similar then definitely alarm bells should be ringing! Even if you spread it out, it all has to be amortised eventually?

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11 hours ago, Mr Popodopolous said:

Will reply properly to the Aston Villa post later but it seems a fair and balanced perspective.

https://www.accountingweb.co.uk/business/finance-strategy/derby-charged-under-financial-fair-play-rules

@Coppello @Davefevs @chinapig @downendcity

What makes this interesting is that it seems to be getting noted beyond mere football?

There was an article by Rav Cheema linked last year by Bristol Rob...Property Weekly about the Pride Park transaction.

Wonder if these clubs deals are making waves among accounting, auditing, valuing industries?

Cheers @Mr Popodopolous, I had a read this morning on the way into work it's a good article but there's a couple of points I'd disagree with.

Ultimately, when signing the directors report in the financial statements, management have to take responsibility for the accounting judgements. They've signed the report stating they're required to do the following:

  • Select suitable accounting policies for the Company's financial statements and apply them consistently
  • Make judgments and accounting estimates that are reasonable and prudent;
  • State whether UK accounting standards have been followed, subject to any material departures disclosed in the FS;

They haven't selected suitable accounting policies expected of a Company of its nature, given they've departed from the common practice in industry. The key judgments related to the amortisation and the stadium valuation are not reasonable and prudent. Based on this, I struggle to see how they've complied with UK Companies Act requirements. 

Secondly, I struggle to see how the stadium transaction has complied with the relevant accounting standards given that related parties transactions are required to be at an arms length. I appreciate that an 'independent valuer' was engaged but the auditor should've challenged this as it is clearly extortionate compared to any of revaluations which were conducted in recent years by other clubs. I think a further investigation would no doubt show that it's not an arm length and a significantly smaller gain should be recognised. 

The EFL should've moved a lot quicker than this given that Sheffield Wednesday, Villa, Reading and Birmingham had time to get their stadium valued and finalise all of the paperwork to complete the transaction. The whole sage is a complete mess and does highlight how inept the EFL have been under Harvey's tenure with regards to financial sustainability. I don't have a problem with stadium revaluations in general given that they often get written down significantly despite them still being in use. Selhurst Park had a carrying value of around £4m in the prior year set of financial statements but it's clearly worth a lot more. The sale and leaseback transactions are clearly against the spirit of sustainability and it's something both the EFL and the directors need to be accountable for. 

The EFL should create it's own accounting guidance to ensure that we have a one size fits all policy for all clubs. It should be their interpretation of the UK accounting framework and outline the principles in which the clubs prepare their financial statement from a UK accounting standards perspective (UK GAAP) and a the FFP requirements. The EFL should appoint the independent valuer on their behalf to ensure that we have a consistent application across the board. I could go on but I'm pretty certain we were all saying this 12 months ago! 

 

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Sorry for being late to the party. The two issues in this case being the stadium and amortisation. I was going to reply to a few comments in particular but a more general post may be more appropriate. Apologies in advance to the essay ?

Stadium - independently valued by Jones Lang LaSalle who are the “the second largest company of its kind in the world” which suggests they won’t simply ‘help their mate Mel out’ (seem this on other forums) by overvaluing the stadium. The stadium was valued in 2007 at £55m (c£80m in today’s money) with depreciation of £1,375,000 per year. It was revalued to the same standard in 2013, with the book value depreciating at the same rate. Since 2007, a lot of improvements have been made including: big screens, pitch, concourse heating, cafe, bar/restaurant. 
The EFL were involved in every step of the transaction, and even told us to make adjustments for P&S purposes before approving our accounts. The only issue here could be if Derby misled the EFL, but given the club’s transparency through the process, you’d expect the to be flagged up when the accounts were submitted. 

Amortisation - This is more concerning issue for us due to the unusual policy within football since the Bosman Ruling came in to play - one of the practices being used was assigning a residual value equivalent to amortising a players value over the period until he reached 33 (typical retirement age of the time?). Potentially we’re doing similar now which is a bit dodgy. The method of assigning the residual values can only be guessed, but it’s reasonable to assume when signed, the assigned value at the start of the final year would represent typically value for a player of similar age. This has also been used since the 15/16 - this is where the following statement comes into play. “Had the EFL not given the green light in writing in respect of both charges, the Club would have reacted accordingly.” This is fairly obvious. If we weren’t given approval to use this accounting policy, recruitment and player retention would have differed greatly. We’ve acted in good faith believing we had done nothing wrong, and this remained the same until 2 weeks ago when the EFL made their statement. Over the duration of a player’s contract, there is no difference, but a big advantage is achieved for those first few years. The advantage we had is now gone, and the benefit is at a ‘breakeven point’.

If we are found guilty for one of these two issues, we’d most likely pass P&S for the periods ending June 2018 and 2019, but fail 2020. If guilty of both, it would likely be a small fail for 2018, big for 2019 and extremely large for 2020 (and potentially 2021 too). However, given the “green light” comment from above, I struggle to believe the courts (if it went that far) would see fit for us to be punished. Personally, I believe we’ll end up getting a suspended points penalty (resulting in a big punishment if we fail P&S in the next couple of years), and the rules will be rewritten to prevent ‘unusual account policies’, and a set code for selling stadiums.

Given the quality of our academy, the prospect of a transfer embargo is far from worrying. A couple of frees and/or loans (as allowed under the rules) in the 2 areas we lack depth is all we’ll be looking for - 1 CB out of contract in the summer is close to agreeing terms already.

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On 28/01/2020 at 08:39, Coppello said:

Cheers @Mr Popodopolous, I had a read this morning on the way into work it's a good article but there's a couple of points I'd disagree with.

Ultimately, when signing the directors report in the financial statements, management have to take responsibility for the accounting judgements. They've signed the report stating they're required to do the following:

  • Select suitable accounting policies for the Company's financial statements and apply them consistently
  • Make judgments and accounting estimates that are reasonable and prudent;
  • State whether UK accounting standards have been followed, subject to any material departures disclosed in the FS;

They haven't selected suitable accounting policies expected of a Company of its nature, given they've departed from the common practice in industry. The key judgments related to the amortisation and the stadium valuation are not reasonable and prudent. Based on this, I struggle to see how they've complied with UK Companies Act requirements. 

Secondly, I struggle to see how the stadium transaction has complied with the relevant accounting standards given that related parties transactions are required to be at an arms length. I appreciate that an 'independent valuer' was engaged but the auditor should've challenged this as it is clearly extortionate compared to any of revaluations which were conducted in recent years by other clubs. I think a further investigation would no doubt show that it's not an arm length and a significantly smaller gain should be recognised. 

The EFL should've moved a lot quicker than this given that Sheffield Wednesday, Villa, Reading and Birmingham had time to get their stadium valued and finalise all of the paperwork to complete the transaction. The whole sage is a complete mess and does highlight how inept the EFL have been under Harvey's tenure with regards to financial sustainability. I don't have a problem with stadium revaluations in general given that they often get written down significantly despite them still being in use. Selhurst Park had a carrying value of around £4m in the prior year set of financial statements but it's clearly worth a lot more. The sale and leaseback transactions are clearly against the spirit of sustainability and it's something both the EFL and the directors need to be accountable for. 

The EFL should create it's own accounting guidance to ensure that we have a one size fits all policy for all clubs. It should be their interpretation of the UK accounting framework and outline the principles in which the clubs prepare their financial statement from a UK accounting standards perspective (UK GAAP) and a the FFP requirements. The EFL should appoint the independent valuer on their behalf to ensure that we have a consistent application across the board. I could go on but I'm pretty certain we were all saying this 12 months ago! 

 

Could it be the case for example, that the stadium valued at X under One method and at X under another? However that the EFL chosen method, which all clubs signed up to or enough clubs under FFP might have it at £50m whereas £81.1m might yet be more acceptable under a different method- still seems a big shift though!

Definitely seems to be a big divergence from the Industry standard, for football accounting- in terms of clubs using that method of amortisation, they are the only one of the 92 to do so over here.

Agreed!

Agree on the rest of your post, in fact all of it in general for that matter. A one size fits all should've been in place from the get-go- or even maybe a one size fits all with respect to FFP, whereas the other accounting methods are still acceptable in accounting terms? I don't know...one method for all clubs seems the best by far.

EDIT: In terms of methods, for a unique and specialised fixed asset such as a football stadium. I'm no valuer or accountant ? but I'd have thought that Depreciated Replacement Cost seems quite standard and secondary to that, Value-In-Use? Something I know little about in the case of the latter...beyond that, I don't see how many other valuation methods stack up and certainly not for FFP unless it's actually disposed of, to a genuine third party, in a genuinely arms length transaction?

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On 02/02/2020 at 00:32, AnotherDerbyFan said:

Sorry for being late to the party. The two issues in this case being the stadium and amortisation. I was going to reply to a few comments in particular but a more general post may be more appropriate. Apologies in advance to the essay ?

Stadium - independently valued by Jones Lang LaSalle who are the “the second largest company of its kind in the world” which suggests they won’t simply ‘help their mate Mel out’ (seem this on other forums) by overvaluing the stadium. The stadium was valued in 2007 at £55m (c£80m in today’s money) with depreciation of £1,375,000 per year. It was revalued to the same standard in 2013, with the book value depreciating at the same rate. Since 2007, a lot of improvements have been made including: big screens, pitch, concourse heating, cafe, bar/restaurant. 
The EFL were involved in every step of the transaction, and even told us to make adjustments for P&S purposes before approving our accounts. The only issue here could be if Derby misled the EFL, but given the club’s transparency through the process, you’d expect the to be flagged up when the accounts were submitted. 

Amortisation - This is more concerning issue for us due to the unusual policy within football since the Bosman Ruling came in to play - one of the practices being used was assigning a residual value equivalent to amortising a players value over the period until he reached 33 (typical retirement age of the time?). Potentially we’re doing similar now which is a bit dodgy. The method of assigning the residual values can only be guessed, but it’s reasonable to assume when signed, the assigned value at the start of the final year would represent typically value for a player of similar age. This has also been used since the 15/16 - this is where the following statement comes into play. “Had the EFL not given the green light in writing in respect of both charges, the Club would have reacted accordingly.” This is fairly obvious. If we weren’t given approval to use this accounting policy, recruitment and player retention would have differed greatly. We’ve acted in good faith believing we had done nothing wrong, and this remained the same until 2 weeks ago when the EFL made their statement. Over the duration of a player’s contract, there is no difference, but a big advantage is achieved for those first few years. The advantage we had is now gone, and the benefit is at a ‘breakeven point’.

If we are found guilty for one of these two issues, we’d most likely pass P&S for the periods ending June 2018 and 2019, but fail 2020. If guilty of both, it would likely be a small fail for 2018, big for 2019 and extremely large for 2020 (and potentially 2021 too). However, given the “green light” comment from above, I struggle to believe the courts (if it went that far) would see fit for us to be punished. Personally, I believe we’ll end up getting a suspended points penalty (resulting in a big punishment if we fail P&S in the next couple of years), and the rules will be rewritten to prevent ‘unusual account policies’, and a set code for selling stadiums.

Given the quality of our academy, the prospect of a transfer embargo is far from worrying. A couple of frees and/or loans (as allowed under the rules) in the 2 areas we lack depth is all we’ll be looking for - 1 CB out of contract in the summer is close to agreeing terms already.

Very quick response.

Stadium

May not be a dodgy valuation- maybe the case that the different methods can throw up vastly different results- ie no blame as such in this respect, save for using the incorrect method. In 2007 and 2013, I believe Pride Park was valued using DRC- 2018, we have no idea.

Improvement would add value, but which method was used for the valuation? This can be crucial- not just for Derby but in general. Additionally, value added would also increase the Depreciation charge by the equivalent, applicable rate, would it not? Well not rate but total amount assumng the same %.

Again, maybe the EFL approved the transaction in principle but had a different interpretation on the valuation, the valuation method or even the profit for FFP purposes. Perfectly possible...Accounting or so I've read, a lot of this can come down to judgements albeit within the framework and valuation methods possibly similar? In other words, it might be possible that there are two valuation methods both legitimate in their own right, with two different figures- but that the EFL one takes precedence for FFP purposes?

Amortisation

This bit is certainly quite interesting. So does this method basically amortise until age 33 and if they leave before then, this remaining value goes against the accounts and if they leave at or beyond age 33, then the value is zero? Probably got this one quite a bit wrong though!

I did wonder previously if the stadium sale wasn't so much for the 3 years to June 2018, but either of the three to June 2019 or more likely to June 2020, to absorb the hit of the out of contract players with remaining value- there is a big advantage as you say for the first few years, but the 'break-even point' feels like a big hit in either summer 2019, 2020- or both.

2020 I always assumed might be the big fail for not only yourselves, but also Reading and Sheffield Wednesday. Possibly Birmingham again and Aston Villa who knows. The stadium sale would fall off for 2021 in any case, the 3 year period beginning 2018-19 so I'd have thought a big fail is possible in one of these years.

Courts is an interesting threat, but all clubs must agree in writing to arbitration as part of their membership- it's notable that neither Birmingham or QPR went down the Court route beyond the EFL procedures so I wonder how it would affect an agreement of membership to take it to external courts? FIFA would be quite interested too...not in the FFP case but the court element, it could go well beyond FFP.

Depends...if the amortisation method allowed to stand, how big a hit would come in summers 2019 and 2020? A downvalue of the profit on Pride Park of 30 million or so would have a significant impact here!

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On 24/01/2020 at 09:31, AnAstonVillafan said:

Most Aston Villa supporters simply do not understand FFP. Many think it's a system to keep the big clubs rich and stop their dominance from being challenged.

Until we were relegated the majority didn't know what it was. (My wife is a Nottingham Forest fan so I had a little heads up). I have spent a lot of time explaining it to members of my Facebook group.

I hate what we've done with the stadium. It could backfire on us very badly in ways a lot of people don't realise.

As for entitled fans, I'm 41 years old. Anyone my age or older than me will remember "the good times". Cup Final wins and European nights.

That generation finds relegation, sustainability, pragmatism, restraint, etc very hard to accept. I can understand it, but the club was at the top table for 27 years consecutively, run well and kept solvent until Lerner arrived. They need to get used to a different reality.

Hi, finally got around to responding.

Might be something in that...nonetheless we shall see, I read that Real Madrid were looking to offload to comply, with the secondary FFP reg of 100 million euros net spend, I think they comply with the loss limits, and you don't get much bigger than them! AC Milan too have offloaded quite a lot this January- they've tried challenging FFP but maybe looking to try to comply for now...7 European Cups, we all know their size! They've sold players, loaned with option/obligation to buy- reducing cost base? Loaning out Ricardo Rodriguez. Whether it's a ruse or not, I think a lot of clubs take it seriously regardless of size.

Fair. It's not really had much PL coverage tbh, not least as it's almost impossible to fail in the PL- see 105 million loss limits, plus some costs too and TV money- I don't see how it can be failed if a side is in the PL for 3 seasons or more...how such high loss limits have anything to do with profitability or sustainability is beyond me!

In sense of owners selling it for housing/commercial property or similar?  Many pitfalls are possible when club and stadium separated though and not even necessarily through malevolence- e.g. if an owner owns the ground and has serious cash issues, that can go wrong? Plus the malevolence or arrogance...see SISU.

It's probably online.

I think Doug Ellis (RIP) may have stuck to FFP? Possibly Lerner too even. Will be interesting to see how things progress.

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I forgot to add to @AnotherDerbyFan

You mention the uptick factors and rightly so, but I note that Pride Park has no naming rights now.

Which is quite fine and probably good for football tbh in terms of a lack of ground naming rights, but the Ricoh Arena fell from £60m in one years accounts to £51m the next...for this very reason, no long term sponsorship in place. Should be factored in one of the possible reasons for the differential in prices IMO. Over several years, could this be multiplied- both up to the present and moving forward? November 2016, you terminated the iPro deal.

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On 03/02/2020 at 16:50, Mr Popodopolous said:

I forgot to add to @AnotherDerbyFan

You mention the uptick factors and rightly so, but I note that Pride Park has no naming rights now.

Which is quite fine and probably good for football tbh in terms of a lack of ground naming rights, but the Ricoh Arena fell from £60m in one years accounts to £51m the next...for this very reason, no long term sponsorship in place. Should be factored in one of the possible reasons for the differential in prices IMO. Over several years, could this be multiplied- both up to the present and moving forward? November 2016, you terminated the iPro deal.

That may not be applicable in our case. The previous valuation was May 2013, whereas we didn’t complete the iPro deal until December 2013. Due to the unexpected collapse of the deal in 2017, I often wondered if we were given extra legroom for P&S for a year or two. I guess we’ll never know the answer to that though. 

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On 03/02/2020 at 15:17, Mr Popodopolous said:

Very quick response.

Stadium

May not be a dodgy valuation- maybe the case that the different methods can throw up vastly different results- ie no blame as such in this respect, save for using the incorrect method. In 2007 and 2013, I believe Pride Park was valued using DRC- 2018, we have no idea.

Improvement would add value, but which method was used for the valuation? This can be crucial- not just for Derby but in general. Additionally, value added would also increase the Depreciation charge by the equivalent, applicable rate, would it not? Well not rate but total amount assumng the same %.

Again, maybe the EFL approved the transaction in principle but had a different interpretation on the valuation, the valuation method or even the profit for FFP purposes. Perfectly possible...Accounting or so I've read, a lot of this can come down to judgements albeit within the framework and valuation methods possibly similar? In other words, it might be possible that there are two valuation methods both legitimate in their own right, with two different figures- but that the EFL one takes precedence for FFP purposes?

Amortisation

This bit is certainly quite interesting. So does this method basically amortise until age 33 and if they leave before then, this remaining value goes against the accounts and if they leave at or beyond age 33, then the value is zero? Probably got this one quite a bit wrong though!

I did wonder previously if the stadium sale wasn't so much for the 3 years to June 2018, but either of the three to June 2019 or more likely to June 2020, to absorb the hit of the out of contract players with remaining value- there is a big advantage as you say for the first few years, but the 'break-even point' feels like a big hit in either summer 2019, 2020- or both.

2020 I always assumed might be the big fail for not only yourselves, but also Reading and Sheffield Wednesday. Possibly Birmingham again and Aston Villa who knows. The stadium sale would fall off for 2021 in any case, the 3 year period beginning 2018-19 so I'd have thought a big fail is possible in one of these years.

Courts is an interesting threat, but all clubs must agree in writing to arbitration as part of their membership- it's notable that neither Birmingham or QPR went down the Court route beyond the EFL procedures so I wonder how it would affect an agreement of membership to take it to external courts? FIFA would be quite interested too...not in the FFP case but the court element, it could go well beyond FFP.

Depends...if the amortisation method allowed to stand, how big a hit would come in summers 2019 and 2020? A downvalue of the profit on Pride Park of 30 million or so would have a significant impact here!

Stadium
Depreciated replacement cost basis on all 3 occasions. This seems to be the standard method for validating football stadiums?

Amortisation
So does this method basically amortise until age 33 and if they leave before then, this remaining value goes against the accounts and if they leave at or beyond age 33, then the value is zero?” Yes. Using estimates for transfer fees and an age of 35 (average retirement age?), the resulting figures loosely tie in with the amortisation on the accounts, so this may be how we’ve done it, but I have my doubts. I don’t think there’s a chance we could get away with doing it this way. 
Rather than the residual value being at the end of the contract, I interpret it to be estimated value at the end of the final year of contract. Amortisation is then taken account of on a straight line basis between this point and the start of the contract, adjusted in case of a contract extension or impairment. We don’t tend to see values drop too much even with 6 months of a contract left (look at Bowen as an example). How we determine the residual value is uncertain - could be based on something similar to the retirement age mentioned above; maybe a % of the original fee, etc...

The benefits last for as long as the players remain under contract. Johnson, Butterfield, Blackman and Thorne have all left the club in the current accounting period. Given they were signed for a combined £20m and left for nothing, it’s almost certain the stadium sale was with a view to when those players left. I’m not sure why we forced the losses on the first 3 into 2020 - they were given extensions until the end of this season, but were allowed to leave on frees back in July.

If we are punished and previous figures restated, 2021 becomes a problem due to the unexpected (an non-budgeted) increase in amortisation during that period. 
 

I’m led to believe a club failing P&S have their losses for the failed years set to £13m (so as to not be punished multiple times for the same offence). If this is true, then Birmingham will be safe for the period ending 2019. Wednesday the only ones to watch when the 2019 accounts are released later this season. Reading and QPR to watch in 2020 - West Brom and Stoke may get dragged into this group if they’re still in this division.

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49 minutes ago, AnotherDerbyFan said:

That may not be applicable in our case. The previous valuation was May 2013, whereas we didn’t complete the iPro deal until December 2013. Due to the unexpected collapse of the deal in 2017, I often wondered if we were given extra legroom for P&S for a year or two. I guess we’ll never know the answer to that though. 

Why would you be given extra legroom for a year or two?

Was it the unexpected collapse of the deal- reports granted from the time said you withdrew it and reverted back to Pride Park- that would have an impact on the valuation, Ricoh with no long term sponsor saw a 15% fall within one year!

No free passes is how it should be run and no free passes is how I hope it currently is being!

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Interesting update too. Will discuss the other posts in depth later.

Derby have hired Nick De Marco- the of Blackstone Chambers. This is quite interesting and possibly unorthodox because the chairman of the Commission  for the Birmingham case- Charles Flint QC- and the company that they enlisted last Autumn with regards these investigations- these two indeed three had something in common as it was...

Blackstone Chambers!!

Could we get two barristers from the same company up against each other in this hearing?? Or at least with one as chairman and one representing Derby!?

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10 hours ago, AnotherDerbyFan said:

Stadium
Depreciated replacement cost basis on all 3 occasions. This seems to be the standard method for validating football stadiums?

Amortisation
So does this method basically amortise until age 33 and if they leave before then, this remaining value goes against the accounts and if they leave at or beyond age 33, then the value is zero?” Yes. Using estimates for transfer fees and an age of 35 (average retirement age?), the resulting figures loosely tie in with the amortisation on the accounts, so this may be how we’ve done it, but I have my doubts. I don’t think there’s a chance we could get away with doing it this way. 
Rather than the residual value being at the end of the contract, I interpret it to be estimated value at the end of the final year of contract. Amortisation is then taken account of on a straight line basis between this point and the start of the contract, adjusted in case of a contract extension or impairment. We don’t tend to see values drop too much even with 6 months of a contract left (look at Bowen as an example). How we determine the residual value is uncertain - could be based on something similar to the retirement age mentioned above; maybe a % of the original fee, etc...

The benefits last for as long as the players remain under contract. Johnson, Butterfield, Blackman and Thorne have all left the club in the current accounting period. Given they were signed for a combined £20m and left for nothing, it’s almost certain the stadium sale was with a view to when those players left. I’m not sure why we forced the losses on the first 3 into 2020 - they were given extensions until the end of this season, but were allowed to leave on frees back in July.

If we are punished and previous figures restated, 2021 becomes a problem due to the unexpected (an non-budgeted) increase in amortisation during that period. 
 

I’m led to believe a club failing P&S have their losses for the failed years set to £13m (so as to not be punished multiple times for the same offence). If this is true, then Birmingham will be safe for the period ending 2019. Wednesday the only ones to watch when the 2019 accounts are released later this season. Reading and QPR to watch in 2020 - West Brom and Stoke may get dragged into this group if they’re still in this division.

Stadium
Well yes, this seems like the sensible- the appropriate method for valuation of football stadia and equivalent buildings. I also would suggest that value-in-use and certainly existing use value might be considered as acceptable but it'd be ideal to have one method for all, even if only for FFP purposes but certainly for transactions of this nature under FFP! I'm not so sure on Value-in-use but DRC and Existing use value/basis seem sensible methods to me. The method of valuation however was not stated in your accounts, nor was it in Sheffield Wednesday's. There was nothing in Reading's and Birmingham's likewise didn't state the method- Aston Villa we don't know, won't know until their accounts are released which should be within a month! Possible I've missed it in the accounts but happy to look through a few years. These are near direct quotes but bits are paraphrased as well!

Quote
  1. 11th December 2007- Valued prepared on on a DRC basis, £55m by King Sturge LLP, made in accordance with RICS Assets Statements of Valuation Practice and Guidance Notes. Based on this valuation, the stadium has been revalued to £55,000,000.
  2. 23rd May 2013- Valued prepared on a DRC basis by independent valuers Jones LangLaSalle, made in accordance with RICS Assets Statements of Valuation Practice and Guidance Notes. Based on this valuation, the Directors have assessed the carrying value of the freehold buildings and determined that the current value is appropriate.
  3. 2017-18 Accounts- Nothing! Nothing about valuation, nothing about the date of valuation, nothing about method specifically, nothing about company that carried it out- nothing! I don't doubt that one took place but not even reference, save for some stuff in the Financial and Business Review which states that "The company recorded a profit of £14.6m for the year to 30 June 2018 as a result of selling and leasing back Pride Park Stadium which created a gain of £39.9m. The Company and its board of directors took the difficult decision to fully realise the market value of the stadium from its balance sheet after consideration of the Club's P&S position for forthcoming years."

Amortisation
Thanks. So in one possible scenario where the average age is 35 for retirement of player that means that a player is essentially signed age 27 for I don't know, £8m on a 4 year deal, it's divide by 8 rather than a 4 year contract? It all seems a bit murky. Would mean that when released though age 31, the remaining 4 year hit needs to be taken!

Estimated value at end of contract is interesting and very subjective...residual value at the end might be okay, but estimated value seems really open to fiddles IMO! Not saying it's happened or happening, but it seems very questionable for use in the football industry, unless I'm getting this wrong. Assumed retirement age makes a bit more sense, many methods probably- but the EFL should have a standardised method of amortisation tbh.

I was always under the assumption that the stadium sale wasn't to cover to June 2018 but for the next two years or at least to June 2019- but more likely June 2020. Could the Johnson, Butterfield and Blackman deals especially have been to push an extra year on and therefore when one accounting year ends another begins and it knocks a % off the financial hit? I don't know...or looking to do it while the cushion of the stadium sale in place. I also wondered if the Impairment of Goodwill that was large in summer 2015 or 2015/16 was something similar in terms of taking a hit on remaining residual value but latterly don't think so- in other words wondered if we would see a large Impairment of Goodwill in the 2018/19 or 2019/20 accounts for those out of contract players.

It could well do- but then increase in amortisation but also a restated increase in profit on transfers? Still probably would cause more issues than solve though.

Sounds about right- Birmingham are actually possibly facing charges of some kind, though could be minor ones for a) Not selling Adams last January or that's one line or b) Maybe not sticking to the business plan...owing to the stadium sale the EFL surely can't judge them on £13m for last season unless it's adjusted for FFP purposes- to me, until their obligations from that huge overspend are fulfilled they should be judged on £13m for this season too but the stadium sale knocking several million off that...maybe that's part of the EFL's issue with them!

Broadly agree with those sides...been reading that Blackburn maybe close to the mark as well, but think they're one of those sides who are just walking the line but not quite in breach. A particularly interesting one there is Reading, I'm struggling to see how they are currently compliant- that's even perhaps including the stadium sale- compliant to June 2019 maybe but still hard to say, but to June 2020...?

Oh of course and if they come back down...Aston Villa could well have some significant questions to answer!

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Just took another quick look too- I don't know whether to include Transfer fees, Levies and other associated costs but on a quick look and do we include or exclude those for Amortisation as Derby list them separately- as might all clubs tbh?

Anyway, using this method, Derby's amortisation costs were as follows for 2015/16, 2016/17 and 2017/18:

  1. 2015-16- £3,370,000- mind you at this time their Accounting Policies stated that they were using the standard method- that's inclusive of the Transfer Fees, Levies and other associated costs as well- if we disregard that then it'd be  £2,632,000.
  2. 2016-17- £5,049,164- this is using the new Residual Value ones though- inclusive too of the Transfer Fees, Levies and other associated costs as well- take that away and it's £4,354,516.
  3. 2017-18- £6,540,038- this is using the new Residual Value ones though- inclusive too of the Transfer Fees, Levies and other associated costs as well- remove that and it's £4,321,279.

What confuses me slightly though is that in the Financial and Business Review for 2017-18, presumably with this new Accounting Policy well under way, it states the following:

Quote

"Other disposals related to players whose contracts expired on 30 June 2018 meaning there was no impact on the profit and loss result."

How does that fit with residual values then??

I've not looked at Residual values in any great depth but it seems to suggest, or at least on a preliminary basis that while you can amortise those you sign on a residual basis, with respect to disposal of Player Registrations, there is a different message- as there was in 2016/17 accounts- will stick in the name and the relevant bit for context:

Quote

2.4 Intangible assets

Player Registrations, levies and associated costs

"The profit or loss on sale of players' registrations represents the proceeds of sale less the net book value of the registration, levy and associated costs."

Right. I may well have this very wrong but it appears on first glance that could have used Residual Value for purchasing players- but standard profit on sale, in terms of fee- net book value for sale of players.

The fact too that players seemed to leave on frees in summer 2018 and there was no impact on profit or loss, seems a bit inconsistent given the purchasing method spreads the cost but leaves a potential residual value, doesn't it?

The one aspect that makes me think again is a note in the Post Balance Sheet Events:

Quote

Player Registrations

In the period since the end of the financial year, the Company has entered into agreements to dispose of first team players with a net book value of £12,819,777 for £11,704,300.

This bit makes me think it could yet be working...the players and that included Vydra, sold at a loss! That loss adds to the FFP deficit so, on the Amortisation I'm still a bit undecided.

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On 06/02/2020 at 08:54, Mr Popodopolous said:

Why would you be given extra legroom for a year or two?

Was it the unexpected collapse of the deal- reports granted from the time said you withdrew it and reverted back to Pride Park- that would have an impact on the valuation, Ricoh with no long term sponsor saw a 15% fall within one year!

No free passes is how it should be run and no free passes is how I hope it currently is being!

iPro couldn't provide the funds promised, hence the deal coming to an abrupt end. I find it reasonable to assume allowances would be conceded by the EFL to consider the circumstances.
The 2013 valuation was before the iPro deal, and the 2017 valuation was after the iPro deal. This is why I don't see naming rights as a factor in the valuation.

19 hours ago, Mr Popodopolous said:

Stadium
Well yes, this seems like the sensible- the appropriate method for valuation of football stadia and equivalent buildings. I also would suggest that value-in-use and certainly existing use value might be considered as acceptable but it'd be ideal to have one method for all, even if only for FFP purposes but certainly for transactions of this nature under FFP! I'm not so sure on Value-in-use but DRC and Existing use value/basis seem sensible methods to me. The method of valuation however was not stated in your accounts, nor was it in Sheffield Wednesday's. There was nothing in Reading's and Birmingham's likewise didn't state the method- Aston Villa we don't know, won't know until their accounts are released which should be within a month! Possible I've missed it in the accounts but happy to look through a few years. These are near direct quotes but bits are paraphrased as well!

I'm certain the same valuation method is mentioned somewhere... I'll try to dig it out when I have the chance. I'll be surprised if the method did change.

I agree on a one size fits all approach, which I reckon our hearing will result in.

19 hours ago, Mr Popodopolous said:

Amortisation
Thanks. So in one possible scenario where the average age is 35 for retirement of player that means that a player is essentially signed age 27 for I don't know, £8m on a 4 year deal, it's divide by 8 rather than a 4 year contract? It all seems a bit murky. Would mean that when released though age 31, the remaining 4 year hit needs to be taken!

Yep (as previously stated, I doubt we've taken this approach)

19 hours ago, Mr Popodopolous said:

Estimated value at end of contract is interesting and very subjective...residual value at the end might be okay, but estimated value seems really open to fiddles IMO! Not saying it's happened or happening, but it seems very questionable for use in the football industry, unless I'm getting this wrong. Assumed retirement age makes a bit more sense, many methods probably- but the EFL should have a standardised method of amortisation tbh.

I agree on a standardised approach, but I believe there are still 3 others (not including Derby's).
1. Amortised over original contract duration
2. Amortised over original contract duration but adjusted if a new contract is  signed. [£4m on a 4 year deal = £1m per year. New 4 year deal after 2 years = £0.5m per year over remaining years]
3. Impairment if player suffers serious injury or club is relegated.

19 hours ago, Mr Popodopolous said:

I was always under the assumption that the stadium sale wasn't to cover to June 2018 but for the next two years or at least to June 2019- but more likely June 2020. Could the Johnson, Butterfield and Blackman deals especially have been to push an extra year on and therefore when one accounting year ends another begins and it knocks a % off the financial hit? I don't know...or looking to do it while the cushion of the stadium sale in place. I also wondered if the Impairment of Goodwill that was large in summer 2015 or 2015/16 was something similar in terms of taking a hit on remaining residual value but latterly don't think so- in other words wondered if we would see a large Impairment of Goodwill in the 2018/19 or 2019/20 accounts for those out of contract players.

I can't see us extending those deals to spread the financial hit. My best guess would be us hoping to get a fee for them rather than letting them go on a free.

19 hours ago, Mr Popodopolous said:

It could well do- but then increase in amortisation but also a restated increase in profit on transfers? Still probably would cause more issues than solve though.

As players bought and sold within the 17/18 accounting period would have no net effect we can ignore those. Therefore, in this period, restated amortisation would increase, with no change in profit of sales.
18/19 - more profit on Vydra's sale may roughly balance out increase in amortisation
19/20 - No sales so no restated profit on sales

19 hours ago, Mr Popodopolous said:

Sounds about right- Birmingham are actually possibly facing charges of some kind, though could be minor ones for a) Not selling Adams last January or that's one line or b) Maybe not sticking to the business plan...owing to the stadium sale the EFL surely can't judge them on £13m for last season unless it's adjusted for FFP purposes- to me, until their obligations from that huge overspend are fulfilled they should be judged on £13m for this season too but the stadium sale knocking several million off that...maybe that's part of the EFL's issue with them!

Broadly agree with those sides...been reading that Blackburn maybe close to the mark as well, but think they're one of those sides who are just walking the line but not quite in breach. A particularly interesting one there is Reading, I'm struggling to see how they are currently compliant- that's even perhaps including the stadium sale- compliant to June 2019 maybe but still hard to say, but to June 2020...?

Oh of course and if they come back down...Aston Villa could well have some significant questions to answer!

Birmingham's an odd one regarding Adams. I seem to recall the EFL not happy with them not selling in January, but Birmingham actually receiving a larger fee in the summer.

Blackburn, on paper look quite safe - but I haven't looked into how much the owner has been 'donating' so they may actually have a limit much lower than £39m.

As for Reading... they're a cat 1 academy so academy exemptions (for P&S) will be around £5m, Looking at the club accounts, that would mean they're a few £m inside the limit for 18/19. but potentially around £10m over the budget for 19/20 (assuming little difference in wages).

The one I cant get my head around is Fulham passing in 17/18, unless they paid out promotion bonuses of £20m+.

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Think it's been said before but I love that we have this thread and the FFP one, its a genuinely fascinating read and helps people (well me anyway ?) make sense of the whole thing. It's great to have fans from the clubs involved contribute too, gives a bit of balance and helps challenge what I might be thinking. Thanks everyone. 

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15 minutes ago, BCFC Richard said:

Think it's been said before but I love that we have this thread and the FFP one, its a genuinely fascinating read and helps people (well me anyway ?) make sense of the whole thing. It's great to have fans from the clubs involved contribute too, gives a bit of balance and helps challenge what I might be thinking. Thanks everyone. 

Agree Richard, and although I like to think I'm no ignoramus regarding finance in general, it's been an eye opener to have contributions from some of our own fans who obviously have a properly detailed knowledge of football finances and have done a lot of work and digging to then enlighten us mere mortals.

It's also interesting to read the contributions from fans of other clubs , especially bearing in mind that their clubs are very much in the spotlight due to suspicions that they may have breached ffp. Again it seems fairly clear that some of them speak from a pretty clear understanding of football finances and the ffp rules, and  allowing for their understandable defence of their clubs' positions it's good to read sensible and constructive posts and debate, even when under pressure from some of us.

What is also clear , both from contributions by City fans  and those of other clubs, is that there are still many fans out there that don't understand the ffp rules and the implications therefof, so believe that a wealthy owner should be able to dip his hand in  his/her pocket and buy success! What is also and sadly clear, is that the EFL have contributed to the mess that has been ffp management over the last 12 months or so. It is bonkers that a club can circumvent ffp by breaking  a rule that didn't exist because the rule makers "forgot" to include it in the new rule book!

As a result, and as others have mentioned, it seems there needs to be a hasty revision of ffp and new rules quickly put in place in order to eliminate any loopholes and to give clear unambiguous guidelines regarding issues such as how fair value is determined ( if they still allow sale of fixed assets to related third parties) and a standard formula for amortisation of players contracts ( to avoid the apparent anomaly in Derby's case).

 

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I think having fans from the other clubs speak helps dampen my frustration that some clubs may have tried to cheat the system. It's good to remember that ultimately the fans are the ones who suffer - if SL did this too we'd have no say in it, but would have to pay the price if found out. I hope that if there has been wrong doing it is exposed but It will be hard on the the fans affected who had no control over it. 

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3 hours ago, AnotherDerbyFan said:

iPro couldn't provide the funds promised, hence the deal coming to an abrupt end. I find it reasonable to assume allowances would be conceded by the EFL to consider the circumstances.
The 2013 valuation was before the iPro deal, and the 2017 valuation was after the iPro deal. This is why I don't see naming rights as a factor in the valuation.

I'm certain the same valuation method is mentioned somewhere... I'll try to dig it out when I have the chance. I'll be surprised if the method did change.

I agree on a one size fits all approach, which I reckon our hearing will result in.

Yep (as previously stated, I doubt we've taken this approach)

I agree on a standardised approach, but I believe there are still 3 others (not including Derby's).
1. Amortised over original contract duration
2. Amortised over original contract duration but adjusted if a new contract is  signed. [£4m on a 4 year deal = £1m per year. New 4 year deal after 2 years = £0.5m per year over remaining years]
3. Impairment if player suffers serious injury or club is relegated.

I can't see us extending those deals to spread the financial hit. My best guess would be us hoping to get a fee for them rather than letting them go on a free.

As players bought and sold within the 17/18 accounting period would have no net effect we can ignore those. Therefore, in this period, restated amortisation would increase, with no change in profit of sales.
18/19 - more profit on Vydra's sale may roughly balance out increase in amortisation
19/20 - No sales so no restated profit on sales

Birmingham's an odd one regarding Adams. I seem to recall the EFL not happy with them not selling in January, but Birmingham actually receiving a larger fee in the summer.

Blackburn, on paper look quite safe - but I haven't looked into how much the owner has been 'donating' so they may actually have a limit much lower than £39m.

As for Reading... they're a cat 1 academy so academy exemptions (for P&S) will be around £5m, Looking at the club accounts, that would mean they're a few £m inside the limit for 18/19. but potentially around £10m over the budget for 19/20 (assuming little difference in wages).

The one I cant get my head around is Fulham passing in 17/18, unless they paid out promotion bonuses of £20m+.

From what I've read, clubs were not surprisingly trying to lowball Birmingham last January. However there is quite a wide range of figures, some say the offer was £9m, read £8m and indeed £6m on various Birmingham pages but Sky Sources suggested Burnley offered £12m on deadline day! Once you strip our the sell on clause to Sheffield United, is there such a difference that you can justify turning down the latter? Assuming it wasn't a structured deal of course. 

Hard to say with Blackburn. Their losses in 2017-18 in League One are the new starting point. I was using Venkys London Limited figures but I believe they're complying, unsure by how much though.

Readings's academy infrastructure undoubtedly removes costs and they're fine to 2017/18 but I wonder about to 2018/19. They had a £9-10m loan cancellation or something in 2016/17, and under FFP I don't know if it should count- that may change things again? Certainly agree about them losing in 2019/20 as it stands!

Think they had promotion bonuses of somewhere between £15-20m. Also worth looking at the Holding Company Accounts assuming that you haven't already. Quite a lot of purchase of Tangible Fixed Assets which doesn't IIRC go against FFP.

One more to ponder. Cardiff City Stadium revaluation in May 2018...wonder if that a) Counted towards FFP and b) Should be looked at afresh if so.

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