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City release accounts - Ouch!


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I wouldn't think so, the club have been cutting their cloth. With the release of so many players last season, moving on higher earners or offering reduced terms. We have made no significant signings and are using academy players to plug gaps... It might be close, but think the club have this under control.

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Having just read the article, I think this may be a tactical interview to push for short and long term amendments/reforms.

City didn’t need to release their accounts before any other club, or give this interview, but they did. Early and “honest” seems to be a calculated strategy.

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What still annoys me is why MA didnt sell Diedhiou 18 months ago when he was still a saleable asset. It was obvious at the time that Fam wasn't going to sign a new deal and run his contract down.  Maybe we could have got £1m for him but MA said that he was more value to us on the pitch rather than being sold. Well although £1m is peanuts in football terms these days, that money might have come in very handy. 

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28 minutes ago, westonred said:

What still annoys me is why MA didnt sell Diedhiou 18 months ago when he was still a saleable asset. It was obvious at the time that Fam wasn't going to sign a new deal and run his contract down.  Maybe we could have got £1m for him but MA said that he was more value to us on the pitch rather than being sold. Well although £1m is peanuts in football terms these days, that money might have come in very handy. 

Yes, and also, if watford bid 8 million for massengo in the summer, who in their right mind would turn that down?

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1 hour ago, Simon bristol said:

Yes, and also, if watford bid 8 million for massengo in the summer, who in their right mind would turn that down?

I can't believe they bid that. Not even if it was actually £3 million + £5 million in add ons. 

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1 hour ago, Simon bristol said:

Yes, and also, if watford bid 8 million for massengo in the summer, who in their right mind would turn that down?

A club who's best player is still under contract who feels the valuation didn't match its own

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6 hours ago, westonred said:

What still annoys me is why MA didnt sell Diedhiou 18 months ago when he was still a saleable asset. It was obvious at the time that Fam wasn't going to sign a new deal and run his contract down.  Maybe we could have got £1m for him but MA said that he was more value to us on the pitch rather than being sold. Well although £1m is peanuts in football terms these days, that money might have come in very handy. 

More annoying was that we got absolutely sweet fa value out of him on the pitch post January. 

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Just now, Dredd said:

More annoying was that we got absolutely sweet fa value out of him on the pitch post January. 

I said at the time, the worst thing MA did was say he’d offered Fam a very good contract (one of the best ever) and then say everyone else would have to wait until the summer.

Absolute *******.

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I have to say, bits of this worry me- re-read Gould's comments this morning and I hope we continue to do the right things but in recent times rules have been tightened, loopholes closed and potentially precedents set...

Quote

City estimate that, by next year, the pandemic has cost them around £30m in lost transfer revenue, based on previous earnings, a number that would have, in theory, moved them significantly closer to being in the black.

That doesn't strike me as an Covid FFP add back, sorry. Just doesn't- how do you prove and quantify for one?

Quote

Discussions are still being held to establish whether forecast transfer revenue can be included, along with ticket sales, as an “add-back”, with City to seek independent auditors and transfer experts to determine the full figure, which is deeply subjective.

Ticket sales yes, corporate revenue yes and some other related football specific revenue that we and all clubs had to forego due to Covid, of course- forecast transfer revenue?? No, clutching quite badly there IMO.

As for independent auditors and transfer experts...no I don't think that ultimately flies- there was a very important line in the Derby settlement that I feel could set a precedent.

Paragraph 21 and Paragraph 20 offers a bit of context.

image.png.b632dfa816cb11ec54af5d87eb187534.png

It's about a specific issue- whether a Revaluation Reserve can mitigate losses after disposal- but unfortunately the line

Quote

"a matter of compliance with relevant accounting standards in the context of the EFL's Regulations"

This feels like it could be used for many issues, to cover a lot of bases.

Quote

However, with the majority of the Championship’s clubs to publish their accounts in the coming weeks, and substantial losses expected across the board, the EFL may be forced to further amend the system.

Then you have a serious problem because a) Reading were docked points in the amended 3 years to 2021 and b) Derby's settlement covered the 3 years to 2017, the 3 years to 2019 and the amended 3 years to 2021- you surely cannot then change that mid-stream.

Quote

In effect, by next year, a significant number of the division’s 24 clubs could be falling foul of Profit & Sustainability and therefore liable for points deduction, which harms not only the future of those clubs and the league, but the credibility of the domestic game.

“Are we blameless? Probably not,” Gould told Bristol Live. “Because we have spent quite a lot of money on transfers and our player salaries have gone up quite significantly over the last three or four years.

"That was all fine while there was a transfer market there to fund it. But now there isn’t, or at least there isn’t one the way that it was, that’s where we start falling foul of FFP.

I'm sorry it sounds unconvincing to me.

Quote

“Where the uncertainty is, to what extent will the EFL accept there has been a crash in the transfer market? We have this bow wave of costs that is coming year-on-year closer to the FFP element and with the loss of transfer income, there is not much we can do.

“There is some stuff we can do, but it’s whether or not we choose to: do we want to sell all our best players this summer? No. Do we want to try and convince the EFL that FFP is now useless because there’s been an act of God called Covid that has changed the entire market? Yes, we think there’s a good case for that.”

It has been amended though and the crucial test will be, what leeway was given to Reading and Derby in the agreed settlements? Was it merely losses of matchday revenue losses excluded, was it matchday revenue and corporate- was it matchday revenue, corporate and other football matters but excluding transfers? Amended in a) The averaging of 2019/20 and 2020/21 and exclusion of losses directly attributable to Covid.

It is also surely weakened by the following transfers during the Pandemic and the immediate aftermath...Watkins and Benrahma from Brentford, Cash from Nottingham Forest, Armstrong from Blackburn, Collins from Stoke- all 5 of these spring to mind but there are others? Brennan Johnson is also linked for big money and we don't even look at relegated clubs who have sold big as they are effectively PL players who have taken a step down.

Quote

The CEO has also indicated that, should it come down to it, the Robins may be more willing to stomach a points deduction rather than taking pennies in the pound for some of their best players.

The problem here is that he is not mentioning the unspoken details of P&S/FFP. I see where he is coming from but he is not mentioning...

  1. The risk of a Soft Embargo.
  2. The risk of a Hard Embargo.
  3. Future Financial Information. This is whereby a club if they fall between lower and higher limits have to submit by April to the EFL, their projections for the following 2 seasons. When you join it all up it's very useful for monitoring purposes.
  4. EFL Business Plans- see the Reading case as an example, they were docked 6 immediately and a further 6 might be added if they fall foul of any one of a range of requirements- but that 6 to 12 if it materialises won't mitigate against future charges etc. They also seemed to be working under restrictions last season and this summer it was 6 signings at £8.5k per week- of course they had a helper in Chelsea who sent them Rahman and Drinkwater very cheaply and Chelsea do help them out- but their player salary budget etc needs to fall to £16m next season.
  5. Contract extensions- even these can become problematic if a club fall into the FFP quicksand. In 2018, it was reported that Birmingham were unable to renew Morrison and even struggling to renew certain players. In 2020, it was reported that Reading might have issues- we all know about Derby not being able to renew Marriott, because if the proposed extension falls outside of the wage allowance and a club are in that position, they have to go cap in hand to the EFL and it may well be rejected. Stoke even reported not being able to extend/offer a new contract to Nick Powell last April.
  6. Budgets to ensure compliance in the present- Reading got 6 players on £8.5k per week per player, no loan fees, transfer fees and no contracts exceeding 12 months- Carroll they may or may not be able to renew, probably have to see what EFL say. Derby signed 4 players on £4.5k per week per player initially- no transfer fee, no loan fee, no permanent contracts exceeding 12 months, no loan contracts exceeding 6 months. In fact at one point the EFL were leaning towards a full embargo- see the Professional Standing Rule and although Derby had 19 players of Professional Standing ordinarily- the limit is 23- they had to field a load of kids vs Chorley a lot of whom got their one and only start, was due to a Covid outbreak a year back and the EFL said "Well you have over 23 players of one appearance or above so what you moaning about".

The thing about not selling players is also a problem...that could be part of a business plan to ensure compliance. Birmingham initially won their Che Adams case but this was overturned on appeal. There was a key part of the ruling which makes me wonder about the wisdom of refusing. Is it the sanction- or the ruling- that sets a precedent?

image.png.1edc37057b6c85e8b7407cff4b12ddc3.png

Ruling or Sanction that sets a precedent?

image.thumb.png.91ec0c962165ee81b7d5dc9da5eda264.png

If anyone wishes to read the full appeal ruling etc. Note that

Quote

"the sanction in this case is no precedent of any kind for the type of sanction which will be appropriate normally in cases in which a club is found to have engaged in misconduct by failing to comply with an agreed budget under Regulation 16.20"

https://www.efl.com/siteassets/image/201920/1920-judgements/efl-v-birmingham-fc---appeal.pdf

In this instance the follow up was to a points deduction for a breach the prior season- the EFL arguably botched the Business Plan case in 2019.

Ah yes. Regulation 16.20- I've banged on about this before but what exactly does it entail? FFP and other financial issues, or takeovers- it can be a bit of a catch all.

image.png.aa9bd28805b3be2840f105080901cee6.png

Falling foul of Regulation 16.20 can see a club lose a hell of a lot of autonomy. Basically the EFL can set budgets and such.

Anyway I don't believe that we will fall foul of FFP, we have started the process of hard decisions- taking a points deduction and entering the system, let alone contesting it with independent experts etc feels a bad idea to me.

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3 minutes ago, Mr Popodopolous said:

I have to say, bits of this worry me- re-read Gould's comments this morning and I hope we continue to do the right things but in recent times rules have been tightened, loopholes closed and potentially precedents set...

That doesn't strike me as an Covid FFP add back, sorry. Just doesn't- how do you prove and quantify for one?

Ticket sales yes, corporate revenue yes and some other related football specific revenue that we and all clubs had to forego due to Covid, of course- forecast transfer revenue?? No, clutching quite badly there IMO.

As for independent auditors and transfer experts...no I don't think that ultimately flies- there was a very important line in the Derby settlement that I feel could set a precedent.

Paragraph 21 and Paragraph 20 offers a bit of context.

image.png.b632dfa816cb11ec54af5d87eb187534.png

It's about a specific issue- whether a Revaluation Reserve can mitigate losses after disposal- but unfortunately the line

This feels like it could be used for many issues, to cover a lot of bases.

Then you have a serious problem because a) Reading were docked points in the amended 3 years to 2021 and b) Derby's settlement covered the 3 years to 2017, the 3 years to 2019 and the amended 3 years to 2021- you surely cannot then change that mid-stream.

I'm sorry it sounds unconvincing to me.

It has been amended though and the crucial test will be, what leeway was given to Reading and Derby in the agreed settlements? Was it merely losses of matchday revenue losses excluded, was it matchday revenue and corporate- was it matchday revenue, corporate and other football matters but excluding transfers? Amended in a) The averaging of 2019/20 and 2020/21 and exclusion of losses directly attributable to Covid.

It is also surely weakened by the following transfers during the Pandemic and the immediate aftermath...Watkins and Benrahma from Brentford, Cash from Nottingham Forest, Armstrong from Blackburn, Collins from Stoke- all 5 of these spring to mind but there are others? Brennan Johnson is also linked for big money and we don't even look at relegated clubs who have sold big as they are effectively PL players who have taken a step down.

The problem here is that he is not mentioning the unspoken details of P&S/FFP. I see where he is coming from but he is not mentioning...

  1. The risk of a Soft Embargo.
  2. The risk of a Hard Embargo.
  3. Future Financial Information. This is whereby a club if they fall between lower and higher limits have to submit by April to the EFL, their projections for the following 2 seasons. When you join it all up it's very useful for monitoring purposes.
  4. EFL Business Plans- see the Reading case as an example, they were docked 6 immediately and a further 6 might be added if they fall foul of any one of a range of requirements- but that 6 to 12 if it materialises won't mitigate against future charges etc. They also seemed to be working under restrictions last season and this summer it was 6 signings at £8.5k per week- of course they had a helper in Chelsea who sent them Rahman and Drinkwater very cheaply and Chelsea do help them out- but their player salary budget etc needs to fall to £16m next season.
  5. Contract extensions- even these can become problematic if a club fall into the FFP quicksand. In 2018, it was reported that Birmingham were unable to renew Morrison and even struggling to renew certain players. In 2020, it was reported that Reading might have issues- we all know about Derby not being able to renew Marriott, because if the proposed extension falls outside of the wage allowance and a club are in that position, they have to go cap in hand to the EFL and it may well be rejected. Stoke even reported not being able to extend/offer a new contract to Nick Powell last April.
  6. Budgets to ensure compliance in the present- Reading got 6 players on £8.5k per week per player, no loan fees, transfer fees and no contracts exceeding 12 months- Carroll they may or may not be able to renew, probably have to see what EFL say. Derby signed 4 players on £4.5k per week per player initially- no transfer fee, no loan fee, no permanent contracts exceeding 12 months, no loan contracts exceeding 6 months. In fact at one point the EFL were leaning towards a full embargo- see the Professional Standing Rule and although Derby had 19 players of Professional Standing ordinarily- the limit is 23- they had to field a load of kids vs Chorley a lot of whom got their one and only start, was due to a Covid outbreak a year back and the EFL said "Well you have over 23 players of one appearance or above so what you moaning about".

The thing about not selling players is also a problem...that could be part of a business plan to ensure compliance. Birmingham initially won their Che Adams case but this was overturned on appeal. There was a key part of the ruling which makes me wonder about the wisdom of refusing. Is it the sanction- or the ruling- that sets a precedent?

image.png.1edc37057b6c85e8b7407cff4b12ddc3.png

Ruling or Sanction that sets a precedent?

image.thumb.png.91ec0c962165ee81b7d5dc9da5eda264.png

If anyone wishes to read the full appeal ruling etc. Note that

https://www.efl.com/siteassets/image/201920/1920-judgements/efl-v-birmingham-fc---appeal.pdf

In this instance the follow up was to a points deduction for a breach the prior season- the EFL arguably botched the Business Plan case in 2019.

Ah yes. Regulation 16.20- I've banged on about this before but what exactly does it entail? FFP and other financial issues, or takeovers- it can be a bit of a catch all.

image.png.aa9bd28805b3be2840f105080901cee6.png

Falling foul of Regulation 16.20 can see a club lose a hell of a lot of autonomy. Basically the EFL can set budgets and such.

Anyway I don't believe that we will fall foul of FFP, we have started the process of hard decisions- taking a points deduction and entering the system, let alone contesting it with independent experts etc feels a bad idea to me.

I just want to pick you up on the embargo section,

I think thats the reason we are bloodong so many academy players this season as I think the club knows that's coming 

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@Mr Popodopolous

image.thumb.png.7ce6bd61fb327f7551131c797805f29f.png

Didn’t want to quote your full post.

So the £30m is (I think) a look back at previous transfer profit and this is a 2-season average.

I don’t think it will fly either, other clubs might turn around and say “that’s City using the amortisation and transfer profit methods to seek an advantage”, e.g. they constantly “trade” because they are in some respects kicking the cost down the road whilst they reap the way transfer profit is calculated on current asset value.

However, there was some talk a while ago about genuine claims for a collapsed transfer market, e.g. club confirms that they had a genuine offer of £x million, but now covid has happened, they are now getting £y million (significantly less).  Maybe that is what Stoke are trying to play with.  I’m not sure how much a case we’d have, when the likes of Diedhiou was approaching his final year and his value about to naturally drop off a cliff?  Possibly some scope, but £30m is clutching at straws imho.

19 minutes ago, Monkeh said:

I just want to pick you up on the embargo section,

I think thats the reason we are bloodong so many academy players this season as I think the club knows that's coming 

To some extent maybe.  I think it’s a more a genuine strategy that developing and using our younger players to keep the costs of the senior members of our squad down.

One other point on the RG comments.  Is he also pointing out to some of our players, more likely their agents, “you can play hardball on signing a new contract, but 1) we haven’t got the money to pay what your client wants and 2) but don’t expect us to let them go cheaply either”

The above applies more to the Kalas, Massengo type players.

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4 minutes ago, Davefevs said:

Looks like RG’s work is getting the attention he wanted!

 

Pretty sure that would have been the main reason for us publishing the accounts so early, as well as Goulds comments following that.

There are many clubs that will be watching closely, and possibly trying to make the same/similar statements.

Have to admit that I'm not overly concerned. Yet. Covid has hit pretty much every club financially outside of the top 10 or so clubs in the country, and as you and others have pointed out before, I'm also pretty sure there will be other clubs in a worse position than us.

If I was an Ipswich supporter however, I would be watching very closely...

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1 hour ago, Monkeh said:

I just want to pick you up on the embargo section,

I think thats the reason we are bloodong so many academy players this season as I think the club knows that's coming 

Yeah I can see that- makes some sense. I fear that may only be the starting point or the early point of the equation- if we were projected to breach to 2022/23 by say £5m- hope it's much less if in fact £0- and agreed a deduction in line with that breach when the final numbers emerged in the summer then that would smooth the process,. That would be a 5 point deduction based on the sliding scale.

The problem then comes with what happens next- a breach leads to the principle of reset but what reset means is basically the prior 2 years reset to £13m- so say we lose £15m in FFP terms this season and £14m next leading to the breach applied next season, then both are reset and it is £26m. We would have targets- perhaps with a suspended deduction as part of the deal or varied metrics or that suspended deduction may be activated. It would mean a loss not exceeding £13m the following season and depending on that season, £13m again. Exceed it and it's a further deduction or charges etc. If however we were able to sell players and get things down to say a £10m loss then the following season we could lose up to £16m in FFP terms.

Then there's aggravating and mitigating factors of course.

Edited by Mr Popodopolous
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22 minutes ago, Davefevs said:

However, there was some talk a while ago about genuine claims for a collapsed transfer market, e.g. club confirms that they had a genuine offer of £x million, but now covid has happened, they are now getting £y million (significantly less).  Maybe that is what Stoke are trying to play with.  I’m not sure how much a case we’d have, when the likes of Diedhiou was approaching his final year and his value about to naturally drop off a cliff?  Possibly some scope, but £30m is clutching at straws imho.

A club would surely have to produce documentary evidence to show that they had truly had a deal collapse due to Covid. Signed contracts to transfer a player that had been subsequently cancelled. A mere 'offer' isn't enough surely? Plus I'd expect the EFL to check that a club had not been otherwise compensated for the loss incurred through that. 

Have you actually heard of a transfer deal that was all signed up and ready to go - but was then canceled by the buying club, with no fault of the selling club, purely because of Covid related impacts? I haven't, and I'd think such a case would be reported fairly widely in the press?

It seems a very speculative attempt to get 'assumed' or 'speculated' losses included as a Covid-deductible.

53 minutes ago, Mr Popodopolous said:

That doesn't strike me as an Covid FFP add back, sorry. Just doesn't- how do you prove and quantify for one?

I agree, firstly taking an average of the transfer money received for players A, B, and C in 2019/20 and 2020/21 cannot seriously be used to project what we would receive for players D, E, and F in the summer of 2022. They're different assets, each player is unique and has a unique value. If City sold widgets then perhaps you can say "we made £Xm selling widgets in 2019/20 and £Ym 2020/21  and so it's fair to assume that under normal conditions we would make £Zm selling that same type of widget in 2021/22." But footballers aren't homogenous widgets. Are we seriously trying to say that because we sold Webster and Kelly for what we sold them for, we should be allowed to assume we could have sold/sell Palmer and Dasilva for 4x what we will actually get for them?

It seems very hard to really justify that kind of speculative and subjective deduction.

Perhaps the rub is that the only way you get these kind of deductions agreed by the EFL is if enough clubs agree they can be made. Maybe that is Gould's point - to try and get enough CEOs and Chairmen aligned to put pressure on the EFL (who are of course run by those clubs) to alter the rules and allow this kind of weird speculation. By saying 'if we don't allow this then half the league will get points deductions' you start to turn the screw.

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The backing by Stoke is a mixed blessing tbh because they are also under the microscope. If it was someone like Barnsley, or Preston or I dunno Luton- a range of that profile of club then it might gain more traction as they're unlikely to fall foul in any event. OTOH there are similarities of owners- all local owners, of good and medium to long standing in the game, ironically the 3 clubs listed in the Telegraph article.

The Stoke Impairment is interesting indeed- @ExiledAjax I'll post the numbers and claims, you are in the legal profession from memory? Some of their fans also have a strange idea about cash strapped but never mind...Wilmot for a fee, Vrancic on a free and Surridge for a fee- then Ostigard and Sawyers on loan- Ostigard to be replaced by Harwood-Bellis isn't all that cheap. Otoh they actually did manage to offload a lot of those players who were impaired but perhaps very cheaply or for free- and selling Collins for an 8 figure fee might have helped to smooth the process ie some of the Collins fee to accelerate some payoffs or partial payoffs.

Impairment is £42-43m in total but they have accounted for £12-13m of that in the usual way so it's the £30m attributed to Covid that is of interest tbh.

image.png.9ad7918bbdeafb9388f9b59ee30855d8.png

image.png.0f5334d5b54b66ed4625ab78420c084d.png

image.png.501e977217bfbba2d4018555f9327915.png

The controversial bit there seems like the Impairment of value. The other bits seem normal enough but that £30m...I can't think of any other Championship side who did it in 2019/20, looked to attribute a loss in player value and thereby write off £30m in amortisation to Covid!

I understand the accounting arguements for Impairment of Intangible Assets but it seems very ropey to me in the context of the FFP regs.

Edited by Mr Popodopolous
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4 minutes ago, Mr Popodopolous said:

The backing by Stoke is a mixed blessing tbh because they are also under the microscope. If it was someone like Barnsley, or Preston or I dunno Luton- a range of that profile of club then it might gain more traction as they're unlikely to fall foul in any event. OTOH there are similarities of owners- all local owners, of good and medium to long standing in the game, ironically the 3 clubs listed in the Telegraph article.

The Stoke Impairment is interesting indeed- @ExiledAjax I'll post the numbers and claims, you are legal from memory? Some of their fans also have a strange idea about cash strapped but never mind...Wilmot for a fee, Vrancic on a free and Surridge for a fee- then Ostigard and Sawyers on loan- Ostigard to be replaced by Harwood-Bellis isn't all that cheap. Otoh they actually did manage to offload a lot of those players who were impaired but perhaps very cheaply or for free- and selling Collins for an 8 figure fee might have helped to smooth the process ie some of the Collins fee to accelerate some payoffs or partial payoffs.

Impairment is £42-43m in total but they have accounted for £12-13m of that in the usual way so it's the £30m attributed to Covid that is of interest tbh.

image.png.9ad7918bbdeafb9388f9b59ee30855d8.png

image.png.0f5334d5b54b66ed4625ab78420c084d.png

image.png.501e977217bfbba2d4018555f9327915.png

The controversial bit there seems like the Impairment of value. The other bits seem normal enough but that £30m...I can't think of any other Championship side who did it in 2019/20, looked to attribute a loss in player value and thereby write off £30m in amortisation to Covid!

Maybe I misunderstood the Stoke thing. From this extract it looks like they are arguing that the value of the assets (ie players contracts) they currently hold have fallen, and so that impairment should be a Covid deductible. That is different to what I understood Gould to be saying - which was that we had lost out on transfer fees over and above our already accounted for amortisation costs that we would/could have received by selling assets. I do think there's a distinction to be drawn there, and it is easier to quantify a loss in value of amortisation already booked accounted for rather than speculate as to how much you might sell a player for. 

I don't have much of an issue with what Stoke describe in this section you've kindly quoted.

PS. Yes I am legal...my work permit, passport, and all my immigration papers are all in order, thank you for asking. I jest. Yes I am a lawyer rather than an accountant. I have just enough knowledge of accounting to be dangerous.

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22 minutes ago, ExiledAjax said:

Maybe I misunderstood the Stoke thing. From this extract it looks like they are arguing that the value of the assets (ie players contracts) they currently hold have fallen, and so that impairment should be a Covid deductible. That is different to what I understood Gould to be saying - which was that we had lost out on transfer fees over and above our already accounted for amortisation costs that we would/could have received by selling assets. I do think there's a distinction to be drawn there, and it is easier to quantify a loss in value of amortisation already booked accounted for rather than speculate as to how much you might sell a player for. 

I don't have much of an issue with what Stoke describe in this section you've kindly quoted.

PS. Yes I am legal...my work permit, passport, and all my immigration papers are all in order, thank you for asking. I jest. Yes I am a lawyer rather than an accountant. I have just enough knowledge of accounting to be dangerous.

Thanks for the bit of context and explanation- yeah I do see differences. What Gould said definitely won't fly.

Certainly a distinction to be drawn but at the same time, I can see grounds for pushback especially as it appears to have been a unique treatment,..unique doesn't mean incorrect of course but I feel the bit of the Derby agreed decision referring to- albeit the issue was a very different one, the principle is similar.

Quote

"a matter of compliance with relevant accounting standards in the context of the EFL's Regulations"

Is there no precedent to draw here? Maybe okay but in the context of the EFL's Regulations should this either number or principle be challenged by the EFL?

Edited by Mr Popodopolous
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3 minutes ago, Mr Popodopolous said:

Thanks for the bit of context and explanation- yeah I do see differences. What Gould said definitely won't fly.

Certainly a distinction to be drawn but at the same time, I can see grounds for pushback especially as it appears to have been a unique treatment,..unique doesn't mean incorrect of course but I feel the bit of the Derby agreed decision referring to- albeit the issue was a very different one, the principle is similar.

Is there no precedent to draw here? Maybe okay but in the context of the EFL's Regulations should some of this be added back?

But I think you answer your own question by saying that the issue is a very different one. Yes, in the Derby case (around the stadium sale) the EFL have applied their regulations and derived accounting standards very strictly. To my mind that is fair as in that situation there were no extenuating circumstances that could reasonably allow Derby to take such...unique...decisions when compiling their accounts. They took those decisions in order to shore up their profligacy in other areas. In doing so they gained competitive advantage blah blah blah we all know the rest.

In the case of Stoke (and potentially other clubs) there is the looming spectre of Covid. Stoke and their accountants can, and do, say that the deterioration in value is "...as a result of the Covid 19 pandemic." Now, we know that the EFL is open to amending the P&S rules as a result of the Covid 19 pandemic because they have already done that. So I think Stoke are being clever here and that in fact it's possible that the strict application of the rules in the Derby case, which happened under 'standard' market conditions, could strengthen Stoke's argument to apply flexible and special rules to accounts prepared under the unusual conditions created by Covid 19.

I am happy that it is Stoke who are the test case and not us, but from the limited items I have seen I think they have a reasonable argument. The £30m figure may be too high, but the method used to arrive at it seems fundamentally sound.

Also key is that the 'Stoke method' could potentially be applied evenly and fairly to all clubs. If the EFL accept Stoke's arguments (and sorry, I assume they have done so as this is last year's accounts) then it's fairly easy to say 'ok, every club can deduct 50% of it's amortisations costs for any season affected by Covid (which the EFL decides)'. It's far more complicated to do what Gould suggested and have each club estimate how much transfer profit it has maybe lost. Just look at some of the valuations people pluck from thin air on here for an example of why.

I'll bow to an experienced accountant's better knowledge, but my lay opinion would be that Stoke's arguments look sound, and that the Derby case doesn't have much influence here.

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1 hour ago, ExiledAjax said:

A club would surely have to produce documentary evidence to show that they had truly had a deal collapse due to Covid. Signed contracts to transfer a player that had been subsequently cancelled. A mere 'offer' isn't enough surely? Plus I'd expect the EFL to check that a club had not been otherwise compensated for the loss incurred through that. 

I was referring to collapse of the transfer market rather than collapse of a deal per se. The point I was maybe making badly was that you couldn’t say in Jan 20 window, Fam was worth £10m but by summer 20 (with one year left) he was now worth £2m and the £8m decrease was down to covid without some proof of interest / a bid of £10m. Nor could you also say all £8m was covid, because some of that was undoubtedly down to his remaining contract length too.

Does that explain it better?

As I said I don’t think it would fly anyway.  Your examples of Kelly and Webster are exactly why!!

1 hour ago, ExiledAjax said:

Maybe I misunderstood the Stoke thing. From this extract it looks like they are arguing that the value of the assets (ie players contracts) they currently hold have fallen, and so that impairment should be a Covid deductible. That is different to what I understood Gould to be saying - which was that we had lost out on transfer fees over and above our already accounted for amortisation costs that we would/could have received by selling assets. I do think there's a distinction to be drawn there, and it is easier to quantify a loss in value of amortisation already booked accounted for rather than speculate as to how much you might sell a player for. 

I don't have much of an issue with what Stoke describe in this section you've kindly quoted.

PS. Yes I am legal...my work permit, passport, and all my immigration papers are all in order, thank you for asking. I jest. Yes I am a lawyer rather than an accountant. I have just enough knowledge of accounting to be dangerous.

The Stoke method of adjusting amortisation down as an impairment is effectively what we’ve done with Nagy (my interpretation of the accounts).

If I’ve read it correctly they’re saying they’ve impaired £12.4m of player contracts and that is part of the £30m overall, eg including commercial and other losses.

That seems a much more sensible approach imho. It still has flaws, but actually committing these to the accounts and then exempting from FFP seems more transparent too.

Maybe Gould and Scholes are playing good cop / bad cop with a pair of different options. Just waiting for Gibson to chip in with his “middling” suggestion.

Gould and Scholes are getting on the front foot, it’s a “high-press” on the EFL.   Far better to start the dialogue with an idea of what you’re trying to achieve than avoid / cover-up / cheat like Mel Morris. 

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I still find Gould's comments to be a bit of special pleading. Had we controlled our costs better and retained enough of the transfer profits to provide some resilience the risk of a points deduction would have been mitigated if not removed entirely. Instead we blew it on a bloated squad and wage bill.

Also the obverse of the hypothetical loss of transfer income is the kind of reduction in player wages we have seen with Weimann and Baker, which is not hypothetical and which is likely to continue imo.

Gambling on continuing to receive big fees was not the way to achieve the sustainability Steve claims to want.

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1 hour ago, ExiledAjax said:

But I think you answer your own question by saying that the issue is a very different one. Yes, in the Derby case (around the stadium sale) the EFL have applied their regulations and derived accounting standards very strictly. To my mind that is fair as in that situation there were no extenuating circumstances that could reasonably allow Derby to take such...unique...decisions when compiling their accounts. They took those decisions in order to shore up their profligacy in other areas. In doing so they gained competitive advantage blah blah blah we all know the rest.

In the case of Stoke (and potentially other clubs) there is the looming spectre of Covid. Stoke and their accountants can, and do, say that the deterioration in value is "...as a result of the Covid 19 pandemic." Now, we know that the EFL is open to amending the P&S rules as a result of the Covid 19 pandemic because they have already done that. So I think Stoke are being clever here and that in fact it's possible that the strict application of the rules in the Derby case, which happened under 'standard' market conditions, could strengthen Stoke's argument to apply flexible and special rules to accounts prepared under the unusual conditions created by Covid 19.

I am happy that it is Stoke who are the test case and not us, but from the limited items I have seen I think they have a reasonable argument. The £30m figure may be too high, but the method used to arrive at it seems fundamentally sound.

Also key is that the 'Stoke method' could potentially be applied evenly and fairly to all clubs. If the EFL accept Stoke's arguments (and sorry, I assume they have done so as this is last year's accounts) then it's fairly easy to say 'ok, every club can deduct 50% of it's amortisations costs for any season affected by Covid (which the EFL decides)'. It's far more complicated to do what Gould suggested and have each club estimate how much transfer profit it has maybe lost. Just look at some of the valuations people pluck from thin air on here for an example of why.

I'll bow to an experienced accountant's better knowledge, but my lay opinion would be that Stoke's arguments look sound, and that the Derby case doesn't have much influence here.

I agree with a lot of this post and yes the EFL have applied their regulations in conjunction with accounting standards very strictly,

Possibly so in general and yes they are very much the test case- although you mention last season, accounts were actually released last season but covering the period up to end of May 2020- we'd need to see their 2021 accounts to get a balanced picture. They appear not to be in 

Hadn't thought of that for the Stoke method- I did wonder if this was a possibility, lots of clubs will therefore knock off a chunk- but these clubs have not, we have not, Millwall have not, afaik Blackburn have not although there is confusion between Venkys London and Blackburn as to which the reporting entity for FFP is- I assume Wycombe have not and Norwich and this appears to be Birmingham's via HK, Birmingham have not. Stoke could yet set a precedent but no other club did anything like this in 2019/20 accounts of all the clubs at our level who released accounts. One have not released accounts for 3 years and we can guess who they are?

Readding back a bit of the Impairment to the FFP losses could well tip them into default- as to EFL acceptance, it's genuinely hard to say because Derby and their stadium sale and latterly as it turned out amortisation, were subject to ongoing review- and with something like this seeing how markets recover or don't, an ongoing review would seem sensible with this tbh.

Like I said before, unique doesn't necessarily mean incorrect but a unique treatment at that stage it is. They cut their annual amortisation bill by about £20-25m I estimate year on year- was £30m in 2019/20, I reckon £5-10m in 2020/21 as a result of this method. Talking about Stoke here.

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3 minutes ago, Davefevs said:

I was referring to collapse of the transfer market rather than collapse of a deal per se. The point I was maybe making badly was that you couldn’t say in Jan 20 window, Fam was worth £10m but by summer 20 (with one year left) he was now worth £2m and the £8m decrease was down to covid without some proof of interest / a bid of £10m. Nor could you also say all £8m was covid, because some of that was undoubtedly down to his remaining contract length too.

Sure.

Does that explain it better?

As I said I don’t think it would fly anyway.  Your examples of Kelly and Webster are exactly why!!

The Stoke method of adjusting amortisation down as an impairment is effectively what we’ve done with Nagy (my interpretation of the accounts).

If I’ve read it correctly they’re saying they’ve impaired £12.4m of player contracts and that is part of the £30m overall, eg including commercial and other losses. 

That seems a much more sensible approach imho. It still has flaws, but actually committing these to the accounts and then exempting from FFP seems more transparent too.

Maybe Gould and Scholes are playing good cop / bad cop with a pair of different options. Just waiting for Gibson to chip in with his “middling” suggestion.

Gould and Scholes are getting on the front foot, it’s a “high-press” on the EFL.   Far better to start the dialogue with an idea of what you’re trying to achieve than avoid / cover-up / cheat like Mel Morris. 

I think crucially what Stoke have done is adjust the existing and persisting amortisation bill down, on the basis that the amounts are no longer fair rep of market value. For us it would mean saying that Kalas may be a £2m per season amortisation cost, but that we should be allowed to reduce that by 75% to £500k. So even though we retain Kalas' as an asset, we save a huge amount by arguing that his value has drastically fallen due to the collapsed market, but we argue to add that back on for P&S purposes as a covid affect. 

Stoke say that their total impairment was £42-43m in total. Comprising an initial £12.4m "prior to Covid 19 considerations." and then a further £30.1m "directly" attributable to Covid. As I say, they seem to have taken their existing amortisation bill, and argue that 75-80% should be written off as a Covid-deductible. Note that Stoke's amortisation costs in the accounts to May 2020 were £30.3m, then they declare the impairment as well, and argue that 30.1m of it is allowable for P&S as a covid deductible. 

I think this is it. I might be getting tied in knots with amortisation and impairment.

Might get a coffee, listen to Nige's press conference, and come back to this in a bit.

3 minutes ago, Mr Popodopolous said:

Like I said before, unique doesn't necessarily mean incorrect but a unique treatment at that stage it is. They cut their annual amortisation bill by about £20-25m I estimate year on year- was £30m in 2019/20, I reckon £5-10m in 2020/21 as a result of this method. Talking about Stoke here.

I agree, and I also suspect that a unique treatment means that it's for that club to justify their unique take on things rather than the other 23 to agree to and adopt their methods unquestioningly. We use PKF Francis Clark to audit, Stoke used RSM. There will be different techniques around.

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1 hour ago, KegCity said:

Why not?

Because a club that is about to announce £38m losses cannot afford to reject offers of £8m to help offset this.

Whatever our view of HNM & his actual value the only fee we banked in the summer was the nominal one (£50k?) for George Nurse from Shrewsbury, which in the scale of our losses is about as valuable as to us as 50p.

There is already a storm over Derby turning down bids for players, if we do not drastically reduce our expenditure & cannot come up with a plan to stay within FFP then we’ll get a points deduction & things like this (if they are true) will not help our case at all.

 

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43 minutes ago, The Bard said:

 He's actually quite exposed to use horse racing terminology.

 

Clearly top division potential longterm but not in the same league financially as Lloyd Kelly for example.

Hence why he’s not going for Lloyd Kelly fee.

24 minutes ago, GrahamC said:

Because a club that is about to announce £38m losses cannot afford to reject offers of £8m to help offset this.

Whatever our view of HNM & his actual value the only fee we banked in the summer was the nominal one (£50k?) for George Nurse from Shrewsbury, which in the scale of our losses is about as valuable as to us as 50p.

There is already a storm over Derby turning down bids for players, if we do not drastically reduce our expenditure & cannot come up with a plan to stay within FFP then we’ll get a points deduction & things like this (if they are true) will not help our case at all.

 

The decisions we’ve made as a club over the last few years makes it pretty believable to me.

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