How does a club afford to pay the salaries?

[reddogkev]

Just a basic question, but something which of late, I've found quite fascinating.  How does a club constantly finance the salaries for it's staff?

These are the basic sources of income I'm aware of:  Match tickets sales (inc season cards) - Stadium Revenue - Incoming transfer fees - Commercial sponsorship - Membership sales.

Is it fair to say that under FFP all of a club's salary demands have to be met from the above?

Is a chairman / board / owner allowed to invest money when they see fit, and how much can a club loan from a bank?

When you hear of clubs going bankrupt, having financial struggles etc, it is interesting to consider which of the above areas they've failed to manage properly, and think of the considerable stress of covering the salary demands, all year round.

Any thoughts and more info on the subject would be good to read.

 

[A Horse With No Name]

Also don’t really understand the situation with Aston Villa whose wage bill must have been huge last season, and yet this summer have to offload massively with even talks of admistration, after failing to go up. The only difference between last year and this would be a reduced parachute payment as crowds will still be the same this season. 

[Fiale]

We do it by making a loss each season, SL then buys the debt as equity in the club.

[RoystonFoote'snephew]

19 minutes ago, The Horse With No Name said:

Also don’t really understand the situation with Aston Villa whose wage bill must have been huge last season, and yet this summer have to offload massively with even talks of admistration, after failing to go up. The only difference between last year and this would be a reduced parachute payment as crowds will still be the same this season. 

I’m no finance expert but a drop in parachute payments may not be the only impact. There will be depreciation of assets, possible rise in policing/stewarding costs, insurance rises etc

[nebristolred]

As far as I'm aware football club revenue is essentially split into ticket/matchday income, commercial revenue and broadcasting revenue. Under FFP the club is allowed to invest and/or sustain losses up to a certain point but no further than that, so as you say, yes most of the clubs costs should be covered from income via those 3 branches.

Interestingly, just to prove the above, I think a few years back there was a point that our wages alone totaled nearly double the entire club turnover, which is obviously not sustainable. Given broadcasting revenue is relatively difficult to influence, this is the reason why the AG rebuild was so desperate. Yes we've seen bigger crowds and high usage of VIP facilities which will boost matchday income, but I would guess the redevelopment has absolutely transformed our commercial revenue, with the amount of usage the stadium gets on non-match days and the amount of use the stalls get these days. The World Cup is a perfect example of this.

To answer @The Horse With No Name, the situation with Villa hasn't really changed. Their problem was that they gambled - they massively spent on transfers and risked a high wage bill on the premise that they would get promoted very soon, and they'd just take the losses until they did it. It obviously hasn't happened quick enough, and it seems this is now the tipping point, where money has run out and the club cannot afford to sustain these losses moving forward. Next season their parachute payment drops from £33m to £15m, and after that they stop altogether. That's a significant amount - enough I think to have pushed even us (a widely accepted loss-making business) into profit every season we've ever existed.

[Lorenzos Only Goal]

Villa are screwed in a number of ways, they have overpaid for players, over valued players Grealish is massively over valued by them so cant offload him.  The reduction in parachute payments will be killing them as and new owners with little investment, incredibly high infrastructure costs.  Oh and they don't have the owner we do

 

[And Its Smith]

56 minutes ago, The Horse With No Name said:

Also don’t really understand the situation with Aston Villa whose wage bill must have been huge last season, and yet this summer have to offload massively with even talks of admistration, after failing to go up. The only difference between last year and this would be a reduced parachute payment as crowds will still be the same this season. 

They gambled that they would go up and get £100m+ next season.  They didn't and so now have a massive shortfall.  Makes last years transfer activity from them seem ridiculous now.  

No club should ever gambled on spending to achieve promotion in a set number of years. Madness. 

[Bristol Rob]

44 minutes ago, Lorenzos Only Goal said:

Villa are screwed in a number of ways, they have overpaid for players, over valued players Grealish is massively over valued by them so cant offload him.  The reduction in parachute payments will be killing them as and new owners with little investment, incredibly high infrastructure costs.  Oh and they don't have the owner we do

 

Various reports that the reduction in parachute payments makes no difference to Villa.

Their gamble to get promoted last year meant that they have already borrowed against the future parachute payments so they are now paying interest to some Australian finance house who fronted up the next couple if years worth of funds.

[Steve Watts]

38 minutes ago, RedDave said:

They gambled that they would go up and get £100m+ next season.  They didn't and so now have a massive shortfall.  Makes last years transfer activity from them seem ridiculous now.  

No club should ever gambled on spending to achieve promotion in a set number of years. Madness. 

Try telling that to this place in any January transfer window!

[Mr Popodopolous]

Definitely the tapering off of parachute payments would have played a part- but as @Bristol Rob said not decisive.

Still an undoubted factor though- fall according to one report from £34m to £15m, which is a hefty fall.

Puzzled as to how they and other clubs haven't yet had the firesales surely needed so far...and with our domestic transfer deadline on 9th August is it, it's a bit surprising (they can still sell or loan to foreign clubs until end of August).

[Davefevs]

@Mr Popodopolous

I Have been reading a bit more.

An owner can invest as much money as they want into their club (we already knew that) however only the first £10m is included in the FFP calculation. 

The other significant finding is that “Promotion Costs” in the accounts are excluded from FFP.  This was in the region of £11m for Huddersfield in 16/17. So looks like they had a big promo bonus scheme!  Therefore they only list £6m in terms of FFP not £17m. 

There are other exclusions too eg Academy costs. 

All in all, a bit harder to fall foul of FFP than originally thought. So the likes of Forest can get a £10m injection and lose £13m. 

That £10m is the equivalent of 3 x Lewis Grabbans (£6m / 4 years + £40k per week / £2m) at £3.5m per year. 

The downside is that Grabban is likely to have no future sell on, and is a drain on their budget for 4 years. 

[Mr Popodopolous]

15 minutes ago, Davefevs said:

@Mr Popodopolous

I Have been reading a bit more.

An owner can invest as much money as they want into their club (we already knew that) however only the first £10m is included in the FFP calculation. 

The other significant finding is that “Promotion Costs” in the accounts are excluded from FFP.  This was in the region of £11m for Huddersfield in 16/17. So looks like they had a big promo bonus scheme!  Therefore they only list £6m in terms of FFP not £17m. 

There are other exclusions too eg Academy costs. 

All in all, a bit harder to fall foul of FFP than originally thought. So the likes of Forest can get a £10m injection and lose £13m. 

That £10m is the equivalent of 3 x Lewis Grabbans (£6m / 4 years + £40k per week / £2m) at £3.5m per year. 

The downside is that Grabban is likely to have no future sell on, and is a drain on their budget for 4 years. 

Interesting stuff that Dave. 

Always assumed was 5 million llz and 8 million investment under FFP- but it all stacks up to 13 million. 

Promotion costs makes sense- assuming you mean bonuses mostly in that context? Maybe in say Bournemouth case, making the ground fit for PL?

Academy costs, community costs, ground develppment etc that makes sense- think  FFP classes that as 'good' investment. Infrastructure, all that.

Forest are pushing it quite close to the limit though surely.

[Davefevs]

2 minutes ago, Mr Popodopolous said:

Interesting stuff that Dave. 

Always assumed was 5 million llz and 8 million investment under FFP- but it all stacks up to 13 million. 

Promotion costs makes sense- assuming you mean bonuses mostly in that context? Maybe in say Bournemouth case, making the ground fit for PL?

Academy costs, community costs, ground develppment etc that makes sense- think  FFP classes that as 'good' investment. Infrastructure, all that.

Forest are pushing it quite close to the limit though surely.

Yes, Forest must be. But if Grabban is costing £3.5m per year, the Portuguese fella probably £4.5m per year (£13m over 5 years plus say £40k per week), then that’s using up £8m of the £10m and they can run the rest of the squad at a £15m loss (£2m left if the £10m plus £13m loss). 

They are however lumbered for a long time. 

If they fail to get promoted, then they’ll probably have to offload Carvalho and / or Grabban. 

[Mr Popodopolous]

3 minutes ago, Davefevs said:

Yes, Forest must be. But if Grabban is costing £3.5m per year, the Portuguese fella probably £4.5m per year (£13m over 5 years plus say £40k per week), then that’s using up £8m of the £10m and they can run the rest of the squad at a £15m loss (£2m left if the £10m plus £13m loss). 

They are however lumbered for a long time. 

If they fail to get promoted, then they’ll probably have to offload Carvalho and / or Grabban. 

I still query their 32 million profit in a major way but if the EFL have approved it...

Wait, are you saying the 10 million is separate to the 13 million loss limit?

[JamesBCFC]

2 hours ago, The Horse With No Name said:

Also don’t really understand the situation with Aston Villa whose wage bill must have been huge last season, and yet this summer have to offload massively with even talks of admistration, after failing to go up. The only difference between last year and this would be a reduced parachute payment as crowds will still be the same this season. 

As a few other have said there are other factors, but I believe their parachute payments drop alone this year is 20m or so.

[JamesBCFC]

@Davefevs/@Mr Popodopolous

With academy investment (which is excluded from FFP calculations right?) is that limited to the physical academy itself (pitches, facilities etc) or would a player signed to an academy be excluded from FFP calculations?

Would a club be able to essentially try and buy the best 15 year olds from around the world at whatever price and wage with them avoiding FFP as they were going into the academy?

[Davefevs]

46 minutes ago, Mr Popodopolous said:

I still query their 32 million profit in a major way but if the EFL have approved it...

Wait, are you saying the 10 million is separate to the 13 million loss limit?

Yes. I think so. It’s a bit murky though. In effect it’s more income, so reduces the loss.  So I think you can make a £23m loss in the P&L, but invest £10m (or more) to make the FFP loss only £13m. This is over simplified though. 

In an ideal world not only would we see the Club’s financial accounts (P&L, BS etc) but also an FFP statement too. 

It is not possible for us to see the transparency!!!  So we are guessing at some of it. 

I might look at some accounts tonight and see if I can see this ‘practice‘ going on. 

[Davefevs]

40 minutes ago, JamesBCFC said:

@Davefevs/@Mr Popodopolous

With academy investment (which is excluded from FFP calculations right?) is that limited to the physical academy itself (pitches, facilities etc) or would a player signed to an academy be excluded from FFP calculations?

Would a club be able to essentially try and buy the best 15 year olds from around the world at whatever price and wage with them avoiding FFP as they were going into the academy?

I suspect so. 

See Chelsea!!!!!

[EnderMB]

In regards to how football finances are dealt with, there is no separation between transfers and wages. If a player is bought for £10m and is signed to a three year contract earning £20k a week, that player costs a club roughly £4.5m a year. It's why many clubs won't buy £20m of talent if one of their players gets a big-money move, because that money goes back into the pot and is used to boost player contracts. It's why the Reid and Flint transfers were "good for us", because that money can be used to improve our wage structure instead of blowing £15m on players that are happy to earn little. It's why there's a soft separation made between the two.

In Aston Villa's case, their owner injected a lot of money in to achieve promotion, but as already said, only the first £10m of injection is counted, and as player costs are handled throughout the lifetime of their contract they're still ultimately paying for those transfers. Wages count for a large amount of a players cost, so Kodjia and co are costing them as much this year as they did when he first signed. Since they didn't get promoted, they're in a position where the owner cannot inject money to cover these costs without being caught by FFP.

That's not to say that they can't get around FFP in other ways. Owners will often inject money into a club indirectly, whether it's through agents, sponsorship through companies affiliated/owned by the owner, etc.  I get the feeling that Villa would rather sell off their assets instead of going down this route, though, since many of these players aren't likely to depreciate in value unless they have bad seasons. Without knowing how deep in the shit Villa are, all they might need is to loan off a few players to get the money off of their books, alongside a few transfers to allow the owner to inject more money next year.

[Davefevs]

Nice one @EnderMB  

The other aspect is that there is obviously a big focus on FFP.  Villa are also struggling for cash flow and I wonder whether they are seriously in risk of not being able to say they are still a going-concern. 

If they can’t pay the bills, FFP becomes a slight irrelevance. 

[Mr Popodopolous]

7 minutes ago, EnderMB said:

In regards to how football finances are dealt with, there is no separation between transfers and wages. If a player is bought for £10m and is signed to a three year contract earning £20k a week, that player costs a club roughly £4.5m a year. It's why many clubs won't buy £20m of talent if one of their players gets a big-money move, because that money goes back into the pot and is used to boost player contracts. It's why the Reid and Flint transfers were "good for us", because that money can be used to improve our wage structure instead of blowing £15m on players that are happy to earn little. It's why there's a soft separation made between the two.

In Aston Villa's case, their owner injected a lot of money in to achieve promotion, but as already said, only the first £10m of injection is counted, and as player costs are handled throughout the lifetime of their contract they're still ultimately paying for those transfers. Wages count for a large amount of a players cost, so Kodjia and co are costing them as much this year as they did when he first signed. Since they didn't get promoted, they're in a position where the owner cannot inject money to cover these costs without being caught by FFP.

That's not to say that they can't get around FFP in other ways. Owners will often inject money into a club indirectly, whether it's through agents, sponsorship through companies affiliated/owned by the owner, etc.  I get the feeling that Villa would rather sell off their assets instead of going down this route, though, since many of these players aren't likely to depreciate in value unless they have bad seasons. Without knowing how deep in the shit Villa are, all they might need is to loan off a few players to get the money off of their books, alongside a few transfers to allow the owner to inject more money next year.

There are rules, albeit fairly new rules, on 3rd party companies tbh- fair market rate would be allowed, other valuations? Excess income would be discounted, disallowed from the calculations.

Otherwise SL could just sponsor our shirts for several million through his Sustainable Energy example for a fair whack.

Agents? Definitely, and superagents like Jorge Mendes is a particular workaround

31 minutes ago, Davefevs said:

Yes. I think so. It’s a bit murky though. In effect it’s more income, so reduces the loss.  So I think you can make a £23m loss in the P&L, but invest £10m (or more) to make the FFP loss only £13m. This is over simplified though. 

In an ideal world not only would we see the Club’s financial accounts (P&L, BS etc) but also an FFP statement too. 

It is not possible for us to see the transparency!!!  So we are guessing at some of it. 

I might look at some accounts tonight and see if I can see this ‘practice‘ going on. 

It is all very murky.

Is this new £10m rule a new amendment then? I was always under the impression in simple terms that it was £13m inclusive of the additional cash ejection, not additional to. According to a site about it it's £5m losses without equity, and £13m with. 

It's forever being tweaked though so that could be out of date!

If this amendment of £13m plus £10m investment is allowed, that would or could mean the real total loss over three years is £69 million? In theory, anyway.

[Meh]

I would imagine something like Bristol Sport would have a “pool” of bank accounts with a ridiculous overdraft limit against the suite of accounts

[reddogkev]

1 hour ago, EnderMB said:

In regards to how football finances are dealt with, there is no separation between transfers and wages. If a player is bought for £10m and is signed to a three year contract earning £20k a week, that player costs a club roughly £4.5m a year. It's why many clubs won't buy £20m of talent if one of their players gets a big-money move, because that money goes back into the pot and is used to boost player contracts. It's why the Reid and Flint transfers were "good for us", because that money can be used to improve our wage structure instead of blowing £15m on players that are happy to earn little. It's why there's a soft separation made between the two.

In Aston Villa's case, their owner injected a lot of money in to achieve promotion, but as already said, only the first £10m of injection is counted, and as player costs are handled throughout the lifetime of their contract they're still ultimately paying for those transfers. Wages count for a large amount of a players cost, so Kodjia and co are costing them as much this year as they did when he first signed. Since they didn't get promoted, they're in a position where the owner cannot inject money to cover these costs without being caught by FFP.

That's not to say that they can't get around FFP in other ways. Owners will often inject money into a club indirectly, whether it's through agents, sponsorship through companies affiliated/owned by the owner, etc.  I get the feeling that Villa would rather sell off their assets instead of going down this route, though, since many of these players aren't likely to depreciate in value unless they have bad seasons. Without knowing how deep in the shit Villa are, all they might need is to loan off a few players to get the money off of their books, alongside a few transfers to allow the owner to inject more money next year.

 

1 hour ago, Davefevs said:

Nice one @EnderMB  

The other aspect is that there is obviously a big focus on FFP.  Villa are also struggling for cash flow and I wonder whether they are seriously in risk of not being able to say they are still a going-concern. 

If they can’t pay the bills, FFP becomes a slight irrelevance. 

 

1 hour ago, Mr Popodopolous said:

There are rules, albeit fairly new rules, on 3rd party companies tbh- fair market rate would be allowed, other valuations? Excess income would be discounted, disallowed from the calculations.

Very interesting stuff, thanks for the detailed comments and time, same goes to you Dave and Mr P.

[Davefevs]

2 hours ago, Mr Popodopolous said:

There are rules, albeit fairly new rules, on 3rd party companies tbh- fair market rate would be allowed, other valuations? Excess income would be discounted, disallowed from the calculations.

Otherwise SL could just sponsor our shirts for several million through his Sustainable Energy example for a fair whack.

Agents? Definitely, and superagents like Jorge Mendes is a particular workaround

It is all very murky.

Is this new £10m rule a new amendment then? I was always under the impression in simple terms that it was £13m inclusive of the additional cash ejection, not additional to. According to a site about it it's £5m losses without equity, and £13m with. 

It's forever being tweaked though so that could be out of date!

If this amendment of £13m plus £10m investment is allowed, that would or could mean the real total loss over three years is £69 million? In theory, anyway.

Re the bold bit above, I believe that the £10m investment is irrelevant to the losses.  The difference between the £5m and £13m losses are whether the owner will cover or not.

[22A]

7 hours ago, reddogkev said:

Just a basic question, but something which of late, I've found quite fascinating.  How does a club constantly finance the salaries for it's staff?

 

In the mid 1980's Liverpool were picking up trophies seemingly every season. They announced one year that gate receipts were not enough to cover the wage bill. They were totally dependent upon Sponsorship. To the then top clubs, Sky TV's Premier League must have come as a Godsend.

[Mr Popodopolous]

35 minutes ago, Davefevs said:

Re the bold bit above, I believe that the £10m investment is irrelevant to the losses.  The difference between the £5m and £13m losses are whether the owner will cover or not.

Thanks.

Interesting stuff that- so it's £5m without equity, £13m with- and then a possible £10m on top?

Have I got that right?

[downendcity]

In addition to a huge wage bill, and the big drop in parachute payment income, it seems to me that Villa's other big financial issue is the instalments they still owe, and that  are due or they are already in default with  on their big transfer fees, such as Kodjia.

As another poster has already commented Villa already borrowed against parachute payments, so although the parachute payment has dropped they've already spent it and are having to pay interest on the money they borrowed accordingly.

It sounds like Lampard has to slash Derby's wage bill and ship players out and I see  that Brum could be facing a transfer embargo.

Gambling on promotion is not the way to go.