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Thread: Inter FFP Analysis - How are we faring financially?

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    Inter FFP Analysis - How are we faring financially?

    I have done a prelim analysis of Inter's estimated P&L in the last 2 years, and compared to how we are doing vis-a-vis FFP criteria.

    A pinch of salt - this type of analysis will never be completely accurate as most financial figures for the last 2 years are not available. There is also a lot of ambiguity around reported stuff like Transfer fees, wages, bonuses, etc. So the approach I have taken is to focus on the material changes over the years, and assume that the rest more or less remains the same. So take these numbers with a pinch of salt, and don't cry over a million here or there

    FFP Guidelines

    First, lets quickly understand FFP guidelines. Clubs don't have to break even immediately. Infact, in the first monitoring period in 2013-14 which takes into account losses made in the two preceding years (2011-12 and 2012-13), the clubs are allowed losses of upto 45m (as long as Moratti is covering those loses). Here is the FFP guideline table explained:



    Also, some costs are excluded from FFP consideration like:

    1. Investments in youth development or community as well as depreciation on tangible fixed assets. Looking at listed clubs of Inter's size, these can be quite significant - about 12-18m. For the purpose of this analysis, I have assumed this cost for Inter at 12m, just to be conservative.

    2. Wages of players signed before 1 Jun 2010 are excluded from 2011-12 season only. For Inter, this is extremely significant and relates to at least 75m! Just this will ensure we meet the FFP guideline for the first and maybe even the 2nd monitoring periods.

    So what does Inter FFP situation for the first monitoring period look like?

    Inter and the First FFP Monitoring Period


    Rationale & Assumptions:

    Before we do any analysis, lets look at the rationale of some of these numbers:

    1. Revenue: For 2010-11 and 2011-12, these numbers are from Deloitte Money League, which is as accurate a source as any. For 2012-13, those are my realistic assumptions based on no CL.

    2. Wage bill: This is calculated by evaluating the impact of the significant arrivals and departures as compared to last year. For example, the key wages changes in 2012-13 included:


    Which means that the wage bill reduced in 2012-13 over the previous year by 25.8m. I understand that many different numbers are floating around regarding the gross wages of each player, I have just used the best figures I had. If there are any major errors, happy to make those changes. Also, there were a lot of transfers/loans than the ones mentioned above, like Coutinho for example, I have only included the significant impacts with the assumption that the smaller INs & OUTs more or less balance each other out.

    3. Other Expenses: One can assume that for a club with severely declining revenues, Moratti would be cutting these costs significantly. And maybe he has done that, there is no published info at the moment. But then, knowing Moratti & his idiotic management, its quite possible that nothing significant has happened in this regard. So for now, just to be conservative, I am assuming that our other running expenses remain the same as at 2010-11 levels.

    4. Profit from Player sales: This is basically the total transfer sales - book values of the players we sold. Or to explain in easier language, this is the total value of a player's sale (for eg, Coutinho was sold for 11m) minus what wwas his book value in our accounts (Coutinho's book value was close to zero as his transfer fee was already amortised). This gets tricky, coz not only do we not know the accurate sales figures (for which I have used Transfermarkt** just for the sake of consistency), but also it can get difficult to estimate the book value of players who may be on a 2nd or 3rd contract with Inter when they were sold. I have used my best estimates in this case.

    **I am not happy with the transfermarkt sales figures, they look a bit bloated to me. What might help this analysis, is if one of you can list down the key transfers for 2011-12 and 2012-13, and estimate more accurate sales figures from more reliable sources.

    5. Other income from exceptional items: In 2010-11, we sold the rights to use our library to RAI for 13m. I am not aware of any exceptional items for the last 2 seasons where we may have gained significant income. If anyone has any info, please let me know.

    6. Player Amortisation: This is basically the amortisation cost of players we bought in a particular year, minus the amortisation cost of players we sold. For example, in 2011-12


    So our annual amortisation cost increased by 2m.

    7. Depreciation & Net Interest: I have assumed these as constant. Though considering that last year our debt was just south of 50m, an interest cost of 12m sounds way too high - perhaps Moratti has already worked at reducing this cost.

    Analysis:

    So this brings us to the following loss estimates:

    2010-11: Loss of 86m
    2011-12: Loss of 68m
    2012-13: Loss of 68m

    But from FFP point of view, how are we doing for the first monitoring period? We have a total FFP loss of 37m for the first monitoring period, which should be acceptable as long as Moratti/New Investor puts in equity to cover it. Which means we will not get disqualified from CL for the 2014-15 season, should we qualify for it on the pitch this season.

    A few quick observations:

    • But this leaves very little space for the 2nd monitoring period, we have to almost break even in 2013-14. That is going to be challenging without any European football. The writing is on the wall - Inter need to get rid of some serious wages this summer.
    • Inter are surviving due to a significant revenue from sales of past champions every year. But this model can only go on for so long, soon there will be no "family silver" left to sell.
    • Inter cannot survive another season without CL money. If we don't make it to the CL this season, our FFP situation will become so bad that we will get disqualified from Europe for a few years. No pressure, Mazzari!
    • Oh, we need a new stadium ASAP - it is quite evident why that is a necessity now... these falling revenues cannot sustain this club, specially not with our idiotic overpaid management and overheads!


    I plan to expand on this analysis over the next few weeks, to cover projections for next 2 years and how that impacts our transfer budgets - thanks to FFP, these things are very co-related now, and can be estimated rather accurately. But before I do that, I need to do some more research on the accuracy of the above numbers, or else projections make little sense. You can help me, specially regarding transfer values, wages and contract lengths of players we have signed/sold in the last 2 years. Just post away below with a link to your source, and I will incorporate them into the analysis.
    Last edited by Bluenine; 29 May 13 at 20:07.


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    I'd like to see your player amoritzation figures in more depth, because as far as I calculated a while ago, we pretty much offset wage savings through that. And this year we're looking at posting approx ~75m euro loss (if you believe FCIN). This will not decrease much in the summer, either - theres a couple million to be made in sales from, for example, pereira. Wage savings of a couple of players, but unless we offload Cambiasso or someone, it wont make a huge difference.

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    Excellent work Bluenine, the way you explained it, specially the part were without CL we will be done, Our problem right now is we need some sort of deals with investers otherwise inter is going to become an average team that cant compete with the leaders and it will be sad story.

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    Quote Originally Posted by browha View Post
    I'd like to see your player amoritzation figures in more depth, because as far as I calculated a while ago, we pretty much offset wage savings through that. And this year we're looking at posting approx ~75m euro loss (if you believe FCIN). This will not decrease much in the summer, either - theres a couple million to be made in sales from, for example, pereira. Wage savings of a couple of players, but unless we offload Cambiasso or someone, it wont make a huge difference.
    I have now included the amortisation calculation for 2011-12, have a look. Love to hear your opinion.

    Not much difference between my estimated 68m loss and FCIN's 75m, its very possible. Though considering I have taken some conservative cost cutting assumptions, Moratti will be a big idiot if we end up making more than 70m loss this year... any decent management would have brought it below 50m, cutting on the other expenses and interest costs.

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    ah-ha. thats where you go wrong

    the player amortization is done wrong.

    You correctly amortize players for the purchase, but you do it incorrectly for the sale.

    Player sales represent a single year boost to the balance sheet - e.g. selling a player for 20m amortized profit = +20m on THAT YEARS books alone. The only knock on affect for subsequent years is not having to amortize their values - rather than an increase

    so for example, Eto'o's amortization of 5m a year is -5m for 9-10, -5m for 10-11, then +10m for 11-12, and then no affect from 12-13 on.

    edit;
    or wait, are you including that to show the relative change from the previous year, rather than an "actual" calculation (per se)

    - - - Updated - - -

    sorry, my mistake, your numbers are consistent with swiss ramble for 10-11 at least

    http://swissramble.blogspot.co.uk/2011/12/moneys-too-tight-to-mention-at-inter.html

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    Quote Originally Posted by browha View Post
    edit;
    or wait, are you including that to show the relative change from the previous year, rather than an "actual" calculation (per se)
    Yeah, trying to reflect more or less how it happens in the P&L:

    Amortisation calculation only gives the net impact to last years figure, so that we can get the correct figure for this year. The "unamortised value" of the player sold is taken off from the "Profit from player sales" figure.

    - - - Updated - - -

    Quote Originally Posted by browha View Post
    sorry, my mistake, your numbers are consistent with swiss ramble for 10-11 at least

    http://swissramble.blogspot.co.uk/2011/12/moneys-too-tight-to-mention-at-inter.html
    Yeah, more or less the same. Though Kieron (swissramble) does tend to dramatize the numbers a bit for effect... the situation is not usually that bad

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    what the fuck is an amortization? who's dying?

    I thought we got the wages down to below 100m (after tax). Wasn't that good enough?

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    we have a magic 90 million euro black hole that only we have and no one else in the world which has never been explained

    so 100m wages + 90m blackhole = more than our revenue already.

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    By blackhole you mean "other expenses" worth 81m? What is the usual amt for this for a top club?

    Just looked up Lewandowski's wage 1.5m. Stankovic is 2.7m. I wonder why Dortmund is making 38m profits every year.

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    no one knows.

    i guess its some combination of inter campus and the licensing fees for our brand

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    Quote Originally Posted by Fapuccino View Post
    what the fuck is an amortization? who's dying?
    Inter. In a financial manner of speaking.

    But to answer your question, "amortisation" is the burden of past transfer fees. If we buy someone for 10m today, we may pat 10m upfront, but in the books that 10m gets divided over the length of contract. That is amortisation.

    Quote Originally Posted by Fapuccino View Post
    I thought we got the wages down to below 100m (after tax). Wasn't that good enough?
    While our wages are ever reducing and probably are below 100m run rate at this moment, over the last financial year they probably were about 120m+... thats coz we did pay players like Sneijder for 6 months, etc.

    But while wage bill reduction is perhaps the one area we are doing a good job on, our starting point was really negative and our revenues are declining... so no, its not enough.

    Quote Originally Posted by Fapuccino View Post
    By blackhole you mean "other expenses" worth 81m? What is the usual amt for this for a top club?
    It is way too much for a club of Inter's revenues... its like 50% of our turnover is spent on non-salary operating expenses... just to compare, at Arsenal, its about 15-18%. For Spurs, a club with similar revenues as Inter, this amount is £40m, about 25% of turnover.
    Last edited by Bluenine; 29 May 13 at 23:35.

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    I'm guessing other costs includes stadium rent? 80m really is a huge amount though. I'm guessing the wages column doesn't include coach and management's wages? Because we can only imagine the massive money that Branca is on.
    Quote Originally Posted by DM_ View Post
    Then we'll just buy the federation and create our own rules.
    Quote Originally Posted by Pimpin View Post
    I dont think juventus are willing to sell

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    Stadium rent will partially go to that, that is *probably* true. That's only like 3m a year, though.

    It will probably cover management wages, yes, wgich worries me. I can imagine moratti putting people like Branca on the same sort of salaries as our top players, tbh. But even then, that isnt close to covering it.

    I'm convinced its royalties for the subsidy, tbh

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    Quote Originally Posted by browha View Post
    I'm convinced its royalties for the subsidy, tbh
    Huh? You mean royalties we pay because MM sold the rights to our name or something?

    Anyway, surely someone somewhere knows what this "other" actually incorporates.
    Quote Originally Posted by DM_ View Post
    Then we'll just buy the federation and create our own rules.
    Quote Originally Posted by Pimpin View Post
    I dont think juventus are willing to sell

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    Where is this 81m going, God only know. Your guess is as good as mine, but let me take a shot...

    - Costs of the Inter youth development could be about 12-15m
    - Cost of renting stadium - maybe about 5-6m
    - Charity/community stuff - this cannot be above 2-3m
    - Licencing cost of the Brand - I know we sold our brand for 160m, so we could be paying about 10-12m per year...
    - Staff/management costs - I can bet this is way higher than our peers - thats why everyone loves Moratti
    - Agent fees and commissions - I bet this is a killer at a poorly run club like Inter
    - Bonus payments may be a part as well, though why the fuck would we pay anyone bonus over the last 3 seasons...
    - Coach sacking costs, the contractual pay-offs

    Still cannot explain 81m IMO.

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    ^it's only a guess, it's not black and white. Also from the stadium we lose around 20-25 mils per year, i wrote an article about that last year.
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    So...

    the stadium costs us 3m a year. Then the council take a third of all our box office revenue. But they take that directly, I believe, so it doesnt come into the black hole.

    The black hole is FLAT year on year - so things like agent fees are NOT accounted for in it. It's CONSTANT expenditure, so again, stuff like paying off sacked coaches also DO NOT COUNT.


    It has to be flat projects.

    Now, lets take some examples

    We sold the subsidy for 181m euros I believe in 2006? You can estimate a 7% yield on the sale, so thats probably 11m euros a year we pay for using the Inter brand.

    The youth academy costs 8-12m a year depending on who you listen to.

    The stadium costs us 3m a year. That gives us 26m a year. Its unclear to me how Inter Campus would be funded - and whether that affects us for FFP. So I cant really make a comment there.

    Admin costs come out of this as well. The scouting network is typically a few million - Angeloni had a 13 million euro budget to work with at Udinese, so we can assume something comparable is here.

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    Quote Originally Posted by browha View Post
    The black hole is FLAT year on year - so things like agent fees are NOT accounted for in it. It's CONSTANT expenditure, so again, stuff like paying off sacked coaches also DO NOT COUNT.
    The "black hole" is not flat y-o-y, I have projected it to be flat in the last 2 years because I have little confidence in Moratti's competency to reduce it as I explained in the article. Hopefully, this figure may have decreased over the last 2 years, I will know soon enough.

    Just to give you the historic "black hole" figures at Inter:

    2005-06: 80m
    2006-07: 76m
    2007-08: 105m
    2008-09: 96m
    2009-10: 82m
    2010-11: 81m

    This figure include ALL THE EXPENSES of the club apart from player wages.

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    According to rumors Moratti has spend over 1 billion on Inter during a years. And that was a period when serie A was most succesfull and most popular leage at the world.

    He could buy Meazza from city with that money and now we're looking new investors for couple 100 milions.
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    Quote Originally Posted by Hasan View Post
    According to rumors Moratti has spend over 1 billion on Inter during a years. And that was a period when serie A was most succesfull and most popular leage at the world.

    He could buy Meazza from city with that money and now we're looking new investors for couple 100 milions.
    That money is already spent covering for our losses over the last 17 years... the new FFP rules regulate how much you can money you can invest to cover for losses. Its a different world now.

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