Some people (no names) keep going on about balancing outgoing transfer fee payments with selling some players for similar transfer fee. So if we buy Kondogbia for €35m, then we must sell Kovacic for €35m to "balance our book for FFP". Well, neither the books nor FFP work like that. Let me explain:

1. Cash Flows don't affect FFP:FFP is not about matching incoming and outgoing transfer fees. Far from it. Matching transfer fees is just about "Cash Flows", I am sure Inter have our transfer budget well covered already via Thohir's backing and banking arrangements. FFP is about profitability, not how much money you have left in your bank.

2. Current situation:What is the point of matching additional revenues with additional costs when your existing financials are already deep in red? Inter's estimated loss is about €100m in 2013-14. 100-fucking-million-Euros. Do you really think selling one Kovacic will solve all our problems? Our revenues are about €160m - close to half of what they used to be at one point - perhaps that is the main problem to address here? This might explain why Thohir is spending big this summer.

3. Rough Cheatsheet:Our budget is more likely to be guided by the same thing that FFP focuses on - the P&L (Profit & Loss statement). The impact of Incoming & Outgoing transfers on our current year's P&L is about "Annual cost" and not the transfer fee. These can be very different as explained below (in approximate formulae, the real life is a bit more complicated):

(a) Incoming transferimpact on P&L = Amortisation cost (i.e. Transfer fee/No of years in contract) + Annual Gross wage

So for e.g.:

- If we buy Kondogbia for 35m, 5 yr contract, 8m wage pa, then the annual impact = (35/5)+8= 15m

- If we get Yaya Toure for 10m, 2 yr contract, 12m wage pa, then the annual impact = (10/2)+12= 17m

So you can see why using just the transfer fee can be very misleading, as Kondogbia for 35m is "cheaper" for us than Toure for 10m.

(b) Outgoing transfersavings on P&L = (Selling Transfer Fee - Book Value) + Annual gross wage + Amortisation cost (i.e. Buying Transfer fee/No of years in contract)

So for e.g.:

- If we sell Brozovic for 10m (~10m book value), the total impact = (10-10)+2+2.5 = 4.5m savings

- If we let Vidic go for free, (assuming book value is also 0), then the total impact = (0-0)+6+0= 6m savings

Again, you can see why using just selling fee can be very misleading, as we save less by selling Brozovic for 10m, than by letting Vidic leave for free.

Edited Note: "Book Value" is the value of the player in our Balance sheet. For the purpose of a theoretical exercise, we can assume the book value to be:

Book value = Buying Transfer fee - total amortisation done so far

for e.g.: If we had bought a player for €50m in a 5 year contract, after 3 years his book value = 50 - 30 = €20m

4. No "Free" Lunch:Similarly, loans and free transfers are not really "free" either. They impact P&L and hence FFP.

5. "Inter Formula":The media is currently hyping the "Inter formula", making Fassone & Co look like geniuses. It is largely hype, because this formula is neither new/unique, nor does it have as much of an impact as some people assume. It is basically about postponing some of the amortisation costs, which only helps a little bit and only temporarily. Lets take a simplified example:

- Normal:Inter buy Salah for €20m, 5 year contract, €6m gross wages. Our annual cost = 20/5+6= €10m

- Formula:2 years loan at €2m pa, then buy for €16m, €6m wages. Our annual cost = 2m+6m= €8m

So we "save" €2m for the first 2 years, pushing this cost to later years. So instead of paying 10m every year for 5 years, we pay 8m, 8m, 11.3m, 11.3m, 11.3m in those 5 years. It is smart accounting, but the impact of this is often exaggerated.

6. Deferred payment:Paying in instalments (10m now, 10m next year and 10m the year after) makes no difference to the P&L (and hence FFP). The amortisation cost is the same as what it would be if you make the full payment now.

The deferred payment does help in the following ways:

1. Cash Flows- its easier to pay in instalments

2. Cost of Capital- its like an interest free loan, so you have "interest savings"

3. Time Value of money- Due to inflation, 10m next year has lessor value than 10m now.

7. Scope of your analysis:The above rough calculation can help to analyse the net impact of a transfer window on our financials. However, if you really want to analyse our FFP readiness, please do not ignore point no 2 above.

I have posted some of the above points before in various threads, but perhaps this needed an article we can all refer to.

Hope this helps.