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Thread: How Transfers Impact FFP - A Cheatsheet.

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    How Transfers Impact FFP - A Cheatsheet.

    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 transfer impact 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 transfer savings 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.
    Last edited by Bluenine; 28 Jun 15 at 12:17.


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    Great post. The "Inter Formula" is more about us peeing in our pants to make them hot enough for us to survive out in the cold for a few years and then we hope to reach inside a warm house in due time.


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    more importantly, the loan with obligation means that we offload that transfer fee from our books of ra year, or two years.

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    Interesting stuff, very grateful for an attempt at this as I do find the intricacies of FFP difficult to grasp at times. A few comments and queries...
    Quote Originally Posted by Bluenine View Post
    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.
    What makes you so sure of this? what backing and banking arrangements are these? How can we be described as profitable in any way right now?

    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.
    no, obviously not, but it would help towards it. I don't think we should sell Kovacic because his best is yet to come, but there's a bit of a logical fallacy here that I keep hearing...just because something doesn't solve all problems doesn't mean it wouldn't be beneficial to solving some of them, or contributing towards solving one problem.
    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 transfer impact 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.
    Well that Tourť deal is completely hypothetical, but its still interesting to put those two deals into perspective in that way. Nice one.
    (b) Outgoing transfer impact on P&L = (Selling Transfer Fee - Book Value) + Annual gross wage
    So for e.g.:
    - If we sell Brozovic for 10m (~10m book value), the total impact = (10-10)+2 = 2m savings
    - If we let Vidic go for free, (assuming book value is also 0), then the total impact = (0-0) +6= 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.
    this is a bit more obvious when termed this way (and also hypothetical), but still interesting.

    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. It is smart accounting, buy the impact of this is often exaggerated.
    Yeah I don't think anyone is quite so naiive to think the 'Inter formula' is some kind of mathematical masterstroke, it's clearly journalistic hype, but you're right to simplify it in this way. It makes some sense, though as Ausilio said, it has downsides too - we are rather putting off our problems into the future if things don't go to plan, but I trust the management has considered this.
    "I didnít want to upset or disrespect the Lazio fans, but I had to do it for Lotito. It was the saddest backflip of my career."

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    As he said its all about p and l. That's how we book p and l from player transfers.

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    Quote Originally Posted by TGDella View Post
    Interesting stuff, very grateful for an attempt at this as I do find the intricacies of FFP difficult to grasp at times. A few comments and queries...
    Thanks mate. I will try and answer your Qs.

    Quote Originally Posted by TGDella View Post
    What makes you so sure of this? what backing and banking arrangements are these? How can we be described as profitable in any way right now?
    Your question has two parts:

    1. How am I sure our cash flows are good? Its the usual assumptions - rich owner, no credit issues, etc. But mainly due to the fact that our debts got refinanced by Goldman Sachs. That is a big deal. If Goldman Sachs think Inter's credit is good, it means Inter/Thohir have the ability to cover our costs/losses. Its also a kind of a guarantee - Thohir and his family would not like to fuck with Goldman Sachs. Basically it means that "Bank Balance" is not an issue - if we need money, we will get it.

    2. I did not say we are profitable. Having a bank balance has little to do with being profitable - I know that sounds ridiculous. But just look at the Moratti era - we made huge losses every year, but still our bank balance was good enough to spend 100s of millions on transfers. Tomorrow if Mr Bee puts 480m in Milan's bank account to spend on transfers, they will still not be profitable.

    So lets separate these two concepts - Cash flows (do you have the money?) and P&L (do you make money?). FFP cares only about P&L.

    Quote Originally Posted by TGDella View Post
    no, obviously not, but it would help towards it. I don't think we should sell Kovacic because his best is yet to come, but there's a bit of a logical fallacy here that I keep hearing...just because something doesn't solve all problems doesn't mean it wouldn't be beneficial to solving some of them, or contributing towards solving one problem.
    Of course, every little helps. But I was aiming that statement towards some people here who believe "selling Kovacic would balance our books". It won't. Drop in the ocean (as FFP is a 3 year play).

    But I was also making another point - maybe the solution is the opposite of selling Kovacic. Because if we really cut down to meet FFP immediately, we will need to downsize to a small club's size (i.e. cut our costs by 100m). That we can all agree will be disastrous from a sporting and strategic point of view. Maybe the solution is to spend big - which will attract stars, which attracts audience/sponsors and even CL money. So maybe the solution is to focus on increasing our revenues...

    Hope that clarifies.
    Last edited by Bluenine; 24 Jun 15 at 12:10.


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    Bluenine, my point was that we shouldnt sell Kovacic, just to spend that 25 mill as part of 60 mill combined bids for darmian and anderson. if there is no financial reason for him to leave, then it shouldnt even be on thohirs tabkle.

    however, you're also saying that we dont need to be profitable to be able to spend, so its all okay. why should we aspire for the financial instability of the moratti era? the moment he put down his chequebook we saw what happened. there's also no room for patience when you're bankrolled by a sugardaddy owner and always on the brink, and patience is a necessary ingredient for a long term project

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    Good point ^^^ we seem to be lurching between a long term 'project' and short term fixes at the moment, at least from what is being presented publicly. Feel like Thohir needs to choose between the two?
    "I didnít want to upset or disrespect the Lazio fans, but I had to do it for Lotito. It was the saddest backflip of my career."

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    Quote Originally Posted by bandiera View Post
    Bluenine, my point was that we shouldnt sell Kovacic, just to spend that 25 mill as part of 60 mill combined bids for darmian and anderson. if there is no financial reason for him to leave, then it shouldnt even be on thohirs tabkle.

    however, you're also saying that we dont need to be profitable to be able to spend, so its all okay. why should we aspire for the financial instability of the moratti era? the moment he put down his chequebook we saw what happened. there's also no room for patience when you're bankrolled by a sugardaddy owner and always on the brink, and patience is a necessary ingredient for a long term project
    I am glad you entered the discussion here. What you are talking about is a more financially pragmatic strategy. But before I comment, I want you to articulate this strategy a bit more... Lets assume our current (2014-15) revenues are ~€160m and are current losses are ~€80m. So what would your ideal plan be:

    1. How much of the losses do you want to cut.

    2. How?
    - What kind of wage reduction would you do?
    - What kind of money will you spend on transfers?
    - What players will you sell and buy?
    - what would your sporting target be for this year, keeping the above in mind?

    3. How will the next year or two look like?

    ...and so on. Articulate what would YOU do?

    Don't get me wrong, what you are suggesting is a viable strategic option for Inter - but I don't think you have fully analysed what such a strategy entails. Talk me through it.

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    how are we between the two?

    we're bringing in a good blend of players. a Long term project =/= signing lots of young players.

    we're trying to build a squad for the coach - going to a 3 back line as we did for Mazz was a big mistake and I even said it at the time (repeatedly and loudly). once we have a decent squad in place, we can cherry pick fixes as necessary / if necessary.

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    fucking school shit, man Im glad I have graduated and left this math and accounting shit long time ago, leave me alone.

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    Thanks for the detailed breakdown. Great stuff. A couple questions:

    You use "book value" in your formula for section 3b but never define the variable. Is this the transfer fee originally paid?

    3b is also somewhat confusing because you don't factor in the number of years left on the contract. Or, if you were trying to calculate the annual P&L savings then the difference between transfer fee earned and "book value" should also be spread out over however many years were left on the player's contract, right?
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    Quote Originally Posted by Hadrian View Post
    Thanks for the detailed breakdown. Great stuff. A couple questions:

    You use "book value" in your formula for section 3b but never define the variable. Is this the transfer fee originally paid?
    "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

    Also, I forgot to mention another notional saving when we sell any player - we don't have to "pay" his annual amortisation cost anymore, just like we don't have to pay his wages anymore. It should be looked upon as a saving.

    I will edit this in to my article above.

    Quote Originally Posted by Hadrian View Post
    3b is also somewhat confusing because you don't factor in the number of years left on the contract. Or, if you were trying to calculate the annual P&L savings then the difference between transfer fee earned and "book value" should also be spread out over however many years were left on the player's contract, right?
    No. This profit (or loss) on sale will be booked the day the player is sold in its entirety, and will only affect that year's P&L. Its treated like a sale of any asset, like a building or a machine. The resultant lower wages and lower amortisation costs will obviously be forever - i.e. once you sell a player, you don't have to pay his wages ever again.

    Hope that helps.
    Last edited by Bluenine; 25 Jun 15 at 10:12.

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    (a) Incoming transfer impact 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

    Kondogbia 10m 5y contact, 3,5m wage = (10/5) + 3,5 = 5m (we buy him for 30m 10m now and 2y x 10m)


    can you explain that this isnt wrong ...

    and can you explain loans deals - Imbula 1m loan for 2 yeras 2m wage = ???
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    Quote Originally Posted by enjoy View Post
    (a) Incoming transfer impact 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

    Kondogbia 10m 5y contact, 3,5m wage = (10/5) + 3,5 = 5m (we buy him for 30m 10m now and 2y x 10m)


    can you explain that this isnt wrong ...
    That is incorrect. Deferred payments (10m now, 10m next year and 10m the year after) makes no difference to the P&L (and hence FFP). The amortisation cost is based on his total value.

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

    I have added this deferred payment explanation into the article for ready reference.

    Also, the wage you should consider is gross, not net wages. Gross wage is approximately double of the net wage in Italy (due to high taxes).

    Quote Originally Posted by enjoy View Post
    and can you explain loans deals - Imbula 1m loan for 2 yeras 2m wage = ???
    This I have explained under point 5 (Inter formula) in the above article.

    Hope that clarifies.

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    welcome to FFP 101..

    new class that will only start on your summer holiday.
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    I'll tell you how FFP works...

    UEFA DROP FFP SANCTIONS FROM PSG!
    No longer will they be limited to a Ä60m expenditure, they will also be able to submit a 25 player list for CL as opposed to 21.
    Source: Gazette Dello Sport

    FFP is a joke...

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    Quote Originally Posted by icardiscores View Post
    I'll tell you how FFP works...

    UEFA DROP FFP SANCTIONS FROM PSG!
    No longer will they be limited to a €60m expenditure, they will also be able to submit a 25 player list for CL as opposed to 21.
    Source: Gazette Dello Sport

    FFP is a joke...
    PSG Owners to M. Platini:


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    PSG's and City's FFP punishments have been lifted! HAHAHA FFP what a joke...Platini is a corrupt Rube mafioso like Blatter!

    http://www.fcinter1908.it/ultim-ora/...al-city-152016


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    Quote Originally Posted by icardiscores View Post
    PSG's and City's FFP punishments have been lifted! HAHAHA FFP what a joke...Platini is a corrupt Rube mafioso like Blatter!

    http://www.fcinter1908.it/ultim-ora/...al-city-152016

    Maybe I am wrong, but from what I understand those restrictions were always going to be lifted provided City/PSG meet certain criteria in the last year. Its not like UEFA has suddenly decided to waive punishments, this bit was planned. Its going to be the same with Inter, if we meet our commitments in the next year (which is looking unlikely), our restrictions will also be listed.

    Make no mistake, both City and PSG were punished last season with CL squad restrictions and annual penalty. UEFA hasn't given them back that 16m. You can argue that UEFA punishments are too small to deter these clubs, and on the other hand many have argued that UEFA's penalties are too severe, but that is another argument. UEFA isn't backing off from FFP yet, though they have promised to ease off the punishments in the future.

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