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Thread: CL or Bust this Season. Or is it?

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    CL or Bust this Season. Or is it?

    I read some posts here claiming that after spending so much this summer, its either CL qualification or bust for Inter. Is that really true? In this analysis, I will be exploring that largely from a financial (FFP) point of view focusing on (approximate) sporting costs which are the reason people claim its CL or Bust.

    FFP Situation

    Last year, Inter we penalised for not meeting FFP criteria. Inter and UEFA agreed a strict loss reduction plan, and if Inter meet those financial objectives then the rest of the penalty will be waived off. If Inter fail to meet them, then we will be penalised another €14m. Now that UEFA is easing off FFP, it is very likely that this penalty is Inter's worst case scenario i.e. our failure to meet FFP will come at a cost of €14m for Thohir. That will not kill this club, Thohir has invested far bigger sums to be scared by €14m. So its not really "bust".

    But for the sake of this argument, lets assume that Inter intends to honour FFP. All signs indicate that Thohir is serious about not paying this penalty. UEFA's targets for Inter include reducing our losses to €30m in 2015-16 (if we meet just this, we avoid the penalty), and a further reduction in 2016-17 (to €15m). Now the previous year's (2014-15) P&L results are not publicly available yet, but most rumours indicate that Inter's losses were to the tune of €50-60m. I will assume a loss of €55m as a starting point for this analysis.

    Impact of this summer

    I my previous article I looked at the Cost of Revolution at Inter: Summer of 2015. I will not repeat that analysis here, just to summarise the financial impact of our Mercato:

    - Additional P&L Impact 2015 = profit of €27m
    - Additional P&L Impact 2016 = 0 (the transfer costs next summer are balanced off by the reduced loan fees)

    This means that we have reduced our losses by 27m from last year just because of our summer's business, and in 2016 we will have similar losses to this year (if you look the impact of the mercato in isolation).

    Other costs not related to this mercato

    Costs like the contract renewals for Icardi and potentially Handanovic. We tripled Icardi's wages, which will now cost us about €5m more per annum. Handanovic will probably cost us €2m more as well. That is €7m more in 2015-16.

    Next summer the contracts of Vidic, Nagatomo and Palacio will be over, which will reduce our wage bill by about €15m in 2016-17. There is also the potential of letting some surplus players like Montoya & D'ambrosio/Dodo leave, which saves another €5m. Mazzarri's contract will also be up, saving us another €6m.

    2015-16 FFP objective = less than €30m losses

    Lets assume that we cannot reduce our operating costs (the black hole) and we do not increase our revenues (which should go up due to increased ticket prices, expected larger attendances, more sponsorship money, etc inspite of losing a few million we got out of Europa League).

    How do we plan to meet this objective? We have reduced our losses by €27m this summer, but added costs of €7m on contract renewals. So our losses will come down from €55m to (55-27+7) = €35m. I am sure Thohir already has sponsorship deals tied up in Asia to more than make up for this €5m deficit. If not, we can sell a couple of surplus players like Nagatomo or D'ambrosio this winter to easily meet this criteria - however I am quite certain we will reinvest any money/savings we make sales into new investments. We look safe for this year, so we will not pay the penalty.

    2016-17 FFP objective = less than €15m losses

    Next year, lets assume for a moment that we fail to qualify for the CL and make it to the EL instead. We start the year with €30m in red, but make €26m savings from expiring contracts/surplus player wage savings (before even taking into account any amortisation savings/sale profits). Plus €5-10m of EL revenue. So even without the CL, we are ok for another year. Clearly, like this summer, all transfer activity will have to be funded by sales in this case. So Mancini (or the new manager) will sell the players he deems surplus or make 1-2 big sacrifices to get new players. Icardi looks like the most likely sacrifice - if he fetches 40m in the market, that will give us a profit+saving of about €39m. Which means we can spend upto €80m in transfer fees and upto €23m in wages (which is a reasonable budget - you can buy some great players for that kind of money).

    The sale of Icardi will give us about the same budget as qualifying for CL does. So I guess its not "CL or Bust" its more like "CL or bye bye Wanda".

    Shrewd Business Plan

    In the short while that he has been here, Thohir has shown that what he lacks in experience of football management, he more than makes up for it by shrewd business planning. Some observations:

    1. Thohir has slowly reduced our losses, and we might even break even in 2016-17 if we make the CL. No more making 80m in losses even after winning the treble - those days are thankfully behind us.

    2. Thohir is cleverly matching his cash flows from transfers - which means he only covers us for our losses, nothing more. That is the financial equivalent of street smartness, the opposite of what Moratti did for years.

    3. Thohir's focus is clearly to make the CL, which will increase revenues not only from the CL but also sponsorship deals. And grow the brand in emerging markets. I guess he is looking at it purely from a business point of view - growing the valuation of the brand/company he invested €300m in. Thats his larger picture, he wants to make a big profit on his investment rather than save the €30-40m in costs now. This will be good for Inter in the long run, as bigger revenues = bigger transfer budgets.

    The last point above is why I wholeheartedly agree with this plan, rather than what some other posters (e.g. Bandiera) wanted. They wanted Inter to go the conservative route - lets call it Plan B - cut your losses now, start from a smaller base and build. The problem with that approach is when you reduce your budget to the level of a Udinese, it takes much longer to grow it back. In the meanwhile, the valuation takes a hit. For example if Thohir had just cut the costs without re-investing this summer, we may have even come close to breaking even this year - so its a more sustainable option. And our squad could have been full of kids and players of future potential - but it would take years to reach back to the CL. From Thohir's point of view, his €300m investment would have halved in value (or worse), and that is a risk he is not willing to take.

    Instead, Thohir is trying to reach the CL asap. That is key to growing the brand/valuation. But he is doing it will calculated risks and not crazy risks, as shown by the analysis above. This plan may not be perfect, but its a clever, solid plan. Its definitely not "CL or Bust", not even close. Its more like CL qualification this season, or next season, or the season after that. You can always fall back to Plan B if this does not work.
    Last edited by Bluenine; 15 Sep 15 at 19:11.


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    Note: The above is an approximate analysis looking largely at the costs of transfers and their impact on P&L - so I have only looked at the larger relevant sporting costs here. This is not a comprehensive analysis - maybe I will do one when I get Inter's latest financials. I have conservatively assumed other costs (and revenues) to remain the same. In reality, some of that black hole should continue to reduce and the non-tv revenues should increase - that has been a positive trend under Thohir's watch.

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    We just have to avoid becoming Italy's Arsenal: always in the CL, always in the green, but winning fuck all.

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    First we should become as sustainable as Arsenal is until we point fingers in any direction.
    Quote Originally Posted by Shaun View Post
    If Icardi is ever sold for 110m euros i'll stop watching football and promote Pimp to moderator.

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    Quote Originally Posted by Black Knight View Post
    We just have to avoid becoming Italy's Arsenal: always in the CL, always in the green, but winning fuck all.
    The shithole we have been in during the last 5 years, achieving the Arsenal level seems like an aspiration. Lets get there first, then focus on bigger things.

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    Of course, that was implied, given the context of the article. I'm just saying that Arsenal level should be the stepping stone. I just think Thohir would be fine with keeping us at that level if/once we get there.

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    Meanwhile, in the coefficients race... Italy may soon have 4 CL spots.

    Italy are catching up with England and Germany on the UEFA coefficients. Last year, we made some significant gains, and now there is a great opportunity to win that 4th CL spot back in a couple of years. The UEFA co-efficients table (which decides the CL spots for the season 2018-19) looks like this:



    If Italian clubs can match the German/English clubs in Europe this season and next, then Italy will get the 4th spot back in 2018-19 (most likely at the expense of England). Sampdoria and Lazio did us no favours this season, though Lazio still have a chance to make amends. We need all 5 remaining teams to stay alive till January.

    This could be very important for Inter and Serie A finances. I hope we see Juventus, Inter and Roma/Milan in the CL next season... Italian teams with some history seem to do better in the group stages.

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    If only Lazio didn't fuck up as they did...
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    Quote Originally Posted by Pajo View Post
    If only Lazio didn't fuck up as they did...
    Lazio will get a lot more points in EL than CL. It's a bit ridiculous if you ask me, but that's UEFA math for you.
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    Quote Originally Posted by Fapuccino View Post
    Lazio will get a lot more points in EL than CL. It's a bit ridiculous if you ask me, but that's UEFA math for you.
    That is not true anymore. This used to be the case 4-5 years ago. Now days UEFA awards 4 coefficients to any team which plays CL group stage, and an additional 2 coefficients to get to the CL KO round. These are not awarded to EL teams, and now CL teams end up earning more points.

    So Lazio so far have only 1 coefficient, while Leverkusen have 5. Lazio will have to win a lot of their group matches to make the difference. Most likely, Leverkusen will finish 3rd in their group which qualifies them for EL - so will probably end up with more points than Lazio.

    Last season, there were at least 4 CL teams which made as many or more coefficients than the EL champions. So UEFA have corrected their maths.

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    Yeah, but Lazio get can get way more wins in EL and can progress much further than in CL. In CL group stages they can win what, 2-3 games max? In EL they can win almost all their games, and play all the way to semis.

    It more than makes up for all the CL bonus points. Don't forget we only had 1 team that made it to CL knockouts last year, and beat Germany by 4 points overall, which had 4 teams in knockouts of CL.
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    Quote Originally Posted by Fapuccino View Post
    Yeah, but Lazio get can get way more wins in EL and can progress much further than in CL. In CL group stages they can win what, 2-3 games max? In EL they can win almost all their games, and play all the way to semis.

    It more than makes up for all the CL bonus points. Don't forget we only had 1 team that made it to CL knockouts last year, and beat Germany by 4 points overall, which had 4 teams in knockouts of CL.
    To some extent what you are saying is true, Lazio can still make up for it. But your last years example is incorrect. Last season:

    - the 5 Italian teams in EL all went far, but still averaged only 17 coefficients per team.
    - The 4 German teams in the CL averaged 20.75 points.

    The reason Italy did much better than Germany last season in coefficients is because 1 German EL team went out before the group stage (Mainz) which pulled their country average down. Unfortunately, this season all German teams in both competitions have made the group stage, whereas Sampdoria are out - so Italy's average will be severely impacted.

    The country coefficients (being an average) are severely impacted by the worst team, specially if a club goes out in the qualifiers and ends up with 1 point or less.

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    Remember that in UEL you play 2 additional matches that also give points (the round of 32). Those matches are not played in UCL as they go directly to round of 16.

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    Fantastic read Bluenine. Great to see Thohirs work taking some fruit with some optimism for our future as a club. Would love to see more from you.
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    My opinion that we should rebuild from the ground up has a lot more to do with the need to build the squad with a vision of a playing style and a philosophy than it does with our finances. Austerity won't be enough to make our losses disappear but it can give us more breathing room by reducing the risk. Thohir knows we need to increase our revenue.

    Key point in your article is that we won't break if we don't finish top 3... As you mentioned, it will force the need for a big sale to balance the books. Accounting aside, our losses will be even larger because of amortized transfer spending and the increased wage budget. Don't forget about transfer spending next summer.

    Lastly, our books are heavily dependent on qualifying for UCL. This isn't a good thing because I don't think it'll be a sure bet next season even if we do it this year.
    Last edited by bandiera; 17 Sep 15 at 04:04.

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    Optimistic read, lots of variables which we can't predict.

    I think at the end of the month the clubs figures will come out and it will be interesting to see where we're at.
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    very nice thread.

    glad we've made a good progress about our finance.
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    We can always just sell Icardi when we are in need of money.

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