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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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    Stop making me feel positive about Inter. It feels very unnatural.
    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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    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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    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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    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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    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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    Quote Originally Posted by bandiera View Post
    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.
    All that has been factored (including increased amortisation costs, increase wage bill, and next summers spending) into my analysis above.

    While our future growth is dependent on regularly qualifying for the CL, like any big club, this analysis shows that we can sustain a similar transfer strategy to this summer for a few seasons even if we do not qualify for the CL every year. It looks much better than this time last year, ET is being reasonably smart with the finances.

    If we do qualify for the CL this season, I suspect Thohir will approve another big spend (€100m-ish) next summer in order to sustain our league position as well as attempt to get further than the group stage in the CL. From the analysis above, it looks likely that he will be able to do this and meet FFP obligations.

    If we don't qualify for the CL this season, we will probably sell someone like Icardi to fund a big spend next summer.

    I am satisfied with the progress we have made from a financial point of view. It will be interesting to see last years accounts to see if the starting point I assumed (based on media reports) is more or less accurate or not.

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    Quote Originally Posted by Bluenine View Post
    All that has been factored (including increased amortisation costs, increase wage bill, and next summers spending) into my analysis above.

    While our future growth is dependent on regularly qualifying for the CL, like any big club, this analysis shows that we can sustain a similar transfer strategy to this summer for a few seasons even if we do not qualify for the CL every year. It looks much better than this time last year, ET is being reasonably smart with the finances.

    If we do qualify for the CL this season, I suspect Thohir will approve another big spend (€100m-ish) next summer in order to sustain our league position as well as attempt to get further than the group stage in the CL. From the analysis above, it looks likely that he will be able to do this and meet FFP obligations.

    If we don't qualify for the CL this season, we will probably sell someone like Icardi to fund a big spend next summer.

    I am satisfied with the progress we have made from a financial point of view. It will be interesting to see last years accounts to see if the starting point I assumed (based on media reports) is more or less accurate or not.
    bluenine, this is what i can gather from your posts:

    if we don't qualify for CL, it will be easy to continue to comply with FFP. however, the only way to reinforce the team and spend a lot of money while continuing to comply with uefa regulations is to make a really big sale. this can be a big hit to our squad quality. accounting aside, our losses will still be a massive issue and thohir will have to cover them as he has done over the past 3 years. if he wants to use "organic cashflows" and if he doesn't want to cover them himself, correct me if i'm wrong, but we'll have to make two really big sales.

    if we qualify for CL this year (and this should also be valid for qualifying for CL next season in the last case), we will obviously be in compliance with FFP and our losses will be covered by CL revenue. there is the question of how much money we can spend on reinforcements. qualifying for CL once doesn't necessarily mean you will do it again especially if our competitors (napoli, roma, milan) reinforce. you're saying FFP would be easy to deal with even if we spend 100 mill. however, the money for another splash would have to come out of a big sale and thohir's pocket because CL revenue would be going towards our losses. if thohir doesn't want to sell key members of the team and he doesn't want to spend too much of his own money, then there are very reasonable questions re how we will improve in the short term. i don't believe this team is good enough to cope with 50-60 games in a season.

    it's normal when the future growth of an ambitious club is dependent on regularly qualifying for europe, but it's abnormal and a bit dangerous when the financial health of a club is dependent on qualifying for CL when they haven't been in that competition for 4 years..
    Last edited by bandiera; 18 Sep 15 at 21:45.

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    Quote Originally Posted by bandiera View Post
    bluenine, this is what i can gather from your posts:

    if we don't qualify for CL, it will be easy to continue to comply with FFP. however, the only way to reinforce the team and spend a lot of money while continuing to comply with uefa regulations is to make a really big sale. this can be a big hit to our squad quality. accounting aside, our losses will still be a massive issue and thohir will have to cover them as he has done over the past 3 years. if he wants to use "organic cashflows" and if he doesn't want to cover them himself, correct me if i'm wrong, but we'll have to make two really big sales.

    if we qualify for CL this year (and this should also be valid for qualifying for CL next season in the last case), we will obviously be in compliance with FFP and our losses will be covered by CL revenue. there is the question of how much money we can spend on reinforcements. qualifying for CL once doesn't necessarily mean you will do it again especially if our competitors (napoli, roma, milan) reinforce. you're saying FFP would be easy to deal with even if we spend 100 mill. however, the money for another splash would have to come out of a big sale and thohir's pocket because CL revenue would be going towards our losses. if thohir doesn't want to sell key members of the team and he doesn't want to spend too much of his own money, then there are very reasonable questions re how we will improve in the short term. i don't believe this team is good enough nor does it have enough depth to cope with 50-60 games in a season.

    it's normal when the future growth of an ambitious club is dependent on regularly qualifying for europe, but it's abnormal and a bit dangerous when the financial health of a club is dependent on qualifying for CL when they haven't been in that competition for 4 years..
    What I am saying is:

    1. If we don't qualify for CL, we will still meet the FFP criteria due to expiring contracts. But we may sell a big player (like Icardi) to fund another buying spree like this summer.

    2. If we qualify for the CL, we may still sell someone like Icardi to fund transfers, but only to match cash flows. But in this case, we actually have a chance to become a profitable club as soon as next year!

    Inter are are loss making club - assumed losses last year of €55m. Thohir must have covered that by reinvesting or debt, otherwise Inter would have been thrown out of Serie A. The idea is to reduce our losses to €30m this financial year, and further reduce to €15m next year. Presumably, Thohir will also cover those losses as well.

    However, based on this summer, looks like Thohir does not want to invest more money into the club to fund transfers - i.e. only use our organic cash flows for transfers. So we are only allowed to spend what is in the bank account - this has nothing to do with what profits or losses we make as a business. Which explains the "Inter formula" which does not help us much from a FFP (or profit) point of view, but allows us to buy players without having the money in our bank account.

    That is not the only way to do business, of course. If Inter make it to the CL, for example, Thohir may be willing to spend that CL money "in advance" with via giving Inter a short term loan (i.e. fuck organic cash flows). Most clubs do that. The profitability could still be the same.

    What that article shows is that Thohir is working very seriously on our accounts - i.e. reducing our losses. If he manages to achieve these targets, then it will be an amazing transformation. We were in financial HELL when Thohir took over. Now there is light at the end of the tunnel. And because of this, we are not as dependent on CL revenues as we thought. There is no "bust", financially speaking.

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