The Daily ITK Discussion Thread - 10th August

[Thenewcat]

I'd be interested in getting an accountants view of this as I'm assuming their transfer fee is no longer "on the books" or it's minimal debt, whereas the wage commitment is huge.

I think even Levy could see the economics of this. He just needs to get over his pride about doing a good "deal".

The transfer fee paid is an investment - i don’t know how that is reflected on a the balance sheet in football but if we assume a straight line where the cost of the asset is spread across its life he would have 1/5 left so roughly the same as his wages. However wages are an operating expense so aren’t anywhere yet. So here are the scenarios:

If he went on a free but the club took his wages in we would have to bring forward the last chunk of the transfer fee but would never incur the last year of wages. Note we are still £10m better off - we bring forward the last transfer fee but would still have paid it eventually

scenario 2 - we pay up his contract. We incur a £20m loss now instead of £10m in expenses over the next year and a £10m loss next year.

So before taking tax, interest or anything into account and assuming his wages are £10m for simplicity if we paid someone £9.5m to take him or paid him £9.5m now to go away we’d be better off than keeping him, quite apart from getting rid of a problem. If we are haggling over million or so it would be insane to risk not getting rid of him

 

[Thenewcat]

Yeah, that's what I meant by not being on the books or minimal.

The only bit of the equation I don't know is what happens when we "rip up a contract". If we let Ndombele go to Turkey on a free, do we still pay out his contract or does his new club take it over. I don't think there's a consensus on how that works.

If we release him we pay his wages in full unless the two parties mutually agree otherwise. If we agree a transfer fee of zero his wages are no longer our problem, unless the parties agree otherwise

 

[Japhet]

I'd be interested in getting an accountants view of this as I'm assuming their transfer fee is no longer "on the books" or it's minimal debt, whereas the wage commitment is huge.

I think even Levy could see the economics of this. He just needs to get over his pride about doing a good "deal".

I think Ndombele is on about 200k per week. That works out to roughly 10m per year which is about the same as the amoritized figure for buying a 50m player on a 5 year deal.

 

[kd2000]

Yeah, that's what I meant by not being on the books or minimal.

The only bit of the equation I don't know is what happens when we "rip up a contract". If we let Ndombele go to Turkey on a free, do we still pay out his contract or does his new club take it over. I don't think there's a consensus on how that works.

I wonder if paying up contracts is more expensive than we think. Does the player get a loyalty bonus for seeing out his full contract if he hasn't formally requested a move?
If that's the case it would obviously need considering.
I assume if we allowed him to leave for free, as in no transfer fee, we may end up subsidising wages for a period and also still a potential loyalty bonus.
'getting rid' of someone like Tanguy may not be as easy as us fans think

 

[knowlespurs]

Yeah, that's what I meant by not being on the books or minimal.

The only bit of the equation I don't know is what happens when we "rip up a contract". If we let Ndombele go to Turkey on a free, do we still pay out his contract or does his new club take it over. I don't think there's a consensus on how that works.

I would think tanguy on the books value is about 15m

 

[jt hotspur]

I believe to buy out the contract you have to pay up all the wages for the rest of the contract so you aren't saving any wages at all.
If there's a chance of moving them on with no cost that's probably better isn't it?

Yes so selling would be great, loans probly next best case but we are in a situation where we have players refusing to do either and we (apparently) can't buy till we have cleared out a half dozen so these players that are dictating the clubs transfer policy. Bullshit. Tell the deadwood to find another club or they will not kick a ball. U can buy out their contract and if they sign for another club then u get the buy out (clause) back. I am mainly talking about ndombele on this point and the usual blame on something as to why we are not bringing in the players we need. (That is more bullshit)

 

[worcestersauce]

Yeah, that's what I meant by not being on the books or minimal.

The only bit of the equation I don't know is what happens when we "rip up a contract". If we let Ndombele go to Turkey on a free, do we still pay out his contract or does his new club take it over. I don't think there's a consensus on how that works.

I think it rather depends on the player and how flexible he is about what he's owed. If he wants out as much as us we can come to an agreement but I am sure he can insist on what he's owed. If the new club is willing to take up the wages in full I guess it would just be like selling him but for nothing.

 

[worcestersauce]

Yes so selling would be great, loans probly next best case but we are in a situation where we have players refusing to do either and we (apparently) can't buy till we have cleared out a half dozen so these players that are dictating the clubs transfer policy. Bullshit. Tell the deadwood to find another club or they will not kick a ball. U can buy out their contract and if they sign for another club then u get the buy out (clause) back. I am mainly talking about ndombele on this point and the usual blame on something as to why we are not bringing in the players we need. (That is more bullshit)

If you buy out his contract he is a free agent and nothing to do with you so you have no call on anything he does when he signs for another club.

 

[rawhide]

Yeah, that's what I meant by not being on the books or minimal.

The only bit of the equation I don't know is what happens when we "rip up a contract". If we let Ndombele go to Turkey on a free, do we still pay out his contract or does his new club take it over. I don't think there's a consensus on how that works.

So, the termination of a contract works by paying a sum up to the equivalent amount of the total of the contract to the employee, but could be less through negotiation - especially if there’s an agreement between the two parties that this is the right thing for all concerned. But it’s still a negotiation to agree how much will be paid - especially when there are performance related bonuses. The contract is then deemed ended (fulfilled) and the employee is free to negotiate a new contract with a new employer.

 

[Trix]

Yeah, that's what I meant by not being on the books or minimal.

The only bit of the equation I don't know is what happens when we "rip up a contract". If we let Ndombele go to Turkey on a free, do we still pay out his contract or does his new club take it over. I don't think there's a consensus on how that works.

It depends, that isn't something that is written into a contract and so will need to be negotiated on an individual basis. Legally we will owe them the remainder of their contract, but of course if the player/agent want the move because they'll actually gain with signing on fee's etc they may waiver some or all of that. There is no one size fits all.

 

[Dunc2610]

I always assumed that 'ripping up a contract' means you basically buy it out. I don't think there's a scenario where you essentially sack a player?

 

[Led Revolver]

Thanks for the new ITK..

The wages over fees argument is a bit of a strange one though I find (re D1’s ITK), particularly if it’s tied into us already spending the Harry money. Kane was on £200k a week and has now been sold. We would also have the fee as 100% profit as he was homegrown from the academy.

This one move alone would’ve freed up lots of room for both the transfer budget, and wage bill. IF we can shift Lloris and Ndombele, that’s another £300k a week. Big money to be pumped back into improving the team/squad. Spotrac has Sanchez earning £65,000 a week (Davies is amazingly on £80,000 if this website can be believed!)

An overly large squad is never a good idea from a team spirit perspective, however. If we can move 6 or 7 out and bring in 3 top players in (centre back, left footed winger, striker) - top players rather than make do’s however - we’ll have had a pretty good window. Quality over quantity needs to be the order of the day, for sure.

 

[WiganSpur]

Alternatively, this year should be viewed as a prolonged pre-season where we get young players in, get them trained up and used to Ange's system so that next year they can hit the ground running.

In an ideal world, no Europe means there should be a focus on quality over quantity. We also have some very promising players now in the U21s which we could be filling the bench with. Baldy has managed to engineer the opposite where we have far too many over the hill players on huge wages contributing very little who are blocking paths to the first team. We need to lose net 9 players minimum to bring in the couple of players we need whilst simultaneously creating a lean squad.

With no Europe we should have a squad of 20/21 of quality first team players with 4-5 picks from the academy backing them up. Then you see if any of the 4-5 academy players can cut the mustard and make the first team squad for next season.

 

[ardiles&villa]

3 in 3 out in a week seems extremely unlikely in my opinion

 

[N17-77]

The transfer fee paid is an investment - i don’t know how that is reflected on a the balance sheet in football but if we assume a straight line where the cost of the asset is spread across its life he would have 1/5 left so roughly the same as his wages. However wages are an operating expense so aren’t anywhere yet. So here are the scenarios:

If he went on a free but the club took his wages in we would have to bring forward the last chunk of the transfer fee but would never incur the last year of wages. Note we are still £10m better off - we bring forward the last transfer fee but would still have paid it eventually

scenario 2 - we pay up his contract. We incur a £20m loss now instead of £10m in expenses over the next year and a £10m loss next year.

So before taking tax, interest or anything into account and assuming his wages are £10m for simplicity if we paid someone £9.5m to take him or paid him £9.5m now to go away we’d be better off than keeping him, quite apart from getting rid of a problem. If we are haggling over million or so it would be insane to risk not getting rid of him

Since we're talking football finance, Inc the Boss, a little explainer below. (Wouldn't normally dare to post in this thread. But on topic, thanks WLB, Trix, Herc et al for the ITK; the news is largely positive; the signings so far are encouraging; Ange has been great)

I think there's one other element. Possibly 2 items conflated in the post above (or I may be misreading)

Using Ndombele as an example:
1. Transfer fee reported was £55m when he signed at start of 19/20 (+ £9m potential add ons, let's assume for simplicity the prerequisites for these haven't been met). We don't know the payment terms, but since Aulas was President let's assume favourable to Lyon, say 50%, 25%, 25% over 3 years. In any case, 4 full seasons have noe passed so the liability on the balance sheet (money owed to Lyon) is likely zero at this stage.

2. Separate to how we pay Lyon is how the player, as an asset, sits on the Balance Sheet. This is where amortisation comes in. If Ndombele signed a 5 year contract, then, assumed a straight-line approach (equal each financial year), then his value as an asset decreased 20% each full year, so right now, his value on the balance sheet would be £11m (£55m reduced by 11m or 20% each year of his contract).
This element is what counts for FFP. His book value is £11m, if we transfer him out on a free, we make an £11m accounting loss. (This is how Chelsea can game the system, I.e. they paid no fee for Mount as an academy player, so he is sold at pure profit for FFP).

3. Ndombele's wages are an operating cost and don't affect the balance sheet. Of course, we still have to budget fo the expenditure being incurred, as it's a contractual obligation and a known cost. Various figures are reported, but let's say he's on a basic wage of £125,000 pw (the other amounts beyond that being incentive-related and not met). That's £6.5m per season. (So 6.5 total, or 13 if he has 2 years left)

So, if we "tore up his contract", we pay him £6.5 (or 13m if 2 yrs) hard cash. We're committed to paying this anyway. We'd make an £11m loss on the balance sheet.
In such a scenario (see Aurier and Doherty recently), it is likely a legal settlement would be reached where the player gets less than this, perhaps 6months pay rather than a full 12. There could also be clauses whereby, they get paid up to the full amount (or even more, with a specific severance payment), if they don't take up other employment. This scenario can be good all round- player gets security of pay, can negotiate to sign elsewhere with a nice singing bonus as no transfer fee, club potentially spends less than they would have done on wages (club makes a balance sheet loss by writing off the £11m asset either way).

Other scenarios could include loaning the player out with part wages paid by loaning club, a sale now at whatever fee and savjng the wages.

 

[fecka]

Thanks for the new ITK..

The wages over fees argument is a bit of a strange one though I find (re D1’s ITK), particularly if it’s tied into us already spending the Harry money. Kane was on £200k a week and has now been sold. We would also have the fee as 100% profit as he was homegrown from the academy.

This one move alone would’ve freed up lots of room for both the transfer budget, and wage bill. IF we can shift Lloris and Ndombele, that’s another £300k a week. Big money to be pumped back into improving the team/squad. Spotrac has Sanchez earning £65,000 a week (Davies is amazingly on £80,000 if this website can be believed!)

An overly large squad is never a good idea from a team spirit perspective, however. If we can move 6 or 7 out and bring in 3 top players in (centre back, left footed winger, striker) - top players rather than make do’s however - we’ll have had a pretty good window. Quality over quantity needs to be the order of the day, for sure.

Not really IMO.

The wages from the fringe players are almost what you could call a very heavy backpack that is weighing us down financially. It's not as if we can't move forward with it, but it's impeding us from moving forwards efficiently and as it's already so heavy, I can understand why the club is reluctant to add even more weight before it's trimmed down. While the 200k from Kane has helped, it's likely already been offset by the incomings we've already had this window and I'd assume we have approximately 600k-700k or so a week in wages that's related to players that aren't part of our plans moving forwards. If correct, that's almost 30m a year down the drain, and releasing them from their contracts could prove extremely costly as they'd be owed some, if not all, of their remaining wages in what I'm assuming is a lump sum.

And while players at the end of their contracts might not be seen as losses in the books if they're released or sold on the cheap, we're missing out on positive cash flow and low-to-no fees from them will potentially also impede us going forwards as we have some of the largest commitments in unpaid transfer fees in the league IIRC. Cashflow and liquidity are equally important to balanced books. It's not all about FFP.

 

[Finchyid]

I think Ndombele is on about 200k per week. That works out to roughly 10m per year which is about the same as the amoritized figure for buying a 50m player on a 5 year deal.

Exactly if you add Hugo and Sanchez 100k and 80k thats then a 45m player on a 5 year deal.

 

[Ghost Hardware]

3 in 3 out in a week seems extremely unlikely in my opinion

It’s more than 3 out we need if we want to bring in anyone over 21. I really struggle to see it happening.

Re WLB’s ITK I’m very curious to know how lined up our targets are. Are we still deciding exactly who we want or have we made our mind up. Part of me wouldn’t be surprised if we are still keeping an eye out for last min deals.

 

[Dundalk_Spur]

I'd be interested in getting an accountants view of this as I'm assuming their transfer fee is no longer "on the books" or it's minimal debt, whereas the wage commitment is huge.

I think even Levy could see the economics of this. He just needs to get over his pride about doing a good "deal".

Yeah the amortisation of the transfer fee hits the P&L on a yearly basis over the length of the initial contract. Technically and what I'm hoping for in terms of Chelsea in particular is they crack down on this and have a 25% amortisation rate which will close that loophole.

I'm surprised he hasn't been prepared to take bids on players still in their first contract as if sold under the value left on the player it's a tax write off but still money in the bank, added to the reduction in wages.

Sorry for the tenuous ITK nature of the post but you asked

 

[Flashp]

Since we're talking football finance, Inc the Boss, a little explainer below. (Wouldn't normally dare to post in this thread. But on topic, thanks WLB, Trix, Herc et al for the ITK; the news is largely positive; the signings so far are encouraging; Ange has been great)

I think there's one other element. Possibly 2 items conflated in the post above (or I may be misreading)

Using Ndombele as an example:
1. Transfer fee reported was £55m when he signed at start of 19/20 (+ £9m potential add ons, let's assume for simplicity the prerequisites for these haven't been met). We don't know the payment terms, but since Aulas was President let's assume favourable to Lyon, say 50%, 25%, 25% over 3 years. In any case, 4 full seasons have noe passed so the liability on the balance sheet (money owed to Lyon) is likely zero at this stage.

2. Separate to how we pay Lyon is how the player, as an asset, sits on the Balance Sheet. This is where amortisation comes in. If Ndombele signed a 5 year contract, then, assumed a straight-line approach (equal each financial year), then his value as an asset decreased 20% each full year, so right now, his value on the balance sheet would be £11m (£55m reduced by 11m or 20% each year of his contract).
This element is what counts for FFP. His book value is £11m, if we transfer him out on a free, we make an £11m accounting loss. (This is how Chelsea can game the system, I.e. they paid no fee for Mount as an academy player, so he is sold at pure profit for FFP).

3. Ndombele's wages are an operating cost and don't affect the balance sheet. Of course, we still have to budget fo the expenditure being incurred, as it's a contractual obligation and a known cost. Various figures are reported, but let's say he's on a basic wage of £125,000 pw (the other amounts beyond that being incentive-related and not met). That's £6.5m per season. (So 6.5 total, or 13 if he has 2 years left)

So, if we "tore up his contract", we pay him £6.5 (or 13m if 2 yrs) hard cash. We're committed to paying this anyway. We'd make an £11m loss on the balance sheet.
In such a scenario (see Aurier and Doherty recently), it is likely a legal settlement would be reached where the player gets less than this, perhaps 6months pay rather than a full 12. There could also be clauses whereby, they get paid up to the full amount (or even more, with a specific severance payment), if they don't take up other employment. This scenario can be good all round- player gets security of pay, can negotiate to sign elsewhere with a nice singing bonus as no transfer fee, club potentially spends less than they would have done on wages (club makes a balance sheet loss by writing off the £11m asset either way).

Other scenarios could include loaning the player out with part wages paid by loaning club, a sale now at whatever fee and savjng the wages.

Thank you for this.

I simply didn't have the time to produce a write-up like this, but hopefully people will read it, and it will reduce the number of "jUsT rIp Up ThEiR cOnTrAcTs DaNiEl, HoW hArD cAn It Be" posts