Not sure this is the best spot for this article, but...
http://www.forbes.com/sites/bobbymcmahon/2015/08/30/how-spending-228m-in-transfer-window-could-actually-improve-man-citys-financial-position/How Spending $228M In Transfer Window Could Actually Improve Man City's Financial Position
Comment NowIt was likely no accident that Manchester City announced the signing of 24-year-old Kevin De Bruyne from Wolfsburg for close to $80M just as Manchester United kicked off against Swansea in the Premier League on Sunday.
Both Manchester clubs have been very free with the cash book over the last few seasons. Manchester City’s free spending ways can be tracked back to the 2007/08 Premier League season while the post-Sir Alex Ferguson hangover at Old Trafford has meant the Manchester United has also been spending big.
The latest signing brings Manchester City’s gross transfer spending to $1.4B since the 2007/08 season and net spending to over $1B.
The signing of De Bruyne from Wolfsburg of the German Bundesliga came only 18 months or so after Chelsea sold De Bruyne for $28M. De Bruyne had cost Chelsea $11M when they signed him from Genk in Belgium in 2012.
Genk, Chelsea and Wolfsburg have all pocketed a tidy profit along the way and now Manchester City are hoping that its club record signing can help take the team deeper into the Champions League as well as helping the club win back the Premier League from Chelsea.
If it’s true De Bruyne deal to City is done for €80m, I think we safely say FFP is dead and buried!
— Lynsey Hipgrave (@lynseyhipgrave1) August 26, 2015
This brings Manchester City spending during this transfer window to $228M gross and it has a lot of folks shaking their heads about how all this works into UEFA Financial Fair Play.
De Bruyne – £55M Sterling – £49M Otamendi – £33M Roberts – £11M Delph – £8M Total: £156M Financial fair play is a myth! — Football Jokes (@LaughingFooty) August 30, 2015
But transfer fees paid is only one part of the FFP equation. Other key pieces are transfer fees received and the overall salary budget.
Given the amortization rule clubs are allowed to take a charge based on the length of player’s contract. Signing a player for $50M on a five year contract means an annual charge to the financial statements of $10M.
But transfer fees received can generate a profit or a loss on sales. If after two seasons Juan Costa Lot is sold for $40M then a profit of $10M can be booked. Conversely, if he is only sold for $20M then the club needs to book a loss of $10M given that in both examples Juan’s contract would have been written down to $30M after three years.
One part of the secret sauce is making sure you have enough players you can sell at a book profit and ironically it has been Chelsea who has been the leading exponent of this financial model. Selling in a rising market has been relatively easy although the risk is if the transfer market turns downwards then the financial model is undermined.
Because the amortization method “rolls”, for every year added a year comes off. Players’ contracts are of varying lengths so it is impossible to be certain of the projections but by tracking back through Manchester City’s transfer dealings and assuming that contracts are of a five year duration you can come up with a pretty solid estimate.
The last financial statement published by Manchester City was for the 2013/14 season. The net charge to the statements for player amortization less profit on the sale of players for that year was $117M.
Based on five year contracts then the 2014/15 year should see an amortization reduction of nearly $40M based on signings made in 2009/10 having been written down to zero.
Added back would be a fifth of the transfer fees paid in 2014/15 – $27M based on $135M times 20%. You need to make some assumptions regarding the difference between transfer fees received and the value of unamortized contracts but a profit on player sales of $13M is not unreasonable.
Add and subtract all this and we get a net charge (amortization less profit/loss) of $93M – $24M less than 2013/14.
Moving on to this summer’s transactions and projecting to the 2014/15 you can see that despite City’s level of spending it will actually show another improvement in its financial position based on a reduction of the “net amortization charge” if no more moves are made.
Manchester City will take a charge of approximately $46M on new signings this summer. But the club will benefit from having any signings made in the 2010/11 written down to zero (based on an assumption of 5 year contracts). The year of 2010/11 happened to be a peak year for City signings.
Man City
Manchester City paid out $238M that season and the net saving in amortization should be around $47M. Then there is the profit on player sales this summer and that should round out to around $34M.
Starting with $93M add new amortization charge of $46M deduct 2010/11 write down of $47M and deduct a $34M profit on player sales and the net amortization charge comes in at $58M.
LIVERPOOL, ENGLAND – AUGUST 23: David Silva signed for Manchester City in 2010 for a fee of around $40M (Photo by Clive Brunskill/Getty Images)
So rather than putting Manchester City offside in terms of financial fair play the City situation has actually improved based on net transfer dealings – $117M to $93M to $58M.
The once piece not accounted for is the club’s salary bill but given the wiggle room created by transfer dealings over the last two seasons Manchester City has some room for manoeuvre.