Cash reserves and FFP

[john@staustell]

I brought this question up on Arsenal TT page (in a friendly way) after their financial results were announced, but no-one knew the answer.

FFP is dependent on clubs not making a certain amount of loss. Arsenal for example may easily make a loss if they fail to make CL, yet they have £120-odd million in cash reserves. So how does this fit in? Are they actually allowed to make a loss up tp £120 and then use their cash reserve, for example?

Related to this I seem to recall in our figures the Sheik converted more equity to cash last season. If so does this make us have a cash reserve (however little) and put us in a similar position?

I'm interested in the treatment of cash already held to compare with the restrictions of FFP. Arsenal could potentially make a P and L loss of £120 and it is allowed. Either that or they are disqualified from using it!

[Alex Sapphire]

Net Debt is defined as

"A club’s net player transfers balance (i.e. net of accounts receivable from players’ transfers and accounts payable from players’ transfers) and net borrowings (i.e. bank overdrafts and loans, owner and/or related party loans and finance leases less cash and cash equivalents). Net debt does not include trade or other payables."

[john@staustell]

Net Debt is defined as

"A club’s net player transfers balance (i.e. net of accounts receivable from players’ transfers and accounts payable from players’ transfers) and net borrowings (i.e. bank overdrafts and loans, owner and/or related party loans and finance leases less cash and cash equivalents). Net debt does not include trade or other payables."

Thanks Alex. So that appears in their books every year whatever size it is? So they are in danger of making a loss even allowing for their cash balance? Is that right? (Excuse my non-corporate knowledge on this.)

[Chinners]

Arsenal built up their cash fund mainly by selling the flats at Highbury so it will be allowed as revenue which will be offset against any loss ... which is unlikely in their case tbh

[Beefymcfc]

Not quite on topic but what's the score with the salary cap? Reading through it looked like the cap was limited to 60 mil (ish), rising so much every year. What happens with those clubs who have bigger wage bills, have they got to self-fund whilst staying within the permissible losses of 35 mil per year (105 mil over 3)?

[Alex Sapphire]

Not quite on topic but what's the score with the salary cap? Reading through it looked like the cap was limited to 60 mil (ish), rising so much every year. What happens with those clubs who have bigger wage bills, have they got to self-fund whilst staying within the permissible losses of 35 mil per year (105 mil over 3)?

think the cap is on the amount by which they can increase their salary bill each year and reduces.
if you can be arsed, have a ganders here: http://www.financialfairplay.co.uk/

[Socrates]

Arsenal built up their cash fund mainly by selling the flats at Highbury so it will be allowed as revenue which will be offset against any loss ... which is unlikely in their case tbh

Revenues can only be used to offset from the same period, the sale was long before the accounts that will be analysed so the money cannot count for FPP whether the cash is still sat there or not.

Answer to the OP is that cash reserves are irrelevant for FPP, they are part of the balance sheet not the profit and loss. If it were that simple our owner would simply create a reservoir of cash by buying more shares. The confusion above is that the owner regularly converts debt to equity - he lends money to the club then periodically turns the loans into share capital thereby guaranteeing the money stays in the business and does not have to be repaid at any point in the foreseeable future.

[Mikhail Chigorin]

Arsenal built up their cash fund mainly by selling the flats at Highbury so it will be allowed as revenue which will be offset against any loss ... which is unlikely in their case tbh

Revenues can only be used to offset from the same period, the sale was long before the accounts that will be analysed so the money cannot count for FPP whether the cash is still sat there or not.

Answer to the OP is that cash reserves are irrelevant for FPP, they are part of the balance sheet not the profit and loss. If it were that simple our owner would simply create a reservoir of cash by buying more shares. The confusion above is that the owner regularly converts debt to equity - he lends money to the club then periodically turns the loans into share capital thereby guaranteeing the money stays in the business and does not have to be repaid at any point in the foreseeable future.

....and because the money is "staying in the business", in effect, it could be argued that it stays in football - which is the complete converse of what the Glazers are doing at the Swamp, which is something that FFP ought to be addressing (but we all know why it's not).

[Socrates]

Absolutely! If fpp had been around when the rags became a PLC then they wouldn't have been able to spend the investment! Effectively preventing clubs raising long term capital through share issues is totally perverse.

[Im_Spartacus]

Absolutely! If fpp had been around when the rags became a PLC then they wouldn't have been able to spend the investment! Effectively preventing clubs raising long term capital through share issues is totally perverse.

I've long said that for a club like city, there is a very simple answer to ffp, and it concerns the use of cash via an interest free loan from the owner.

£1bn (arbitrary figure I know) invested by the owner as an endowment fund, or loaned to the club for the purpose of setting up an investment portfolio to generate income, would easily make a club like Manchester City self sustainable, and in fact profitable enough every single year to make repayments on the loan, hence giving the owner a return on investment each year.

I know £1bn doesn't just appear out of thin air, but if uefa did get heavy over ffp, I am fairly confident that this would blow it out if the water once and for all, as I there is not one realistic objection uefa could raise.

[Mikhail Chigorin]

Absolutely! If fpp had been around when the rags became a PLC then they wouldn't have been able to spend the investment! Effectively preventing clubs raising long term capital through share issues is totally perverse.

I've long said that for a club like city, there is a very simple answer to ffp, and it concerns the use of cash via an interest free loan from the owner.

£1bn (arbitrary figure I know) invested by the owner as an endowment fund, or loaned to the club for the purpose of setting up an investment portfolio to generate income, would easily make a club like Manchester City self sustainable, and in fact profitable enough every single year to make repayments on the loan, hence giving the owner a return on investment each year.

I know £1bn doesn't just appear out of thin air, but if uefa did get heavy over ffp, I am fairly confident that this would blow it out if the water once and for all, as I there is not one realistic objection uefa could raise.

That's a fascinating thought, Spartacus. Have you ever thought about contacting City to see if they're currently considering anything such as this ??

Just as a matter of interest, what sort of investments would you envisage going into such a portfolio ?? Just for the irony, would it include shares in Oil Companies working for/in partnership with Abu Dhabi ??

You could foresee, if such a ploy were ever instituted, there'd be a veritable stampede of other Clubs such as PSG, Chelsea, Anzi etc all following such a lead. With FFP being outflanked on all sides, you could imagine Platini morphing into the little Dutch boy, trying to plug all the leaks in the dyke.

He'd also have a major problem in trying thereafter to move the goalposts, to 'outlaw' such arrangements.

[Im_Spartacus]

That's a fascinating thought, Spartacus. Have you ever thought about contacting City to see if they're currently considering anything such as this ??

Just as a matter of interest, what sort of investments would you envisage going into such a portfolio ?? Just for the irony, would it include shares in Oil Companies working for/in partnership with Abu Dhabi ??

You could foresee, if such a ploy were ever instituted, there'd be a veritable stampede of other Clubs such as PSG, Chelsea, Anzi etc all following such a lead. With FFP being outflanked on all sides, you could imagine Platini morphing into the little Dutch boy, trying to plug all the leaks in the dyke.

He'd also have a major problem in trying thereafter to move the goalposts, to 'outlaw' such arrangements.

Hmm, maybe they would invite me in for a chat about it? Or.........

The obvious answer is that the we would most likely buy a share in the UAE sovereign wealth fund!

Can't get more diversified than that.

Platini is counting on no owner being prepared to underwrite that sort of money, but the minute thy did, ffp would be finished as a concept to stop New money entering the game, and you would have investors queuing up to underwrite the likes of real, barca, etc and we would be back to square 1, with even more money in the game and wages rising still further

Sometimes, the unintended consequences of moves like ffp, the outcome of making someone fight, can be far worse than if they had just done nothing - and this is one scenario which could really fuck football over and send wages into the us football / basketball / baseball range

[JamieMCFC]

Sometimes, the unintended consequences of moves like ffp, the outcome of making someone fight, can be far worse than if they had just done nothing - and this is one scenario which could really fuck football over and send wages into the us football / basketball / baseball range

It amazes me when you look at a list like this and see how few footballers are on the list compared to the major sports over here.

http://en.wikipedia.org/wiki/Forbes%27_ ... d_athletes

[Mikhail Chigorin]

As an aside, if ever City/The Sheik did undertake a policy which was along the lines of this idea raised by Spartacus, the effect upon the media would be severalfold.

Firstly it would finally nail the argument that City's owners, when they eventually got bored with us/football, would 'up-sticks' and happily disappear into the sunset and leave the Club in the (financial) lurch.

Secondly, because we had manipulated the system and sidestepped the FFP regime, they would be incandescent with outrage at the further evidence of City "ruining football". They would figuratively choke upon the sanctimonious dross that they would eschew.

How wonderful would that be ??

[Beefymcfc]

As an aside, if ever City/The Sheik did undertake a policy which was along the lines of this idea raised by Spartacus, the effect upon the media would be severalfold.

Firstly it would finally nail the argument that City's owners, when they eventually got bored with us/football, would 'up-sticks' and happily disappear into the sunset and leave the Club in the (financial) lurch.

Secondly, because we had manipulated the system and sidestepped the FFP regime, they would be incandescent with outrage at the further evidence of City "ruining football". They would figuratively choke upon the sanctimonious dross that they would eschew.

How wonderful would that be ??

Would it not be classed as a related party?

[Slim]

That's a fascinating thought, Spartacus. Have you ever thought about contacting City to see if they're currently considering anything such as this ??

Just as a matter of interest, what sort of investments would you envisage going into such a portfolio ?? Just for the irony, would it include shares in Oil Companies working for/in partnership with Abu Dhabi ??

You could foresee, if such a ploy were ever instituted, there'd be a veritable stampede of other Clubs such as PSG, Chelsea, Anzi etc all following such a lead. With FFP being outflanked on all sides, you could imagine Platini morphing into the little Dutch boy, trying to plug all the leaks in the dyke.

He'd also have a major problem in trying thereafter to move the goalposts, to 'outlaw' such arrangements.

Hmm, maybe they would invite me in for a chat about it? Or.........

The obvious answer is that the we would most likely buy a share in the UAE sovereign wealth fund!

Can't get more diversified than that.

Platini is counting on no owner being prepared to underwrite that sort of money, but the minute thy did, ffp would be finished as a concept to stop New money entering the game, and you would have investors queuing up to underwrite the likes of real, barca, etc and we would be back to square 1, with even more money in the game and wages rising still further

Sometimes, the unintended consequences of moves like ffp, the outcome of making someone fight, can be far worse than if they had just done nothing - and this is one scenario which could really fuck football over and send wages into the us football / basketball / baseball range

Silver medalist I am afraid. Already had this idea,and FFP only applies to football related streams of income. In the same way that anything spent on the youth academy or infrastructure of the club isn't taken into consideration, neither would an investment portfolio.

[Pretty Boy Lee]

Silver medalist I am afraid. Already had this idea,and FFP only applies to football related streams of income. In the same way that anything spent on the youth academy or infrastructure of the club isn't taken into consideration, neither would an investment portfolio.

Can we sign superstars as academy coaches that get the odd game then?

[Slim]

Silver medalist I am afraid. Already had this idea,and FFP only applies to football related streams of income. In the same way that anything spent on the youth academy or infrastructure of the club isn't taken into consideration, neither would an investment portfolio.

Can we sign superstars as academy coaches that get the odd game then?

That's thinking outside the box.

[Socrates]

Interesting thoughts above. Non football income can be counted but only as long as related to the running of the club's core business. Leisure developments on the land around the stadium would count general investments won't.

Interest free loan is NOT a good idea. They would simply calculate the interest at market rate and knock it off meantime accounts show us in debt and that backs up the pro ffp case and them saying we could go out of business if money withdrawn. Share issues to the owner are much better way to get money in cheaply and permanently. That is how they will surely fund the new academy and training complex and how they should fund other investment - ground expansion and / or a leisure complex.

[DoomMerchant]

Interesting thoughts above. Non football income can be counted but only as long as related to the running of the club's core business. Leisure developments on the land around the stadium would count general investments won't.

Interest free loan is NOT a good idea. They would simply calculate the interest at market rate and knock it off meantime accounts show us in debt and that backs up the pro ffp case and them saying we could go out of business if money withdrawn. Share issues to the owner are much better way to get money in cheaply and permanently. That is how they will surely fund the new academy and training complex and how they should fund other investment - ground expansion and / or a leisure complex.

How would they fund something like a lobster dinner for example?