Excellent article regarding City and FFP

From The Independent...


They reached the top of the Premier League table effortlessly, barely breaking sweat at Tottenham on Wednesday and without the second-half presence of Sergio Aguero, who is targeting a recovery from his hamstring injury in time for the Champions League home tie with Barcelona on 18 February. But Manchester City's attempt to clear their biggest hurdle – Uefa's Financial Fair Play test – looks far less simple.

It certainly seems likely that the sums will add up. That much was clear when City revealed annual turnover up by almost £40m at £271m for 2012-13 on Wednesday, reducing losses to around the £50m mark, which – with Uefa allowing pre-2010 wages to be subtracted – was always considered enough to see them through. But it is equally clear that they will come under intense scrutiny from the European governing body for the two financial arrangements which helped them to that figure – one of which is unprecedented, the other eye-catching. Uefa will be interested. Its Club Financial Control Body is understood to have made the identification of "artificial" revenue streams a fundamental aim.
Experts agree that the Premier League leaders' £24.5m sale of player image rights to an external company – one of those two significant arrangements – has never been attempted by a football club before. Manchester United and Chelsea, two clubs big enough to consider such a strategy, both view image rights as an important part of their core business. City will not reveal the name of the company that has bought their image rights – and neither did they do so in their accounts – but the club has dismissed the notion, put to it by The Independent, that the buyers might be a subsidiary of the club.
It will be for City to demonstrate to Uefa that the image rights – which elite clubs generally negotiate a large slice of for themselves, with a percentage retained by the player and separated from his salary for tax reasons – are worth the £24.5m sum. There is certainly an irony about the club selling off those rights to another company, since their pitch to Kaka, when the then chief executive Garry Cook ambitiously but ultimately disastrously tried to sign him from Milan in January 2009, was that Cook's image rights expertise working with basketball's Michael Jordan at Nike would result in the Brazilian becoming a very wealthy man at the Etihad.
Even more closely scrutinised by Uefa will be the £22.45m City has revealed they effectively paid themselves by selling their intellectual property to "related parties". Who these are was not disclosed in the 2012-13 annual report either, but New York City FC – City's new Major League Soccer franchise – as well as Melbourne Heart franchise in Australia and Manchester City Ladies FC have been cited.
Since the Melbourne franchise was only announced last month, it means that City will have to demonstrate to Uefa that the New York and women's teams have received the multimillion-pound benefits of being affiliate City clubs. City have not detailed what the £22.45m figure has been paid to them for, though it is understood to be player scouting and commercial services. Since the establishment of City's scouting system cost a mere £4m, the value of commercial know-how and leads will need to be significant.
The £46.95m which these two arrangements help to generate are by no means the only aspect of City's revenue growth. The club has been commercially imaginative, securing several new partners last year. City's impressive London offices – at the 10 Brock Street building on Regent's Place – are testament to their ambition.
But the 2012-13 report does reveal other payments between parts of the club –City effectively paying themselves for their own services. There is a sale of "intangible assets" totalling £11.5m involving a subsidiary of the club, City Football Marketing, and another such sale totalling £10.87m involving a third subsidiary, City Football Services. Both of those subsidiaries have had their names changed and registered offices moved from the Etihad to London in the past 12 months. City Football Marketing's registered office changed only this month.
The significance of these subsidiary businesses is revealed by the fact that City's six main board members – Khaldoon al-Mubarak, Mohamed al-Mazrouei, Simon Pearce, Martin Edelman, John Macbeath and Alberto Galassi – sit on the boards of both.
It seems inconceivable that City will not have thought through and analysed the kind of scrutiny that the Club Financial Control Body will submit their accounts to. The expertise City have amassed includes Financial Fair Play specialists – Alex Byars and Martyn Hawkins joined from the Deloitte sports business, which helped Uefa set up the FFP legislation. But a pass or a fail by Uefa will provoke the same controversy which has accompanied City throughout their rapid journey to the top.

Without too much analysis into this, maybe we didn't do as well as previously thought in terms of income generation. If most of our increase in income was down to sales to related parties which are more than likely one-offs, our continuous income remained static. Getting knocked out of the CL and not even making the Europa League certainly affected us badly. I'm pretty sure the financial people were expecting us to qualify from the group stages and we'd have got enough extra income not to have this slight complication on our doorsteps. Not qualifying from the group probably cost us the best part of £8M minimum. Dropping away in the league probably cost us a bit as well.

This year, we shouldn't have any problems at all with the new tv deal and qualification from our group being worth about £50M to us. We've signed several new sponsorship deals as well so I'd expect our income next year to be approaching £350M. We shouldn't have to do anything fancy to comply from next year onwards. It's just getting to next year that may be a problem, though I don't think it will be.

I see the rags may be signing a new kit deal with Nike worth £70m per year for 10 years.

That'll be some deal!! Double what their last deal was.

I'm still surprised we haven't sign a sponsor for our training kt.

Liverpool have a sponsor for their training kit so I don't see why we aren't doing it either bluey.

I reckon if our kit deal was coming up this year, we'd be getting a fair bit more than Nike are currently paying us.

Well, I wonder why they haven't, as surely they could get £20m per year, for the next 5 years?

The rags are about to sign a kit sponsorship deal with Nike worth $1BN(£70M) a year. Wonder how much of that the Glazers will cream off or will they use it to pay off some of the £500m debt they carry? Will UEFA even care? probably not.

Why can't they restrict debt that a club has to maybe 10% of turnover?
Why can't they restrict the money that is taken out by the owners of a club?

Utd would complain to high heaven that it would be unfair...

It seems that they can do what they like because they have a massive fan base and thereby a massive revenue stream. But i agree, if they have so much revenue why are they carrying such a huge debt? If they fail to reach the CL this season the banks that they owe the money to will become twitchy and if they fail again next season then it could become interesting. 
I am bobbins at financial stuff, my basic grasp of FFP is that a club cannot spend more in a year than they generate in income. I realise it's a bit more complicated than that but surely you cannot just keep carrying a massive debt from one year to the next and just pay off the interest on the debt without the debt decreasing? Is that not what the rags are doing? They have a massive income but they spend it on transfer fees, wages and other outgoings but not the core debt. Why is that allowed but they are looking at City who are doing nothing illegal?

That's one reason why this is all bollocks MCM. Utd are going to rely on the new kit deal, the new shirt sponsorship deal and the extra tv money to overcome the loss in revenue from the CL.

They've probably got more than £100M coming into their coffers so who needs the £30M CL footy gets them?

I think the Glaziers have become a tad worried that the cash cow might slow down especially with them struggling in the league. Will this poor form affect the kit deal for example? Maybe they won't get £70M a season but £60M??? Who knows?