Writer: TNMW with help.
Date:Wednesday July 18 2012
The list of players linked with a transfer to NUFC is getting longer by the day, some will be true, some wont and some just a smokescreen designed to put other clubs off the scent of a cherished signature. What isn't a smokescreen though is the Financial Fair Play rules or FFP for short. To cut a long explanation short, we basically have to meet various criteria with the main one being that a club has to break even within a set number of years from last season 2011/12(3 i think) and to live within it's means. Those that are familiar with ToTT will know that we run various articles on finances from time to time and we've been proven over the years to know what we're on about in a nutshell with the latest ramblings being based on how much money can we possibly spend to abide by these FFP guidelines. To the 'untrained' supporter, it's not just a case of selling a player for £35 million and then balancing it out over the next few years, it actually goes into complex detail of how or when it was done, what the wages were and for how long. For example: There can be two aspects to it, (A) what does the club need to do to stay within it's limits? and (B) what does Mike Ashley have to do to keep his tax bill down?.
A key thing to remember is that player's contracts are amortised over the life of their contract, therefore a Summer spend of £33.5m would work out at £6.61m per season assuming 5 year contracts or about £8.2m if 4 year contracts were given. Next, when a player is sold, the difference between their book value and transfer fee is counted as profit in that year, so Leon Best, say cost £1m with a 4 year contract. After 2 years, book value is £500k. He's then sold to Blackburn for £3m, which gives £2.5m profit. If Danny Simpson gets sold and the net effect on profit is that the club is looking good. Too much profit affects the tax bill and after last season's TV revenues, prize money etc, Ashley has to buy players or pay the taxman. As long as he keeps selling players without making a loss, it is in his interest to churn the squad.The other aspect is that if he wants to sell the club, he will want it to look profitable so won't mind taking the short term tax hit.
As i said, a complex scenario but one that doesn't necessarily mean we will sell big players to accommodate new ones. It may be better financially to splash the cash this year as weird as it sounds, now wouldn't that be a statement of intent?
Date:Wednesday July 18 2012
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