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  1. Welcome back! In the first part of this two-part series on UEFA financial fairplay regulations (FFP), we saw some basics and fundamentals of FFP. Now, let’s try to understand the regulations in football context, rather than in financial context. Big money transfers are fine: FFP is not against big money transfers despite what Platini says about the acquisitions of Torres and Luiz. For instance, when Barcelona signed Ibrahimovic for 50m, he didn’t mind. So, it’s not about big money signing. It’s about balancing of revenues and expenditure. When Chelsea FC signed Torres, they expect the expenditure to be covered by various means – football success, more TV revenue, gate receipts, sponsorship money, shirt sales etc. So, though £50m (assuming that’s right) looks like lots of money, we could have plans or expectations to recover this over a 5.5 year period. This logic may not quite hold good as UEFA wants to first check if we are breaking even after the transfer not considering the possible future benefits that the player or the signing can generate. While this does not sound like good logic, that’s the way it is. Anyway, worry not. All the £50m or whatever we spent does not go into our profit and loss account this year. What hits the bottom line this year is only this year’s amortisation of the transferr fee. So, since Torres has signed for 5.5 years, that would amount to about 9m into our P&L every year. Therefore, if we want to sign players for £50m every year on long-term contracts, we only need to ensure that our break even for the previous period is more than £9-10m. How’s that possible when we’re making operating losses, you may ask. That leads us to our next section. Operating profits/losses mean nothing in FFP You can report massive operating losses and still be staisfying the FFP regulations. That’s because in computing the operating profits/losses, it is the international accounting principles that are considered whereas for FFP, UEFA have specifically defined what should come under revenue and expenses for determining if a club has break-even positive or negative. So, don’t worry so much about the operating losses as per the financial statements. That’s financial accounting for you. As far as FFP is concerned, we could be in break-even positive. FFP is meant to protect the European clubs The big expectation is that clubs don’t spend more than they earn. One might then wonder whether this will trigger innovative accounting and boosting of revenues to enhance spending ability. Well, UEFA would then successfully resolve one problem and introduce probably a bigger one. The primary issue that UEFA wants to tackle is the financial stability of the clubs. Controlling the spending is one, only one, of the various tools that can help stability. The bigger issue is around ownership and debts which can continue to exist even with the control on spendings. With so much focus on the revenue items and so less on the balance sheet items, you’ll start seeing mounting debts that have little impact on the profit and loss statements but risk the stability of the club. FFP is all about UEFA That’s right. This is a UEFA regulation. If a certain is unable to satisfy the FFP regulations, that would make them ineligible to participate only in UEFA competitions such as the Champions League and Europa League, and any other tournaments they might establish in future. UEFA needs these clubs as much as the clubs need UEFA. I’m wondering what would happen if the clubs that don’t meet the FFP requirements happen to be Chelsea, Man Utd, Barcelona and Real Madrid. The UEFA Champions League would lose its shine, wouldn’t it? It wouldn’t draw the same revenue or it wouldn’t generate as much pride as it would otherwise. So if you don’t want to play in the UEFA competitions, you can spend as much as you want and continue to play in the Premier Leauge. It’s just that you might have to live with Platini’s words. Conclusion I have a feeling that UEFA has crossed the limits by being a self-appointed guardian of the financial well-being of the football clubs. We have accounting principles, auditing firms, the financial regulators, the stock exchange and many such watchdogs to ensure that the investors interests are protected. I wonder why UEFA wants to step in their shoes. Take the hotel industry. The industry body would be concerned about how they fare in the current economic environment and help the members with support and guidelines but wouldn’t try to act as the central bank or the tax authority or the stock exchange because those authorities exist and they don’t need to duplicate. They can challenge them and question them as a representative of the members of the fraternity. But what UEFA has done is to pick up the stick and start dealing with matters themselves. Sticking with the hotel industry example, you don’t have fairplay rules in there. If you’ve got the money, you use it prudently and you grow. There’s no fair play anywhere in the world. The only thing is, you don’t have millions of fans who laugh and cry with the swinging fortunes of The Hilton or The Marriot. The fans/supporters angle is what makes this a unique proposition. But if that’s so important, I seem to think that this can be balanced through football terms rather than financial terms. I agree that fair play rules promote competition. But there are many ways to promote competition other than trying to address them through figures in red and green ink. Love it or hate it – it’s here to stay, at least for a few years. Now we have a new thing to debate and confuse. This is like offside. You can forever debate and disagree on offside decisions and you can extend that to understanding the nitty gritties of the fair play regulations – and are we onside or offside! View the full article
  2. We gotta break-even. We gotta do that soon. While this is the desire of the club, you do see that Chelsea FC are still continuing to post losses. We thought that we’d stopped spending big money on transfers because we want to break even soon. But then, we spent on Ramires, Torres and David Luiz. This has caused some worry among the some supporters. Not because this would delay our getting back to profit but because many of us think we’re doomed if we don’t get back to profits before the UEFA financial fairplay kicks in.There are several questions in the minds of Chelsea supporters. Are we in control of our spending, our finances? Are we not safe until we get back to profits? Are we not going to make any big purchases anymore? Are we in line with the UEFA financial fairplay regulations? Well, UEFA financial fairplay is not as simple as ‘net profit=good’ or ‘net loss=bad’. Just like any other financial regulation, it is not straight forward. We need to understand the complex mechanics but I’ll try my best to make it simple. In this two-part series on UEFA financial fairplay (FFP) regulations, I’ll try to touch upon the important aspects of FFP. What I want to ensure is that this doesn’t become another technical gibberish that you have to be a professional accountant in order to understand. I’ll try to keep it as simple as possible and make it closer to football than to finance. FFP can be understood in simple terms: These are the three commandments of the FFP: (a) Don’t spend more than you can generate. (b) Don’t leave any overdues to any party. © Provide financial information about the future. The whole regulation document can go into terrible detail in explaining these and also prescribing the governance and administration models to successfully implement this. As football fans, we only need to know the key stuff that matters to us. (a) Don’t spend more than you can generate: This is the most key requirement of the financial fairplay regulations. The best way to understand this is by quoting certain fairly self-explanatory paragraphs from the regulations. “Relevant income is defined as revenue from gate receipts, broadcasting rights, sponsorship and advertising, commercial activities and other operating income, plus either profit on disposal of player registrations or income from disposal of player registrations, excess proceeds on disposal of tangible fixed assets and finance income. It does not include any non-monetary items or certain income from non-football operations. “Relevant expenses is defined as cost of sales, employee benefits expenses and other operating expenses, plus either amortisation or costs of acquiring player registrations, finance costs and dividends. It does not include depreciation/impairment of tangible fixed assets, amortisation/impairment of intangible fixed assets (other than player registrations), expenditure on youth development activities, expenditure on community development activities, any other non-monetary items, finance costs directly attributable to the construction of tangible fixed assets, tax expenses or certain expenses from non-football operations.” So now you know what’s considered revenue and expense from an FFP point of view. So this is not to do with financial accounting. This is more like regulatory reporting. Note that expenditure on ‘youth development activities’ is not considered by UEFA for this purpose. This means you can spend whatever money on youth development activities (even if it’s beyond your means!) and still be compliant with the FFP requirements. Good intention but you don’t want clubs to get into debts for building a multi-million youth development centre. Probably they’ll cross the bridge when it comes to them. (b) Don’t leave any overdues to any party: If a club doesn’t pay the salaries of players and staff or haven’t paid the authorities what’s due, they could get into to trouble. Not sure this would be an issue for the Champions League clubs. Even if they do get into this situation, UEFA can make it worse by barring them from playing European competitions. At least, the hope is that the clubs would behave properly in the fear of missing out on UEFA competitions. © Provide financial information about the future: All our plans, goals and strategies for the future. They want to be aware what we want to do and whether we are on course, stability-wise, to take on the future plans. Basically, UEFA wants to be the ‘Marlon’ to the ‘Nemo’ clubs. Now that we’ve touched on the three commandments, it’s time to make judgments, form opinions, and most importantly, make fun of the regulation. In the next part, we will look at some of the myths around FFP, sustainability of FFP and my final thoughts on this regulation. Are we okay to buy expensive players? Do we really need to report profits to comply with the regaulations? Are there some clubs unaffected by this regulation? Stay tuned for the part two. Cheers! View the full article
  3. We're fans of John Mikel Obi but some of our readers aren't…. View the full article
  4. Chelsea's academy are no strangers to travelling around the world to take part in wide-ranging youth competitions, something which helps each player grow and develop. In recent years they've been to the United States, Malaysia, Holland, Germany, Austria and others. This November, they'll add World Cup hosts South Africa to ... http://www.CFCnet.co.uk/2009/10/14/youth-t...ican-peace-cup/
  5. A vastly weakened Chelsea Under-18 team travelled to Southampton this weekend looking to start improving on a dismal away record which has seen them take just three points from a possible twelve so far this season, but fell short on the road once again. For the second week in a ... http://www.CFCnet.co.uk/2009/10/12/southam...leading-thrice/
  6. The Scolari era is now thankfully in the past. View the full article
  7. It's been another weekend of ups and downs for Chelsea's loan congtinent, with a mix of positive performances and contributions and negative outings and continued disappointments as we get ever deeper into the season. The best performance of the weekend is where we should rightfully start, and that goes to Jacob ... http://www.CFCnet.co.uk/2009/10/05/loan-ro...cienne-worries/
  8. It's been a week full of action and news on the youth front at Chelsea, including Tom Taiwo's first footballing return to Elland Road and Sam Hutchinson's debut call-up for the England Under-21s. Sam had previously represented England at various youth levels but over the last two years has struggled to ... http://www.CFCnet.co.uk/2009/10/01/youth-l...dweek-round-up/
  9. It was a far more positive weekend of loanee action for Chelsea's youngsters this weekend, with many returning from injury to make a notable impact. On the negative side, news breaks of an illness for Matej Delac which could keep him sidelined for a considerable period of time. Reports out of ... http://www.CFCnet.co.uk/2009/09/27/loan-ro...l-on-sidelines/
  10. There have been many thoughts on Chelsea’s transfer ban, one of the direct consequences of FIFA’s latest moral crusade to clean up the game, one English side after another, and from most Chelsea fans it’s been another excuse to direct venom at a governing body, any governing body, just because ... http://www.CFCnet.co.uk/2009/09/04/we-dese...ather-they-did/
  11. So by now you've probably seen that Chelsea have been issues a transfer embargo for the next two transfer windows and have landed themselves a fine for the 2007 signing of hot prospect Gael Kakuta, who has been banned for four months himself. There's clearly a lot going on behind ... http://www.CFCnet.co.uk/2009/09/03/taking-...akuta-decision/
  12. Chelsea have had a good record at Reserve level against Portsmouth in recent years, compiling wins of 6-0, 5-0 and 4-1. On Tuesday night at Havant and Waterlooville, they added a 5-2 win to that record, with an Adam Phillip hat-trick the highlight of an eventful match with no shortage ... http://www.CFCnet.co.uk/2009/09/01/fillip-...elsea-run-riot/
  13. Chelsea might have thirteen players out on loan, but three missed out on action this weekend, and with a fourth suspended and others fighting knocks, there was slightly less action to report on than usual. Miroslav Stoch replaced Slobodan Rajkovic on the FC Twente injury table, having been taken off midweek ... http://www.CFCnet.co.uk/2009/08/30/loan-ro...uries-mount-up/
  14. The first week of September sees a host of internationals across the world, at both senior and assorted youth levels. Whilst the seniors bring their World Cup Qualifiers to a head, the younger generation are embarking on a new set of qualifiers for the season ahead. Miroslav Stoch, as ever, heads ... http://www.CFCnet.co.uk/2009/08/28/youths-...rnational-duty/
  15. Carling Cup action dominated the midweek football calendar, with fixtures for six of Chelsea's domestic loanees, plus a Europa League Qualifier for Miroslav Stoch. Tom Taiwo and Shaun Cummings were part of winning teams, as Carlisle and West Brom progressed to the next round. Taiwo started in central midfield again for ... http://www.CFCnet.co.uk/2009/08/27/loan-ro...o-and-cummings/