After studying the rules and reading up on the subject matter it was clear that City has nothing to fear and in fact FFP will protect the club from competition in the future.
I also realised that there were many variables in the calculation the most important being player purchases, wages, commercial revenue and Champions League participation and progress. I then created a spreadsheet in which I could alter all these amounts and see what the overall effect was. Having explored the many different possibilities I concluded that the one detailed below is the most likely and I would consider it to be a forecast.
This table shows the the summary of the overall situation. The key figures are the two at the bottom. All figures are in £million.
The first monitoring point will come in 2014 and will include the two years from 2011 to 2013. Obviously we are half way through now so these figures are pretty easy to calculate. In this example I have have City coming in at a FFP loss of £34,370,000.
The second point is in 2015 and covers three years to 2014. The summary has the club at a FFP profit of £43,670,000.
The UEFA limit is just over £39 million for both monitoring periods.
I have assumed an £80 million spend next season on new players with wages of £300,000 per week and new contracts for 5 existing players amounting to a further £150,000 per week. In terms of Champions League I assume City reach the quarter final next year and the semi final the year after.
I won't go into any great detail on the figures quoted outside of the 4 variables mentioned above as the reasons are well covered elsewhere. I should pay homage to the brilliantly well informed Swiss Rambler blog at this point.
Briefly the Exceptional items include writing off the value of Roque Santa-Cruz and Wayne Bridge to zero along with Craig Bellamy and Jo and setting aside money for Mark Hughes and his teams dismissal.
The FFP adjustment relates to items such as depreciation as well as expenditure on youth development and the local communities. These items are excluded from the FFP calculation although obviously they are still losses in the clubs accounts.
Both these items can be accurately derived from City's accounts.
Similarly the pre-June 2010 wage bill of £52.5 million is excluded from the FFP calculation in the first reporting period as long as your profit trend is positive, which it is certain to be.
The Premier League income is not going to change greatly due to the fact that the money is spread so evenly across all the teams.
I have also assumed a saving of £5 million from the 22 players wages we have had out on loan this season and that we make a small profit of £5 million on player sales.
The modest £5million match day increase is based on more higher profile better attended matches. We can anticipate further increases as this trend continues and I expect the cost of attending to rise as well.
Which leaves the big 4 variables of wages, purchases, commercial income and Champions League.
Amortisation
This is the process whereby the purchase price of a player is applied to the accounts by dividing his cost by the years of his contract. So a player bought for £40m over a 4 year contract will show as £10m each year not £40m in year 1.
The chart below shows the value of each player still to be attributed the right hand column being the amount he will cost as a loss on this years accounts and in the FFP calculation. An important point is that where a contract extension is agreed the value carried forward is spread over the new contract term.
So where Carlos Tevez had a value of £15.310m spread over the remaining 3 years of his contract at£5.104m each year if he had signed a new 5 year deal at the beginning of this season the £15.310m would spread over 5 years at £3.062m each year.
Of course new contracts usually mean higher wages so this leaves a tricky balancing act between purchases, wages, contract extensions and further complicated by the pre June 2010 point covered above. In my example I wasn't sure what to do with Carlos so I kept him on the same contract to play next season.
The squad total of £77.047m is a £6.75m improvement on the Amortised figure published in last years accounts.
In this example City spend £80m on new players in 2012-13 on 5 year contracts which costs £16m per year and new agree contracts with Kompany, Lescott, DeJong, Silva and Barry which reduces their amortised cost.
We then sell Adebayor for £15m and the net cost of all this is just under £5m next year plus wages!!
Wages
The wages paid to players are naturally open to some debate but I have assumed the following figures for this seasons arrivals and departures.
Commercial Income
This is a massive area of growth for City who are currently growing their revenue faster than any other club in the world. Recent deals with Etihad, Jaguar, Heiniken, EAsport and Thomas Cook play a significant part in this the Etihad deal alone is worth an extra £32.5m per year.
It is however also very difficult to accurately predict but City are targeting this aggressively and have set up a full time office in London to help cash in on the massive increase in global coverage.
Those who argue that the Etihad deal does not represent a fair value and will not be allowed by UEFA are simply failing to look at the facts and are trading on emotions.
The facts are that the Etihad deal covers shirt sponsorship and naming rights for both the Stadium and the planned campus. Comparisons can be drawn with Bayern Munich who receive £25m per year and Barclona who receive £30m just for shirt sponsorship. A reported 650 million people watched the Manchester derby this season more than the 450 million that watched 'el clasico' the week before.
Add in the stadium rights where looking overseas we have seen deals of up to $23 million per year in Los Angeles and it is impossible to argue this is not a fair commercial value.
A further factor to consider is merchandising profits where especially in South East Asia and the America's City are finding huge new markets. The club has fostered relations through players, trips and indeed owners in places like South America, the USA, Thailand, the Arabian Gulf. All of these places have huge populations and/or wealth and represent a significant revenue stream. I have included an allowance for this in the new deals figure.
The clubs intentions in this respect are illustrated by the recent ground breaking agreement with you tube and this is a vehicle for communicating with these new and potential fans.
An important part of the clubs commercial revenue drive is the value of the clubs kit deal, currently with Umbro it moves to Nike in 2014. City currently receive £6m per year from Umbro very low when compared to the £25m Liverpool gain from Warrior or the £35m United are about to sign up for with Nike. It is possible for this agreement to be re-negotiated in the short term and it certainly will be by the time we move to Nike.
Taking all this into account I have estimated the following commercial changes. I believe this to be fairly conservative and would still leave us a long way behind Europe's top commercial earner Bayern Munich with its close links with Adidas and Audi.
Whilst on the subject of Bayern perhaps UEFA FFP police should take a closer look at the deal with Audi where they have gone as far as taking an equity stake in the football club. Mr Rummenigge take note!!
Champions League
The Champions League money is split into two main areas whereby clubs share in the TV money pot and also gain funds based on their performance.
The TV money is halved with one part shared as below depending on your EPL position the year before and the other by your share of the total games played in the CL by your nations teams. In the table below I have assumed 41 games played by the 4 English clubs.
At this point it is unclear what the effect of Chelsea qualifying as title holders at Tottenham's expense will be. Although they go straight into the group stage it has not been stipulated what share of the pot they will receive. UEFA's executive committee will rule on this at some point before the competition begins. To estimate the pot I have used an annual inflation of 6% in UEFA revenue and factored in currency changes where the £ has weakened slightly against the Euro.
This gives rise to the following estimate for pot available in the season just finished.
At this point it is unclear what the effect of Chelsea qualifying as title holders at Tottenham's expense will be. Although they go straight into the group stage it has not been stipulated what share of the pot they will receive. UEFA's executive committee will rule on this at some point before the competition begins. To estimate the pot I have used an annual inflation of 6% in UEFA revenue and factored in currency changes where the £ has weakened slightly against the Euro.
This gives rise to the following estimate for pot available in the season just finished.
On top of the TV share is the prize fund which is allocated according to your progression in the competition. For appearing in the group stage you receive £5.8m (although this is paid in Euro's). Payments for the group stage are based on games won and drawn followed by a fixed amount for each round.
I have assumed that City make the quarter finals next year and the semi finals the year after and that UEFA revenue grows by 21% next year and 15% the year after. This gives an increase of £19m this year followed by a further £19.7m next year.
Looking at the decisions the club have been making on contracts, purchases, commercial initiatives, PR, as well as the accounting and legal practices you begin to get a sense of what a brilliant strategic and tactical job the owners are doing. Moving us into the football elite whilst keeping within FFP limits.
Then again we shouldn't really be surprised should we?
Feeding all these factors into the overall summary shows why the reality of the situation is that FFP should not be an issue as the blue moon continues to rise.
