Where's the money coming from?

[mofus77]

Just thinking how nice it is to be after top quality players and having the ability to pay what we need to get them. However, it's not that long ago that we were in the midst of a financial maelstrom which threatened the clubs very existence.

 

8 months down the line we appear to be able to spend big in this window, the purported list of players coming in will be expensive and most likely cost more than the level of profit which we generate year on year. This would appear to be against what FSG have said all along, that we will only spend what we earn.

 

Should we be concerned?, should we be asking where the money is coming from?, surely history has taught us that we should.

[Swan Red]

Two things;

 

Firstly the idea of a "warchest" has to be single most annoying term in football, I detest it.

 

Secondly, many argued on here that you can front load the talent acquisition and account for it over the duration of the players contract. If the deal with warrior is as reported then spending 100m net means that the 20m in years 2-5 are covered by the kit deal. Add to this that the profile of the players linked to is pretty young and it appears our owners aren't just concerned with turning the club round and selling on but have a clear understanding of what they are trying to do.

[Epic Swindle]

We're a profitable club without debt. I imagine we'll try and sell a load to balance the books as well

[Leo No.8]

Just thinking how nice it is to be after top quality players and having the ability to pay what we need to get them. However, it's not that long ago that we were in the midst of a financial maelstrom which threatened the clubs very existence.

 

8 months down the line we appear to be able to spend big in this window, the purported list of players coming in will be expensive and most likely cost more than the level of profit which we generate year on year. This would appear to be against what FSG have said all along, that we will only spend what we earn.

 

Should we be concerned?, should we be asking where the money is coming from?, surely history has taught us that we should.

 

I personally think FSG are putting a chunk of their own money down to get the ball rolling and sort the squad out up front, with a view to then spending within our financial constraints - partly because the rules say we'll have to. With what they are doing on the commercial side to take us forward and our recent record sponsorship deals, as well as our worldwide support which is still being tapped into - the hope is the FFP rules will actually work very nicely in our favour with these guys in charge.

 

Just getting us back in the CL spots would take care of about £30m of that investment, it seems like a good plan and exactly what I hoped they'd do. The Red Sox are the 2nd biggest spenders in baseball after the Yankees - make no mistake about it FSG isn't one individual but a group of wealthy individuals with good resources and a track record of success. I've always felt confident in them from their record in the USA and reputation, and I'm hoping the way they are going about things is reassuring others.

Edited June 13, 2011 by Leo No.8

[CarraLegend]

Its a fair question, we'll have to see I guess. I'd hope they're giving us "a boost" with a cash injection then we go from there.

[Rory Fitzgerald]

My head is spinning.

 

I've never experienced a Summer like it and its only June 13th.

 

Possibly £30mln on Henderson and Adam and you get the feeling its just the start of it. And even then we are supposed to be getting Downing, a new left back, a center back and maybe Wickham.

 

Also, can you imagine being told last Summer that we would spend up to £30mln on Henderson and Adam (who the f*** are they and what do they want).

[vish]

FSG got the club 'cheap' so they can afford to splash a bit

[Flasher]

FSG got the club 'cheap' so they can afford to splash a bit

 

I remember when we were told by Sky that we should be upset that the club went cheap

[Epic Swindle]

FSG got the club 'cheap' so they can afford to splash a bit

 

They've made it pretty clear that they won't be using their own money. It's not how they work

[Lark]

In short, nearly all the profits we earn from a variety of streams, tickets, kit sponsorship, tv deals, prize money, etc etc etc is not servicing the debt, or interest on debt repayments, but going to where it should be going, the transfer kitty.

 

players will be sold, loaned out, not so much as to balance the books but to ensure there are spends for the next transfer windows.

 

hurrah hooray.

[boohog]

Two things;

 

Firstly the idea of a "warchest" has to be single most annoying term in football, I detest it.

 

Secondly, many argued on here that you can front load the talent acquisition and account for it over the duration of the players contract. If the deal with warrior is as reported then spending 100m net means that the 20m in years 2-5 are covered by the kit deal. Add to this that the profile of the players linked to is pretty young and it appears our owners aren't just concerned with turning the club round and selling on but have a clear understanding of what they are trying to do.

 

In terms of club profitability, yes thats correct. If you buy 100m of players on 5 year contracts, the 100m does not hit the P&L in one go, rather it amortises at 20m p.a. thereby reducing our profitability.

 

When it comes to actual cash (and thereby whether we are using debt or not), it all comes down to what terms we agree when we buy and sell players. Did we get 50m cash for Torres or is it staged? Are the new purchases made on staged payments or not? How much of their fee is linked to performance/number of games played triggers (to avoid the new financial fair play indebtedness between club rules). If we have more cash coming in than going out, then great. If not, then its being funded somehow.

 

That funding could be in the form of cash from the owners or debt but somehow the tab needs to be picked up. I'm sure they are using debt to some degree, however the question is, is that going to become a long term debt (on the hope of better perfomance), or is it a temporary phenomena where they overspend in lieu of other certain income streams in the future which seems to be the strategy they have alluded to in their comments. In the end it all comes down to how much money they are spending and how much we as a club are making.

[Flasher]

All of this is our reward for suffering H&G for so long. It feels great and long may it continue.

[Leo No.8]

All of this is our reward for suffering H&G for so long. It feels great and long may it continue.

 

I do think the difference with these guys is they are in it long term, and for the sporting success more than just the money. Of course they will be looking to make money, but it was interesting to see Henry say a little while back that they haven't taken a penny from the Red Sox who must have made massive amounts with their two championships and general success over the course of their time in charge. They have a totally different outlook to H&G who were in it for the fast buck.

 

He said something along the lines of the aim is for the club to be worth a lot more than they bought it for sometime in the distant future. If we built the stadium and got the team into shape then this club could be worth over £1Bn like United are.

Edited June 13, 2011 by Leo No.8

[The_MC]

I imagine we'll keep seeing big deals going on in the background to the tune of Standard Chartered, Warrior, link-up with Honda, etc. In the short term we'll clearly be selling a few players, and getting some big wages off the books.

 

I do think the difference with these guys is they are in it long term, and for the sporting success more than just the money. Of course they will be looking to make money, but it was interesting to see Henry say a little while back that they haven't taken a penny from the Red Sox who must have made massive amounts with their two championships and general success over the course of their time in charge. They have a totally different outlook to H&G who were in it for the fast buck.

 

He said something along the lines of the aim is for the club to be worth a lot more than they bought it for sometime in the distant future. If we built the stadium and got the team into shape then this club could be worth over £1Bn like United are.

 

I think they understand that success inevitably brings in the money better than anything. There's no better way to increase your support base and brand than being the best team around. If Hicks and Gillette had any sense they would have realised that.

[Stevie H]

should think not having to pay 35m a year servicing interest at punitive rates probably covers some of it.

 

and why does nobody ever have a peacechest?

[Cobs]

i lent FSG £5

[Chili Palmer]

I know after the whole Gillet and Hicks troubles I should care but I honestly don't.

 

I didn't care where the club got the £440,000 to buy Kenny all those years ago. (partly because I was a baby, but you get my point) I'm going back to those times. Let the money men worry about it.

[drdooom]

The money comes from the cursed 882 pieces of Aztec gold the pirate Hector Barbossa stole from the chest of Cortez on the Isla de Muerta. This will not end well.

[Ramón Benítez Hernández]

My head is spinning.

 

I've never experienced a Summer like it and its only June 13th.

 

Possibly £30mln on Henderson and Adam and you get the feeling its just the start of it. And even then we are supposed to be getting Downing, a new left back, a center back and maybe Wickham.

 

Also, can you imagine being told last Summer that we would spend up to £30mln on Henderson and Adam (who the f*** are they and what do they want).

 

 

No, we'd have said "good, anyone but Poulsen."

 

Last summer I hated football, what a turn around!

 

f*** off Purslow

Edited June 13, 2011 by Grahimi LeBroy

[David Hodgson]

In terms of club profitability, yes thats correct. If you buy 100m of players on 5 year contracts, the 100m does not hit the P&L in one go, rather it amortises at 20m p.a. thereby reducing our profitability.

 

When it comes to actual cash (and thereby whether we are using debt or not), it all comes down to what terms we agree when we buy and sell players. Did we get 50m cash for Torres or is it staged? Are the new purchases made on staged payments or not? How much of their fee is linked to performance/number of games played triggers (to avoid the new financial fair play indebtedness between club rules). If we have more cash coming in than going out, then great. If not, then its being funded somehow.

 

That funding could be in the form of cash from the owners or debt but somehow the tab needs to be picked up. I'm sure they are using debt to some degree, however the question is, is that going to become a long term debt (on the hope of better perfomance), or is it a temporary phenomena where they overspend in lieu of other certain income streams in the future which seems to be the strategy they have alluded to in their comments. In the end it all comes down to how much money they are spending and how much we as a club are making.

 

I'm guessing this, and excuse the simplifications, but it's not unreasonable to surmise that FSG bought a club that, without the burden of debt, was at least cash positive, even without CL football. In fact, I doubt they would have bought it had that not been the case. How cash positive we don't know. However, we do know that forward revenue gaining strides have been made with deals like the Standard Charter one and this potential Warrior one, none of which had impacted cash flow prior to the purchase.

 

If they conservatively calculate the new cash gain at about the £20m per annum level, then they may see that as translating to a £100m spend now amortised over the next 5 years. Add to that player sales over the period (let's say at a rate of £25m a year), and maybe a cash injection from the owners of £40m and you could see a case (simplistically speaking, I'll stress) for saying that (inflation notwithstanding) that a gross spend of £265m over 5 years would be a realistic minimum.

 

Front load £100m of that to spending this summer, and leave about £40m gross available for topping up over each of the next 4 summers. This budget would of course be able to grow as revenues further grew as a result of CL qualification and further commercial revenue gains.

 

Of course, as you say, the requirement to short term fund this plan, or not, would be affected by the nature of the staging of payments (both in and out).

[Maldini]

We were making profits of £30-40m a year without G&H's interest payments, stadium costs and other phantom payments. The club is very profitable, even more so with the increased commercial revenue.

 

Getting rid of the deadwood is key though, it could be the difference between signing a world class player next year and not.

[Owen1978]

[boohog]

I'm guessing this, and excuse the simplifications, but it's not unreasonable to surmise that FSG bought a club that, without the burden of debt, was at least cash positive, even without CL football. In fact, I doubt they would have bought it had that not been the case. How cash positive we don't know. However, we do know that forward revenue gaining strides have been made with deals like the Standard Charter one and this potential Warrior one, none of which had impacted cash flow prior to the purchase.

 

If they conservatively calculate the new cash gain at about the £20m per annum level, then they may see that as translating to a £100m spend now amortised over the next 5 years. Add to that player sales over the period (let's say at a rate of £25m a year), and maybe a cash injection from the owners of £40m and you could see a case (simplistically speaking, I'll stress) for saying that (inflation notwithstanding) that a gross spend of £265m over 5 years would be a realistic minimum.

 

Front load £100m of that to spending this summer, and leave about £40m gross available for topping up over each of the next 4 summers. This budget would of course be able to grow as revenues further grew as a result of CL qualification and further commercial revenue gains.

 

Of course, as you say, the requirement to short term fund this plan, or not, would be affected by the nature of the staging of payments (both in and out).

 

I think these are all fair assumptions and based on what they have said publically (caveat emptor...) this would likely be the way they look at things.

 

Assuming that this is the case and they are running the club in this manner, interim fluctuations in debt shouldn't be a massive concern, however, we should bear in mind that ultimately, FSG will want to get a return on their investment. Be that through dividends, sale of minority stakes, sale of the club in its entirety, an IPO, or leveraging the club and paying out an extraordinary dividend (god forbid), at some point they will need to make money out of us.

 

Simply ploughing cashflow back into the club will likely increase the value of the club provided success comes with it, but there is a time value of money effect in play, and to a certain extent diminishing returns once you get into the Champions League and build a stadium. The longer they plough money back into the club, the lower the rate of return on their investment and don't doubt, that is the only figure they care about.

[aka Dus]

I am not engaging in this discussion until someone makes a buying/selling a house analogy.

[boohog]

I am not engaging in this discussion until someone makes a buying/selling a house analogy.

 

Imagine you bought a house with 6 bedrooms and 2 bathrooms. Then you spent the next few years building new ensuite bathrooms. If you built 4 more as quickly as possible and sold the house, you would minimise the amount of time you tied your money up in the project and maximised the value of the house for sale by building optimal bathroom to bedroom ratio. If you spent 10 years on the project and built an additional 15 bathrooms, whilst you might have bragging rights amongst your neighbours about the number of different choices you had within your home for taking a dump, you've tied up your money for ages and not added any significant value to the property.

 

f***, that's my bi-annual waiver used up.