Speculation Konchesky to QPR

[FryattFox]

Could they not keep the loans as they are but increase the payment period and thus lower the payments?

That wouldn't affect the profit (ignoring any knock on to the interest levels). It would only affect the cash flow, which doesn't concern FFP.

 

[Matt_B]

That wouldn't affect the profit (ignoring any knock on to the interest levels). It would only affect the cash flow, which doesn't concern FFP.

Surely the profit is just total incoming minus outgoing? If the outgoing is reduced, the profit will increase? In reality there won't be a profit, of course, but the sum should stay the same with the loss being less.

Putting it in real people terms:

Your incoming is your salary, say £1000 a month.
Your outgoings come to £1200 a month, of which £600 is your mortgage/car loan/whatever loan you want to use.

You are therefore losing £200 a month.

If you extended your mortgage from the 25 years you have it on now, to 35 years, then the £600 a month will be reduced bringing your total expenditure down?
Or am I missing something?

 

[fox58]

Surely the profit is just total incoming minus outgoing? If the outgoing is reduced, the profit will increase? In reality there won't be a profit, of course, but the sum should stay the same with the loss being less.

Putting it in real people terms:

Your incoming is your salary, say £1000 a month.
Your outgoings come to £1200 a month, of which £600 is your mortgage/car loan/whatever loan you want to use.

You are therefore losing £200 a month.

If you extended your mortgage from the 25 years you have it on now, to 35 years, then the £600 a month will be reduced bringing your total expenditure down?
Or am I missing something?

it could be an interest only mortgage, then the length of the mortgage is irrelevant

 

[Matt_B]

it could be an interest only mortgage, then the length of the mortgage is irrelevant

It could indeed, we'd need to know the particulars of the loan. If only we had a trust who might reasonably be expected to know things like this.

 

[fox58]

It could indeed, we'd need to know the particulars of the loan. If only we had a trust who might reasonably be expected to know things like this.

very true

 

[FryattFox]

Surely the profit is just total incoming minus outgoing? If the outgoing is reduced, the profit will increase? In reality there won't be a profit, of course, but the sum should stay the same with the loss being less.

Putting it in real people terms:

Your incoming is your salary, say £1000 a month.
Your outgoings come to £1200 a month, of which £600 is your mortgage/car loan/whatever loan you want to use.

You are therefore losing £200 a month.

If you extended your mortgage from the 25 years you have it on now, to 35 years, then the £600 a month will be reduced bringing your total expenditure down?
Or am I missing something?

Cash flow is effectively total incoming minus outgoing (for anything cash anyway). Your example above shows that your cash flow for the month is £-200. As a business, or a person, you have made a profit of £1,000 less any direct or indirect costs, which wouldn't include paying back any loans (excluding interest, as then it all becomes complicated).

Your balance sheet shows where all of your assets and liabilities are. When you take out a loan of say £40m, you haven't made a profit of £40m. All that you have done is increase your cash by £40m and increased your liabilities by £40m (as you obviously owe that money back). Therefore at no point does this impact your annual profit, which is shown in a company's profit and loss account.

 

[FryattFox]

A similar example for Leicester would be not paying creditors. If we owed £1m to someone at the end of the season, it won't affect our profit for the year when we pay that back. Deferring payment into the next season wouldn't increase our profit by £1m as we will still have had to accrue for that cost. So although our balance sheet will show £1m more cash (and the corresponding £1m liability), it wouldn't affect our profit for the year.

 

[Matt_B]

Cash flow is effectively total incoming minus outgoing (for anything cash anyway). Your example above shows that your cash flow for the month is £-200. As a business, or a person, you have made a profit of £1,000 less any direct or indirect costs, which wouldn't include paying back any loans (excluding interest, as then it all becomes complicated).

Your balance sheet shows where all of your assets and liabilities are. When you take out a loan of say £40m, you haven't made a profit of £40m. All that you have done is increase your cash by £40m and increased your liabilities by £40m (as you obviously owe that money back). Therefore at no point does this impact your annual profit, which is shown in a company's profit and loss account.

Then why does it matter at all what we are paying out to players, agents etc? Surely the loans are just another outgoing seeing as the owners' lending company and LCFC are different entities?

 

[FryattFox]

Then why does it matter at all what we are paying out to players, agents etc? Surely the loans are just another outgoing seeing as the owners' lending company and LCFC are different entities?

Loans and capital are treated differently to expenses.

If money coming in from a loan doesn't count as profit, how can money going out to pay the loan affect profit?

 

[Matt_B]

Loans and capital are treated differently to expenses.

If money coming in from a loan doesn't count as profit, how can money going out to pay the loan affect profit?

Is this fact or assumption? I'm not aware of the inner workings of FFP.

 

[Biffa Bacon]

Is this fact or assumption? I'm not aware of the inner workings of FFP.

I thought FFP took the usual football stupid way of doing stuff and just said you can spend a certain percentage of actual income on wages and transfer fees but I'm probably wrong because I can't be bothered to research any FL regulations because they change them if they feel like it.

 

[fitz]

Then why does it matter at all what we are paying out to players, agents etc? Surely the loans are just another outgoing seeing as the owners' lending company and LCFC are different entities?

Loans are balance sheet, interest charges are P&L. By paying out do you mean salaries? If so then that's P&L, agents fees should definitely be taken to P&L unless you're paying the cash as part of a long term representation then a set amount per year would be the hit....

 

[fitz]

Loans are balance sheet, interest charges are P&L. By paying out do you mean salaries? If so then that's P&L, agents fees should definitely be taken to P&L unless you're paying the cash as part of a long term representation then a set amount per year would be the hit....

Or I may be missing the point...I've spent pretty much the last year explaining this sort of shit to people without much luck. Football accounts are done differently too I think so feck knows.

 

[FryattFox]

Is this fact or assumption? I'm not aware of the inner workings of FFP.

It's fact.

FFP works directly from the numbers that LCFC disclose in their financial statements which are in the same format as any other company (give or take a few excluded costs such as academy costs, etc).

 

[FryattFox]

Or I may be missing the point...I've spent pretty much the last year explaining this sort of shit to people without much luck. Football accounts are done differently too I think so feck knows.

You're not missing the point - football accounts are done exactly the same as any other company though.

 

[FryattFox]

Loans are balance sheet, interest charges are P&L. By paying out do you mean salaries? If so then that's P&L, agents fees should definitely be taken to P&L unless you're paying the cash as part of a long term representation then a set amount per year would be the hit....

Exactly.

Any agent's fees that are paid for negotiations on behalf of the club are capitalised and then amortised over the life of that player's contract.

So if we paid Chris Wood's agent £100k, and signed him on a four year deal, then although we would pay the cash of £100k upon signing, the effect in the P&L would only be £25k a year. So we would *only* lose £25k per year in regards to FFP. The same is true of any transfer fees.

 

[fitz]

You're not missing the point - football accounts are done exactly the same as any other company though.

The only difference I'm aware of between football clubs and a standard Plc is so many staff having contracts that are seen as an asset - though this could of course be bollocks but then again I've not really spent much time looking into football accounts.

 

[FryattFox]

There's some good examples that help understand FFP and accounting here, albeit built around the FA and UEFA FFP which will use the same financial information from the clubs but is set against different thresholds for losses, player salaries, etc.

 

[FryattFox]

The only difference I'm aware of between football clubs and a standard Plc is so many staff having contracts that are seen as an asset - though this could of course be bollocks but then again I've not really spent much time looking into football accounts.

Players and staff still have normal contracts that are treated as payroll costs through the P&L just like any other business.

The only difference (that you wouldn't normally have at a normal business) is that players are capitalised onto the balance sheet, with any transfer fees or agent's fees amortised over the life of their contract. So only a proportion of a transfer fee paid out will hit the P&L in a given year.

So for players the contract is both an asset and a normal payroll contract.

 

[fitz]

Players and staff still have normal contracts that are treated as payroll costs through the P&L just like any other business.

The only difference (that you wouldn't normally have at a normal business) is that players are capitalised onto the balance sheet, with any transfer fees or agent's fees amortised over the life of their contract. So only a proportion of a transfer fee paid out will hit the P&L in a given year.

So for players the contract is both an asset and a normal payroll contract.

So not bollocks then, glad to know it. I'm not sure how the likes of Zsolt Laczko could ever be realised in the accounts as an asset given the accounting definition.