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View From: A Financial Perspective
Message board member Ozzi, tells us his thoughts on the financial situation and player sales…
I’d just like to put across my view on the player sales and hopefully shed a little light on why these sales are going through but are not devaluing the club as a financial entity.
This is as far as I’m aware anyway! I’m an accountant and have a friend in my practice who does the accounts for a football club. When a player signs, his contract is capitalised and put on the balance sheet, so for example, when Oba signed for 10.9m(?) this will have been put on the company’s balance sheet. Lets say for example it was a 5 year contract and we’ll round it down to 10mil for easiness, 10m / 5 years = 2m a year, so every year the accounts are produced 2 mil will be wiped off the value of the contract.
Again not sure on my facts here, but say he had 2 years left on his contract, that would have a balance sheet value of 4mil, and that 4 mil is tied up in a contract, its not as if we can go out and spend the 4 mil. Therefore, when we sold him for 9, it will have made a 5mil profit on the sale and also given the company 9mil of liquid assets that can go out and be spent, be it on reducing the debt or even birthday cake candles if they so please!
So from an investors perspective, profit will have increased due to the additional 5mil gained on the player sale, the balance sheet is more liquid as the 9mil will have most probably lowered the bank account overdraft and there’s also 65k a week less going through the profit/loss account which again will decrease the loss made.
However, as we all know, when Oba left it devalued the team and there’s still considerable investment which needs to be made to put this right. ‘Asset stripping’ has been banded about and whilst it may be true that the team has considerably weakened due to the player sales, the balance sheet hasn’t because the 9mil that was received in is far more than what his contract was worth with the length of time until it elapsed.
Ok I’ve done now, you can go and get on with your lives again!
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Dudey say's:
2:09 PMYou haven’t factored something huge when doing your calculations. Using the example you gave, Oba isn’t bringing £5million off the debt. You haven’t factored the goals, assists and threat he’s going to produce, which in their own right will make the value of the club change. Furthermore you haven’t factored the amount of people who will no longer go to watch Newcastle because of the loss of “star” players like Oba. You have taken one approach, which may work for a company with capital intensive items, but for a labour intensive company you’ve missed some stuff out.
Ozzi say's:
7:38 PMThe reason that you cannot factor in the loss of revenue with regard to supporter loss due to the player sale is because the amount of people who will no longer go to games can’t be estimated as probable, therefore no provision for such loss of revenue can be made.