FFP breakdown

[Roberty]

If a chairman pays £100m for a stadium he knows is worth £60m, then the accounts should say he paid £60m for the stadium and he gave a £40m gift.

Whether the Fixed Asset is Land Value or Intangible Player Value, the valuation process is the same and should be impaired if totally wrong. The only difference is finding an "independent property valuer" is slightly easier than finding an "independent football player valuer" and land value tends to have less of range for wiggle room (although these clubs like Derby seem to find it) than player values as the later is typically less accurate and less precise.

As the EFL rules being quite prescriptive the document sent seems to be 20,000 words long. I would point out that the tax code and accountancy rules for reporting much much larger trying to cover every possible loophole imaginable to an accountant.

In the purchasers books it may well and usually is split to show as Asset + Goodwill - in the sellers books the value recorded is what they sold it for and the difference to the book value is just recorded recorded as a profit on the sale.

As far as I'm aware there is no legislation that says a business has to revalue it's assets, it is a matter of choice, so the true market value can only be established when a willing buyer comes along and in any event any revaluation would just be a guess, no matter how qualified the valuer was. So profit or loss on the sale of an asset is a common transaction.

The fact that the tax code is so much longer is the problem.

The longer they've made it the more loopholes they've created. Closing one always seems to create several more. The FFP rules are for only one industry. They learnt not to be too specific from the revenue and instead drafted general catch all rules; like the one for related parties. The rule does not limit what it applies to or attempt to define who a related party might be; thus it cover any transaction and whatever relationship that can be identified. Not going into so much detail gives the clubs less wiggle room and makes them responsibility for showing that they have complied.

[Roberty]

We know that all of the clubs that have got in trouble with FFP have made the most blatant breaking of the rules. No one to my knowledge has got in trouble for not impairing players sufficient. I am a 100% convinced one of the 92 clubs hasn't impaired players sufficiently and 50% convinced half the clubs haven't impaired player values perfectly.

If we get promoted and Mawson has career ending injury, do we thing we impairing him immediately and declare we broke FFP before starting PL; or use a little wiggle room to delay the write off until October 2020 by finding any doctor that thinks be will recover to issue a certificate?

I am sure that if every doctor thinks he won't recover, then the accountant would declare a breach of FFP, but if one specialist doctor honestly believes he will recover that's the wiggle room he will use to avoid breaching FFP. Accountants are responsible for providing a reasonable estimate that can be justified, if a specialist or two says Mawson will recover that is enough, even if ten don't (ps Mawson career ending injury is hypothetical).

Mawson is not a good example to use because the club will have insurance to cover players in the event of a career ending injuries.

The fact that you see the rule breaking as blatant demonstrate that the EFL catch all rules actually work. It lets whoever is examining the accounts look at the true purpose of any transaction rather than just it's face-value.

[The Rational Fan]

As far as I'm aware there is no legislation that says a business has to revalue it's assets, it is a matter of choice, so the true market value can only be established when a willing buyer comes along and in any event any revaluation would just be a guess, no matter how qualified the valuer was. So profit or loss on the sale of an asset is a common transaction.

You are probably correct that there is no legislation that says a business has to revalue it's assets, for the simple reason that it normally results in a company paying less tax, but Football Clubs trying to reduce their losses so they can invest more into the football club while compiling with FFP are quite different.

While it may be legal for FFC not revalue the players assets, but if we don't I am sure the Auditor will ask this question  "We noticed the after Summer of 2014 you decided to revalue the players bought at the end of the season and found that some players need their book value to be devalued. We also noticed after the players of 2015, 2016 and 2017 also were revalued with each time their book value was needed to devalued. Why do you think the player bought in the Summer of 2018 don't need a revaluation? Do you think these players held their value better than previous seasons?"

Try be the person answering the auditor and see if you can say "Yes, a revaluation was required the other years but not in 2018/19 as we don't think a revaluation would find any over valued players bought during the summer of 2018" without laughing. Even if you give that answer, I believe KPMG would probably ask for a revaluation of player values as we have in the past and its quite public that Fulham may have invested poorly during 2018.

[The Rational Fan]

We know that all of the clubs that have got in trouble with FFP have made the most blatant breaking of the rules. No one to my knowledge has got in trouble for not impairing players sufficient. I am a 100% convinced one of the 92 clubs hasn't impaired players sufficiently and 50% convinced half the clubs haven't impaired player values perfectly.

If we get promoted and Mawson has career ending injury, do we thing we impairing him immediately and declare we broke FFP before starting PL; or use a little wiggle room to delay the write off until October 2020 by finding any doctor that thinks be will recover to issue a certificate?

I am sure that if every doctor thinks he won't recover, then the accountant would declare a breach of FFP, but if one specialist doctor honestly believes he will recover that's the wiggle room he will use to avoid breaching FFP. Accountants are responsible for providing a reasonable estimate that can be justified, if a specialist or two says Mawson will recover that is enough, even if ten don't (ps Mawson career ending injury is hypothetical).

Mawson is not a good example to use because the club will have insurance to cover players in the event of a career ending injuries.

The fact that you see the rule breaking as blatant demonstrate that the EFL catch all rules actually work. It lets whoever is examining the accounts look at the true purpose of any transaction rather than just it's face-value.

If Mawson has a career-ending injury and we have insurance, then the player is revalued so the book value decreases to zero in fixed assets and insurance payment once confirmed as valid is placed in accounts receivables. In other words, the accounts change significantly, even the overall result maybe similar or the same.

[Roberty]

As far as I'm aware there is no legislation that says a business has to revalue it's assets, it is a matter of choice, so the true market value can only be established when a willing buyer comes along and in any event any revaluation would just be a guess, no matter how qualified the valuer was. So profit or loss on the sale of an asset is a common transaction.

You are probably correct that there is no legislation that says a business has to revalue it's assets, for the simple reason that it normally results in a company paying less tax, but Football Clubs trying to reduce their losses so they can invest more into the football club while compiling with FFP are quite different.

While it may be legal for FFC not revalue the players assets, but if we don't I am sure the Auditor will ask this question  "We noticed the after Summer of 2014 you decided to revalue the players bought at the end of the season and found that some players need their book value to be devalued. We also noticed after the players of 2015, 2016 and 2017 also were revalued with each time their book value was needed to devalued. Why do you think the player bought in the Summer of 2018 don't need a revaluation? Do you think these players held their value better than previous seasons?"

Try be the person answering the auditor and see if you can say "Yes, a revaluation was required the other years but not in 2018/19 as we don't think a revaluation would find any over valued players bought during the summer of 2018" without laughing. Even if you give that answer, I believe KPMG would probably ask for a revaluation of player values as we have in the past and its quite public that Fulham may have invested poorly during 2018.

I'm not probably correct, I know I am.

The answer to the question you pose is that; depreciation or amortization is a matter for the club to decide and they will provide a statement as to how their accounts treated it when they were being prepared. The actual value of anything can only be determined when a willing buyer is found and any difference is then recorded as a profit or loss on the residual value of the asset at the time of the sale. There is no legal requirement for them to revalue assets and players are shown in the balance sheet as an asset. Thus it can make good sense to loan out a player rather than sell him.

As to FFP, the EFL have their own rules but I doubt that the rule is going to allow a club to fiddle around with player valuations to manipulate their profit or loss as would be the case if they allowed arbitrary revaluation.

If the EFL did allow it; there is a reasonable argument to say that Stansfield being signed to a professional contract yesterday could give us  another £10m to spend on transfers in the next window as would also be the case with Harvey Elliot. As it is we have no idea what the profit on the transfer of Elliot to Liverpool is going to be until the tribunal has deliberated and any legal challenges have been determined.

[The Rational Fan]

As to FFP, the EFL have their own rules but I doubt that the rule is going to allow a club to fiddle around with player valuations to manipulate their profit or loss as would be the case if they allowed arbitrary revaluation.

If the EFL did allow it; there is a reasonable argument to say that Stansfield being signed to a professional contract yesterday could give us another £10m to spend on transfers in the next window as would also be the case with Harvey Elliot. As it is we have no idea what the profit on the transfer of Elliot to Liverpool is going to be until the tribunal has deliberated and any legal challenges have been determined.

The valuation of the player cannot be raised from his book value and Stansfield book value is zero as that is what we paid for him. But we can and have lowered values, the end of his first season 17/18, the club revalued someone (probably Rui Fonte) and impaired his book value. I noticed that Fulham impaired the book value a little, but they did not impair his value so much that we would break FFP signing Mitrovic and Taggett on loan, which is no accident I think.

My guess is the club thought Rui Fonte wasn't delivering, so the club did the honest thing and decreased his value, but if they didn't completely write his value to zero because then they would not have any money to replace him with Mitrovic on loan.

[toshes mate]

We know that all of the clubs that have got in trouble with FFP have made the most blatant breaking of the rules.

This is probably largely true and suggests that only when the unfairness of an activity is truly apparent that the EFL will actually take steps to investigate it.  The corollary is that there are many practices that could be considered by a lay person to be unfair that are largely ignored because either their impact is of marginal consequence, or the auditing authority do not even consider them 'unfair' because they are 'commonplace' elsewhere.  It is our expectation of what fairness is that dictates our view of how precise a term it should be.  I would imagine the tax collecting agencies also have such a guide in place to measure when avoidance becomes evasion.

[The Rational Fan]

We know that all of the clubs that have got in trouble with FFP have made the most blatant breaking of the rules.

This is probably largely true and suggests that only when the unfairness of an activity is truly apparent that the EFL will actually take steps to investigate it.  The corollary is that there are many practices that could be considered by a lay person to be unfair that are largely ignored because either their impact is of marginal consequence, or the auditing authority do not even consider them 'unfair' because they are 'commonplace' elsewhere.  It is our expectation of what fairness is that dictates our view of how precise a term it should be.  I would imagine the tax collecting agencies also have such a guide in place to measure when avoidance becomes evasion.

Spot On, "only when the unfairness [and dishonestly] of an activity is truly apparent that the EFL will actually take steps". While the EFL is supposed to be investigating any unfairness that is truly apparent, in practice the EFL is only going to punish clubs where the unfairness is caused by deliberately providing false player values and probably won't punish clubs where the DOF is providing an honest estimate of player values.

The EFL would consider that our DOF massively overestimated Seri's value when he bought him, and if our DOF still massively overestimated Seri's value doesn't prove cheating, besides the highest the Fulham accounts can value Seri at the end of the season is half of what we bought him for, which is probably too high but is hardly a massive error that can be called cheating.

If our DOF values "Seri at £12m at the end of this season and spends £1.5m getting Kongolo on loan", rather than valuing "Seri at £10.5m and not being able to afford Kongolo on loan", then the EFL will probably investigate but probably won't conclude its cheating, but when Derby values its ground above the value of similar stadiums near London then the EFL concludes its cheating.

If Fulham valued Seri @£12m and the EFL decided to deduct even one point for that, then I am sure the EFL would be strongly criticized. Of course, if the EFL had proof that Fulham though Seri's value was £10.5m and made up £12m to get other players on loan, then a points deduction would be supported.

[toshes mate]

While the EFL is supposed to be investigating any unfairness that is truly apparent ...

The difference is in the detail of an action being truly apparent to every other club who may be screaming at the EFL to do something  ... 'the owner just paid well over the odds to buy the stadium from the club at just the moment a huge injection of cash was required to keep FFP at bay'.

Wages (or more precisely player costs) may come under scrutiny because they have already been shown to be a factor in the demise of clubs when their percentage net effect on losses becomes too high.  But, even then, there is little evidence that the EFL tries to micro-manage the detail since proof of a breach of FFP is in the amount of a loss over three seasons and not how that loss was achieved.  Bury FC, for example, appeared to have been paying huge amounts (at extortionately high rates of interest) to an overseas money lender to service a loan that was being used to pay a debt that seemed unrelated to the Club's activities.  FFP doesn't appear to have tracked that anomaly at all although it was a huge amount of money passing out of the Club for years(?).   If FFP cannot track that sort of breach then how can micro-managing individual player values stand a chance of detection?

The EFL claims to want to keep clubs sustainable and yet the rules of the game do not seem to track deliberate wrong doing by top club officials and owners.  Is that because the EFL is run by the owners for the owners or because the FFP rules are skewed to favour clubs with more money, rules that were voted upon by all owners?

[Statto]

I still cannot accept the player valuations for impairment are just arbitrarily decided by the DoF based on the player's form. Impairment seems to be used rarely, whereas almost every player's form  and market value fluctuates dramatically from one season to the next. Therefore I suspect, in reality, there are only a small, limited number of extraordinary factors that justify impairment, eg relegation, long-term injury and/or perhaps where a potential future sale price is agreed when a player is loaned out. Those factors would all lead to a clear, objective judgment about value, probably made by the accountants or lawyers rather than TK.

[The Rational Fan]

I still cannot accept the player valuations for impairment are just arbitrarily decided by the DoF based on the player's form. Impairment seems to be used rarely, whereas almost every player's form  and market value fluctuates dramatically from one season to the next. Therefore I suspect, in reality, there are only a small, limited number of extraordinary factors that justify impairment, eg relegation, long-term injury and/or perhaps where a potential future sale price is agreed when a player is loaned out. Those factors would all lead to a clear, objective judgment about value, probably made by the accountants or lawyers rather than TK.

Is the impairment of a building value done by an engineer/surveyor or an accountant?
Is the impairment of land value done by a real estate agent/property valuer or an accountant?
Is the impairment of player value done by our football expert or an accountant?

The DOF cannot arbitrarily decide the value of players, he must provide an honest assessment based on his knowledge and the accountant/ auditor must ensure the source is creditable. Last time we went down we devalued a lot of players and spent every cent remaining, but there wasn't much left after the correct values were found.

[Roberty]

I still cannot accept the player valuations for impairment are just arbitrarily decided by the DoF based on the player's form. Impairment seems to be used rarely, whereas almost every player's form  and market value fluctuates dramatically from one season to the next. Therefore I suspect, in reality, there are only a small, limited number of extraordinary factors that justify impairment, eg relegation, long-term injury and/or perhaps where a potential future sale price is agreed when a player is loaned out. Those factors would all lead to a clear, objective judgment about value, probably made by the accountants or lawyers rather than TK.

Is the impairment of a building value done by an engineer/surveyor or an accountant?
Is the impairment of land value done by a real estate agent/property valuer or an accountant?
Is the impairment of player value done by our football expert or an accountant?

The DOF cannot arbitrarily decide the value of players, he must provide an honest assessment based on his knowledge and the accountant/ auditor must ensure the source is creditable. Last time we went down we devalued a lot of players and spent every cent remaining, but there wasn't much left after the correct values were found.

As far as the statutory accounts are concerned there is no legally stated qualification required for the person doing any of those activities. The building regulations say that someone working on a gas appliance or installations has to a "Gas Safe" registered but the inland revenue have made no specifications regarding qualifications for work submitted to them. So the FFC Accounts could legally be produced at home by the famous Motspur Park tea-lady - Hilda - if that is what the Directors wanted.

Of course there are reasons why a professional might be required - if the revised value was going to be used to obtain monies from a bank or institution by way of a mortgage for instance or if Hilda was too busy lap-dancing at Stringfellows when she wasn't at Motspur Park.

In a public company the shareholder may also require the comfort of knowing that something was professionally valued but in a private organisation like FFC, it is perfectly correct for the directors/beneficial owner to state that they believe the revision represents the correct value of an asset. Of course this value can be challenged if the account are being used for anything other than providing a financial statement to companies house.

You reliance on the fact that a value will be more correct if a better qualified valuer is used is misplaced - in all cases anyone's valuation is just an opinion and no one could prove it to be correct or not until it is tested in the market place.

I'm failing to see why we would want to impair anything if we didn't need to, since writing off the value of anything in the Profit & Loss Account will increase the losses and reduce the amount we have to spend on transfers and salaries for players. The normal way to write off the values of player transfers is to depreciate it by one or the other methods - in the instance you quote the impairment charge in FFC accounts resulted from our relegation - this produced a sudden and unforeseen reduction in the value of our players, one that was beyond the scope of depreciation.

Since any loss on player transfers would decrease the amount we had to spend on transfers and salaries, I would imagine that this is the reason why two of our more expensive signings were loaned out rather than being sold on at a potential loss.

As far as FFP is concerned; it has it's own set of rules so as to standardize the reporting. The EFL are not required to use the same accounting treatment as the Inland Revenue and actually don't and because there is no/or little case law as to the application of those rules they are open to legal challenge.