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Its a bit of a snide cop out to sell your ground to your owner. Derby sold for an over inflated cost of 80m and wiping out 40 million debt and sticking 40 M into the bank.
As someone mentioned surely you can only do this once plus its a hell of a lot of VAT(dont tell me thats exempt!)
If we tried to sell LR prime real estate in posh W12 we'd only get 15 million whilst Pride Park Meccano set stadium built on wasteland on the outskirts of one of the East Midlands most boring places in the country goes for what 80 million? Bloody estate agents
I am no good at finance but would derby not have had previous accounts going back years prior to FFP where the stadia was valued at its correct amount in company accounts?
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Les Speaks up on FFP loophole on 17:11 - Jul 29 with 978 views
Les Speaks up on FFP loophole on 17:05 - Jul 29 by bob566
I am no good at finance but would derby not have had previous accounts going back years prior to FFP where the stadia was valued at its correct amount in company accounts?
The stadium in their older accounts would be held at the purchase price (or construction cost) less accumulated depreciation. So naturally fixed assets values, in the balance sheet, decline over time as depreciation is deducted. Each year's depreciation hits the P&L reducing earnings. So the balance sheet value does not reflect the current sales value of the asset.
You can choose to revalue fixed assets to their fair value (but this has to be done consistently year-to-year). Any upwards revaluation gets taken directly into equity in the balance sheet (so doesn't increase earnings). The new fair value is then depreciated. So the issue with revaluation would be larger depreciation charges hitting the P&L.
When an asset is sold the amount that hits the P&L is sales proceeds - balance sheet value of the asset.
So if you sell an asset for £80m and the balance sheet value (cost - accumulated depreciation) was £30m you book a profit of £50m.
So the overall impact on earnings is the sales proceeds compared to the balance sheet value at the date of sale rather than just the sales proceeds.
[Post edited 30 Jul 2019 13:44]
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Les Speaks up on FFP loophole on 21:17 - Jul 30 with 688 views
Les Speaks up on FFP loophole on 13:41 - Jul 30 by Trom
The stadium in their older accounts would be held at the purchase price (or construction cost) less accumulated depreciation. So naturally fixed assets values, in the balance sheet, decline over time as depreciation is deducted. Each year's depreciation hits the P&L reducing earnings. So the balance sheet value does not reflect the current sales value of the asset.
You can choose to revalue fixed assets to their fair value (but this has to be done consistently year-to-year). Any upwards revaluation gets taken directly into equity in the balance sheet (so doesn't increase earnings). The new fair value is then depreciated. So the issue with revaluation would be larger depreciation charges hitting the P&L.
When an asset is sold the amount that hits the P&L is sales proceeds - balance sheet value of the asset.
So if you sell an asset for £80m and the balance sheet value (cost - accumulated depreciation) was £30m you book a profit of £50m.
So the overall impact on earnings is the sales proceeds compared to the balance sheet value at the date of sale rather than just the sales proceeds.
[Post edited 30 Jul 2019 13:44]
But did Derby revalue the stadium to their fair value before 'selling' the fixed asset? If not, how is this consistent?
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Les Speaks up on FFP loophole on 21:44 - Jul 30 with 666 views
Les Speaks up on FFP loophole on 21:17 - Jul 30 by Benny_the_Ball
But did Derby revalue the stadium to their fair value before 'selling' the fixed asset? If not, how is this consistent?
No, if they revalued it upwards they'd show less of a profit when they sold it and presumably they wanted the maximum profit in the P&L.
The issue is that the balance sheet of an asset typically does not reflect its market value. As mentioned typically the balance sheet value is historic cost less depreciation.
The argument I think you are making is, "was the asset sold at its fair value or above its fair value". There's no way of telling this unless you get independent appraisals of the stadium value.
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Les Speaks up on FFP loophole on 01:15 - Jul 31 with 595 views
Les Speaks up on FFP loophole on 21:44 - Jul 30 by Trom
No, if they revalued it upwards they'd show less of a profit when they sold it and presumably they wanted the maximum profit in the P&L.
The issue is that the balance sheet of an asset typically does not reflect its market value. As mentioned typically the balance sheet value is historic cost less depreciation.
The argument I think you are making is, "was the asset sold at its fair value or above its fair value". There's no way of telling this unless you get independent appraisals of the stadium value.
Thanks for the explanation. So if I understand correctly (I'm no accountant) I think what you're saying is:
(1) To increase earnings and maximise profit it's preferable to sell the stadium rather than revalue upwards (2) It's impossible to gauge whether Derby sold the stadium at a fair value just by looking at previous accounts as balance sheet value is historic cost less depreciation
Assuming the EFL don't change the rules, is there any way Derby can continue to leverage the stadium to periodically pump money into the club or is this a one-off? For example, given that Derby 'sold' the stadium to an owner, could they buy it back for a nominal amount (and record it as expenditure on infrastructure) and then re-sell at a profit downstream?
[Post edited 31 Jul 2019 1:54]
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Les Speaks up on FFP loophole on 15:17 - Jul 31 with 481 views
Well I did contact the EFL and asked them why three totally different situations are all treated exactly the same under FFP. They have replied as follows:
Regarding your second question, If the £50m is an adjusted 3 year loss in accordance with the ‘Adjusted Earnings Before Tax’ Calculation (P&S Rule 1.1.2) then yes all three Clubs would be in breach of the P&S Requirement and the Rules that were voted on by Championship Clubs and aligned with the PL as these are based on an ‘Earnings Before Tax’ measure. In accordance with Rule 2.9.2 of the P&S Rules, all Clubs that breach the Rules are referred to a Disciplinary Commission who have a range of powers and sanctions available to them so each breach can be looked at on a case by case basis.
This is quite helpful for me anyway as I find the actual rules quite difficult to find online.
Without having gone through all of that lot yet, the rules set out the objectives of FFP as follows:
18 Financial Fair Play
18.1 Without prejudice to the foregoing provisions, The League and Clubs agree to actively work to introduce measures appropriate to each Division to promote financial fair play within The League, with the objective of:
18.1.1 improving the economic and financial capability of Clubs;
18.1.2 increasing the transparency and credibility of Clubs;
18.1.3 placing the necessary importance on the protection of creditors by ensuring that Clubs settle their liabilities with Players, HMRC and other Clubs (or clubs) punctually;
18.1.4 introducing more discipline and rationality in Club football finances;
18.1.5 encouraging Clubs to operate on the basis of their own revenues;
18.1.6 encouraging responsible spending for the long-term benefit of football; and
18.1.7 protecting the long-term viability and sustainability of League football,
the 'Financial Fair Play Objectives'.
I think that 18.1.5 is the one which causes the problems and is the one which causes them to interpret breaches of the financial limits regardless of the circumstances. If owners are putting in substantial sums of money, whether as share capital or loans, then the club is not operating within its own revenues. However if they break the rules, write off their loans and then sod off leaving the club to pay the penalty for the breach, how is that fair? How do the rules prevent that from happening?
Nothing new here really I'm afraid, just the boring rules!
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