Everton, our summer transfers and short term cost control regulations

[sageyefc]

McCarthy, cleverly, garbutt/oviedo and maybe Lennon out. Bring in min 30-35 mil and save 180-200k week. easy this

 

[The Esk]

So we cant really sign/pay top wages unless Stones goes?

Doesnt really strengthen our hand in any negotiations does it?

Or have I missed the point?

We can massively increase our wage bill and sell no-one but then we have to find the increase in wage bill less £7 million from non-broadcasting revenues, and my own view is that the upside on that this year is limited (albeit not beyond this year), thus selling Stones as an example would solve the problem.

 

[LABlue2]

Can football clubs mark up valuations of players on the books to fair value without selling them? For example, we paid 2mm for stones but can you can mark up his value on the books to 20mm to show a 18mm gain for the year?

 

[Tramps_mate]

Following earlier discussions about short term cost controls I've written a front page article:

https://www.grandoldteam.com/2016/0...ransfers-short-term-cost-control-regulations/

As is now commonly accepted Everton are for the first time in the Premier League era in a position to deal extensively in the transfer market and change their wage structure and previous limitations to attract higher quality talent.

However Everton being Everton, there’s almost inevitably a reason for things to be perhaps not quite as straightforward as they ought to be.

I’m going to try and achieve the impossible – make sense of the options open to Everton under the Short Term Cost Control (STCC) rules and keep it interesting.

In an attempt to stop salaries increasing in line with broadcasting revenues the Premier League introduced a limitation on salary increases 3 years ago. New regulations for the 3 years from 2016/17 fix salary increases to the greater of a fixed amount each year (£7 million a year from 2016/17 salary levels) or £7 million plus any increases in non broadcasting revenues.

Non broadcasting revenues include sponsorship, commercial and match day revenues plus critically profits generated from player sales.

Back to Everton

Now returning to Everton, I’m going to make some assumptions about our transfer activity and the increases in current contracts offered to key players. I stress we’re not looking at the amount we will spend in the transfer market, that’s a separate discussion and from noises from the club is not a limiting factor – nor likely to be a regulatory issue given the underlying profitability of the club moving forward,and the ability to fund in the future .

I’m going to assume we add 5 players to our squad over the summer with an average wage bill of £120,000 per week per player. That adds £31 million a year to our wage bill.

I’m also going to assume that we offer new contracts to several of our most valued players, particularly Lukaku, Barkley and we’ll include Stones as well. From figures suggested in the press, these players are likely to receive increases of perhaps £70,000 a week, thereby increasing the wage bill by £200,000 a week or £10 million a year. We also have the increase in manager wages to factor in (£3 million increase on Martinez’s costs)

We’re losing players like Osman, Pienaar and Hibbert plus a high earner in Howard, but in a squad game they need replacing so I’m assuming a zero effect on salary levels.Equally the sale of fringe players like Kone and Niasse will likely have limited impact on total salary levels either because of replacements or other smaller increases in squad contracts.

So far a total increase in salaries of £44 million.

Possible solutions

How do we fund that given the £7 million cap on salaries?

Sponsorship revenues: Potentially could increase this year with an unwinding of current arrangements with Chang but given that there’s a year left on the current deal, and our profile should be considerably higher in 12 months time, I’m taking the view there’ll be little change until season 2017/18.

Similarly commercial revenues due to the nature of the outsourced contracts are likely to remain flat at least for the next season.

Match day revenues will probably show a small increase as I’m assuming we’ll play to near capacity crowds under Koeman but that has to be tempered with the reduction in season ticket prices plus the increase in season ticket sales, all of which reduce the yield per seat.

That leaves one final source of “income” for the purposes of meeting the short term cost control rules – player trading profits.

I’m not going to get into full “football manager 2016” mode but to create income of £35-40 million there’s only a limited number of options in the current squad, particularly as we appear to have ruled out Lukaku leaving and if we were to dispose of Niasse there’s the potential for a significant trading loss. On Niasse perhaps a year long loan elsewhere is the most sensible option, reducing the wage bill and not crystalising the inevitable trading loss when he is eventually sold. The most likely option is the sale of Stones which would create sufficient profit to meet the required increase under the STCC rules (as well as reducing salary costs).

Selling Stones reduces the increase in salary costs to approximately £38 million rather than the £44 million quoted earlier

Thus in this most exciting of summers ahead of us we have to do one of the following:

• An enormous increase in sponsorship and commercial sometime in financial year 2016/17 – unlikely in my opinion.
• A significant sale, likely to be John Stones, to create a trading profit to meet the STCC requirements.

It’s interesting that if we go down the route of selling Stones (which seems our only viable option), just as in chess a player sacrifice can lead to winning the game.

His sale permits the overhaul and upgrading of our entire squad,and the ability to pay competitive salaries – not because we can’t afford it but because regulatory considerations – a worthwhile sacrifice in my book.

The scale of change within the club is just becoming evident, exciting times ahead…..

And unless revenue is significantly increased in a years time, then another sale will be needed? Is that right?

That strikes me as worrying. Incase we don't increase revenue enough to sustain wages...

 

[The Esk]

@The Esk what kind of ramifications if any would you envision on the club during the ground build does the outlay of the ground effect balancing books also would it be possible that the naming rights of stadium could be sold once grounds been cracked on the site improving the income on balance side of sheet or does it need to be built and operational under guidelines of fair play ect

The costs of ground construction, infra-structure and youth development are excluded from any calculations so we can spend with impunity if Moshiri wishes to do so on a new stadium.

 

[Tony Hibbert's 3rd leg]

Keeping the right players and letting go of the others is the key, and also the timing of it. Many top European teams do this and get repeated success out of it (Athletico, Juventus, Dortmund). Inevitable that Lukaku and Stones will eventually go but we aren't in the position where we have to rid of both simultaneously. Big, key players either Come and go quickly, stay a couple of years or stay through their career. For me, sell and replace Stones, get Lukaku nailed down for another season or two and make sure Barkley is a priority for the foreseeable future.

 

[The Esk]

And unless revenue is significantly increased in a years time, then another sale will be needed? Is that right?

That strikes me as worrying. Incase we don't increase revenue enough to sustain wages...

The assumption would be we would increase revenues in year 2, but it is conceivable player trading would be required if we went on an enormous expansion of our salary costs, yes.

 

[waggy27]

Apologies if this is basic, but if for example the club sold Stones for £45m and spent for example £100m on new players, how could that make a trading profit? Is it about fees being paid over the length of contract?

 

[Angle c]

Ah yes, the ol' Juventus manouvre. Classy.

We're rich now, we can buy class!

 

[KUEFC09U2]

So in reality in we fail to increase our commercial revenue then we are basically still going to be a sell to buy club?, little disheartening imo with all the excitement that has gone on

 

[The Esk]

Apologies if this is basic, but if for example the club sold Stones for £45m and spent for example £100m on new players, how could that make a trading profit? Is it about fees being paid over the length of contract?

Yes mate, the cost of a transfer is spread over the length of the contract and a sale is booked as revenue in the year of the sale.

 

[The Esk]

So in reality in we fail to increase our commercial revenue then we are basically still going to be a sell to buy club?, little disheartening imo with all the excitement that has gone on

That's the reality for all clubs, yes we need the capital to acquire players but more importantly we need to match non broadcasting income increases in line with salary increases. It's achievable particularly as we start from a low income base but nevertheless that's the reality.

 

[silent bob]

I'm probably swimming against the tide here but if anyone offers 40m plus for Stones i would snatch their hand off.

IMHO he's nowhere near as good as HE seems to think he is.

Also IMHO he ain't no centre half either.

 

[The Rhino]

Think Stones will be gone anyway tbh and I'm not that bothered so long as we keep Lukaku and Barkley.

Pienaar and Howard were both on around 50k a week so 2 of those 5 hypothetical incoming players that will be direct replacements at GK and LM will only be adding around 70k each (140k combined rather than 240k) then I would argue Osman and Hibbert will possibly be replaced by Kenny and Davies which I'm assuming will be a further 30-40k a week combined saved.

Hopefully we get rid of Cleverly, Kone and mcgeady and bring in £10-12 million in cash and £120k or so combined in wages.

 

[mikewex]

Yes mate, the cost of a transfer is spread over the length of the contract and a sale is booked as revenue in the year of the sale.

The hedge fund jobsworth in me just had a mental picture of going short on players to create gains. Didn't work very well....