Chelsea FC are beating FFP in 6 simple steps

[Tomo 21,733]

Chelsea added yet another player today when the confirmed the signing of Brazilian midfielder Oscar. Chelsea fans are mostly pleased. Fans of other teams are mostly annoyed. Arsene Wenger is probably sitting somewhere muttering into his glass of wine while acting dumbfounded that Chelsea can spend so much money with FFP looming. Well I'm going to help poor Mr. Wenger out today and break down a very simple blueprint on how Chelsea can beat FFP with their continued spending in the transfer market.

Step 1: Get as much mileage as we can out of the old guard

This one is fairly simple. Players under contract before June 2010 can be excluded from FFP accounting as the rule was not officially in place yet. Chelsea saw the advantage of this and extended, well, everybody that was remotely willing prior to that deadline. Sometimes it meant overpaying a declining player, but that overpay didn't count against FFP accounting. They went into the first accounting period of FFP with a bunch of players that would never hurt their compliance even if they cost the club loads of actual money, and then they rode them for as long as they possibly could. Guys like

Florent Malouda and Michael Essien may not be what they used to, be they don't count against Chelsea at all as far as FFP is concerned. Brilliant.

Step 2: Target players with resale value as our major purchases

Buying young is the big thing now. When we buy young, we buy players that should still be increasing in value as they play out their contract. In many cases, we get them for a second contract that does not come with a transfer fee that would negatively impact our FFP accounting. If they aren't Chelsea caliber or are demanding too much in wages down the road, we can always sell them later on. With the exception of <a class="sbn-auto-link" href="

http://www.sbnation.com/soccer/fifa/players/110873/fernando-torres" style="margin: 0px; padding: 0px; border: 0px; outline: 0px; vertical-align: baseline; background-color: transparent; color: rgb(3, 34, 101); text-decoration: none; font-weight: bold; ">Fernando Torres, Chelsea haven't spent big on a player over the age of 23 since FFP came into play.

Step 3: Buy low when the opportunity presents itself

Chelsea have done this twice in the last 7 months, with

Gary Cahill and Marko Marin both representing players with some combination of contract status, injury issues, or tactical fit issues depressing their value. They may not be superstars, but they'll be serviceable and likely retain their value for resale despite their age. Every club needs role players and will have to purchase some players in their peak years, it's good business to buy low as opposed to targeting the Papiss Cisse's of the world that are at their peak value.

Step 4: Spend big. Spend really big. Buy future superstars. Do it right now.

This may seem counterproductive to the idea of beating FFP, but it really isn't. Spend huge right now. Don't wait, identify holes for the future and fill them immediately. If a top youngster is available and doesn't fill a hole? Buy him anyway! Why? Because of all those pre-2010 contracts we've had floating around. We've essentially been playing with house money since FFP began, but showing a profit in the first accounting periods of FFP doesn't earn us brownie points with UEFA (after all, Platini hates English teams). We are allowed to show a reasonable loss under FFP, and not showing that loss would be silly. Any profit we show is money we could have spent on players, and none of that money doesn't carry over into the future.

Spending that money now while it can be fit into the books also allows us to potentially spend more later. When that later date comes, we should have some Chelsea caliber players developed as well as some semi-valuable assets to sell. We shouldn't have to buy as much as we've already filled some future holes, but we'll still have the same amount of money to potentially spend under FFP. That means we can target better players. What's more, those players we end up selling will fund further spending that we otherwise couldn't have done, allowing us to target still higher quality players. Furthermore, clubs that have run afoul of FFP might even be desperate to sell, making available some of the top talent in the world and giving us additional leverage in bidding. Great chess players think many moves ahead, and well managed clubs will do the same. Michael Emenalo and company appear to be great chess players.

Step 5: Don't rush the youngsters, use the loan system

This one is also key. Young players will have more value on the market the more that they have played and proved themselves. They'll also develop more with extra playing time. Kevin De Bruyne may be a marginal upgrade to Florent Malouda on our bench this season, but he'll likely gain more long term value by going out on loan and starting. Florent Malouda is "house money" anyway, so we might as well take advantage if it let's some others develop further. If we can afford to let these youngsters develop more, do it.

Step 6: Load up the academy

Bring in the best young prospects you can find before they've signed professional terms at their original club. We built a fantastic facility, use it. If other fantastic academies come calling, take on the player's 27 year old brother as a 19th choice keeper or sign up his slightly less talented older brothers to appease the family. What you'll pay them and pay for development fees are tiny little drops in the bucket compared to the value of developing a single world class player. If players don't develop as we want, we really don't lose any significant money on them anyway. If we loan 20 players out, that's 20 more potential spots for youngsters in the U21 and U18 ranks. Fill them. Fill them with highly touted youngsters. More top prospects equals a greater chance that we develop great players. Aim for quantity and quality. It's a cheap way to plan for the future.

FFP is going to change the way clubs operate, and many clubs are approaching it in very different ways.

Chelsea's approach to FFP is starting to become very clear, and frankly it appears that they've managed to put themselves in a very good position not only early in the accounting process, but for years to come as well. They also happened to time winning the Champions League very well, and the new Premier League TV money ought to be some additional cushion as well.

While many Chelsea fans will be in fear of FFP, I hope Chelsea aren't close to done spending.

Victor Moses fits multiple steps in my blueprint, so snap him up. Cesar Azpilicueta does as well. We may as well look for a few more young midfielders as well, the sooner we wrap up the deals, the sooner those fees come off the FFP books. Buying now means that any amortized transfer fees will actually be off the books when Chelsea actually have to break even, waiting to buy will mean they are still counting those on our books when the books get harder to balance. Sorry Arsene, Chelsea do seem to have a plan to deal with FFP in the future and it appears to be a pretty damn good one.

http://www.weaintgotnohistory.com/2012/7/25/3186862/chelsea-fc-are-beating-ffp-in-6-simple-steps

[Duppy Conqueror 1,494]

i can almost hear Platini`s heart break from over the channel..

you were a great player Platini but you are out of your depth..go back to coaching.

[Chelsea? 892]

I'm actually for FFP but wouldnt a salary cap or A transfer cap be more loophole free?

[Tomo 21,733]

I'm actually for FFP but wouldnt a salary cap or A transfer cap be more loophole free?

Not in uefa's mind because that will put bid bad City, PSG and Chelsea on par with the golden boys on what can be spent.

FFP is Uefa's way of trying to say "we want Madrid, United, Barca, Munich and Milan at the top and no one is allowed to compete with them".

[Chelsea? 892]

Not in uefa's mind because that will put bid bad City, PSG and Chelsea on par with the golden boys on what can be spent.

FFP is Uefa's way of trying to say "we want Madrid, United, Barca, Munich and Milan at the top and no one is allowed to compete with them".

yea FFP does seem to allow the rich to spend while the poor stay behind now that I think about it.

[Spike 12,049]

[dave30 728]

I might be alone but i don't think we should be proud of worming our way out of every set of rules aimed at preventing us and other teams from simply buying hollow success and banishing any chance smaller clubs in the future have of competing.

[Term-X 7,891]

^ The definition of irony, a Chelsea fan against modern football.

[dave30 728]

^ The definition of irony, a Chelsea fan against modern football.

Surprised you've waited so long to make one of you characteristically witty comments. I've had that signature for months. I don't like modern football but what can i do change teams after 17 years of supporting Chels ?

[We Hate Scouse 10,286]

^ The definition of irony, a Chelsea fan against modern football.

He isn't alone. There's nothing that can be changed, so it's hardly ironic. I think you'd find 90% of match goers are against modern football.

[Term-X 7,891]

United fans founded 'FC United Of Manchester'..

It wasn't a delayed comment btw, I was responding more to your negative response to how we've bypassed FFP, and how that coincides.

[zolayes 14,489]

Im also convinced we have worked some good sponsorship deals with perhaps more to come

[capriccioso 2,545]

He isn't alone. There's nothing that can be changed, so it's hardly ironic. I think you'd find 90% of match goers are against modern football.

I'm not a matchgoer and I don't like modern football.

[Chelsea? 892]

What exactly is modern football compared to non modern?

[Badboy 1,526]

I think its more the older generation that can't stand modern football because they have seen the change. The younger 'premier league' generation love it barring a few younger fans who seem to know a lot about what it was like 30 years ago through talking to family members. The investment in recent years has certainly made football a much better sport because of the improved infrastructure and facilities at players disposal. The down side is the extortionate prices at football stadiums across the Europe and the fact hardly any clubs are for the fans anymore !

[KonohasOrangeFlash 2,607]

What exactly is modern football compared to non modern?

Money.

[coolhead23 1,146]

Further adding to the FFP thing, it is a tad long and technical but surely highlights a lot of things. For all those who have the patience ....

On Chelsea FC, FFP, and amortization of transfer fees

FFP is quickly coming closer to becoming reality. Chelsea just keep on spending in the transfer market. Because of the combination of these 2 things, many have reached the conclusion that Chelsea could be in trouble when UEFA decide to look closely at the books. There are quite a few misconceptions out there about how the rule actually works*, so today we're going to take a closer look at 1 aspect of this rule and how it will look when applied to Chelsea FC.

*For anyone interested, the entire 85 page document can be found here

Today we're going to look specifically at transfer fees and how they'll be accounted for under FFP. The rule as designed by UEFA allows clubs 2 alternatives in how to report transfer fees. The first method would be to simply record all transfer fees as expenses, which is the easiest way to report figures. When you buy a player, you would simply record the fee as a 1 time expense. When you sell a player, the fee would be a 1 time credit. Loss or profit would become a simple matter of subtracting sales from purchases and looking at the total. After the jump I've laid out what Chelsea's first 3 year monitoring period would look like using that specific method.

Two things to note here. First, all figures displayed are in millions and have been rounded. Second, I don't have access to the specifics of all sales and purchases, so these figures reflect the most educated estimates we have. The data may be off by a few million pounds in either direction, but overall you get a pretty good idea of where we stand by looking at the chart below.

The expensing method has it's good and bad points, but my guess is that basically nobody will show their accounting using this method. Writing off transfer fees as a 1 time expense creates wild variances in profit and loss. While this method would allow for quick fixes to large losses by selling players, it would also make it very difficult to consistently break even. Clubs using this method would likely show seasons of large profit and large loss at varying points of their accounting, and that would seem to make consistent compliance with FFP far more difficult. Because of that fact, I think it's safe to assume that Chelsea and every other club out there will take the other option that UEFA is offering, amortizing transfer costs*.

*Clubs can't swap between methods from 1 season to the next, they have to report using the same methods every season.

By amortizing transfer fees, UEFA is allowing clubs to spread the cost of the purchase over the life of the contract. As a simple example, a player purchased for £10 million and signed to a 5 year deal would have his transfer fee spread out over the 5 years he was under contract. That's £2 million per year, nice and simple.

What happens if a player extends though? We'll use the above £10 million player as our example again. That player finishes the second year of his contract with the club, and the club and player reach an agreement that extends the contract for 2 more seasons. At that point we take the £6 million that has yet to be accounted for in the books ( £4 million has already been accounted for in years 1 and 2) and split that up over the 5 years the players is now contracted to the club. This player will now cost £1.2 million against FFP for the remainder of his contract. If he extends again, you'd simply repeat that process using whatever amount is yet to be accounted for.

Below you can find the chart of how Chelsea's transfer spending would look under the amortization method of FFP accounting. You'll note that both Ramires and David Luiz extended this season, and their transfer costs counted against the books this year have dropped accordingly.

That looks a lot better, no? Using the amortization method of accounting, there is basically no chance that Chelsea fail to comply during the initial accounting periods of FFP. I've used exactly the same figures for transfer fees, but simply broken them down over the life of the contract. Using the amortization method, Chelsea are showing about £163 million less that they've spent in transfer fees for the first accounting period. This brings up an interesting dilemma though, as how do we account for player sales using this method.

First, there are 2 types of player sales. Academy products don't have transfer fees to account for, so they are very easy to show. Simply take whatever you received for the player in question and add it to your income. Players signed prior to 2010 are being accounted using this method as well, although there likely won't be significant fees from those players going forward.

What if we sold a guy that counts against FFP though? What do you do with the portion of their transfer fee still to be accounted for, no? It's fairly simple actually, but it does take a little math. Let's use Yossi Benayoun in this example, as he's likely to be sold this summer anyway. Let's say we sell Yossi for £1 million. We had Yossi on the books for £2 million this season. We'd take that total, subtract the £1 million from the sale, and Yossi would cost £1 million against the books this season.

So what if the player we sell is not in the last year of their deal? For this example we'll look at Fernando Torres. Torres through his first season and a half has seen £13.5 million go against the books. He's got 4 years and £36.5 million left to account for. Let's say we manged to sell Torres for £20 million tomorrow. How would we account for that? Well, we'd take all of the £36.5 million still owed to Torres, subtract the £20 million we just got for him, and record the £16.5 million as a 1 time loss for the 2012/13 season. Torres would never again count against the FFP books, we'd take the 1 time hit and move on.

This math would work for profits as well. If we take the same player (Torres) and sell him for the same £50 million we initially paid for him, the accounting works the same. We'd take the £36.5 million still needing to be accounted for on the books, subtract the £50 million we just sold the player for, and put the resulting £13.5 million in profit towards 2012/13. It's a 1 time profit, and Torres would disappear from the books entirely after the 2012/13 season.

This method of accounting for player sales helps to highlight the genius of what Chelsea are currently doing. We've spent a lot of money thus far this summer, no question about it. But using a player for 4-5 seasons and then selling him at a high point of his value is going to cut out a massive portion of our amortized transfer spending. Buying assets with resale value will literally allow Chelsea to continue spending on the transfer market in the future, buying guys like Luka Modric, Hulk, and Cavani just won't. Selling just 1 or 2 players for £15 million apiece can fund a pretty massive spending spree in the short term, as the sale of Yuri Zhirkov is enough to offset this season's amortized hit of every single player we've bought in the last 2 transfer windows combined. Buying young and selling off the surplus later will help Chelsea remain compliant, as it's actually a sustainable model.

In the long run, complying with FFP will really come down to our ability to make smart decisions in the transfer market. Clubs can spend a lot of money as long as they make a lot of money as well, and having assets to sell that will help make up the difference will be important. There isn't a set amount of money that the club can spend this offseason, but the more they do, the more they will have to either make or save in the future. Using the amortization model of FFP accounting stresses the importance of making smart purchases, regardless of the initial cost of those buys.

Transfer fees are also only 1 factor in FFP, albeit a very important factor. Player wages are equally expensive in general, so those will also be a factor when UEFA looks at the books. As far as transfer fees are concerned though, Chelsea really aren't in a situation in which they really need to be worried about running afoul of UEFA in the near future. The English media may not care to do the math required to understand the situation, but it's really not all that dire. Clubs that buy smart will be able to spend big, we just have to avoid the Fernando Torres and Stuart Downing purchases of the world and we'll be ok going forward. Buy young, buy upside, and build a strong academy. Do all of those, and FFP will not be an issue.

http://www.weaintgotnohistory.com/2012/7/30/3204610/on-chelsea-fc-ffp-and-amortization-of-transfer-fees

[zolayes 14,489]

I have a Chemistry and a Maths Degree ....but I'm not fighting my way through those figures NOR THE 85 page report.

Just going to sit back and smell the coffee.