How come we got the Manchester City player values so wrong?

 

 

 

• Ref goes bonkers and decides 8 seconds is really 23 seconds

By Tony Attwood

Warning: this article is over twice as long as the norm for Untold, and the last 300 words are background, not to do with football.  So if you want a quick “Arsenal are signing a Man C player” this is not for you.

However…

We recently had a situation on Untold where in an article we looked at the cost and value of Manchester City players, and a reader wrote in to say that Transfermarkt.com figures for transfers are not valid because they don’t include add-ons, which are cited in other sources.   That may be true (I don’t know), but add-ons are of course optional extras applied only if certain conditions are met, and as long as all examples are accounted for with or without add ons then everything is equal.

But this got me thinking: different deals handle add-ons in different ways, and it would seem that it is rather easy to hide money inside, or have money moved outside of a deal, when there are add-ons floating around.  (See my footnote for an example of dubious practices outside football).

A simple definition of add-ons was given by ESPN to the effect that, “Additional fees to be paid to a club who are moving a player on if certain conditions are met, e.g., the player scores a particular number of goals or plays a certain number of matches, or the team reaches a specific achievement.”   Other sources remind us that there can also be add-ons if a player moves on again from the club he is moving to in the first place, or as a keeper keeps a certain number of clean sheets.  Deductions can be made if the player is not as described in the sale – for example if the sale document asserts that the player is fully vaccinated and agrees to continue to be so, but it turns out that actually missed a couple of vaccinations, discounts will be required.

Transfermarkt, by not including add-ons in the prices they quote, is being quite reasonable because no one knows at the time of transfer what the final sum will be, and indeed as all clubs are receiving and paying out add-ons each year, evaluating the add-ons becomes a point of dispute.

Thus tracking player prices by including all add-ons is difficult, not least as some clubs don’t declare what add-ons are in the contract.  Indeed it is alleged that there is alongside the public contract for the sale of a player in some cases, and a secondary private contract.   That’s not illegal if Revenue and Customs and the Premier League are told.

As a result, money arrives all the time from different sources.  Suddenly £20m turns up from a source and is put down as add-on payments, and the club wants to account for it for five years before when by chance the club made a loss and thus paid no tax…  Revenue and Customs disagree; it gets complex.

And I write with a little experience of this sort of thing because before retirement I was chair of a plc and three times Customs and Excise came to us after an inspection with massive bills that were large enough to have forced our closure, for past payments of VAT based on a highly technical interpretation of the rules which we had been previously given to understand did not apply.   We fought Revenue and Customs each time and fortunately for us (and me as a shareholder) we won.  But when even something as seemingly simple as VAT can become a major issue, it is easy to understand how transfer fees with all these add-ons and deductions for selling-on, injuries, illness, retirement, second selling-on, transfer fee inflation etc, can be a matter of argument…. You need a legal team just for that – which I think is where things are with the Manchester City case (although of course, I make no allegation about any of their financial doings).

Thus one can calculate the comparative buying and selling of players in different ways, but calculating buying and selling without add-ons is more reliable because it incorporates the agreed value of each player at the moment of the transaction.  If every recorded transaction is based on this same approach then a comparison can be made.

So suggesting that Transfermarkt is a poor provider of data is not really interesting, because we used Transfermarkt throughout in that article, and they have a consistent approach to transfer valuations

And simply saying, “This source is no good” isn’t really that helpful either unless a solid logical argument can be made.

Further, there is a separate issue: are Manchester City exploiting the add-on issue in some way to help them balance the FFP accounts? Now of course I don’t know the answer, and I make absolutely no allegation.   

Considering the add-on sale prices of players in the case of some transfers I have looked at from afar, the value of the add-ons occasionally seems to me to be much higher than one might expect.  Now I make no allegation here about Manchester City or any club, and I have no evidence I could swear on.  But if the League is aware of the temptation of putting more into the add-ons when players are bought or sold to get around their regulations that could become quite an issue.

Let’s imagine: in 2021/22 Wilberforce Wanderers sell player X for £20m plus add ons depending on performance.  Mr X does very well and so his add-on value rises dramatically.   In 2023/4 the club with the player decide to cash in and sell him for £100m.   It’s a good deal.

Wilberforce Wanderers get a load of extra cash spread over five years and use it (including money not yet received) to pay off some of the debts and buy some new players.  But then two years later the Revenue want a load of that money as taxation on the profitable sale of X.   Wilberforce go back to the club they sold to, and say, “could you find any way to adjust your accounts…”

In other trades this doesn’t happen because few trades have sell-on deals.

But in football there is a big argument going on as to how the money from sell-on deals is accounted.  Does it come into the tax year when the sale takes place or is it added back into the year when the contract is signed?  And if they don’t have it…?

This is one of many issues that buzzes around in football, and one reason why it is essential to stick with a single way of accounting for income and expenditure throughout.   The Transfermarkt figures are consistent and based on the preferred approach to accounting for transfers – the player value is accounted for in the original deal at the time of sale.  If not all the money is paid at once, the rest is treated as money owed year by year.   Any sell-on issues are treated for tax in the year in which they arise and are due to be paid.

Thus the argument made that somehow Transfermarkt’s figures are wrong is not straightforward.  You can use other figures with sell-on estimates, but they are estimates and include money that might never be paid, if the player gets injured or loses form for example.

The Manchester City financial situation is complex, which is why there are so many accountancy experts and lawyers involved and why it is reckoned to take four years.  If it were as simple as “don’t use the figures in Transfermarkt but use those in the Manchester Evening News,” the whole thing could have been wrapped up within a couple of weeks.

Now this article is already twice the length of a normal Untold piece, but as you are kindly still here, I am going to tell one more story.  It is totally true, but not about football.  But it shows the way games can be played with money.

A limited company ordered a range of goods and services from the plc of which I was chairman.  As was normal in our line of business we supplied and invoiced.  They did not pay.  Eventually, we sued them and in response the firm went into liquidation.  As a limited company we could not take the directors to court: “limited” (as in Ltd written at the end of a company name) means the directors have limited personal liability.  Usually £1 per person.

So we wrote that off.  But then a year later by chance I saw an order going through and recognised the names of the directors placing the order.  It turned out to be the same three guys who had now set up a new business but the one who had been the “chairman” was now a “manager”, the previous “manager” was now “company secretary” and the old company secretary was now “chairman”.   It was clearly a con.  The new company tried to pull off the same trick as before.

I told the finance police, and they (as they say) “visited the gentlemen concerned”.   It turned out it was a regular con trick, the police knew and were just waiting for someone willing to testify in court.  I said, “Tell me the time and place and I’ll be there.”  On hearing that there was to be a case, the guys pleaded guilty, which halved their time in prison.

I make no allegation at all that there is anything wrong with the accountancy approaches of any club.  But I do believe from my own experiences of being a company chairman that dubious accounting and financial practices happen in all industries.  I saw it personally, and I heard about others.  Maybe Manchester City are snow white Persil clean and perfect in every way, but suggesting that because TransferMarkt’s figures don’t include sell-on fees and then implying this shows that Manchester City are innocent of the 100+ cases against them, is, to my mind, a bit feeble.  There’s more to it than that.

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