Big loss, big deal?

No doubt over the coming days many Blues will get texts, emails, tweets and messages regarding City posting a record loss of £194.9m over the 2010-11 financial year. No doubt many of those will include references to the financial fair play rules that stipulate that a club can't make more than a £38m loss over the next 3 years and that we'll be banned from European football etc etc. I'll probably get a few myself, but am I really bothered? No, not really.

Now I'm no expert on finances but it's quite clear to me that this figure isn't anything to be overly concerned about. Why not? I'll explain why this record loss is not going to be a trend for City.  

First of all, this is not a surprise to the hierarchy at City, they were well aware that the 2010-11 financial year was going to be the largest hit the club would take. Speaking to mcfc.co.uk at the end of the 2010-11 season, Chairman Khaldoon Al Mubarak described that we would not see spending in 2011 on the scale we saw in the summer of 2010.

"It wont be like last summer, or the summer before. What you will see this year is strengthening the squad in areas that we feel require more depth."

And that's exactly what happened. City purchased Pantilimon (loan), Hargreaves (free), Savic (£6m), Clichy (£7m), Nasri (£24m), and Aguero (£38m) for a combined fee of £75m.

Compare that to the season before when City signed Boateng (£10.5m), Kolarov (£19m), Balotelli (£24m), Toure (£24m), Silva (£26m), Milner (£26m), and Dzeko (£27m) for combined fees totalling £156.5m. So City have spent less than half the amount this year, just as Khaldoon said we would.

Graham Wallace, Manchester City chief operations officer, also stated after the announcement that "Our losses, which we predicted as part of our accelerated investment strategy, will not be repeated on this scale in the future." Once again we see that those in charge at City were fully aware and prepared for these losses before the spending was ever authorised.

So we've looked at recent spending City have done as far as transfers go, but what about income? With regards to outgoing transfers, it's no secret that City struggled (and still are in some cases) to offload several players (on a permanent basis) that were purchased under Mark Hughes' tenure and before. Adebayor, Santa Cruz, Bridge, Bellamy and Jo are the main players in the list that Mancini has been trying to sell on since taking over, partly due to their wages eating away at the coffers while they're not part of his plans.

Emmanuel Adebayor spent 6 months on loan at Real Madrid last season and is on loan again, this time at Spurs for the whole 2011-12 season. Miraculously the loan fee is covering the percentage of wages Spurs aren't copping for. This means we don't have to worry about him until the summer when we can hopefully get a transfer fee for him.

Roque Santa Cruz was also on loan last season (Blackburn) and is once again on loan this season (Real Betis). As with Adebayor, we will hopefully get a transfer fee for him next June-July.

Wayne Bridge (a.k.a the new Danny Mills) spent January onwards with West Ham and turned down a move to Celtic in the summer transfer window so he is still with us, unfortunately. I suspect that despite him clearly not getting enough game time enabling him to walk away from his contract here and find another club, he's more likely to swan about with his missus doing clothes shopping until his contract runs out.  

Craig Bellamy spent last season with with Cardiff at City's expense as the bluebirds could only afford a fraction of his wages. Liverpool took him off our hands in the recent transfer window for, albeit on a free transfer, such was the demand for his services.  

Jo Alves de Assis Silva, or just Jo, featured a few times last season, mainly in the Europa league and Cup games. There are many ways to describe his time at City; crap sums it up nicely. He was offloaded to Internacional for a whopping fee of absolutely nothing.

The 'sale' of the likes of Jo and Bellamy among others are actually included in the financial report in the sum described as "additional exceptional charges". In other words, because the club let these players go for nothing they have added the players' valuations onto the loss the club has made. This total comes to £34.4m. Quite astute accounting really as for the purposes of proving to UEFA that City are working towards FFP they have actually increased their losses to make any future improvements factually greater than they would be otherwise.

There are other players that have been sold or loaned, and I'm not talking about for development reasons, but the point is City aren't just buying and buying, they're also selling the players they don't want. I've lost count of the times I've heard someone say "City have got x number of strikers and there's not enough room in the squad blah blah."

Yes there are now what you would class as 6 'main' strikers registered to City, but only 3 of them are even wanted. City were willing and trying to get rid of the rest throughout the summer but were unable to get what they deemed were reasonable transfer fees for them. 2 of them are now on loan with their wages covered. I'm not mentioning the other one. Obviously the transfer fees for any player will be knocked off any losses incurred in the future.

Clearly trying to make a sustainable business model dependent on the sale of limited resources isn't going to work, so what are City doing to increase their income from other areas?

The fans are, and will always be the main factor in the viability of any club. The more fans there are, the more tickets are sold and the more demand there is for the club to be shown on TV and since Sheikh Mansour took over, whether some fans like it or not, City's global appeal has shot through the roof for various reasons.

It's just a fact of football, the more successful a team is the more fans it gets. The longer it stays successful the more fans will stick around if the club hits a sticky patch. There are always going to be fair weather fans who change teams depending on trophies won, just as there are fans who only support a team because of a certain player.  

City has greatly benefited from its recent exposure resulting in more league games selling out quicker than in previous seasons (every Premier League game has sold out home and away so far this season, often several days or even a weeks in advance), as well as increased average attendance for Cup games. The increase in fans also means greater income from merchandise sales.

TV revenue is set to be at club records due to increased numbers of matches being shown live on various channels. It's not only the league games, but now City are in the Champions League the revenue from TV deals is far far greater than without it.

Along with ticket sales and TV revenue from league games we can also add earnings from the various competitions City are now competing in, again most notably, the Champions League. If City reach the quarter finals of the competition, the earnings before their share of domestic TV deals and gate receipts would be in the region of £15m, and would obviously increase even further if they got any further in the competition.

All of these basic increases are likely to continue throughout the season and beyond as City now have a team that can compete for top honours in the long term.

Of course on top of the increased ticket sales, increased TV revenue, increased merchandise sales, we also have sponsorship deals.

I don't think I need to go into much detail regarding the Etihad deal do I? Around £40m a year for the next 10 years is being paid into the clubs coffers with this deal alone. City have also recently struck multi-million pound deals with EA sports and Mansion who now stand alongside a number of other companies such as Jaguar, Heineken/Amstel, Thomas Cook and more, as partners and sponsors. None of these new deals are represented in the 2010-11 financial year.

The media will no doubt focus solely on the loss made by the club, which despite being record levels for any English club, isn't any more of a trend than me going out and decorating the main rooms in the house and then cutting back spending while a add the finishing touches.

City can take great positives away from the 2010-11 financial report. The overall turnover increased by more than 20% pushing above the £150m mark for the first time. Ticket sales increased by 8% to £19.7, TV revenue by 27.4% to £68.8m, and commercial revenue by 49.7% to £48.5m.

I'll say it once again, ALL of these figures are set to dramatically increase in the 2011-12 season. The commercial revenue alone is set to almost double with the new sponsorship deals in place. I'm not saying we'll be in the black, or even break even by the end of the current financial year. What I am saying is that the financial viability of Manchester City as a business is in very capable hands and any losses reported this time in 12 months will be vastly reduced. All City need to do is show a definite trend towards conforming to the financial fair play rules, and this is exactly what they shall be doing.

So don't believe the hype when you hear things like "City will be worrying as to how they can comply with UEFA's financial fair play rules" as by the time the those rules actually come fully into play in the 2014-15 season, City shouldn't have any trouble at all.

You can see a basic overview of the financial report on mcfc.co.uk. You will also find a link on there for the full report.





Twitter: @MikeWalsh1880
Facebook: David Silva's Left Foot

It's really starting to get to them.

Since Manchester City announced the new 10 year deal with Etihad, thought to be worth £400m, there have been some high profile detractors. The two most vociferous of which have been Arsenal's manager Arsene Wenger, and more recently Liverpool's Managing Director Ian Ayre.


To be honest, they're both pathetic and hypocritical.


Arsene is well known for his selective blindness and unwillingness to admit when he's wrong, and over the last week he's been harping on like an old fishwife about how City are disregarding UEFA's FFP rules and are guilty of what he calls 'financial doping' in order to get more money.

He's been getting all the soundbites in saying things like; "They give us the message they can get around [the FFP rules] by doing what they want."


And; "The credibility of financial fair play is at stake."


Is it Arsene? Is it really? Well, the credibility of the FFP rules are questionable anyway but that has nothing to do with the deal between Manchester City and Etihad. What he's really referring to is that the deal dwarfs that of Arsenal's which was signed in 2004.


"Normally sponsorship has to be at market price if it is to have a chance."


"It cannot be doubled, tripled or quadrupled..."


Why not? As I'll mention later on Liverpool's kit deal has gone from £6m with Carlsberg to £20m with its most recent sponsor, Standard Chartered. If I'm not mistaken Arsene, that's more than tripled, something which you claim shouldn't be done. So where were you when that deal was struck?


That aside, any deal made has to be beneficial for both parties involved hasn't it? And considering Ethad is a company in its own right I'm sure the directors there would decide what was 'market price' or 'fair value'.


Clearly when Arsenal managed to seal the sponsorship with Emirates, both companies got what they thought was a fair deal for the stadium naming rights and shirt sponsorship.


When pen was put to paper the Arsenal-Emirates contract was the largest of its kind, worth £100m. But this was to be spread over a 15 year period, gaining Arsenal a little over £6.5m a year.


This raised a few eyebrows in 2004 and you can see why when Arsenal director Keith Edelman said; "No one in the UK has ever got substantial amounts; maybe less than £1m or possibly £200k a year." And here's the key point; "But it all depends on the level of interest that you get."


So the scope of how big a deal can be has something to do with the "level of interest that you get." This of course is nothing new as the higher the profile of the club being invested in the higher the deal is likely to be.


With the Premier League being the most watched football league in the entire world, with TV revenue and media coverage increasing year upon year you would expect the 'biggest' clubs to attract the better contracts.


An argument could easily be made that Arsenal dramatically undersold themselves considering Liverpool have a shirt sponsorship deal worth £20m a year. Ok Liverpool have been the more successful team over a longer period of time but no one could argue that since the dawn of the Premier League Arsenal have been the 'bigger' team in terms of trophies and honours.


So why did Arsenal sign such a long-term contract for a stadium and kit sponsorship that worked out at a price lower than other teams in the top half of the table? In 2006 Liverpool were getting £6m a year from then kit sponsors Carlsberg.


This brings me nicely on to Liverpool's Ian Ayre and the recent outburst against City; "They surprised me for a number of reasons," he says whilst in Malaysia to watch Liverpool on a money making tour.

"First I don't think it's consistent. It certainly hasn't happened in Europe where a football club has renamed an existing stadium and it has had real value."


Is this a statement of fact Ian? No of course not, it's opinion of course. I wonder if he had asked any club's and companies involved in stadium naming sponsorships before coming out with this? Probably not, but hey ho, why should that matter?


He then goes on to say that the City-Etihad deal to rename CoMS is "odd because it has never been done before" in the respect that a stadium known by one thing has not had its name changed to something else.


At this moment in time I'll just say Leicester City... There are others of course but this is a very recent example which Ian completely ignored for the purpose of his argument.


Of course Ian Ayre also mentions the amount of money the deal is apparently worth by stating that "There is no benchmark in Europe, certainly in football, that says you can rename your stadium and generate that amount of value."


Once again he is forgetting a very simple but also very crucial detail. It is not just the stadium naming rights that have been sold. Nor does he take into account that the official sum and breakdown of the figures involved have not been released. So how could anyone know exactly what the stadium naming element is worth? The answer is other than City, Etihad and UEFA, no one does.


Again this is all very hypocritical seeing as Liverpool are currently looking into jazzing up Anfield or building a new stadium from scratch. And what would they do if they built a new stadium? You guessed it, you can bet you mortgage on it that they would instantly sell the naming rights.


Are you telling me that if a company came and offered you a supposed record breaking sum of money to sponsor the stadium and change its name you wouldn't jump at the chance? Is that what you're saying Ian? You can hear him backtracking already. Hypocrite.


What amazes me next is that he then clearly presumes that City's legal representatives and financial bods have not scoured through the 91 page document that lists the dos and don't of the FFP rules.


"Is Etihad, Manchester City and Sheikh Mansour a related party?" He asks. "If it is, then it's for UEFA to rule on."


No Mr Ayre, they're not a related party. Etihad is not owned by Sheikh Mansour and although it is owned by his half brother, this still does not fall under the "related party" issue under the FFP rules. "Why not?" you can hear him thinking as he begins to frantically flick through the pages.


I'll give you a hand Ian. Page 81-82 under the heading Related party, related party transactions, and fair value of any related party transactions.


When defining what the term "related party" means, it says it "may include that person's children and spouse or domestic partner, children of that person's spouse or domestic partner, and dependants of that person or that person's spouse or domestic partner."


I could add in the points about Sheikh Mansour's half brother having little to no influence over him or City, no stake in City etc etc which again would prohibit the deal being done, but that would be pointless, as you can see from the above paragraph that the deal does not meet the prohibition through related party contracts.


After his rant Ian Ayre then has the cheek to say; "But it is nothing to do with us."


You're damn right it has nothing to do with you! So keep your nose out at least until you know all the facts, or at least acknowledge the facts that are already available.


Talking of facts; the fact is that the two most vociferous opponents of the Etihad deal are both clubs have an agenda. City have recently overtaken both of them in the league and neither are looking as though they will catch up.

Now I'm not going to be arrogant enough to say that City have more fans world wide, sell more shirts, have more trophies and so on. But Arsenal haven't won anything for 6 years, Liverpool haven't finished above City for the last two seasons, thus not having any Champions League football.


It's looking likely that they will be scrapping for 4th spot along with Spurs next season as neither City, Chelsea or United look set to fall out of the top three places. Arsenal are set for yet another 'transitional' season and Liverpool, despite spending heavily so far, have not landed anyone of earth shattering quality to add to what was a relatively average squad last term compared to the teams that finished directly above them.


Don't you think it's a bit of a coincidence that the two teams than want so desperately to get back above City are the two making the most noise and crying foul over what City have managed to do?


I don't, it's obvious they don't like the fact that they've both been dumped out of their comfort zones by what they consider to be a lesser team. Well I've got a message to Arsenal and Liverpool; get used to it.


City have gatecrashed the party and there's no sign of them leaving it any time soon.


As I have mentioned, the deal with Etihad is much more than the changing of a stadium name. But if you don't know what the deal entails, check out my other blog at this url:
http://imnotreallyhere-vallis1880.blogspot.com/2011/07/are-city-really-in-hot-water-with-new.html

Are City really in hot water with the new ETIHAD deal?

Well it seems the media and some clubs are well and truly spitting their dummies out over City’s new sponsorship deal, calling for UEFA to investigate and even veto the agreement. It’s no secret that City’s takeover sparked the beginnings of the Financial Fair Play rules as Europe’s top clubs choked at the thought of someone outside of their clique should be able to gatecrash their timeshare of the domestic and European honours.

Now those same clubs along with the media are crying foul that City have managed to secure what is now being touted as up to £400m over the next decade. All that money for just selling the naming rights to what was now formally known as the City of Manchester Stadium? Well not exactly, but we’ll come to that later on.

The most vociferous of the critics from the football world have been Arsenal and Bayern Munich (according to the media). Now let me see, why would Arsenal and Bayern Munich have such sour grapes over such a deal?

Arsenal have seen Manchester City buy a number of their players over the last few seasons with the latest arrival being Gael Clichy. And although certain sections of supporters and so called experts will tell you he hasn’t had a good season, the statistics tell another story showing him as one of the best in the Premiership. City have also been heavily linked with a deal for Samir Nasri.

Gael Clichy shows off his new shirt after signing of City from Arsenal

A spokesman of the Arsenal Supporters Trust has been outspoken regarding the deal with ETIHAD saying: "It's like a match where one side decides to follow the offside rule and one doesn't. The City deal drives a coach and horses through the market place."

Earlier on this week the spokesman also stated: "The deal at Manchester City stretches credulity to the limit. The numbers just don't stack up."

Forgive me if I’m wrong but this just sounds like sour grapes. City have caused a stir amongst Arsenal supporters after they not only beat them to third in the league but have also taken one of their best players and are linked with another this transfer window. Add to this that Arsenal’s board simply refuse to spend money on proven players and other club’s aiming to poach other Arsenal stars it’s likely to leave Arsenal in another ‘transitional’ state of limbo yet again.

And now for Bayern Munich whose Chief Executive Karl-Heinz Rummenigge has ‘blasted’ or ‘slammed’ the deal (depending on what headline you read) saying: “Maybe they still have a trick up their sleeves but I’m not sure that they will be permitted to play in the Champions League.”

But let’s have a look at what he said moments earlier shall we?

“You have to look at it soberly – the player is under contract with Manchester City and the decision lies with them. They have demanded a price we will never be willing to pay.”

German International Jerome Boateng playing for Manchester City

Oh so Bayern aren’t bothered about the deal? No, although the papers would have you believe the first quote is talking about the ETIHAD deal. What he’s actually moaning about is that City won’t sell them Jerome Boateng on the cheap. And that, as they say Karl, is harte Scheiße.

Thank you Independent for trying to mislead us with the context in which those words were spoken by omitting the full detail. That’s a snide trick I would’ve expected the Daily Fail or the Sun to try.

So, getting back to the point, something else that the media aren’t happy about is that the owner of ETIHAD Airways is Sheikh Mansour’s half-brother and feel that the deal has been done at inflated values in order to gain an unfair advantage in the market.

Well as it was pointed out at the press conference at the unveiling of the deal, CEO of ETIHAD Airways, James Hogan made the point perfectly clear when asked if the Abu Dhabi government had invested in the deal through Sheikh Mansour. Hogan said “We’re (ETIHAD) a stand-alone business… [and] are responsible for our own commercial activities. So the funding of this deal is by ETIHAD Airways.”

Is that clear enough for everyone?

If not here’s some more from James Hogan: “We (ETIHAD) had very strong commercial requirements. If it didn’t add up we wouldn’t be doing it.”

And let us not forget that this is much more than just the sale/sponsorship of the stadium naming rights. It encompasses the shirt sponsorship and a substantial amount of ground that City own around the stadium. The ground on which major work will be done in the near future. Ground that will eventually consist of a new training ground, community football pitches, a swimming pool, a new speedway, and educational facilities and an ETIHAD call centre. Some or all of which could bare the ETIHAD logo.

Hogan describes the historic deal as “Far beyond the typical sponsorship-club agreement.” And when you actually look at it, it is!

We were initially getting figures of £120m-£150m it caused a stir but now the estimated figures have jumped to £400m sheer panic has set in. But if you break it down is it really that ludicrous?

As was mentioned earlier we have 3 major parts of this contract; the stadium naming rights, the kit sponsorship, and the naming of the campus around the stadium. Say for a moment that the naming rights are £150m which is the figure touted earlier on in the year, and the naming of the grounds around the stadium are also £150m (which seems fair if the stadium is the same). This now leaves £100m kit sponsorship deal.

Obviously these figures are complete guesses but not unrealistic in their logic. Barcelona have recently signed a kit sponsorship deal worth €150 (£125m) over 5 years with Qatar Foundation which works out at £24m a year. If the figures I used are anywhere near correct, City will make £10m a year from the kit sponsoring element. Hardly over the odds is it?

And I hate to bring “them” up but the rags already get £23m a year from Nike and there are rumours of a £400m 10 year kit sponsorship deal with them... Has anyone batted an eyelid about this? Don’t be silly, of course they haven’t. £40m a year for a kit sponsorship alone but people are up in arms about what is essentially a whole company sponsorship for the same price.

It’s impossible to think that City have gone about this blindly without checking the rules and regulations regarding such a deal. And something which all of the media has conveniently missed is that during the Q&A after the initial press conference Gary Cook specifically stated: “We have a very open dialogue with UEFA, we’ve had several meetings with UEFA about our plans.”

Cook Even went on to say the UEFA were “very supportive of Manchester City’s ambition.”

There it is in black and white, but if you don’t believe that the full press conference can be viewed on citytv on mcfc.co.uk if you want to check it out.

The hypocrisy of the press over this is truly sickening, and the obvious jealousy of sections of fans is highly laughable. Although they can both get under your skin sometimes, do we really need to care what the press and opposition fans come out with to try and knock us down? No, we know what’s going on, City are more open with its fans than any other Club in the world.

Should we be worried about being able to comply with the FFP rules UEFA created to keep the traditionally big clubs at the top and everyone else looking on in frustration? Hell no! We have owners and a boardroom who know what they’re doing when it comes to business. And that’s what football is today, a business, and it has been like that for some time whether we like it or not.

Once everyone’s 2nd favourite team because they were the plucky underdog, the team who never quite made it, the team who weren’t considered a threat, but now hatde beyond belief because they have the cheek to have a wealthy owner who has turned the club around and continues to do so in dramatic style.

As the saying goes, hated or adored but never ignored. And just like their new ETIHAD Airways A330 – 200 namesake, the blue moon will continue to rise for some time.

Kit man Les Chapman enjoying the ride on ETIHAD's A330-200 City airliner.

ETIHAD Airways' Manchester City A330-200

@MikeWalsh1880