Dunno ARD…
Theatrics alone out on the pitch can’t be a good influence though
Not set out to trash anyone’s reputation ARD, the tongue-in-cheek way I strung the words together intimated that it was a line that had not been cast in stone, and should be viewed that way…!
2 Likes
Over the course of the FFP window, I’m not sure there is actually that much difference in practice as our spending is largely done on the back of what we bring in from player sales.
1 Like
But the spending from 3 years ago would have been in the last 3 years worth of accounts and will now be cleared. At roughly £55m a year. The money isn’t all paid when the deal is completed, LFC usually structure our deals over 3 years. So if we were to roughly use that that’s around £150 odd million freed up in cash before we have sold anyone this coming summer. If we are allowed to keep our outgoing costs the same as they have been at least. Obviously not guaranteed.
1 Like
This is money generated and paid mainly from player sales, not from operations. Once it is spent it is gone.
2 Likes
It’s odd because on several threads we are arguing about not buying in a summer transfer window that’s still several months away.
And all we’ve heard is that Klopp will be backed.
3 Likes
I’ve tried to look at the way the accounts work as well as I can with my limited knowledge on the subject and it seems to me quite clear there’s serious room to operate should we choose too.
2 Likes
No it’s not. It’s from the last of the 2018/19 expenditure being paid off which was over £160m. That season and each of the next two we’ve pulled in about £37-39m. That annual bill of outgoing cash being fully paid has to create an opportunity. Whether that is used to stabilise after two years of financial losses, to cover for possible lost CL revenue (I still think we will make it) or recruitment isn’t a sure thing though.
1 Like
Wrong. The profit and loss account is a summary of business activity for a specified fiscal/trading period e.g. a calendar year.
The P&L is a report derived from the books, but it is not “the traditional books”.
“The books” is a term that refers to the ledgers that were traditionally used in double entry bookkeeping to record all of an enterprise’s transactions.
One of the “books”, the asset register, is where details of the company’s assets are recorded.
This is “the book” that is implied when we refer to “getting a player off the books”.
I think you misunderstand the purpose and function of amortisation and its impact on the profit and loss account.
A business is not permitted to offset the cost of acquiring a fixed asset against tax in a single financial period; the costs have to be spread over the useful life of the asset. In the case of a player, that is deemed to be the duration of their contract.
So, taking Keita as an example, he cost £54 million plus agent’s fees and any signing on fees, on a five year contract. Let’s say the whole deal cost the club £60 million. This is the sum the club paid for his services and it is the amount recorded in the asset register.
The value of the asset is amortised over the life of the contract i.e. £12 million a year for five years. Each year the residual value of the player is reduced by this amount, enabling the club to charge £12 million as an expense to the P&L i.e. reduce the amount of money subject to tax by £12 million. It does not mean the club is paying out £12 million per year.
So it isn’t a cost per se, the money has long gone, but the means by which the club obtains relief from tax on what it previously paid to acquire the asset.
Consequently, your suggestion, that by reducing the amounts charged as amortisation will somehow free up funds for transfers is palpably wrong and misleading.
12 Likes
I think the board will do everything they can to add to the squad this summer. I’m just not sure that everything @AnfieldRdDreamer has said is correct…
2 Likes
But on the profit and loss account that is the only way the cost of the player is taken into account right? Ignoring cashflow for a moment which reflects when the payments are made. So in a sense the amortisation of the player is a bill that shows up paid each season till the full amount has been paid? So for argument sake a whole team that came for free from the clubs academy would have a zero amortisation figure?
1 Like
You clearly don’t understand the concept. Let me try again.
No, you have it the wrong way around. The bill is already paid in full before amortisation is applied.
Take the Keita example. The club spends £60 million to acquire his registration. As a legitimate business expense the club is entitled to charge this to the P&L to reduce the amount of money attracting tax, but because the money has been used to buy an asset, and an asset is considered to have an useful working life of several years, the club cannot charge the full amount to the P&L as one lump sum.
So, the value of the asset is amortised in equal amounts over its useful working life, which in the case of Keita is five years, the length of his contract.
£12 million is charged each year for five years, as an expense on the P&L reducing the amount of money attracting tax by £12 million.
It does not reduce the amount of money the club has by £12 million, no money actually changes hands each year, just the amount attracting tax.
9 Likes
I know it’s accounting. The cash changes hands on the cashflow not on the profit and loss.
But when working out the profit and loss you work our the expense of the squad and that determines how profitable the business is.
You’re not working out how much cash is changing hands You’re working out if the club is running at a profit or a loss and that’s how you take care of the cost of the asset.
So we have a “bill” or expense each year and signing new players increases that expense each year. That’s something unlikely to be allowed to us this summer. However that expense is diminished by players leaving the club by the annual expense or value left on them and by players signing contract extensions spreading what’s left our further over future years.
That’s how we would need to make room on the books for new players to come in without increasing our annual expenses.
1 Like
No, as @Lowton_Red explained above in practice it isn’t a bill or cash charge to the club. Amortization on the profit and loss statement is effectively a tax deduction in recognition of the loss in book value of an asset that has already been paid for.
In turn, as it is a non cash charge, it is added back to operating profit on the cash flow statement.
2 Likes
I don’t think I’m making myself understood here.
We buy player x for £60m. In summer 2019. £20m is paid each summer in 2019, 2020 and 2021.
On the cashflow those 3 payments show each annual set of accounts in line with when the actual payment is made. That’s the physical actual cash taken into account and recorded. Done, finished.
On the annual profit and loss account those 3 payments never show. Instead player x signed a 6 year deal. When working out if the club is running at a profit or a loss (matters very much to FSG) and as a consequence if we are within FFP and to determine tax that expenditure needs to be taken into account.
So it’s entered in as expenses. Each of the 6 years shows an expense of £10m. All those expenses for all players are then added together to work out the total expense of having the squad.
We can’t just add player after player even if we have the physical cash as that expense gets higher and higher and a profitable year ends up being a loss, a loss an even bigger loss and so on. FSG aren’t going to let that expense increase in the current situation.
So no, its not reflective of when the actual cash payments are made but in reality its probably more important in trying to determine what business our side can actually do. Especially as two large years of spending at somewhere around £50+m per year outgoing for each have all or mostly been cleared as of this financial year and last. So cashflow actually isn’t likely to be as much of an issue if we are allowed to keep our outgoing cash payments as they have been.
1 Like
https://www.bbc.co.uk/sport/football/gossip
Liverpool are contemplating a summer move for 23-year-old Norway midfielder Sander Berge from Sheffield United. (Eurosport)
4 Likes
Enough Accounting 101. I’d prefer that the whole thing remained a mystery to all non-accountant supporters.
What we need to are transfer rumours. There’s a ridiculous rumour from Eurosport linking us with Sander … Oh bugger. Someone’s beaten me to it.
8 Likes
Well I find the accounting thing rather interesting but you are right, it does not belong here, the owners topic is more suitable.
3 Likes
There’s a Finance thread as well, just saying 
9 Likes
No I’m sorry, @AnfieldRdDreamer , I think you are making yourself understood but the point you are making just looks wrong. @Lowton_Red obviously has some expertise in this area, and I’m sure Swiss Ramble would have picked up on this in his thread last year had it been correct - instead he said we would need to borrow or sell players to fund incoming transfers in the summer (If I remember correctly Swiss Ramble also made the point that one of the reasons we have less to spend than our rivals is because our amortization is lower than theirs).
Amortization rising on the P&L isn’t a problem in itself because it is a tax deduction, not a true expense to the firm (the true expense was the purchase of the asset).
The profit and loss statement measures ‘accounting profit’. That does not always reflect the true profitability of a firm, that’s why cash flow statements were devised and investors like Warren Buffett introduced the concept of “Owner Earnings” before they were a common thing.
Which is why you should stop looking at the P&L in isolation, ignoring the cash flow statement. The latter is a key part of how you determine what the business side can do.
I’m happy to continue this discussion in the owners thread if you wish.
5 Likes
Good post.
And I agree we should move the discussion over to The Owners thread.
7 Likes