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The Context of Manchester City’s Record Losses

You could sense the rage and indignation around the country as the news was announced. You could hear a collective tut and a million heads being shaken. Football had died (again). Manchester City had announced their annual financial results, and had posted the biggest losses in football history, a cool £195m for the 2010/11 financial year. They’re Manchester City, they spend what they want.

Well not if UEFA have their way of course. And the inevitable response to the announcement was to reignite the debate over how they could possibly meet UEFA’s new Financial Fair Play (FFP) rules.

Obscene losses? Perhaps. But less obscene than owners who wrack up debt, or owners who asset-strip clubs, or are there for personal gain alone. At least the money being spent is their own – but that’s an argument that has already been done to death (but will have inevitably resurfaced over the past few days).

Rival fans might scoff at how the huge losses will cause City to fail to meet FFP rules, but it was these rules that bizarrely helped cause the losses in the first place. City’s owners knew the day they took over what was on the horizon, and as Brian Marwood has stated in the past, the club embarked on an accelerated programme of expansion and purchases, “attempting to squeeze ten years’ development into three”.

Equally bizarrely, due to the ruling on “trends”, the huge loss might actually benefit City. Why? Well the FFP rules are far from set in stone and far from black and white. The key to meeting the requirements is not simply to spend only what you earn, but to make movements towards that point (at least for the next few years). So for now City and other clubs have to be seen to be taking steps to narrow the gap between outlay and income, and City will undoubtedly do this – this year’s figures are certain to be the worst by a long way, so the only way is down from now on (or up, depending on how you look at it). As long as the losses reduce each year, the club has little to worry about. Thus City have deliberately posted bad results – they have used last year’s accounts to lump in all the deadwood and heavy purchasing before the rules get stricter – £35m of those losses are precisely for the writing off of deadwood, a one-off cost of players City know they won’t get a good return back on. After all, if your wife told you to start behaving better as of next Sunday, you could be tempted to burn down the house on the Saturday (I could have used a better example to be honest). So whilst in theory a club can only lose €45m over the next three seasons, the fact is that UEFA will probably be quite liberal with that figure.

What’s more, UEFA are highly unlikely to ban a “big” European club from the Champions League – in a sport ruled by money at the highest levels, it simply isn’t in their interest. Ian Ladyman of the Daily Mail said as much on Friday, reporting that Michel Platini has softened his stance on punishing clubs, looking at fines rather than expulsions, a system that will not unduly worry City.

But as mentioned already, City will bridge the gap. Over the weekend came reports of a new kit deal at the end of the season which could be worth an extra £18m per year. City’s huge stadium sponsorship and campus deal is not included in last year’s figures, nor was any income from the Champions League, which City will expect every season now – even if they go out in the group stage, they will earn over £20m.

And whilst big-name signings will continue, they will become less common. What’s more, as City now have a top-class squad, they will recoup more in player sales than of old, so will become more self-sufficient on that front.

FFP doesn’t work in simple lines of income versus outlay anyway, and some losses can be discarded from calculations, such as for academy development, spend on infrastructure and the like. It’s all linked to the insomnia-curing UEFA Club Licensing Handbook, especially its Annex XI.

For the purpose of the first two monitoring periods, i.e. monitoring periods assessed in the seasons 2013/14 and 2014/15, the following additional transitional factor is to be considered by the Club Financial Control Panel:
Players under contract before
1 June 2010
If a licensee reports an aggregate break-even deficit that exceeds the acceptable deviation and it fulfils both conditions described below then this would be taken into account in a favourable way.
i) It reports a positive trend in the annual break-even results (proving it has implemented a concrete strategy for future compliance); and
ii) It proves that the aggregate break-even deficit is only due to the annual break-even deficit of the reporting period ending in 2012 which in turn is due to contracts with players undertaken prior to
1 June 2010 (for the avoidance of doubt, all renegotiations on contracts undertaken after such date would not be taken into account). This means that a licensee that reports an aggregate break-even deficit that exceeds the acceptable deviation but that satisfies both conditions described under i) and ii) above should in principle not be sanctioned.

All perfectly clear I’m sure you agree – but the new point to mention in that cut and paste is the dismissal from calculation of player contracts agreed before 1st June 2010.

City’s income will continue to rise and their costs will tail off, having probably reached their peak. Brian Marwood admits there is still plenty of work to be done to adhere to UEFA’s rules, but I doubt anyone at the club will be having sleepless nights just yet. What they want soon though is the deadwood to be cleared for good (yes, that includes you Carlos), and for the academy to bear fruits within a couple of years to keep player purchases down. Until then, they just have to move in the right direction – on and off the pitch. Whatever the figures may suggest, it’s a case of so far, so good. And however much whinging may emanate from non-City fans, the club hasn’t yet broken any rules.

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Article title: The Context of Manchester City’s Record Losses

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