So ...



No, not really. I first of all, feel I owe some of you all an apology. I have been a little upset at some of the reactions here, and I took offence at some imagined insinuations in member's posts. Hence my previous rant about FFP and so on and so forth, where I proceeded to accuse people here of being misinformed etc.

It was wrong, and I hope to remedy that in some way. So here's my attempt at framing out my thoughts and why possibly me,R7, Ian, Filippo etc are so 'chilled' out about it. This is gonna be a monster post, so please read it at your leisure. I will try not to make it too complicated. But first a few points:

- This post, will not involve feelings or emotions. I will not waste time telling you about how I was THERE when we finished 11th and then almost a decade later became the best team in Europe and the world (F_ck you, CWC is a valid competition! )
- I will not be bringing in much financial comparisons with other teams in the post, I have no time to research this, and I have an early start at work tomorrow.
- If at any point you feel some of my statements ridicule some other statement you have made previously, then I apologise. I intend for this to be purely informative.
- This is purely MY understanding of FFP and it's financial impact on our beloved club. I base this on reading tons of blogs, articles and other stuff online. I've only tried to apply a little bit of the Milan touch onto it, so none of this information is 100% authenticated. I could be wrong in some/many aspects.
- This is for information. Those of you who have blogs/twitter/FB notes/Google Plus (Lirim, Danny) or whatever method to disperse this further, feel free to do so. You are also welcome to edit it to suit your style of publishing medium. Keep in mind, this shall still be an opinion piece only and IS NOT FACTUALLY VERIFIED.
- PLEASE EXCUSE TYPOS. I'M ERROR-PRONE WHEN I'M SOBER. RUM'S OUT! (AGAIN!.......F@CK!!!)

So off we go:

PART 1

FFP = FINANCIAL FAIR PLAY

This has been a new system designed by UEFA to monitor and ensure the financial health of most/all footballing clubs playing in Europe. The idea in a nutshell, is to stop clubs from spending more than they can possibly earn for the sake of short-order success, only to threaten their own long term stability. Is such a thing possible in the world of football and unlimited riches??! Yes, Newcastle United () and Leeds come to mind.

We shall not discuss the history of this idea. Suffice it to say the footballing world realised it was actually gonna happen circa 2009 (this date is important!),in tandem with when Deloitte first published a report which stated that in 2008/09 the combined debts for clubs in the Premier League had touched 3.1 billion GBP. The problem was not purely with the large clubs (like Chelsea or Man Utd). We had clubs like West Ham, who with an equity(total value of shares) of 13.1 Million was making an annual loss of 90 million. How does this reconcile?! Imagine, all your assets being worth 13 million yet you have debt almost 8 times that amount!

Now, this situation forced UEFA's hands and they laid FFP down as a compulsion.

So, who does FFP impact?

Basically any club that is registered with UEFA to play in European competition MUST adhere to the FFP guidelines. This automatically means all top clubs of the top leagues of Europe. There are no excuses. If you have qualified in your league to play, you must meet the break-even requirement (I'll explain later). The only exceptions are:

1. If a club is granted special permission for playing the cup based on sporting merit {This is officialese}. I think this refers to those cases when you win a cup competition and are therefore sometimes eligible to play in Europe.

EDIT: Did a quick google. The example I see is of Birmingham, who were relegated in 2010-11, but got into EL because they won the League cup.

2. If your income and expenditure are so below a certain slab in the 2 years before it first appears in European competition, that FFP ceases to be relevant.This slab at the moment is set at 5 million Euros.


So, what are these FFP Regulations?? ]

I'll start with the most famous one. The 'break-even' regulation.It sounds like a club must break even (no budget deficit i.e zero loss)for it to be allowed in Europe. Not so easy as that. UEFA has set an 'acceptable deviation as the maximum aggregate break-even deficit possible for a club to be deemed in compliance with the break-even requirement.' Meaning, you don't have to be there in a jiffy, but you're given some leeway to bring things under control. So what is this leeway we're provided.

The acceptable deficit (meaning loss) is 5 million (!!!!!) BUT...it is allowed to be exceeded by fixed amounts provided an equity holder covers it.

This means a club can make a loss greater than 5 million (but within a fixed amount) provided this loss is absorbed entirely by people/concerns who own the club. Sounds like common sense? Think again.

This means, you cannot borrow from an external source (no bank deals!) to cover your losses. You must either sell stake in the club (the money brought in therefore being from a new equity/share partner since you sold your stock to him) or accept to be kicked out from UEFA competitions! (Aww..snap!)

Now if you can make a loss greater than 5 million AND you have a rich owner(s)(equity participant/stakeholder) who can cover the loss, it still doesn't end there. There are certain fixed amounts of loss written in stone upto which an owner may cover. This far and no further! The amounts are:


1) €45 million for the seasons 2013/14 and 2014/15;
2) €30 million for the seasons 2015/16, 2016/17 and 2017/18;
3) An even lower amount to be decided later by the UEFA Executive Committee for the subsequent years.

In a nutshell, from the 2013 season onwards, any club that wishes to participate in UEFA competition may not make losses more than the amount specified above. Since only so much can be covered by their shareholders. Of course, if their shareholders don't cover it, then the amount goes back to the 5 million mentioned earlier.

This is the key part of the law directed straight at clubs with rich owners (ours included!)

Ok, let's go back to basics. What is the deficit calculation?

It is not straightforward, UEFA have a different definition

A loss is what happens if your VALID INCOME - VALID EXPENSES = <A NEGATIVE NUMBER>
A profit is what happens if your VALID INCOME - VALID EXPENSES = <A POSITIVE NUMBER>

What's valid?

Valid income for a football club includes:

1. Gate receipts: Ticket sales at the stadium, not including season tickets.
2. Broadcast income: Both your local league and your European league (if you qualified)
3. Commerical Income: Merchandise, season tickets sales and more crucially NAMING RIGHTS
4. Sponsorship/Stadium or Team advertising: The first is obvious, the second would be if our team players starred in an ad for VISA card.
5. Transfer money: From selling players
6. Prize money: From competitions. Chelsea won 9.6 million just for winning the CL final.
7. Income from stock or other financial instruments (presuming you have a stockpile in your savings account getting interest)
8. Income from fixed assets: Maybe you sell your stadium or some other property of your club.

A key point when you look at this is that non-footballing income is NOT included. So a shopping mall in your stadium complex making money does not count as a valid income. Neither does money made from a friendly match. But it is still crucial in that this money is allowed to go into your revenue stream.

Meaning, the club may use this money to fund their debts, make new training facilities and other activities (will get to them) , but will not be considered in the break-even calculations.

Valid expenses for a football club includes:

1. Employee benefits: Wages, insurance, taxes for employees
2. Operating Expenses: All and sundry. Utility bills are the simplest, then the travel expenses and in our case laying a new San Siro turf every week!
3. Transfer expenditure:
4. Cost of sales: How much does it cost to manufacture your merchandise, print your tickets, cook your stadium food etc.

There are expenses which are very crucially exempted from being included in the deficit calculations. Meaning you can spend a shitload of money in some activities which do not affect your financial standing with UEFA. These are:

1. Depreciation in the value of your assets: A club's assets are it's stadium and facilities and it's players mainly. Stadium depreciating in value will not count as a valid expense, and neither is the value of your players. For eg. the reverse Nocerino effect. You bought a player for 20 million and today he is worth 1 million. You will still have to pay the 20 million you owe to whoever you bought him from.

2.Expenditure towards youth development: Stunning! Your youth development according to UEFA is now a bottomless pit. Put in as much as you like!!! Keep in mind, that sneaky homegrown players rule and this makes even more sense.NO! THIS DOES NOT INCLUDE MONEY SPENT ON PURCHASING YOUTH PLAYERS! THEY ARE TRANSFERS!

3.Expenditure towards construction of fixed assets: Another stunner! A fixed asset is something like your stadium.So the entire amount put into constructing your stadium is not counted in this calculation.

4.Development of the community: Build a shopping mall, or a parking lot in your stadium area. Or a hospital or a children's park. You know, that sort of thing. That cost is not included as an expense. Again a bottomless pit. The money it brings in can fund other aspects of your club. For eg. Buy more youth players

5.AMORTIZATION: THIS IS CRUCIAL!!! Amortization is when a player's total transfer fee is broken down into instalments over the length of his contract. When we purchases Zlatan for 24 million in 3 instalments of 8 million; UEFA calculates the transfer money for one season, so it is 8 million. Similarly any other players we have purchased also have their annual instalments added up to give the total expense for a year.

So when we got Zlatan and Robinho, UEFA doesn't see it as the club spending 25+18 million in 2011 on transfers, but rather 8+5.5 million. Of course the next year the same amount goes in as expense.

THIS ALSO WORKS BACKWARDS. So unless you're a genius club like Newcastle who sold Andy Carroll for 35 million CASH UPFRONT (we then proceeded to charge 12K as interest when Liverpool delayed part of the payment, talk of double penetration ), you only get the amortized amount as income for transfers from that year!

Alright, what else? What's the immediate impact?

The immediate impact is that this is the first season when the books are gonna be monitored. Our figures this season (2012-13) cannot extend beyond 45 million loss that Berlusca MUST cover, or else we are out of Europe. If Berlusca does not cover (he will, he has for 26 years), then it cannot extend beyond 5 million deficit.

There are for the first two periods of monitoring, i.e. 2013-14 (when the 2012-13 season is reviewed) and 2014-15 (when the 2013-14 season is reviewed) some exceptions allowed in case clubs have lose greater than 45 million being covered by owners:

A) It must indicate an improvement in the deficit figures constantly
It can prove that the higher deficit is due to player expenses which had contracts set prior to 1 June 2010.

An absolute doozy of a deal which broke our back, and just might keep Man City's head off the chopping block. (to be explained in Part 2)

I shall now in the second part go in detail on how I think each of these FFP points affect AC Milan for better or worse.


PART 2

I hope you have all read Part 1 where I explained about FFP.

Next, please read this. http://www.rossoneriblog.com/2012/05/04/mi...inancial-state/

Now let's come to AC Milan.

Our beloved club has the following figures for 2010/11:

Income: 235 million (Matchday: 36MM ; Broadcast: 108MM; Commercial: 92MM)
Expenses: 329.6 million (Wages: 192.8; Amortization: 50.5; Other: 86.3)

Let us look at it from the FFP angle. Taking valid income sources:

1. Gate receipts: Poor
2. Broadcast income: Above Average (Top in League)
3. Commerical Income: Above Average (Top in League)
4. Sponsorship/Stadium and Team advertising: Average
5. Transfer money:
6. Prize money: Average. We won 39.6 million last year in the Euros.
7. Income from stock or other financial instruments Minimal
8. Income from fixed assets: Minimal

We cannot mention this enough. Gate receipts and income from season tickets,directly contribute to income as well as increased sponsorship. Why would someone lend it's name to advertise in the stadium if we only get a 60% attendance??!

Our income is severely hampered by one factor, that is -the lack of the stadium and the associated benefits. A tangible fixed asset of some value and associated income. Keep in mind, that the stadium earns money throughout the year through restaurants, guided tours, shopping malls etc.

Broadcast income is also hitting us hard, since EPL has a monster deal going, and it's just plain BIASED in Spain. 50% of Spanish TV revenues are split between the top two clubs. Serie A renegotiated these rights recently with everyone getting a fairer piece of the pie from 2 seasons ago.

Commerical income: For a club of our reduced stature, Milan are slugging it out with the best. Kudos to Galliani and co.

Transfer money: The hornet's nest which I shall kick open towards the end, since it ties in with another crucial point.

Now we come to the sore point. OUR EXPENSES. In one word, BAD.

1. Employee benefits: HUGE! Considering our revenue, we are paying over 80% of it in wages alone.
2. Operating Expenses: At par, though keep in mind, our stadium operation costs are probably slightly higher
3. Transfer expenditure: With amortization, we are paying 50.5 million annually as transfers. Not including any new ones we make.
4. Cost of sales: At par with the rest.

No denying it. A.C Milan's wages keeping in mind the income are inexcusable. BUT there is one point to note, before we scream bloody murder. Any club competing with Milan in the stratospheric heights of top Europe pay comparable if not MORE wages.

A.C Milan: 157.7 MM GBP
Arsenal: 110.7 MM GBP
Barcelona: 219 MM GBP
Bayern Munich: 146 MM GBP
Chelsea: 172.6 MM GBP
Juventus: 121.8 MM GBP
Liverpool:121.1 MM GBP
Manchester CIty: 133.3 MM GBP
Manchester United: 131.7 MM GBP
Real Madrid: 183.9 MM GBP

Keep in mind, this is for the 2010/11 season. Since then, Milan's wages went up by a factor of Ibra, while the same got reduced from Barca. Real also extended a few contracts, without selling much. City brought in Aguero, Clichy etc for mega-wages. United, gave a few players a pay-hike and lost a few. Juve bought in new players as well while selling some but there is a definite increase.

Most importantly from this season, the Spanish clubs just got their precious Beckham law scrapped (22% tax just became 50%), which means Barca's and especially Real Madrid's salaries (Real's top wage earners being foreigners) go through the roof!


So in other words, Milan's salary while still large, was comparable to the other top clubs. In other words, the reality of European player wages meant Milan literally had to pay over their nose to keep in the hunt with the other sharks in the sea.

Ahh yes..you're going to bring up the senator contracts. I shall address that in time.

What are the ways forward for Milan?

We have shown a great strategy in revamping our commercial approach. The idea has become 'less sponsors, more focus, more income'. It has worked well. We have embarked on a remarkable surge on the social media circuit. And are slowly trying to break into untapped markets.

Here I would like to address something. Any business will tell you it is far easier to stay and expand your hold in an existing market than break into a new one. So when we say, "Why can't Milan expand into ASia??!"- It's not that simple.

Asia is different. The price of a jersey is different. In Europe a jersey costs a man 3 meals at a medium restaurant. In India, it is half a month's rent for a family. You do not break into a country's market by playing a few exhibition matches or sending your players there on a pseudo-vacation.

Asia is entrenched by the EPL. Television took care of the fact that constant exposure is being made to the English sides. Bayern Munich have played an exhibition match in India for nearly 3 years constantly, but a factor of 25 to 1 outweighs the Munich jerseys on the street to the Man Utd.

To crack a new market will take an enormous amount of time and determination. Forget the rich countries, like India,Singapore, Japan etc. Serie A clubs are wisely targeting the untapped spectrum.

So now you see Milan visiting China and the Middle East (The latter being extending your hold on a market you had previously), while Inter go to Indonesia.

Also note how this year we have a friendly in Germany. Germany only happens to be European football's largest commercial market. In case you go 'Huh?', Bayern Munich have the largest share of the German commercial market (obviously) and have posted a profit for 18 consecutive years! So don't scoff at it, and ask why Milan does not go to China instead of pissing about in Europe.

- Going to China, will not bring about an immediate benefit, it is a market for the longer term.
- Asia as a market has only matured and become stable in the last 7 years. China especially so. Industry and FDI in China does not translate to revenues for a sporting enterprise. A sporting enterprise only makes money when the general population spend the money. And Chinese population only recently have started to gain that capability. Remember what I said about what a jersey costs in Europe and in Asia.

Milan's way forward commercially is a very mature and seemingly positive movement.

We unfortunately have NO visibility on the stadium plans except for mixed noises from the Berlusconis. The club cannot afford a stadium. Berlusconi can! Especially since with FFP, the costs of a stadium can be written off.

The sooner we get clarity on this, the better it will be, since it means crucial income for future transfers.

Look at what happened this season!! It's the end of the world.It's all over!!

NO. What happened this season, could not have happened any other way.

First of all this season, is the first season whose finance books shall be scrutinized. If they are not in order, the teams failing FFP do not play in Europe for the 2013/14 season. SIMPLE!

So now, we know that this season Finninvest and therefore Berlusca cannot cover losses of more than 45 million Euros. Without Finninvest Milan are not allowed losses of more than 5 million.

Our losses after tax for the just concluded season are expected to be 67.3 million Euros. 67.3 MM>>45 MM So now I hope, we accept that if we had stayed the way we had we wouldn't be allowed in Europe. Therefore, Change had to be made

What change? Obviously income wise we have hit our highest gear. Commercial income requires time and cannot change in a year. Our stadium plan is the same. And match day revenue, even though Galliani whines about it, till we are sick is a HUGE factor in why we are behind.

A top stadium like the Emirates gives Arsenal 103 million in annual revenues. The San Siro gives Milan 36 MM. In context, from stadiums, Madrid makes 124, Barca make 111, and Bayern Munich make 72. Huge factors of magnitude!

Prognosis: MILAN CANNOT COMPETE WITH TOP TEAMS OF EUROPE IN INCOME. We are close in rankings, but way behind in numbers from the front runners and cannot catch up anytime soon. Though we are making efforts.

This leaves EXPENSES

Here, we know what needs to go first. The wages.

We shall have to do Math here. Milan's losses after taxes are 67.3 MM.

Our wages are 196 MM almost. We have released most of our senators from their contracts. We have also reduced the contracts of Flamini and Ambrosini in wage.

Effectively we saved a little over 20MM in wages,translating to about 42 MM in total expenses for the club. These are annual wages. So literally that's a saving of 42 MM you shall see in this years balance sheet.

So our net loss this year, translates to (67.3 -42) so we are still left with a loss of 25 MM odd. So now finally we are in the safe zone of FFP where Berlusca's money can save us. Or are we?

The senators leaving meant we saved wage, but also radically left us with HUGE holes in the team. Let's not get subjective. Objectively, we lost a striker, 3 mids and a couple of defenders.

So essentially at least 5 players left. Despite considering that our squad was oversized at 30 players, we cannot deny that the players who left barring Inzaghi and Zambrotta were crucially part of the first team.

Let's not kid. There is no one in our bench at that time could have taken the place at the moment for MvB, Pirlo, Nesta and Seedorf.

So we have loss down to 25 MM. Giving us 20 million of expenditure to spend (before we hit the 45 MM watermark), but crucially a minimum of 4 first team places to fill. Do you see what I see?

Adriano Galliani has been asked to spend 20 million (including player wages) to essentially fill in these holes in the team, while not ignoring our other deficiencies, for e.g at LB!

There are top class football CEOs and then there is Galliani.

- Keeping Flamini and ruthlessly negotiating to sign him on for 2 million in wages. The story was literally Galliani telling Mattie to cut bait or go fish. Mattie came back, tail between his legs. Don't think for one moment he couldn't have played elsewhere for more than what he's earning at Milan.
- Montolivo. Through what I can only imagine as some amazing arm-twisting,he has had Montolivo stay stubborn in his refusal for a extension in troubled Fiorentina earlier, while also ensuring that the man signed for us as a free. Oh yes, Juve tried! Right now Galliani's guile and rep is bigger than Juve's money.Monty is on quite a thrifty wage considering today's overpriced market that he is here for less than 3.5 MM (I do not have the exact figure) and we saw him in the Euros. Milan used nothing but influence, and that's what influence is for.
- Traore. As a squad player he is a great addition. One of those players who could come in crucial use in the long season. We paid nothing for him.
- Kevin Constant. A quick purchase to cover for Muntari's injury. Don't forget how many mids we lost last season end. Quality aside, we need the bodies.

We also purchased SeS completely, and in return had to give Merkel. This couldn't be avoided. Something had to be contributed in return to Genoa, and who was more likely to succeed at Milan? SeS or Merkel. Safe Answer. Merkel was never gonna contribute to Milan as much as we would require from our mid-field.

At this point in the story, we have pretty much exhausted 20 million giving salaries, and quite literally there is no money to spend. So you see Galliani is not lying , when he said, "Milan's market is closed!". At that point it literally was closed because there is no money. Silvio's hands are tied. He has to cover that 45 million loss and nothing more.

PSG Offer

This is when it got on like Donkey Kong. I'm going to go completely offbeat.

I believe quite a bit was genuine. I believe, that the first crazy offer did sorely tempt the management. With almost 0 money in the bank, we were being given a flat offer of 47 million (incl bonuses). Even with amortization it would have offered at least an extra 10 million plus the saved wages for something. Say a quick deal in January to cover an emergency.

But, the fans revolted, Barbara talked to dad, and Dad blinked and said he'd absorb it. Hence Galliani's statememnt, "Silvio, made a decision with the heart!"

But Leo is a cunning fox, he learnt from the best. In making the offer to Silva's agent of a wage packet of 7.5 million, he had signed the death knell. He knew what was gonna happen next.

The agent came back and demanded a new contract. It was fair. And we had to cough up 6 million a year from the previous 4 million. Our outlay just hit 12 million for Silva alone for a period of 5 years.

Leo, then made a counter offer. Zlatan + Silva for 70 million. I shall not get into the math of 170 million total savings. But I think you can do that arithmetic yourself.

It would simply have been impossible to refuse. Leo WOULD NOT have accepted just Zlatan. I believe Leo knew exactly what he was doing. He knew better than anyone else how to break Galliani, coz he knew information no one else did. He knew how bad our finances were. It's not that Leo is smarter than Galliani (han2503 ), but it's like playing poker against a weaker opponent, except your opponent can see your cards and you can't see his. NO CONTEST.

In other words, we were toasted. And Galliani knew he was beat. We could have stretched on the inevitable, but it would have meant nothing.

- We couldn't sell Robinho, to balance the hike for Silva.
- We had reached bare minimum in almost all departments for personnel.
- We had already spent money on the medical facilities upgrade, plus the new stadium relaying.

The only option for him was to conclude the deal ASAP , so as to have enough time to manoeuvre and buy us the players we need.

So in hindsight-

I think Milan took the wise option. Selling Zlatan saved us 24 million off the wage bill while selling Silva potentially saved 8 million (because our loss statement was with Silva earning 4 million a season and not 6). 32 million taken off what was previously a 45 million loss. We would still be in a 13 million deficit, which is well within FFP limits, but we have NO team to compete.

Thus the transfer fee, which I'm sure is amortized. Meaning 70 million is not coming in at one stretch. If it was PSG will not play in Europe at all. It is probably split into instalments, so we are getting 20 million a year. So now we finally have a budget surplus of +7 million.

You can clearly see that the cashflow is still tough. Just who can you buy for 7 million. We will still be in a tough spot I think, without further investment.

It's all the senators fault

Surprisingly no. The only fault you can claim is that they were taking up space of the youngsters. Why?

1. A lot of these contracts were set up in 2007. When FFP wasn't even a glint in Platini's eye. Sentimentality could have been excused then.
2. Releasing them, meant we saved wages but left massive holes in the team.
3. Their wages saved only 42 MM, still not enough.
4. Most crucial, read the last section of Part 1 about FFP rules.
If Milan had continued to stick with them, that deficit of 42 MM could have continued to be covered by Silvio over the 45 MM benchmark. Their contracts had almost all been signed before 1 June 2010 (except Rino's one year extension)...that VITAL exemption. Zlatan's contract was signed only in 2011. Thiago Silva's new contract (it was either a new contract or lose him), was signed this year as well. Again not exempted.Thiago and Zlatan by themselves were saving the club an annual wage of 36 MM (taking taxes), while the senators might as well have played for free, since their wages would in no way affect FFP for the next 3 years as long as Silvio continued to cover it!!

Hence when you bring up Madrid, City, Barca think of all their superstar wage contracts which were very wisely signed before 2010. In time for 2010, City brought in Balotelli, Toure, Boateng, Kolarov, Barry almost everyone. Only Aguero,Nasri and Clichy came in for 2011 and to be hit by the FFP ceiling. It will be easy to satisfy the first condition since, all City has to do to activate the pre-2010 clause is to show that their deficit has reduced season to season. Hence why you hear Mancini has to sell a lot before he can buy a little.


Conclusion[

What interests me now, is that FFP means mad wages can no longer be given. Spain's scrapping the Beckham law has almost literally sent Barca and Madrid to wage hell. City has to sell. Madrid and Barca have to sell before they buy. United are buying and might need to sell. Inter are completely screwed and MUST sell or not Buy. Only Juve remains inviolate, but if they flop in Europe their attractiveness goes down. They have not found their feet yet, but have got some good momentum.

Galliani will now be in his element. Don't forget in a manner of speaking, I calculate that we have this year, 7 million budget surplus ( lose a few million for updated training/medical facilities and the pitch relaying) + the FFP endorsed 45 million equity cover. So by my calculations this year, we have an almost 50 million gross to spend (Spend NOT EQUALS Transfers). I think we are in a very healthy position, considering that situation and will certainly reinforce.

Like I said, we are probably not gonna win anything this year. Or the year after or the year after. But eventually football economics will be changed by this new ruling leaving us in a prime position to make some moves. It makes perfect sense to me now.

Remember NEsta's statement, "Silvio has spent for 26 years and needs benefit of the doubt. When people are losing jobs, now is not the time to spend. Perhaps in 2 years time??!"

I'm cautiously optimistic about the future. I made a post, which I quote again.



It is a tough pill to swallow. But just like Milan were one of the first clubs to bring in the sugar-daddy concept and make a model out of it, I think we might be setting another trend here that will bring us back on top.

Now, what about that stadium Berlusconi?


_________________

Thanks for reading. I'm writing this at 2.45 AM at night. Maybe my sleep deprived mind made some wrong math calculations. Part 1 is completely authentic as far as I know. Part 2 is all me. Hunches and some simple math. We can never be accurate without the correct numbers. Maybe it's even complete BS and some of you are right and we are all dead in the water.

But I hope I have shed some clarity on my outlook towards this. I believe R7 probably did the same math (about 2 years beforehand I'm guessing, since that's how his finance brain works), and hence why we're so chilled.

I just felt wrong that I was sitting there mumbling about how "Y'all don't see the big picture!". Maybe what I've given above is the wrong picture. But it's the picture I have got.

So long and thanks for reading. Feel free to PM me or discuss.

Holy guacamole! I'll take a few minutes to read it during breakfast in a few hours, but that above thing is by far the largest post here on Milanfan. And I'll be damned if it ever is broken. I've only got one question, Captain, were you paid to write this? I hope you were. Wowzers!

Wow! What an amazing post, honestly the best that I have read here on MF in my few years...
I feel entirely enlightened, and although I still have faith in B&G, seeing as how they weren't born yesterday, I think your post has helped me to feel slightly content, if not pleased by our recent transfer activity. Again Bravo! You have covered every base dotted every i and crossed every t. I hope you are right, and with this I look forward to the future. Hopefully in a few years that 14 y.o kid we just bought will help to prove the shrewd moves by Galliani and Berlu.

Once more Bravo Jack, Outstanding post

Can't believe I just read that post word for word. Amazing. Informative and timely! Great job Jack.

Holy ****, this is without doubt the longest post I've seen in any forum.

Brilliance Jack ... This is what I call a value added post!

Great post Jack. Read it word by word last night at 4AM and commenting now.

Still I believe we could have done better in managing the financial situation.

Hey, good morning guys. Sorry, still a bit sleepy. But I'm glad some of you have found it informative.

@acid911: Nope, not paid. Community development is an expense not income.
@Max: Thanks bro. Didn't want to subject you to more scarring seeing your 2 daddies fight.
@Zed.d: Hey I warned you!
@R7: Remember all those times at coffee and hookah, where we talked about money. Thanks for getting me interested in the other side of football management. It's fascinating when you think of it.

@Lirim: On hindsight yes. After a tragedy happens, you can always think of a way it could have been avoided. For me, what can only be focused on is that after a mistake we are working to correct it. On Galliani's behalf, I argue a few things like FFP, Serie A renegotiating TV revenue, owners willingly investing over a billion euros into clubs etc. are not things you can easily foresee and guard against. But of course he has made mistakes. Other clubs make far worse. We don't know about it because we don't follow it.

All I could really think as I was reading that Jack is: "Excuses, excuses, excuses"

Like I've been saying for a while, this mess is only the result of Galliani's mis-management in that past. The fact that when you look at the depts we've accumulated over the past 5 years went up while there was a clear decline in the squad should also be taken into account.

The mistakes have been made in the past. Blinded by a CL win in 07 Galliani went gung-ho and gave certain players contracts that they had no business receiving.

On the other hand, we had 2 real stars on our roster, and only Ibra was on a high wage as Silva until last season was on 4m. Flamini and Rino earned more than him FFS!! Trying to make excuses about FFP is ridiculous, it has been coming for a long time yet Galliani was still handing out those undeserved contracts. So yes, all that you wrote is an excuse, as selling Silva and Ibra is just a temporary solution for now. And with the mass exodus we're facing we'll still have to replace all these players, and I'm sure none of them would be willing to play for free

And no matter what anyone says, until I see other top clubs going crazy and selling all their stars to balance their ridiculous depts, I'll continue to tell you that FFP is just a BS excuse for our management and you lot.

Explain in detail .. With facts please and not theories

What?

The fact that Galliani was the one that created this mess to begin with and he's selling our star players to cover his @ss?
The fact that Rino and Flamini earned more than Silva?
Or the fact the FFP is a load of BS?

Ouch. I thought I explained precisely why the senators wages would not have made any difference. I also said it was a sentimental decision and not a smart move,but it is not the reason we made the sale.

As for other clubs- Spurs are selling Modric. Madrid want to get rid of Kaka. Barca are not buying anyone big. City have to sell before they buy.

Chelsea let go of Drogba and Anelka. Now they wish to let go of Bosingwa and Malouda.

Every club is taking measures. And we are the topmost club in the weakest league. Our sacrifices are going to be larger.

I cannot argue with your FFP is BS excuse. It's written in paper and this is the first monitoring period.

What is the next extreme?

If a player kicks another player to death on the field he is red carded with disciplinary/criminal sanctions to follow. But you know what, I say it is BS. I think there will be no action taken because we have not seen anything like this and I refuse to believe it.

So you're excusing the wages of the senators but the wages of our only 2 stars are not ok? Like i said, excuses for Galliani. The wages would have made a sh!t load of difference, simply because the problems started way before Ibra came and while Silva was still on a meager 2.5m per year while others were swimming in it for doing absolutely nothing. Simply because they had a glorious past with us.

Are you comparing Spurs with Milan?

As for Madrid and Kaka? Why should a club keep such a player on extravagent wages when the coach clearly has no space for him? Madrid aren't really doing it for any sort of FFP rules, they simply don't need him so they throw him out, just like they've done with countless players in the past. It's not something new for them.

Drogba, Anelka, Bosingwa, Malouda, all old players that Chelsea don't want anymore, and will undoubtedly replace with younger better players, some of which being on even higher salaries than that old group you mentioned. Chelsea is a weak argument. Because their wage bill has been massive for years now, since Roman took over and started pumping his own cash into the club. You don't see them worrying do you? Even worse they spend 50m on Torres and other huge sums on Mata, now Hazaar and the list could go on and on. Yeah, they're really running scared

I don't see any other top club selling their stars. Maybe Inter, but we all know they're doing it for the same reason as us. Moratti is suddenly tired of pumping the club with cash, after spending over a billion on that team he got his treble and CL. It's no coincedence that he's suddenly stopped spending like a maniac

I suggest we make this thread sticky in the Other section. I'll want to come back to it in a few years' time.

Thanks for giving your picture Jack. I can't imagine how much time and energy you put into it, certainly more than half an hour

I still think we could have avoided selling Silva and made sacrifices elsewhere. yes we need to be careful with our spending but we "must" finish in top 3 as well. you almost didn't mention the footballing aspects of it, just focused on the financial ones. who are we going to sign in defense? Rolando? right. with that defense we'll still be vulnerable. we WERE with Nesta and Silva last season, what we are expecting now? we've got poor FBs. what I fear now is the very real possibility of finishing outside the top 3. I don't know how the club can be salvaged if that happens...


I think that's because they're a stupidly complete team. they needed a LB and signed a great one in Alba.

Yes I'am excusing the wages of the senators. We are not in debt. WE HAVE NEVER BEEN IN DEBT. WE DON'T OWE ANYBODY A SINGLE COPPER CENT.

Huge wages were bad business. But it's not the reason we could have not made FFP.

The flip side of keeping Silva and Ibra was that we would have no investment in any department for any player. Unless, we built a stadium or unless we could once again negotiate sole TV rights.

Very well written. Bravo jack!

So remove the dept part and put in that we ended up in the red every single year in these last 6 (except for 2009). The wages of the senators are the CATALYST for that situation!!! How can they ever be excused when the result of that is selling one of the best defenders in the world? A player who we should have used as the foundation for the new Milan!!

Inexcusably stupid actions from Galliani and yet they're being excused or blamed on FFP. I just cannot fathom how this is ok with any Milan fan. End of.

Forget about Ibra, because in the end it's probably a smart business move. The flip side of keeping Silva would have been that he'd be our only player on a relatively high wage 6m (after the fake extension that is). By selling Ibra and letting go of all those senators we'd already save up nearly 35m in wages if my calculations are correct (and that is without tasking into account the taxes). That's every year. Now add to that the money we got for Ibra and re-negotiations for smaller wages like with Flamini and it's already one huge improvement. THAT is what a project for the future is. Not this.

As for an investment, I'd rather have kept our backbone than what we'll surely see happen now. We'll replace Ibra with Dzeko or Tevez (who won't come cheap and will demand reasonable wages) and we'll replace Silva with some mediocre defender. And then we'll stay as we are. So basically we're in the same water we started in a month ago, only now it's minus Ibra who single handedly won us a ridiculous number of games last season and the best defender around. Yes that's one major investment right there

Nothing you stated is a fact. On the contrary, Jack did homework, and a lot of it is facts that make perfect sense.

Only because it suites your argument.

So because you agree with Jack it's a fact, but the facts I stated about certain wages are untrue to you because you don't want to admit they were a major mistake on Galliani's part...

Ok if that's how it is, you're completely right. All of this is for the good of the future of this club yada, yada, yada. We'll talk in a few years time when it's Pato's turn and we're trudging in mid-table mediocrity. But as long as we're under Berlu then everything is ok right?

Hi Zed. I think it could have been avoided, but then the scale of building a new team would have been too much of a risk.

In terms of footballing aspects, I think if we do reinforce this summer, we can make top 3. We have very little competition in imo. Aside from Juve and Inter there is only Udinese and Napoli. Of course Serie A always throws up surprises every season.

But yes, if we do not reinforce there will be no challenging for top 3. But I don't see non-reinforcement as an option.

Are you sure?

1. Our debt of 67.3 + (4 the increased wage for Silva from his 8 million to 12 million post taxes)-(42+24 as wage saving) still leaves us with a deficit of 5.3 million. And we have a hole in the attack line plus not a lot of money to buy a replacement.

2. Do you think we didn't try to hawk Ibra?? Why did those rumours swirl about? Why did Mancini come in and the rumours about Ibra come up? Ibra had to deny he had an interest in going to Man City. Put simply, NO ONE wanted Ibra. NO ONE was willing to put up a transfer fee (no matter how reduced), and then take up 24 million added wages. PSG gave the only two for one option.

Once again you go over the same point. Our old debts were completely immaterial. They don't count. This season's figures do. We have carried over nothing from the past season. We have no debts to foreign institutions.

No han, its a fact because it is the reality of the situation. This is not an argument about who is right and who is wrong, it is about clarity. In a years time you will see the difference.

Not saying you shouldn't be sad about what is happening, just answering the question as to why it is happening.

Silva earned 6m after taxes not 8m. And going from 67m+ in the red to just around 5m is still a massive improvement anyways, even if you got Silva's wage wrong. These things cannot be corrected in a day, they've been building for years now.

Don't kid yourself about no one wanting Ibra, if City were in talks with us then obviously Mancini wanted him

I specifically said forget about the depts. I was talking about ending the financial year in the red zone for the last 5 years running. I suppose that's the fault of Ibra and Silva as well right? We might not have tangible depts, but that money had to be cleared by Silvio so we're out of the red zone each year. And why was that happening exactly? Because we had a massive wage bill filled with over infalted wages to players who could barely notch up over 20 games a season and were no where near their prime. The fact that when we had a team full of stars with guys like Rui Costa and Stam sitting on the bench and were able to make a profit at the end and when those stars all left or were sold, instead of the wage bill reducing as would have been logical it climbed astronomically, this even after getting guys like Kaka, Pirlo and Dinho off it, who all demanded astronmoical fees.

Explain to me how this is not a mistake and how it did not even marginally effect us or how it wasn't the reason why we're in this mess now. Silva only started earning 4m from last season, while Ibra had only been with us for 2 seasons. These problems have been a long time coming and no one but Galliani should be blamed.

Explain to me yourself how you do not think that the wages of the senators have not put us in this situation.

What situation?

- I'm talking about post taxes from the club's perspective. His 4 million costs the club 8 million. His 6 million costs the club 12 million. That's how much it costs Milan to keep Silva on the payroll.

- Man City also wanted Silva, as the rumours stated. No one wanted just Ibra alone. Why would they? Do you know as of this moment, Man City do no satisfy FFP.

- Ending in the red zone for all the past seasons was not a problem. Because they are not counted. Silvio has been spending something like 70 to 100 million every season for some time now. We basically had a free pass till then. Our revenues were different. Wages being paid to the players like Stam and Rui you mentioned were different. Zidane in Madrid was on 4.4 GBP. Now FFP means the club cannot make a loss more than 45 million after transfers and wages and operating costs.

- It was a mistake coz as a standalone business it was bad to spend 80% of your revenue on wages. But Milan is not a stand alone business. It is now trying to be, and some decisions are being made.

Ahh, sorry thought you were talking about his wages being 8m after taxes after the recent extension.

Still those 8m were being paid to Rino, Flaimini (more then that actually), Ambro, Zambro, Seedorf, were costing arpound 6 to 7 each. But I guess Silva's was the one surpluss all the other were ok

As you said previously, with Silva we would have ended up in the red by just 5m, thus according to what you're saying here about FFP, we would still be ok to play in Europe. And yes Man City wanted Silva, but Mancini also wanted Ibra, they've got a great rapport from their time at Inter, Mancini knows haw valuable Ibra can be for any title challenger. As for the wages in the past, it still does not mean that verterans should have been given contract extensions in excess of 4m.

Don't forget there were also others such as Dida, Oddo, Janku, etc which all were earning pretty hefty wages. And lets not forget that 4 year extension Dida got when his performances had already dipped ridiculously and we had KALAC of all people starting ahead of him. It's just inexcusable, and the fact that Silvio spent all that money to cover for those mistakes does not make it ok. That money could have easily gone into rebuilding this team twice over, instead he was getting us out of the red zone with it. Does it matter now? Technically no as what's done is done and those losses aren't recorded as such or payed for by a third party. But if you cannot see how that buildup of constantly needing to be bailed out has helped into getting us into this situation than I don't know what to tell you any longer. Because selling Silva clearly won't solve anything, maybe for this summer we were cleared out by selling him but what happens next summer when we're in the red once again? We currently have a dismantled team. Even if right now with the wages we have we'd break even, we still need at least 5 players to come in. If we want to be remotely competitive. Bringing in just one striker and some unkown defender would mean not making the CL next season. And that would put us in an even worse situation financially as well as footballing wise then it would have been had we kept our only 2 star players.

Insanely long post there Jack, I'll leave this debate to others given I've done so much of this kind of thing relating to Rangers that I doubt I'd be well-informed enough on the Milan situ.

But I did want to praise you on your use of Network. Been a while since I saw a reference to it

So basically Madrid can continue as they are now?

They run over 40m operating profit every year and if they are 'allowed' to lose 45m, that basiclaly gives them 90m to play with to account for the new tax. Is that right? Or no?

I don't think FFP will happen personally. But if it does, all it means it that it will drive up sponsorships for the top teams to a crazy amount.

FFP will let you spend as much as you like provided you have earned it.

The 45 million is for the first two seasons, then it cuts down to 30 million and then even further.

I'm not sure about that 40m profit figure. They cannot lose 45 M, since Madrid are not owned by a single owner. I think it will be more complicated.

The thing is Real Madrid make huge money. HUGE MONEY. Adidas pays us around 13 million a year to be associated with them (remember the ALL IN ad?), they pay Madrid 40 million. They have huge presence all over the world and are much bigger than us in every aspect. Commercial, Stadium, Wages everything.Here's where I think Madrid could suffer:

- The TV rights renegotiation. It screwed us over, so it might screw them over as well. Even the current deal is a bit in trouble. The TV company that is offering them the amount has asked for bankruptcy protection. But the amount promised has a bank guarantee. However we know that the banks themselves are in trouble.

- The tax law. Scrapping the Beckham law will hurt them. Kaka and Ronaldo's salaries are too huge I think to cope with without it stinging a bit. Don't forget their model depends on bringing in hot young players all the time.

- Spains' economy. Madrid's model depends on having the cash and the economics to bring in hot players. If they can't buy the players, they can't sell the merchandise and bag the sponsorships and therefore make the revenue to offset these huge spends. But where can they get the money from if the lending institutions are in massive debt and needing bailouts. If the worst case happens, Madrid could go under.



The EU would not let things get this bad, but still Madrid would need to take precautions.

As of now, I think PSG , Man City,Chelsea, Barca are in some trouble regarding the FFP among the big clubs. It's Barca that fascinate me the most. I think Rossell was not kidding when he said the Barca bank is in tatters. I think Laporta lived way beyond Barca's means, and they're gonna suffer.

But here you go. Some excellent reads.

Sorry guys, I slept only 4 hours and had a full work day. I don't even want to look at a financial sheet for a week.

Not sure I followed. The network??

The movie you took the picture from in your initial post.

http://www.youtube.com/watch?v=q_qgVn-Op7Q

Anyway, I just finished reading your rather large post, and even though what you wrote makes perfectly sense, there are no words that could ever justify the actions of Berlusconi and our board in the last few years. It wasn't destiny that brought us to such a goddamn dreadful situation, but pure miss-management and reluctance to invest.

Let me just ask you one question: if we knew our situation was so bad, then why did we bring Ibrahimovic in two years ago? Why did we offer him €9 million per season, which along with the €24 million paid to Barça, would amount in total to €60 million. We knew our wages accounted for more than 3/5 of our loses, so why make such a d*ck move and worsen things even more? Why make it appear as if we were getting our act together by also purchasing the likes of Robinho, Boateng etc., when in fact we couldn't really afford it. Was it just for one Scudetto and a measly Supercoppa Italiana?

I'll tell you why, because Mondadori wasn't in the plans. that scandal broke the club's back (financially) and we're seeing its consequences now. that's my idea, and that what Berlu himself said so I believe I'm right!

Ochhhhhhh JACK! You post a thesus on financial governance but don't even know about Network!

*slap*

Awesome post Jack and even tho the facts are there still some disbelievers!
Just a link on the Real Madrid and Barca FFP situation it's crazy long but very well detailed so give yourself plenty of time to read this......here

Huh...hey excuse me. If you had said Peter Finch it would have struck me. I thought you were talking about my saying that you were free to use the info and spread it on social networks.

another mammoth one here to done at the end of last season but gives a very clear indication as to why the recent events had to take place.......here

But the Lodo Mondadori dates back to 1990. And according to R7, Fininvest had already taken a provision about it. So, the fine didn't pop out of the blue. It was expected, and Berlusconi had already prepared for it. If you ask me, it's just another sad excuse, nothing more.

You mean they knew they'd be fined to that extent, 560m euros? no way. you could say how shocked they were at the size of the fine.

That's what R7 claimed he'd read somewhere. In his words, "The Mondadori fine was already compensated for, as Fininvest had taken a provision against it".

R7, if you're reading this, will you give me a link to where you read that? I'd like to read about Mondadori in detail.

Also:


I'd still like to know why Berlu said this if Mondadori fine didn't affect us. I asked R7 once but he didn't answer. maybe Jack will.

Because it's a sweet excuse for him to use, along with the current economic crisis and the FFP.

-

The fine was already sanctioned a while ago in when the first ruling came out. Then the final ruling came in 2011 and they paid it. We are in 2012, provision was taken against the ruling because Berlusconi's defense case was weak, it was a decision the board had to make.



Oh it did affect Fininvest, they had to pay in excess of 500MM for it, but that was already provisioned for. Accounting wise, that 500MM (in fact more) was provisioned for (put aside in case they had to pay).

The article was from a financial times weekly edition .. Look Zed, as I told han, this is not about who is right or who is wrong .. It is about clarity. In a years time you will see the changes, our wages will be rather modest.

FFP is in its essence forcing clubs to act within their means. If for these recent years we were lucky to have Kaka, Silva and Ibra .. We cant anymore, because they are too expensive for us (how much did we buy them for and how much were their wages, in comparison to their current value and wages?). Why we didn't replace Gattuso and Seedorf a decade ago is a very valid question, but all this has nothing to do with the Mondadori fine. Sure it affected Fininvest, but not Milan as Milan is currently being structured to becoming a self-sustainable club. FFP is just the guidelines that Galliani is forced to work within.

Jack, since you gave us the right to post your opinion in other blogs, I posted it on mine of course mentioning you as the writer and there's a comment about you. I thought I should tell you http://lirimpercuku.wordpress.com/2012/07/...u-need-to-know/

Ha...thanks Lirim. I hope it will help cool some people down a little at least. But maybe you could mention that all figures have not been checked for complete accuracy. I'm sure i'm off by a few milion here or there.

Btw...do you no longer maintain acmilan-shqip.

It's no problem, people are liking it a lot.

Yeah of course I do maintain it, but since it's in Albanian it was a long post to translate it, so I only posted it in my blog. I can also post it in @MilanDiavolo 's site (I'm admin there too) if you're ok with it.

Highly recommended

An article/post, of technical analysis posted in May and shows with factual numbers and a clear parallel to what the short-term future holds for Milan.

Its a pretty long read, but anyone who is interested in knowing the reasons behind our current situation in detail should spare some time in reviewing the link above.

Regards