MOHAMED Salah has signed for Liverpool. But are we satisfied? Are we ever?
Rob Gutmann is joined by John Gibbons, Craig Hannan and Gareth Roberts to discuss what Liverpool still need to do in the market to compete on all fronts and to analyse the likelihood of the names currently being linked arriving at Anfield.
Direct – Radio City Talk – One down, How many to go?
Economically – signing Mbappe is exactly the kind of move FSG would make.
First.. I’m not saying that LFC are going to sign Mbappe or that he would come even if they tried.. but, people are misunderstanding the business that FSG are in if they think they wouldn’t want to make the deal. I’ll argue that FSG might even be the driving force behind the move.
Players are commodities. On the books, they are treated just like the office furniture.
Say you buy a $100 (sorry.. american keyboard) desk. You don’t count those $100 as a cost, because you have an item worth $100.. (thus if you sell the company, you can get that $100 back!).. but an older desk is worth less.. do you depreciate it over time. Say you plan to replace it in 5 years. Then you depreciate the desk $20/yr. This is the actual cost of the desk – $20/year for 5 years. Then in 5 years you sell it.. say $50. This is profit and you pay tax. Boo.. There is a fix… don’t fully depreciate the item.. only depreciate it $10/yr for five years. (your costs are less and you business is worth more!) and when you are done you sold an item for $50 and lost an asset worth, according to the books, $50. So no profit and no taxes. Businesses do this for one main reason: they want to extend both costs and profits over as long a time period as possible.. you don’t want to incur $100 in losses one year (for which you get no money back from government) and then make $100 in profit the next (for which you do pay taxes), you rather spread them both out and break even every year. (I won’t go off on a political rant here, but you can extrapolate this to see why corporations pay so little in taxes compared to their value.. if only people could do that, imagine depreciating your car so you could write it off over 5 years….)
Mbappe is a desk, being depreciated over 5 years. He cost $100 (million.. and yes, pretend $ means pounds). But actually he doesn’t cost that.. unlike a desk, an 18-year old footballer under the tutelage of a good coach (Klopp has a good track record with young stars) is NOT a depreciating asset.. He should grow in value.. he is an investment. (Aubamayang would actually be more like the desk given his age.. Rooney is definitely a desk.. and it’s falling apart). But the company doesn’t want to estimate annual growth, because then they would have an annual tax to pay as well. So they’ll probably just NOT depreciate him for the first five years. He will hit the books for ZERO for five years. ($100 million is cash went out but $100 million in assets came in.. net = 0) Does this sound like funny accounting? Sure, but in 5 years LFC then have to make a decision.. sell him? start depreciating him now? etc.. Suppose they sell him in five years for 150 million. So long as they incur an additional $50 million in new costs (depreciate another asset early, or pay big bonuses to execs, or reinvest in stadium expansion…) then there will be no tax hit from the sale.
This is over-simplified, but hopefully explains why signing an 18-yr old for $100 million (er.. pounds) isn’t actually that nuts, so long as you have the entry fee… FSG has assets worth roughly 6 billion pounds (Man U is 3.5-4.0 by comparison).. let that sink in.. They definitely can scrape together $100 million.. or better yet borrow the money from the board members so they pay the taxes on American rates – for investments this is about 20% and the company gets to write off the interest to lower their tax bill in future! So this is the kind of investment that they can make. And opportunities to make this kind of investment – of this size – on a player is rare.
Of course Man U and Madrid are interested, they play the marketing side of the game, but the investment opportunity is enough to bring out clubs that normally wouldn’t… like Arsenal. and LFC.
Hi Colin. There are two problems with this analysis:-
Firstly, football clubs have a standard way of treating player purchase and sales in their accounts. The cost of acquisition is amortised over the length of the initial contract. If a player signs an extension, the remaining value on the books at this point is then amortised over the length of the new contract. If the player is sold the difference between sale price and remaining value on the books for the player is treated as a profit from player sales. Mbappe would be treated just the same as any other player in the accounts.
Secondly, FFP and Premier League rules are designed to prevent owners pumping in additional funds to finance player purchases, and FSG have always been clear that Liverpool needs to be self sufficient financially.
It is still possible that a purchase of Mbappe is sanctioned, as the impact of his purchase on the accounts would be spread over a number of years. However, in the unlikely event that we do get him, I wouldn’t expect it to be in addition to all the other well publicised targets.
If, for the sake of argument, Mbappe was purchased for £100m, and given a contract for £10m a year over 5 years, the impact on accounts would be a £30m cost per year until he was sold or his contract was renewed. So for 2017-2018 accounts it is £30m cost. If Liverpool were to sell Daniel Sturridge that could be more than offset for 2017-2018. The problem is that for the 2018-2019 accounts, Mbappe would still cost £30m, but we would have no Sturridge to sell. If our revenue is sufficient to cover it, no problem, but we would probably find Liverpool had to step back their transfer activity next year, unless there was another big sale (Coutinho?).
Is this ‘interest’ just a flanker-move with JK possibly whispering in Levendowski’s ear about his project?
Would prefer to spend 110M and get VVD and Keita in the CB & CM positions. Our defense is more urgent and filling in the blank for the pending Henderson and Can injuries. The priority is Defense and Midfield for me. Don’t see FSG signing Mbappe and still managing to fill the other voids we have in the side.
Rob, you’re missing the point of where LFC are when you say about ‘how can we compete with City’. We can now. This is the first season but it’s definite. City are a small club who haven’t been a million miles above us. We’re a better ‘project’ now.
You can mention money but like Gareth says, you need to look at the overall progression of our club under FSG. Different point to Gareth but it’s quite simple. When we were in debt we couldn’t possibly compete. We know we had a policy of £7m euro hopefuls. That’s well gone. Firmino is an example. He was signed on £100k a week. I can’t be bothered researching Sturridge and Suarez but I believe they weren’t. Then Matip and Milner were on even more again (with mitigating circumstances). Coutinho, Lallana, Henderson and even Lovren’s new deal has taken them over 100k. Van Dijk chose us over City when surely they would have been interested. Why? The deal must have been acceptable to him because he will have asked. I believe Keita would choose us over City. Salah didn’t seem to look much further once our interest was known. Mane says he chose us over Utd.
We’re in a different ball park now. When we win the league (which we will soon) then we’ll leave them all behind. The bottom line is, we’ve been a sleeping giant for years. Now, we’ve opened one eye. It’s fact. It’s clear to see. Dortmund at Anfield helped more than we know.