Rate Everton's Transfer Window

[Kevsleftpeg]

Yes mate.

The source - I actually heard Ornstein and a football finance expert talk about it recently on a general Athletic transfer podcast.

They were specifically speaking of the Raya to Arsenal loan from Brentford, Arsenal had to loan him without an obligation to avoid a PSR breach to facilitate the deal, they remarked on what an incredible peice of trust that was for Brentford. They said contractually if it had been a loan with an obligation, Arsenal couldn’t have done the deal because loans and obligations attract amortisation immediately as opposed to loans with options that don’t - an obligation for Rays would have pushed them over the PSR threshold. It’s on Spotify still, if you want to listen yourself.

Essentially we pay no amortisation for Grealish with an option, but do on Rohl with an obligation.

It makes sense to be honest.

Thus I think the issue in the end was cash flow.

But we could have just bought him, paid the equivalent of the loan fee now as a first payment and paid the rest deferred?

 

[Neiler]

Are you sure? Wouldn't the selling club prefer a sale and deferred payment so they can book all the profit now?

Yes mate, if it wasn’t the case why does anyone sign anyone at all, just loan them for 75% of their contract, have the obligation year three, then sell them and book the profit.

The selling club agree to what they agree to mate - if you can negotiate and accept it that the deal. Deals like this aren’t uncommon in Europe you pay a nominal amount, them the rest, in agreed instalments - we did similar with Beto and Chermiti.

 

[Neiler]

But we could have just bought him, paid the equivalent of the loan fee now as a first payment and paid the rest deferred?

That’s why my initial point was that, the reason why we structured the deal like we did, was down to us not having the cash flow in our budget as opposed to PSR headroom, if the fee is amortised anyway then we didn’t have the cash flow to do a straight per ent deal until next summer.

 

[toffeeblue9]

I don’t get your meaning mate?

An accountant will tell you that a loan with an unconditional obligation to buy constitutes, to all intents and purposes, a permanent transfer and should be accounted for as so.

That's completely correct. Some guidance from PwC here to verify that...

https://viewpoint.pwc.com/dt/uk/en/pwc/industry/industry_INT/industry_INT/football/accounting-for-typical/relationships-with-play/1-9-loans-with-obligation.html#pwc-topic.dita_db95660f-947d-4382-bc77-f4f58bf76f62

However, if that a loan has an obligation which is conditional on some sort of target being met, it can't be accounted for immediately as a permanent transfer as there is no certainty that the transfer will become permanent.

In Röhl's case, the loan has an obligation to buy next summer, on the condition that we are not relegated (according to the reports in Germany).

Because of that condition (and it's why conditional obligations are common in a PSR-avoiding way), we aren't accounting for any of it until next season.

 

[Kevsleftpeg]

That’s why my initial point was that, the reason why we structured the deal like we did, was down to us not having the cash flow in our budget as opposed to PSR headroom, if the fee is amortised anyway then we didn’t have the cash flow to do a straight per ent deal until next summer.

But we could have just bought him on deferred payment terms which by your reckoning would have exactly the same effect from a cash flow perspective and PSR for buyer and seller. I'm not saying your wrong. You just haven't convinced that your right because the logic/accountancy doesn't quite stack up.

 

[Neiler]

An accountant will tell you that a loan with an unconditional obligation to buy constitutes, to all intents and purposes, a permanent transfer and should be accounted for as so.

That's completely correct. Some guidance from PwC here to verify that...

https://viewpoint.pwc.com/dt/uk/en/pwc/industry/industry_INT/industry_INT/football/accounting-for-typical/relationships-with-play/1-9-loans-with-obligation.html#pwc-topic.dita_db95660f-947d-4382-bc77-f4f58bf76f62

However, if that a loan has an obligation which is conditional on some sort of target being met, it can't be accounted for immediately as a permanent transfer as there is no certainty that the transfer will become permanent.

In Röhl's case, the loan has an obligation to buy next summer, on the condition that we are not relegated (according to the reports in Germany).

Because of that condition (and it's why conditional obligations are common in a PSR-avoiding way), we aren't accounting for any of it until next season.

Fair play mate, happy to defer to your better knowledge on this, if it helps Everton - all good.

If this is the case, then we were close to P.S.R. threshold presumably.

 

[Neiler]

But we could have just bought him on deferred payment terms which by your reckoning would have exactly the same effect from a cash flow perspective and PSR for buyer and seller. I'm not saying your wrong. You just haven't convinced that your right because the logic/accountancy doesn't quite stack up.

Toffeeblue9 just clarified the confusion above mate!

It is true if their is a loan with an obligation, but not if it’s conditional - in this case it’s reported Rohl has clause that we don’t complete if we are relegated, so as above Toffeebkue9 doesn’t think it can be amortised until that condition is settled.

 

[Kevsleftpeg]

An accountant will tell you that a loan with an unconditional obligation to buy constitutes, to all intents and purposes, a permanent transfer and should be accounted for as so.

That's completely correct. Some guidance from PwC here to verify that...

https://viewpoint.pwc.com/dt/uk/en/pwc/industry/industry_INT/industry_INT/football/accounting-for-typical/relationships-with-play/1-9-loans-with-obligation.html#pwc-topic.dita_db95660f-947d-4382-bc77-f4f58bf76f62

However, if that a loan has an obligation which is conditional on some sort of target being met, it can't be accounted for immediately as a permanent transfer as there is no certainty that the transfer will become permanent.

In Röhl's case, the loan has an obligation to buy next summer, on the condition that we are not relegated (according to the reports in Germany).

Because of that condition (and it's why conditional obligations are common in a PSR-avoiding way), we aren't accounting for any of it until next season.

Excellent, so its a way round PSR rather than a cashflow issue because we could have achieved the same cash flow economics with a purchase and deferred payment terms.

 

[Kevsleftpeg]

Toffeeblue9 just clarified the confusion above mate!

Thanks

 

[Neiler]

An accountant will tell you that a loan with an unconditional obligation to buy constitutes, to all intents and purposes, a permanent transfer and should be accounted for as so.

That's completely correct. Some guidance from PwC here to verify that...

https://viewpoint.pwc.com/dt/uk/en/pwc/industry/industry_INT/industry_INT/football/accounting-for-typical/relationships-with-play/1-9-loans-with-obligation.html#pwc-topic.dita_db95660f-947d-4382-bc77-f4f58bf76f62

However, if that a loan has an obligation which is conditional on some sort of target being met, it can't be accounted for immediately as a permanent transfer as there is no certainty that the transfer will become permanent.

In Röhl's case, the loan has an obligation to buy next summer, on the condition that we are not relegated (according to the reports in Germany).

Because of that condition (and it's why conditional obligations are common in a PSR-avoiding way), we aren't accounting for any of it until next season.

Out of curiosity mate - is there a similar source like above that proves your assertion that a conditioned loan with an obligation wouldn’t be amortised?

 

[toffeeblue9]

Excellent, so its a way round PSR rather than a cashflow issue because we could have achieved the same cash flow economics with a purchase and deferred payment terms.

Well, there's no way of us knowing if cash flow is an issue or not.

I'd find it surprising that liquidity would be an issue this early on with TFG, but we can't know that for sure.

But, what we can say is that the reported structure of the deal has all the hallmarks of a PSR problem-avoiding deal.

What I don't know, re these conditional deals, is what happens if they're structured in a way which is ridiculously easy to achieve. E.g. it's an obligation as long as the buying team get at least 2 points. I suspect that'd be substantially seen as inevitable and would raise the question about how you account for it.

In our case though, we've been in a relegation scrap for 4 years and that conditional obligation would hold up against any scrutiny at all.

 

[toffeeblue9]

Out of curiosity mate - is there a similar source like above that proves your assertion that a conditioned loan with an obligation wouldn’t be amortised?

Yes mate...

https://viewpoint.pwc.com/dt/uk/en/pwc/industry/industry_INT/industry_INT/football/accounting-for-typical/relationships-with-play/11-loans-with-condit.html

The key here is that the conditional element needs to be something that's reasonably seen as jeopardy to any deal being completed (even if just enough for slight doubt).

For us, as I said in another post, we are on absolutely sound footing here because we've had 4 successive relegation scraps.

 

[Neiler]

Yes mate...

https://viewpoint.pwc.com/dt/uk/en/pwc/industry/industry_INT/industry_INT/football/accounting-for-typical/relationships-with-play/11-loans-with-condit.html

The key here is that the conditional element needs to be something that's reasonably seen as jeopardy to any deal being completed (even if just enough for slight doubt).

For us, as I said in another post, we are on absolutely sound footing here because we've had 4 successive relegation scraps.

Thanks mate, see where you are coming from now - bit of jeopardy involved mind, but as you say we’ve been in relegation scraps so not out there.

It’s actually funny we can use that to our benefit, if that is what we are trying to do!

 

[aazak]

Feels like the first time in a long time I haven't seen a Free-Agents-Desperation thread. Can't have been too bad a window.

 

[hetion]

Allowed the dust to settle and thinking on the quality of the window. Feel a bit unsure. I think in terms of the actual players we brought in, it's at least an 8 - by MILES the best quality of footballers joining the squad for absolutely forever. Every single one of Grealish, KDH, Dibling, Barry would be the most exciting addition of almost any other recent window just by themselves.

BUT I think not addressing defensive midfield is going to enormously bite us this season. We all saw how incredibly lost we looked the second Gana came off the other day. And there were good affordable players moving that are perfect Gana understudies too.

RB is another obvious hole but given the scale of the challenge I could forgive not addressing one of the two, and I think this is the one that is actually less of an issue to leave for the season.

Anyway I loooove watching the new sexy Everton play but I'm deeply concerned about AFCON and the separate possibility of a Gana injury.