Should TB have waited before he expanded the capacity of the Amex?

[elbowpatches]

Feel free to skip over this post - it contains some accounting that most will find pretty boring!

Is correct - mostly. There are two types of cost: investment in infrastructure (stadium, stadium expansion, training ground as examples) which is "capital" cost, and routine expenditure which recurs every week or month (wages, for example). The former type of cost is classed as an asset on the balance sheet and is written off over a number of years (building costs tend to be written off over 10 or 25 years). Each year, the write-off (called depreciation) comes off the balance sheet and onto the profit and loss account as cost, whereas the full wages cost has to be taken as a cost in the month it is incurred. Thus, the investment in seating would only be taken as a cost for FFP purposes in equal instalments over 10 or 25 years.

Obviously, the cash to build the extra seating will have had to be generated from somewhere (probably originally the loan from TB), but that is different from a "cost" in the P&L account.

An example in our lives is the purchase and running costs of a car. The purchase price of the car would be a capital item that would be depreciated over typically 5 years; petrol, road tax, insurance, repairs etc would be taken as a cost immediately.

Thank you for clearing it up. There is a depreciation charge over a period of time that counts towards then?

Would it be beneficial therefore to start ASAP so the depreciation charge reduces whilst FFP comes in? Or would it have been more prudent financially to have waited?

Personally I would have rather have the Amex 'finished' and the training ground than heavy investment in players. I'm not desperate to go to the Prem yet but it would be great. Especially after that lot up the road went up.

 

[Ernest]

If we become a mid table championship side then we will not have needed the extra seats so I can't believe Bloom will ever settle for mid table mediocrity

 

[Medwayseagull]

Yep. Investment in infrastructure is totally separate from paying players' wages except the annual depreciation charge incurred because of the infrastructure investment.

I suspect that the club are also looking at whether any costs which have traditionally been treated as revenue can be capitalised in the future to assist with FFP.

 

[Goldstone1976]

There is a depreciation charge over a period of time that counts towards then? Yes, exactly.

Would it be beneficial therefore to start ASAP so the depreciation charge reduces whilst FFP comes in? Doesn't really make a difference. Infrastructure costs are depreciated over 10 or 25 years. Either way FFP will have been implemented fully waaaay before the end of the depreciation period.

Or would it have been more prudent financially to have waited? From a FFP pov only, waiting would mean that you'd avoid the depreciation charge which would mean there would be more cost available to spend on the paying budget. On the other hand, you'd also lose the revenue from selling the extra seats! In the end, it will have come down to a commercial judgement call. Someone will have said "Right, I reckon that the extra income we will generate from having more seats will more than outweigh the extra depreciation charge from building the seats; let's put them in"

 

[Goldstone1976]

I suspect that the club are also looking at whether any costs which have traditionally been treated as revenue can be capitalised in the future to assist with FFP.

Yep, no doubt!

 

[KZNSeagull]

Clearly he did the right thing - it's not as if we had trouble filling them is it?

The extra revenue helps with FFP. Over time our playing budget should become more competitive as those clubs who currently flout the rules either come into line, or pay us loads of fines for cheating the system. Well that's the theory anyway.

Our state of the art academy should, in time, become our biggest asset.

 

[TheMajor]

What extra players do you think we needed to go up?

The squad we had was capable of automatic promotion (maybe a better back up keeper was the one weakness). The four points dropped by PIG & Caspers injury time bloopers ultimately cost us auto plus our inability to put away a penalty.

Catch 22 for Bloom - People on here would have been kicking up a shitefest if we had had the same ground capacity as that of our first Amex season and had reached the Play Offs.

 

[Rookie]

Seeing as we got Ulloa and bid 2 mill + for the dutch defender I'm not sure if expansion effected the budget of the team

 

[Perkino]

I think that Gus and Tony have been very shrewd in their business, we were regularly sold out during the first season so expansion was the next obvious step and at times this season we've had threads about expanding further.

Players have been purchased at a sensible price the main sticking point has been a rigid wage structure which Gus has moaned about saying he couldn't take money from the transfer budget to pay higher wages...I think this is a superb choice as in the long run it keeps our wages at a sensible level.

We bought players this season who overall improved the squad and except the odd one or two have all worked out well. If Dobbie had made more of an impact then we probably would have had the Auto spot and if we didn't draw so many games when we should have won we probably would've been champions as we were so difficult to beat.

Overall a good season, with a disappointing end, but with structures in place we should be challenging again for promotion next term but obviously need to add to our squad and keep hold of the star players

 

[Goldstone1976]

Gus has moaned about saying he couldn't take money from the transfer budget to pay higher wages

From a purely business perspective it is, as you say, essential. The transfer budget is determined on a season by season basis, sometimes even a shorter timescale than that, as revenues and costs become clear. It is discretionary right up to the point you sign a new player. Wages however are committed for an extended period of time when you sign the player. Often that commitment is years.

Transfer budget - discretionary expenditure = flexibility to react to changing financial circumstances
Players' wages - commitment for many years = no flexibility

This is why TB/PB should never allow any manager to swap money from the transfer budget into wages.

 

[drew]

First question that springs to mind in this debate is does anyone know roughly how much the additional seating and associated hospitality actually cost? I suspect it may fall somewhere between one and two million at most. What additional player, including contract and agents fees, could we have bought for that amount to cement the challenge for promotion?

Also, I was at the ticket office yesterday and was led to believe that we are fast approaching season ticket sales of 25k which would suggest that expansion was a good idea bearing in mind we didn't get promotion.

 

[Conkers]

Feel free to skip over this post - it contains some accounting that most will find pretty boring!

Is correct - mostly. There are two types of cost: investment in infrastructure (stadium, stadium expansion, training ground as examples) which is "capital" cost, and routine expenditure which recurs every week or month (wages, for example). The former type of cost is classed as an asset on the balance sheet and is written off over a number of years (building costs tend to be written off over 10 or 25 years). Each year, the write-off (called depreciation) comes off the balance sheet and onto the profit and loss account as cost, whereas the full wages cost has to be taken as a cost in the month it is incurred. Thus, the investment in seating would only be taken as a cost for FFP purposes in equal instalments over 10 or 25 years.

Obviously, the cash to build the extra seating will have had to be generated from somewhere (probably originally the loan from TB), but that is different from a "cost" in the P&L account.

An example in our lives is the purchase and running costs of a car. The purchase price of the car would be a capital item that would be depreciated over typically 5 years; petrol, road tax, insurance, repairs etc would be taken as a cost immediately.

I'd be a bit concerned if we were depreciating additional Capex spend on the stadium over 10 years!
Maybe we just got dodgy builders in and only expect it to last 10 years

 

[m20gull]

According to the 11/12 accounts the cost of the extra seats was £15m. There is reference to FFP applying for 11/12 but only monitoring; I had got the impression that the club was playing to the FFP rules to get used to the discipline, hence the £8m loss.
There is no depreciation of the ground in the P&L for that year; the directors' policy to be established in the next year, which means that the 12/13 P&L will have some cost in it.

And for the 'fans v customers' debate about 1/3rd of income comes from tickets, 1/3rd from the Football League and 1/3rd from commercial operations. I imagine the last of those will go up with American Express on the shirt, but so will the others.

Accounts are on this thread: http://www.northstandchat.com/showthread.php?274512-The-quot-Albion-2012-financial-results-quot-thread

 

[Goldstone1976]

I'd be a bit concerned if we were depreciating additional Capex spend on the stadium over 10 years!
Maybe we just got dodgy builders in and only expect it to last 10 years

Lol! Yeah; I was hedging my bets a little, I'll concede! 25 years is much more likely....

 

[drew]

According to the 11/12 accounts the cost of the extra seats was £15m. There is reference to FFP applying for 11/12 but only monitoring; I had got the impression that the club was playing to the FFP rules to get used to the discipline, hence the £8m loss.
There is no depreciation of the ground in the P&L for that year; the directors' policy to be established in the next year, which means that the 12/13 P&L will have some cost in it.

And for the 'fans v customers' debate about 1/3rd of income comes from tickets, 1/3rd from the Football League and 1/3rd from commercial operations. I imagine the last of those will go up with American Express on the shirt, but so will the others.

Accounts are on this thread: http://www.northstandchat.com/showthread.php?274512-The-quot-Albion-2012-financial-results-quot-thread

£15m! Shows I know nothing about building costs!

 

[Deleted member 18477]

The stadium looks a lot better with it 'finished'. I have no idea how much the extra seats cost so dunno!

 

[portslade seagull]

I can confirm, from a reliable source, that you are talking absolute bollocks. Without the seats we were losing £8m, we need the extra 8,000 for revenue.

This, we needed to maximise revenue and having more seats goes a long way towards that

 

[GoldWithFalmer]

History tells a tale of a whole host of football clubs that made ground improvements ahead of team building and then suffered...

However i think he has been proved correct to do so.

 

[Tom Hark Preston Park]

Without the seats we were losing £8m, we need the extra 8,000 for revenue.

Seems to me that it was absolutely the right decision to put the seats in as early as possible. Building costs are only going to go up as the economy improves, and we're future-proofing the stadium to a large extent.

Plus I'd take that £8m loss with a huge dose of salt. The Albion appear to either have a fatally flawed business plan that can't turn a profit on 30K paying customers stuffing their faces like there's no tomorrow, or - far more likely - there's some really good accountants turning what looks to us 'customers' like the cash cow generating a healthy profit into a perfectly legitimate paper loss. That's what accountants are hired to do. Maybe we've hired some REALLY good ones.

 

[seagullsovergrimsby]

Why wait to put in another 8K seats when it can be done as soon as possible ? Once we find out how many season tickets have been sold for the 2013/2014 season we'll know why Paul Barber was so anxious to bring in a new membership scheme.