Aug 28, 2010

Ibra Transfer Explained - Football Accounting Jazz!

By Gautam Sharma

Intriguing facts about the Ibrahimovic transfer... and all that Jazz!! (The figures have been edited after the transfer)

Ibrahimovic is all set to transfer from Barcelona for Milan. Its a 1 year loan deal, after which Milan have the option to buy Ibra for Eur 24m. But here are some very interesting facts about this transfer... Milan were ready to buy Ibra outright this summer, it was Barca who insisted on a loan deal!! If that sounds strange, how about this fact - Barcelona will lose only Eur 17m in the entire Ibrahimovic saga!!

Intrigued? Shocked? Read on....

Lets first understand the Ibra deal between Milan and Barcelona, as reported by most papers. Milan will take Ibra on loan for 1 year, where they will pay him Eur 9m. Next season, Milan will exercise their option to buy Ibra at Eur 24m from Barca (apparently the cost of not exercising this option will be set very high in a way forcing Milan to buy him). While we don't yet know the actual figures, but these figures are widely reported, and this analysis is about what deal these figures represent to Barcelona from a business perspective.

The world of football accounting is a funny one. Since its so difficult to value players, most clubs use creativity to value these assets the way it suits them... but first lets understand the entire Ibrahimovic economics from a logical business sense. We will make a few assumptions as we go along, as some of the information is not publically available.

Key Assumptions:
1. Value of Eto'o last summer = Eur 30m. There was a reported bid from City of that amount, and I believe it was a decent valuation for the (at tha time) 28 year old Eto'o. This despite the fact that the "book value" of Eto'o at Barcelona was Eur 20m at the time of his transfer. But as we all know, book values and market values are often very different.
2. Addition Revenue earned by Barca from Ibra = Eur 5m. This is from sponsorship deals / shirt sales / etc - not sure what the actual number is, but this looks like a fair assumption for the purpose of this analysis.

Business Analysis: How much did Ibra logically cost Barcelona??

Total OutFlow: Money Barca will have spent on Ibra:
49m to Inter last summer
+ 30m (Eto'o) to Inter last summer
+ 17m to Ibra in wages (pre tax annual wage, conservative estimate, 27% tax rate in spain)
Total = Eur 96m

Total InFlow: Money Barca will have got from Ibra:
24m from Milan next season
+ 5m from sponsorship revenue / shirt sales (as per assumption)
Total = Eur 29m

So one season of Ibrahimovic costed Barca about 96-29 = 67m euros! Forget all the accounting mumbo-jumbo for a moment, this is the actual moolah Barcelona lost. From a business perspective, this was a horrible deal for Barcelona... Its looks like the two Milan based clubs spit roasted Barcelona ;) But the real beneficiary here was Ibrahimovic, and the credit must go to Raiola, an agent I dislike a lot, but credit where its due. He does good for his clients financially I guess. We can safely say that Raiola out-negotiated both Galliani and Rosell on this one.

But then, how did Barcelona only lose about Eur 1m from this transfer?? Lets enter the world of creative football accounting jazz... This is how Barcelona's book works:

Acccounting Analysis: How much did Ibra cost Barca in their books?

2009 Value of Ibra (last summer):
49m that Barcelona paid Inter
+ 20m (asset value of Eto'o in Barca's books)
Total = Eur 69m

2010 Value of Ibra (this summer) = 69m - 20% amortisation (due to a 5 yr contract) = Eur 55m.
Since Ibra signed a 5 yr contract, Barcelona depreciate his value in their books by 20% (14m) every year. And Ibra remains a Barca player this season (as he is only loaned to Milan).

2011 Value of Ibra (next summer) = 55m - 20% amortisation =
Eur 41m
2011 proceeds from the sale of Ibra to Milan = Eur 24m
Total loss = Eur 17m

Funny, isn't it? The difference between the logical analysis of the cost (67m) and the accounting of the cost (17m) is so huge... Actually its the same, just an accounting way to "justify" stuff by taking the hit over the years via depreciation. But this probably explains why Barca insisted for a loan deal this summer, even though Milan were ready to buy Ibrahimovic... coz if Barca had sold Ibra this season, they would have had shown a bigger loss on their books!! This is how that works:

If Barca sold Ibra for 24m this summer, their loss would be:
55m (2010 value of Ibra)
- 24m (sales proceeds)
Total Loss = Eur 31m

So Barca "saved" Eur 14m by loaning Ibra this summer, rather than selling him outright!! In reality there is no saving here, amortisation is a cost and Barca will take that hit this way or that.. Its all just about avoiding a financial egg on face.... Welcome to the world of football accounting jazz....... ;)


Mahdi said...

Interesting, but from what I got, Milan take over his wages and Barca will only get 24 next season. But in the end, 24+15 ends up at 39 so it's the same, isn't it?
I mean, money illusion and the difference between nominal and real value of money is already a bitch. Add accounting into it and it gets even worse. But I guess Rosell and friends will have a nice financial report at the end of 2011 with a surplus of around 100 Million Euros at least.

Bluenine said...

Yeah, the final deal was a bit different than what was reported at the time I wrote that blog... but like you said, not too different from Barca's point of view, just a little bit worse.

It is a good thing that Barca have such a fantastic youth academy, and most of their stars have come for "free". Coz they are quite poor at the transfer market!!

Ramzi said...

Hm...sorry Bluenine, but regardless of the analytic approach -which I dont agree on in the first place- almost all the numbers used are...well...inaccurate.

Barcelona for two seasons were willing to sell Eto'o for 25 M. They failed to do so till they made the Ibra transfer. So it is safe to say that Eto'o's value was less than 25 M (I can make a case that prove that he was actually a financial liability by then).

Of course all the assumptions related to Ibra's transfer to Milan are not right. The numbers are way different than the actual values so as the transfer conditions.

On an accounting base, Sandro has no interest in keeping Ibra as an asset this season then transferring that asset next year. He is trying to put all the catastrophic numbers possible in the current books to wave it in everyone's face saying "See what I inherited from laporta?!!!" before he prepare a revolutionary change next fiscal period. Your assumption radically oppose that direction.

Good attempt though. Its a mess-y business deal after all :)

Subramanian said...

That logical costing you had has a huge loophole.We simply couldn't have done anything to sell Samuel Etoo.Any big team(in the league of FCB) wouldn't have bought Etoo,they would have waited a year and signed him for a free.In Essence that 30 million that you claim Barca lost in the deal would be 10 million of Etoo's salary that FCB would have saved and that 40 million plus would put the cost of this operation at 23 million euros,which is totally okay.

Secondly, if you feel that instead this whole thing Barca simply keep Etoo and sign Villa to replace him(Like they did this year) the cost would have been 10 million and we wouldn't have known whether we would have won more or less.

Thus,the real loss for Barcelona in the whole operation is 23-10=13 million.

That was the real cost of this experiment. Compared to what most clubs do i.e. being afraid to accept the failure and move on quickly,Guardiola has showm more face than most.

Bluenine said...
This comment has been removed by the author.
Bluenine said...

Thanks for your comments, guys.

Apologies for the inaccurate numbers, my blog was posted before the deal was decided, and was based on the widely reported/rumoured numbers. In any case, even though the structure of the deal turned out to be quite different, the cash flows were quite similar. Instead of getting 40m, and paying 12m golden handshake (net 28m), Barca got 24m and no handshake or hugs ;)

@Ramzi, thats a good point re Eto'o. Indeed, with just one year of contract left, it can be argued that his value for Barca was smaller than the Eur 30m assumed. On the other hand, City is rumoured to ve made an offer of that magnitude last summer (rejected by Eto'o) and hence it could be assumed as his true market value in that situation. It depends which approach you choose.

Either way, I agree with you... its a mess-y business ;)

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