On the face of it, this might appear to have been an expensive summer for Man City; they have just sold Tevez at a £35m loss and have recently spent £50m on Fernandinho and Navaz. Football fans might follow the narrative that says that Man City are 'laughing in the face of FFP'. However, owing to the way football finances operate, the reality is somewhat different.
When judging whether a team has made a profit or loss for the season, transfers fees are spread out over the duration of the contract. So Tevez, signed for around £45m on a 5-year deal in 2009 (4 years ago), would be accounted for as an expense of £9m a season (£45m ÷ 5 = £9m) each season until now. Consequently, the transfer of Tevez actually 'saves' City £9m this coming season as they don't incur a further £9m depreciation cost (termed amortisation).
When players are sold, any profit or loss on selling the player is determined by comparing their sale price to their 'Book Value' when sold. Tevez has been at the club for 4 years of his 5 year deal and his purchase price has been depreciated at around £9m a season. Consequently, his book value is around £9m; almost exactly the figure he has been sold for. So when City's accounts are produced for this season, City will 'break-even' on the sale of Tevez (and depending on the sale price, there might even be a modest profit of one or two million).
Wages also need to be considered; Tevez is reportedly on wages of around £200k a week (around £10.6m a season). City have also reported that Tevez would be on line for unspecified bonuses of £6.4m this season.
So, in summary, Tevez' departure actually helps City in their Break Even quest this season by around £26m (£9m amortisation and £17m wage + bonus saving).
The £50m fees paid for Fernandinho and Navaz would appear in the accounts using the same phased approach used for Tevez' fee. As the players were signed on a 4 year deal, transfer fee will be accounted for as an expense of around £12.5m for this coming season (and for each of the subsequent 3 seasons).
The wages for City's two new signings has not been fully disclosed but it is likely that their combined wage is not considerably in excess of the £200k pw paid to Tevez.
Taking all the figures into account, the actual profit or loss on the player trading is not quite what one might first expect. The combined deal is broadly cost-neutral for City in this coming season. City's trading has had surprisingly little financial impact this season (although City are now committed to paying the wages (and future amortisation) for Fernandinho and Navaz for three future seasons).
City are also helped by the departure of a number players whose contract has come to an end this season (including Bridge, Santa Cruz and Kolo Toure). It might be counter-intuitive, but City's player costs look set to decrease for the coming season.
The new FFP rules in the Premiership restricts club wage increases to £4m maximum each season (plus any uplift from any new commercial deals). The rules certainly give scope for new signings at the club. Given the reducing wages and the increased TV deal from this season, we shouldn't be surprised to see another big signing at the club before the end of the summer.
Update 27/7: the official Juventus Press Release giving details of the purchase price can be found here
Posted by Ed Thompson.
