Nottingham Forest - Shadows And Tall Trees

Last season was a bit of a déjà vu experience for Nottingham Forest fans, as their team looked a good bet for promotion to the Premier League for much of the campaign, only to be defeated in the Championship play-off semi-final for the second year in a row. Their disappointment was not lessened by the fact that they lost to the eventual winners, Swansea City and Blackpool, on both occasions.

Yet again, the team’s performances had promised so much, built on the formidable partnership of Wes Morgan and Luke Chambers in central defence providing solid protection to goalkeeper Lee Camp, whose form was good enough to win a couple of international caps for Northern Ireland. The experience of midfielder Paul McKenna and forward Rob Earnshaw was complemented by the emergence of the exciting young Lewis McGugan, who was the club’s leading scorer with an impressive 13 goals.

Nevertheless, football is the ultimate results-based game, so it was no huge surprise when manager Billy Davies was sacked in the summer, to be replaced by Steve McClaren. Inevitably, the appointment of the so-called “wally with the brolly” raised eyebrows, but apart from his ill-fated reign as England manager, McClaren has a pretty good record and is an experienced coach. He revived his reputation by guiding FC Twente to the Dutch championship after the England debacle, though his time managing Bundesliga side Wolfsburg was not so successful.

"Return of the Mac"

His misfortune in Germany certainly hasn’t dented his confidence, as seen by his prediction during his first press conference, “I wouldn’t be sat here if I didn’t think I was the man to fulfil everybody’s dream of playing in the Premier League. That is the ultimate goal.” In order to boost Forest’s promotion prospects, McClaren has brought in Rob Kelly, the former Leicester City boss, as assistant manager and Jimmy Floyd Hasselbaink, the old Chelsea and Holland striker, as first team coach.

Many felt that Davies, described by Forest owner and chairman Nigel Doughty, as “probably the best manager, at this level, in the game”, was unfortunate to be dismissed and there is little doubt that he did a fantastic job in turning round the fortunes of a team that was struggling in the Championship relegation zone when he took over, after only winning twice in 19 league games under Colin Calderwood. Indeed, Doughty admitted, “Billy Davies was unlucky to lose his position and unlucky in two play-offs, when we came close. In the end, we felt that to motivate the squad for a third time, under the same sort of leadership, would have been difficult.”

However, that’s only part of the story, as Davies’ public grumbling about lack of funds and frequent sniping at the club must surely also have been a contributory factor to his demise. Quite frankly, statements like “there is not a job that I would not consider” were just asking for trouble, especially given that Davies has plenty of previous for similar outspoken rants against the board at Derby County and Preston North End.

"The always appealing Billy Davies"

Eventually, these shenanigans proved too much for Doughty, who relieved Davies of his duties. A co-founder of the leading private equity firm Doughty Hanson, he is known for his financial expertise, which stood him in good stead when he took over the club in 2002. In fact, it’s probably not over-stating the case to say that without his guarantees, Forest would almost certainly have ended up in administration.

The club had been in financial turmoil for many years, finally abandoning their membership structure in 1997, leading to an ill-fated takeover by the Bridgford Consortium, featuring former Tottenham chairman Irving Scholar, serial entrepreneur Nigel Wray, businessman Julian Markham and author Phil Soar. Their ambitious plans effectively collapsed after a disastrous flotation on the Alternative Investment Market, which raised just £2 million – about £18 million less than they had predicted. However, Doughty’s initial attempts to take over the club were strongly resisted by Scholar and Markham, and his investment was only confirmed after he won a bitter court case.

That was not the end of Forest’s financial woes, as the collapse of ITV Digital left them with substantial levels of debt. Indeed, in 2004 Nottingham City Council threatened the club with winding-up proceedings after Forest failed to make a £200,000 interest payment on their £4.3 million loan.

"Nigel Doughty - money can't buy him love"

These days, Forest are in a more robust financial position, but that is very largely due to Doughty and the funds he has injected into the club. Despite this investment, he is not universally popular with some of the Forest supporters, who believe that his cautious approach has held the club back, but the reality is that they owe him a great deal – quite literally, in terms of the club’s debts, which have been steadily increasing from £25 million in 2005 to £64 million in 2010.

Virtually all of this debt (£63 million) is owed to Doughty. Although the loan is secured by a debenture over the clubs assets and earns interest at “market determined rates”, Doughty has not been paid any of the accrued interest of just under £10 million. Instead, the date for the repayment of the principal and the accrued interest has been continually pushed back with the latest extension to 31 May 2013. In fact, Doughty has stated, “I am not looking to get my money back. I look at it as some sort of community investment”, though that’s not quite the same as a formal agreement.

The other £1 million debt is the residual amount owed to Nottingham City Council from the original £4.3 million six-year loan (at 5.25% per annum), which was due to be finally repaid last season.

It is notable how the make-up of the debt has changed since 2005, when it largely comprised an expensive bank overdraft and short-term loans. If Doughty had not stepped up to the plate, it’s doubtful whether this funding would have been renewed. Even if the banks had agreed to extend more credit, it would certainly have been more costly for the club, as the interest rate would have been higher (and needed to be paid).

Forest also owe £1.8 million in transfer fees plus have a similar amount in contingent liabilities: £1.5 million to be paid if certain players make an agreed number of international appearances and £0.5 million signing-on fees to players if they are still at the club on specific future dates.

Of course, this leads to one of the major criticisms that fans have of Doughty’s regime, namely that they have not been very active in the transfer market. Like so many things, this depends on how you look at it. In fact, in the last three years, only three clubs in the current Championship have spent more than Forest – and two of those (Birmingham City and Burnley) have had the benefit of Premier League money, with Birmingham now holding a fire sale of their more expensive players and question marks over their very existence. The other club ahead of them is Leicester City, who have effectively bet the farm on securing promotion, as it is questionable how their new Thai owners would react if they failed to achieve this objective.

With the exception of Leicester, very few other Championship clubs have really gone for it, as a new financial realism is being embraced. As Doughty put it, “Leicester don’t seem to have got the memo, but everyone else seems to get the idea, which is why there has not been that much activity.”

On the other hand, Forest’s net spend in this period was only £7.5 million, so their high position in the net spend table is more a case of them standing still, while others have balanced their books by selling players. In other words, if Forest have strengthened, they have done so more in relative terms than absolute terms, though the switch from Forest being a selling club should not be under-estimated, e.g. in the four years up to 2005 they had net sales proceeds of £22 million, but since then they have been net spenders every single year, adding up to £16 million.

Then again, Forest’s recent transfer spend is a little misleading, as most of this (£10 million) came in 2008 and 2009 with hardly anything in the following two years. In particular, Forest backed Davies in the summer of 2009 by signing nine players, many of whom played for the club on loan the previous season, including Dexter Blackstock, David McGoldrick, Dele Adebola, Chris Gunter, Lee Camp, Paul McKenna, and Radoslaw Majewski, giving them the unwanted reputation of being big spenders. Many of these players significantly improved the side, but it was unreasonable for Davies to expect similar investment every year, especially when he talked about needing “four or five stellar signings.”

That said, it was disappointing that Forest did not manage to sign anyone in the January 2010 transfer window, when they were in the Championship top two, as this might have made the difference between automatic promotion and the play-offs. It was an open secret that they were after Nicky Shorey (Aston Villa), Darren Pratley (Swansea City) and Victor Moses (Crystal Palace), but they failed to secure any of their targets. It’s unclear why this was the case, nor why there was a similar lack of purchases in the following two transfer windows.

The much-maligned chief executive Mark Arthur argued, “You cannot force people to sell. We tried everything we could possible try to get the players in, but it didn’t come off.” It’s hard to know for sure, but there is a suspicion (to paraphrase Hamlet) that he “doth protest too much”, especially as the board must have been tempted to keep their hands in their pockets when Davies was effectively a dead man walking.

"Jonathan Greening - the face of experience"

In any case, it’s always better to watch what people do, rather than listen to what they say: actions speak louder than words. Since McClaren’s arrival, very little money so far has been spent, as Forest have adopted a policy of buying in older, experienced Premier League players on the cheap. Former Forest star, Andy Reid, and Dutch midfielder George Boateng were acquired on free transfers, while Jonathan Greening only cost £600,000 from Fulham. Furthermore, quite a few players have been released, including Kelvin Wilson, Nathan Tyson, Earnshaw, Adebola and McKenna.

It’s possible that some Forest fans have unreasonable expectations, which are heightened by a glorious past, though in truth this largely relates to one magical period under the legendary Brian Clough and his assistant Peter Taylor, whereas the rest of the club’s history is not so impressive. After gaining promotion from the old Second Division in 1977, Clough’s Forest become Division One champions at the first time of asking in 1978 and then proceeded to win the European Cup two years in succession, first beating Malmö 1-0 in 1979 with a header from Trevor Francis and then retaining the trophy by overcoming Hamburg 1-0 with a John Robertson strike the following year. In the same purple patch, they also picked up two League Cups.

This was a remarkable achievement for a club of Forest’s size and was testament to the genius of the manager, as the team featured few superstars, though the likes of Peter Shilton, Martin O’Neill, Viv Anderson, Archie Gemmill and Kenny Burns would yield to few. As Steve McClaren said, “You can smell the history and tradition of this football club.”

"Brian Clough - legend"

However, recent history has not been so kind. Although Forest played in the first Premier League in 1992/93, they were relegated at the end of that inaugural season, which was also the end of the Clough era. They immediately bounced back, but dropped back down a couple of years later, a feat they repeated before falling back into the Football League in 1998/99. Since then, Forest have spent 12 long years away from the Premier League and the riches that accompany playing in the “best league in the world”, which goes a long way to explaining the reasons for their financial challenges.

In fact, the situation got even worse, as Forest became the first European Cup winners to fall into their domestic third division, when Gary Megson’s team was relegated in 2004/05. It took the Tricky Trees three years to get back into the Championship, which makes the board’s prudent policy a little more understandable.

Recently, Doughty described the approach in this way, “We are trying to push the boat out, but in a gentle fashion.” This reasonable desire for sustainability has led some fans to condemn the board for a lack of ambition. In particular, many have never forgiven them for failing to support former manager Paul Hart, who built an attractive young team, but was not given the funds to strengthen the squad and actually had to sell some of his key players.

"Lewis McGugan - helping Forest fire"

One specific source of frustration has been the clumsily named Transfer Acquisition Panel, which comprises the chairman, chief executive, manager, finance director, chief scout and football consultant David Pleat. The idea is to avoid the club wasting precious funds on a manager’s whims. As a concept, this sounds fine and many other clubs have something similar, e.g. Lyon who are past masters in the transfer market.

However, there are three potential problems with Forest’s version: (a) It seems far too bureaucratic with no fewer than six people involved. (b) It is not entirely clear what role the football consultant has – is he meant to be a de facto director of football? If so, the temporary nature of a consultant could cause problems. (c) Having had their fingers badly burned by former manager David Platt who wasted £12 million, largely on obscure Italian veterans, it looks like the club’s stance might have swung too far the other way, so they’re now loath to pull the trigger on a deal.

To a certain extent, Forest have tried to compensate by making good use of the loan system with a number of signings having an impact last season, including Scottish striker Kris Boyd (from Middlesbrough, six goals in 10 games), England U21 defender Ryan Bertrand (Chelsea), Wales captain Aaron Ramsey (Arsenal), left-back Paul Konchesky (Liverpool) and forward Marcus Tudgay (Sheffield Wednesday).

"Lee Camp makes his point"

Many Championship clubs have taken advantage of new rules that allow them to take up to six players on loan at a time, a trend that has been exacerbated by the introduction of a 25-man limit in the size of the squad for Premier League teams. The reason for this might not seem immediately obvious, but that cap does not include players aged 21 and under, resulting in Premier League clubs taking on more quality young players. They need playing time, so clubs are now more willing to loan players to the Championship, even funding some of the wages during the loan period.

While Forest’s attempts to move towards a sustainable business model are admirable, there is a nagging belief that if they were just to spend a little more then they could finally reach the Premier League, which would transform their finances. Obviously, spending would be no guarantee of success, but it is worth considering the size of the prize.

The Championship play-off final has been described as one of the most lucrative matches in world football with the value estimated at £90 million. Although this is a little misleading, given that this money is spread over a few seasons, the difference in revenue following promotion is still spectacular.

Even if the promoted club were to finish last and come straight back down, it would still receive £40 million from the TV deal plus £48 million in parachute payments over the next four years (£16 million in each of the first two years, and £8 million in each of years three and four). On top of that, gate receipts and commercial income will also certainly be higher, hence at least £90 million more revenue.

It’s incredible to think that just one place in the football pyramid can make such a difference. Of course, if the club finished higher in the Premier League, it would receive even more TV money and every season survived adds another £40+ million to the coffers.

The concern is that the club might eat into that higher revenue by increasing wages and other costs, but the net effect is still likely to be positive. If we look at the three teams that were promoted to the Premier League in 2008/09, using the last available financial figures from 2009/10, we can see that all of them (Wolverhampton Wanderers, Birmingham City and Burnley) transformed operating losses in the Championship to profits in the Premier League. In particular, Wolves’ revenue of £18 million (broadly similar to Forest) increased to £61 million in the Premier League.

As it stands, Forest’s profit and loss account is not a pretty sight, as they consistently make losses. All too appropriately, the bottom line is a sea of red with losses reported in each of the last five years. In that period, the total losses add up to more than £40 million. Furthermore, the losses have been steadily rising, from £5.1 million in 2007 to a seriously uncomfortable £12.3 million in 2010. In other words, the loss is almost as much as the turnover of £14.7 million, which means that the club spends almost £2 for every £1 it generates. As the accounts state, this can only be “sustained with the continuing financial support provided to the club by its chairman, Nigel Doughty.”

Alternatively, some clubs compensate for such shortfalls by player sales, but this is not the case at Forest, as they have made less than £5 million from the transfer market in the last five years, including just £91,000 in 2010. Some clubs can point to their losses being caused by non-cash expenses, such as amortisation and depreciation, but again Forest do not have that comfort, as their EBITDA (Earnings Before Interest Taxation Depreciation and Amortisation) is also negative every year.

Not even the promotion from League One to the Championship was enough to improve the club’s finances, as the £4.5 million increase in revenue in 2009 was more than offset by investment in the squad, resulting in wages rising by £3.5 million and player amortisation by £1.1 million. Similarly, the 22% revenue growth in 2010, largely from the new television deal, was eaten up by £4.4 million extra on the wage bill and a further £1.1 million on player amortisation. These numbers should give pause for thought to those who censure the board for not investing in the playing side.

Of course, the vast majority of Championship clubs make losses. In fact, only four reported a profit before tax in 2009/10 and one of those, Burnley, had the benefit of Premier League money. The total losses in the Championship worsened for the sixth consecutive year to a record of around £130 million, while the total net debt rose to £875 million.

That said, Forest’s loss of £12.3 million was one of the highest and only surpassed by four clubs: Sheffield United, Ipswich Town, QPR and Portsmouth. Incidentally, the size of the loss appears to have little bearing on a team’s chances of success, as the three promoted clubs in 2010/11 represented all points on the spectrum: granted, QPR made a large loss, but Norwich City only had a small loss, while Swansea City were actually profitable.

But, as Bob Dylan said, the times they are a-changin’ following the Football League’s recent decision to adopt a Financial Fair Play (FFP) framework from the 2012/13 season. Football League chairman, Greg Clarke, explained the reasons for the move, “It’s a perfect storm in that a lot of things have come together to make this happen, including of course the level of debt in the game and big losses being racked up by the clubs.”

"You'll never beat Wes Morgan"

Details of how the scheme will work have not yet been finalised, but essentially clubs will only be allowed to spend what they earn. In the early years, clubs will probably still be permitted to make small losses, but these will be limited and the amount of money that owners like Doughty are allowed to put in to cover losses will be severely curtailed. Any club breaking the rules is likely to be punished with fines and a transfer embargo.

The impact on Forest, whose business model is essentially large losses funded by the owner, will be dramatic, as Doughty explained, “With the advent of financial fair play, we are going to have a very strict budget. We are talking about drastic cuts. It is going to change things. This year, we cannot afford to be throwing around three or four-year contracts for Premier League players.”

However, one logical result of the new rules is that those Championship clubs with parachute payments will have a significant financial advantage, as can be seen by the revenue “league table” for 2009/10. As you would expect, the three clubs that were in the Premier League the previous season (Portsmouth, Hull City and Burnley) have the highest revenue (between £45 and £60 million), while the next three teams in the (Middlesbrough, Reading and Derby County) still had the benefit of parachute payments.

However, Greg Clarke argued that the effect would not necessarily be so distorting, “Largely the parachute payments are absorbed by the club paying their debt and players. Last year three clubs came down and did not make the play-offs.” This is true, but the previous season was a different story with Newcastle and West Brom returning to the Premier League at the first attempt.

Forest’s revenue of £14.7 million places them in the bottom half of the money league, so they have actually outperformed their budget by twice reaching the play-offs. That said, two of the promoted teams (QPR and Swansea City) had less revenue than Forest, so a well-managed and organised team can still succeed in the face of financial disparity.

Any growth in Forest’s revenue in the last few years has basically been down to the promotion from League One (average £8 million) to the Championship. This is partly because of the better TV deal in the higher division, but is also due to higher gate receipts and more commercial opportunities. Indeed, gate receipts remain the most important category at Forest, accounting for 48% of total revenue. This increases to almost 60% if you include hospitality and catering income, which is largely generated on match days.

Gate receipts of £7.1 million in 2009/10 were 56% higher than the £4.6 million in League One, partly due to the decision to reduce ticket prices in the lower division, but also influenced by cup runs and participation in the play-offs. Forest have a large, loyal following, as evidenced by their 2010/11 average attendance of 23,275 only being bettered by four teams (Leeds United, Derby County, Norwich City and Leicester City). Even when Forest were playing in League One, they attracted a mighty impressive 20,000 on average.

In fact, Forest have the 22nd largest attendance in England, higher than three Premier League clubs. It’s not generally appreciated that the Championship is actually the third best-attended league in Europe, ahead of the top divisions in Spain, Italy and France. Even though crowds declined 6% in 2010/11, mainly due to the “Newcastle factor”, Doughty has confirmed that season ticket sales at Forest are still selling well.

Last week Forest revealed plans to expand the capacity of the City Ground, which is owned by the council, from 30,600 to 37,000 by rebuilding the Main Stand, but only if they reach the Premier League. Corporate facilities would also be revamped to help increase turnover. This was an interesting change of approach, as chief executive Mark Arthur had previously said that the costs of redeveloping the City Ground would be prohibitive, as it is located in a dense urban area, surrounded by private housing, businesses and industry.

Indeed, four years ago the club explored the possibility of building a 45-50,000 capacity stadium in Clifton to the south of the city, but switched their plans to Gamston, due to logistical problems. Following objections by residents, the club then looked at Eastside, though plans were abandoned after the failure of the FA’s bid to host the 2018 World Cup in England.

"You are going in the Trent"

Television revenue in 2009/10 of £4.3 million was largely derived from two payments given to all clubs in the Championship, the £2.47 million distribution from the Football League and the £1 million solidarity payment from the Premier League, plus money for cup runs and facility fees (each time a team is shown live is worth £100,000 to the home team, £10,000 to the away team).

In 2010/11, this figure is estimated to increase to around £6 million, as the solidarity payment rose £1.2 million (up to £2.2 million) and each Championship club was given £0.5 million as their share of the parachute payments for Newcastle and WBA, because those two clubs went straight back up to the top tier.

However, clubs relegated from the Premier League still have the advantage of considerably higher TV revenue, as we can see by comparing Burnley’s TV revenue of £34.4 million last year, which was significantly higher than Forest’s £4.3 million. Even after relegation to the Championship, Burnley’s projected revenue will still be more than Forest, purely due to the £16 million parachute payments.

The other cloud on the horizon is the new Football League three-year TV deal that kicks off in the 2012/13 season, which will be £69 million lower than the current contract at £195 million, a reduction of 26% or £23 million a season, reflecting what Greg Clarke called, “a challenging climate in which to negotiate television rights.” As there was no interest from BBC, ITV or even ESPN, the only game in town was Sky, who could accordingly lower their bid.

Given that most of the money is allocated to the Championship, this is where the impact will be most keenly felt. The annual reduction for each club was estimated at £766,000 by the Ipswich chief executive, Simon Clegg. This is another reason, if one were required, to push as hard as possible for promotion.

Commercial revenue of £3.3 million includes around £1 million from sponsorship and advertising. Shirt sponsorship is provided by Victor Chandler, the gaming group, who replaced long-term partner Capital One in 2009 with a one-year deal that has since been extended by a further two years to 2012. Figures have not been divulged, but it was originally a “significant six-figure sum”, now rising to “seven figures”. Interestingly, if Forest had won the Championship in 2010, that would have cost the sponsor around £6 million, as it had promised to pay for season ticket renewals if that happened. The kit supplier is Umbro, but merchandising revenue is only £1.1 million. The club state that this is partly dependent on which kit is replaced, the home version being more popular.

Like most football clubs, Forest’s greatest challenge is how to restrain their wage bill while remaining competitive. Transfer activity caused this to rise a staggering 40% in 2009/10 from £11.2 million to £15.6 million, resulting in an unsound wages to turnover ratio of 106%, second only to the 121% in 2006, when the board sanctioned the purchase of players on Championship wages in order to secure promotion from League One as quickly as possible.

This is a common problem in the Championship, but Forest’s wage to turnover ratio is well above the divisional average of 88% and was only surpassed by five other clubs (Bristol City, QPR, Portsmouth, Ipswich and Preston). It is easy to see how the club arrived at this sorry state, as wages increased by more than 70% (£6.5 million) in the last five years, while revenue only grew 20% (£2.5 million) in the same period.

To give an idea of the magnitude of Forest’s challenge, if they wanted to get in line with the 60% salary cap employed in League One, they would have to either increase their revenue by 77% (£11.3 million) to £26 million or cut their wage bill by 43% (£6.8 million) to £8.8 million, neither of which seems very realistic (though FFP may play a part here).

In fairness, Forest’s wage bill is by no means the highest in the Championship, placing them more or less in the middle of the league table. However, unlike the Premier League, the wage bill does not necessarily correlate with success on the pitch, as Doughty pointed out, “If you look at our roster and our salary bill and you look at the teams who were promoted, we were way ahead of Swansea, we were ahead of Norwich in terms of cost and, until Christmas, we were on a par with QPR.”

Forest’s finance director, John Pelling, clearly spelled out the situation, “The club can only spend the level it does on transfers and wages with the continuing support of Mr. Doughty.” The chairman’s commitment can be seen in the cash flow statement, which shows that Doughty has advanced £46 million of loans in the last six years, including £13.4 million in 2009/10 alone. Pelling noted, “That is pretty much the total loss for the year”, while Mark Arthur observed, “It is double the amount we received from season ticket and match day ticket revenue.”

So what will Forest’s strategy be going forward?

In a recent interview, Doughty indicated the club’s future direction when talking about its youth policy, “What is coming out of the academy may help us, when it comes to financial fair play, because those players are not going to be as expensive. We have a wonderful conveyer belt of young players coming through. Not just one or two or half a dozen, but maybe as many as a dozen good prospects, many playing internationally already.” Forest have a reputation for a terrific academy, as evidenced by the emergence of former graduates Lewis McGugan and Wes Morgan, which should be further strengthened by the appointment of McClaren, who has a fine reputation for developing young players.

Perhaps the bigger question, as posed by John Pelling, is “what would happen if (Doughty) wasn’t around to provide the backing that he does?” The benefactor model works fine, so long as the money-man does not exit stage left for whatever reason. Like his father, Doughty is a Forest fan, born in Newark, near Nottingham, and maintains that he is still committed to the club. However, Mark Arthur has hinted that his presence should not be taken for granted, “When you are putting in that sort of money and getting the abuse he has received, it must make you think about it.”

"Guy Moussi - shout to the top"

Of course, this may not be such an important issue in future with the advent of FFP, but there's many a slip 'twixt cup and lip, so Doughty’s financial support may still be necessary for a while yet. Doughty himself has not ruled out selling, “I am not going to say never. If the right sort of potential owner with hugely deep pockets came along, you would have to consider it.”

It is clear that some fans would prefer a new owner with a more cavalier approach to spending, but there are two problems with this way of thinking. First, it’s not as if billionaires are queuing up to invest in football clubs; second, be careful what you wish for. Forest fans only have to look at the calamitous experience their neighbours Notts County endured with Munto Finance to realise that all that glitters is not gold.

The easiest way of solving Forest’s financial problems would be to gain promotion to the promised land of the Premier League. While it is fair to say that the club’s prospects of achieving that objective would be enhanced by some astute player purchases, it is equally true that spending in itself is no guarantee of success in the extraordinarily competitive Championship. That said, Doughty has actually promised to back McClaren “as far as new acquisitions are concerned”, and there is talk of Ishmael Miller and Wesley Verhoek arriving from WBA and Den Haag respectively.

"Pre-match tension from Chris Cohen"

However, those fans hoping for a major loosening of the purse strings are likely to be disappointed, as Doughty recently summed up his ethos, “If you look at the teams who have been promoted in the last few years, such as Watford, Burnley, Swansea and Norwich – they have all done it with sensible budgets. They did not do anything too risky or expensive.”

So, there you have it, more of the same for Forest. And in the current economic climate, who can really blame them?

Manchester City's Amazing Deal: Know Your Rights

When Manchester City announced that their commercial agreement with existing shirt sponsor Etihad Airways was to be expanded into a 10-year deal worth up to £400 million, the reaction of most observers in the football world was one of disbelief. This hugely lucrative contract includes the renaming of the City of Manchester Stadium in a naming rights deal that is likely to be the highest ever signed in football.

Indeed, Garry Cook, City’s ebullient chief executive, described it as “one of the most important arrangements in the history of world football”, while the CEO of Etihad Airways, James Hogan, was even more effusive, employing the full range of business buzzwords, “This is a game changing partnership agreement that redefines the traditional sports sponsorship paradigm.”

Of course, many people immediately assumed that one of the principal drivers of this deal was City’s need to boost their revenue in order to cope with the imminent arrival of UEFA’s Financial Fair Play (FFP) regulations that compel clubs to live within their means (if they wish to compete in Europe). This was tacitly confirmed by Cook, when he admitted, “The backdrop, of course, is UEFA’s Financial Fair Play and this deal helps (us) to continue to make significant progress in that area.”

Exactly how much is impossible for external analysts to say, as City have yet to publish the financial aspects of the deal. Initially, most newspapers suggested that it was worth £100-150 million, but now seem to have settled on £300 million, rising to £400 million. The truth is that nobody outside the club really seems to know for sure. Indeed, City released a statement to this effect, “The financial details of the comprehensive agreement announced last week between Manchester City and Etihad Airways remain confidential and figures being speculated about are not accurate.”

"Cooking up a good story"

The lack of certainty over the value of the sponsorship has not prevented prominent figures at other clubs from criticising the deal. The first to express his doubts was Arsenal manager, Arsène Wenger, who has often lambasted the practice of “financial doping” in the past, “It raises a real question about the credibility of the financial fair play. That is what this is all about. They give us the message that they can get around it by doing what they want.”

Liverpool’s new owner, John W. Henry, quickly followed suit, when he claimed that “Mr. Wenger says boldly what everyone thinks.” The Reds’ managing director Ian Ayre was unsurprisingly of the same opinion, questioning the transparency of the arrangement, given the close relationship between the sponsors and City’s owner, “The guys from UEFA said there would be a robust and proper process about related pay transactions.”

Wenger agreed, “It looks to me that Platini is very strongly determined on this. He is not stupid. He knows that some clubs will try to get around that and I believe they are studying behind closed doors, how they can really strongly check it.”

Certainly, UEFA talked tough last year, when Andrea Traverso, their head of club licensing and financial fair play, described what would happen if clubs attempted to beat the system by taking advantage of loopholes, “Should the clubs put in place specific structures that allow them, in ways we didn't think about, to easily get around some of the principles, we could amend these rules to catch up with these situations.”

"Michel Platini: this is how FFP will work"

UEFA President, Michel Platini, ostensibly substantiated the concerns of City supporters that he was targeting their club when he specifically mentioned them last year during the announcement of the new financial measures, “Manchester City can spend £300 million if they want to, but if they are not breaking-even in three years, they cannot play in European competition.”

However, Garry Cook did not appear overly concerned, “We have a very open dialogue with UEFA. We have had several meetings with them and they are very supportive of our plans.”

Indeed, UEFA’s response to City’s mega deal was far more measured than a year ago, “We are aware of the situation and our experts will make assessments of fair value of any sponsorship deals using benchmarks.” So, City are no longer being singled out, at least publicly, with UEFA keen to stress that they will investigate all major sponsorships whatever the club, which “will then be considered by the Club Financial Control Panel, together with any relevant information the clubs present regarding the deals, when they assess the break-even requirements.”

So how will UEFA assess City’s deal?

This is effectively a three-stage process. First, they have to decide whether the deal is a “related party transaction”. If they believe that it is, then they have to estimate the “fair value” of the deal. Finally, if the actual value is higher than the fair value, the difference is deducted from the revenue included in the FFP break-even calculation.

"Every cloud has a Silva lining"

The notion of related party transactions is evidently important to UEFA, as no fewer than three pages of the FFP regulations are dedicated to defining exactly who or what is a related party. The key point here is that “close members of the family” are considered to be related parties, so long as they have “control” or “significant influence” over the club.

In this case, Etihad Airways is owned by the government of Abu Dhabi, whose ruler Sheikh Khalifa bin Zayed Al Nahyan is the half-brother of City’s owner Sheikh Mansour bin Zayed Al Nahyan. It is conceivable that City might be able to demonstrate that no influence exists, but it would appear that there is a prima facie case to answer.

It is not clear whether the fact that the majority of City’s commercial sponsorships come from the Gulf state, including the Abu Dhabi Tourist Authority, Etisalat and Aabar Investments, will have any bearing on UEFA’s ruling, but Cook himself has admitted that it is “clearly evident” that there is a strong Abu Dhabi bias. Anyway, for the purpose of our analysis, let us assume that UEFA do indeed treat this deal as a related party transaction.

In fact, the FFP regulations expressly include “sale of sponsorship rights by a club to a related party” as their first example of “transactions that require a licensee to demonstrate the estimated fair value.” This has also been verbally confirmed by UEFA’s general secretary, Gianni Infantino, who said that such transactions would be compared to similar deals already in place.

"Fast Kompany"

Again, John W. Henry expressed his scepticism, when he asked, “How much was the losing bid?” Wenger also cast doubts on the value of the deal, “If FFP is to have a chance, the sponsorship has to be at the market price. It cannot be doubled, tripled or quadrupled, because that means it is better we don’t do it and leave everybody free.”

However, Garry Cook argued, “There’s real value in that partnership. Financial Fair Play isn’t the driver, commercial growth is the driver.” That obviously makes sense for City, but how about Etihad? The airline’s executives would contend that this deal has already been superb for their profile, as evidenced by last week’s intense media exposure, and will provide them with a more than acceptable return on their investment.

Not only do City compete at the upper levels of the most viewed league in the world, but their global visibility has been dramatically enhanced by their qualification for the Champions League. Indeed, it is quite possible that the airline gets more bang for its buck with City compared to more established clubs, as the exposure is higher with such a project. Big money deals may be old hat at clubs like Manchester United or Real Madrid, but it’s a relatively new phenomenon at Eastlands, sorry, the Etihad Stadium.

"Nigel de Jong - Dutch courage"

Some have questioned how it could make sense for a loss-making company like Etihad Airways to splash out such a large sum in sponsorships, but that ignores the fact that this investment is all about “building the brand” in the same way as Emirates have done in the past.

At this stage, it’s worth pointing out that the FFP regulations refer to “fair value”, as opposed to the “market value” that is incorrectly used by much of the media. The difference can be seen by an analogy in the housing market. If you decide to sell your house and 99 people offer you £250,000, that would be considered fair value, but if one enormously wealthy individual likes it so much that he bids £500,000, that is the market value.

This is an important distinction, as market value would be easy to prove. Sports lawyer Andrew Nixon of Thomas Eggar LLP asserted, “Competition law challenges rarely succeed on sponsorship deals. There is a vast number of football teams and leagues airlines can sponsor and there are many viable market alternatives.”

Importantly, even if UEFA rules that City’s deal is above fair value, it is only the excess that would be deducted from the club’s income for the purposes of the FFP break-even calculation and not the entire agreement. In other words, if the deal is worth £30 million a year and UEFA consider the fair value to be £25 million, only £5 million would be deducted.

"Don't cry for me, Argentina"

UEFA’s difficulties in assessing the fair value of the deal are compounded by the structure of the deal, which covers far more than the stadium naming rights that were initially reported. This is just one element of a broad agreement that also includes an upgrade of the current shirt sponsorship and naming rights for the Etihad Campus, which encompasses a large part of the Sportcity site in East Manchester.

Furthermore, given the long-term nature of the contract, City could argue that they have built in uplifts, as the sponsorship market might be even more lucrative in ten years time. In addition, part of the money is almost certainly based on performance bonuses, e.g. qualifying for the Champions League or winning the Premier League, which might make it more palatable to the powers that be.

As I said earlier, nobody can honestly claim to know the actual revenue split of the deal, but we can make a reasonable working assumption that the shirt sponsorship is worth £20 million a year, the stadium naming rights £10 million and the campus another £10 million. As we assess each element for fair value, it will become clear why these values have been chosen.

An assumed shirt sponsorship value of £20 million would place City right at the top of English deals, generating the same annual revenue as Liverpool and Manchester United. Those clubs might argue that City’s historical performance should not allow them to be at the same level, but the counter-argument would be that nobody complained about Liverpool increasing their sponsorship deal by £12.5 million a season when they replaced Carlsberg with Standard Chartered last season, even though they had not qualified for the Champions League. Similarly, Tottenham managed to increase their sponsorship by nearly 50% from £8.5 million to £12.5 million (via an innovative combination of Autonomy and Investec), based on just one season in the Champions League.

If the net is cast a little wider, Bayern Munich’s sponsorship deal with Deutsche Telekom is worth around £23 million, though performance bonuses could take that above £25 million. That might seem reasonable for a club with Bayern’s tremendous record, but the value of deals at other German clubs is more debatable, particularly Schalke’s money-spinning deal with Gazprom.

Equally, the announcement of Barcelona’s first ever shirt sponsorship deal with the Qatar Foundation, a non-profit organisation, did not attract the same levels of opprobrium as City’s. This has been widely reported as €150 million over five years, but is actually worth up to €170m, as it also includes €5 million trophy bonuses and €15 million for “the concept of commercial rights”. So, it is likely to be worth €34 million a year (or just under £30 million at the current exchange rate).

"The Italian Job"

Others have pointed disapprovingly at the magnitude of the increase in City’s shirt sponsorship, but they have cited a current value of £2.3 million for the Etihad deal, which looks far too low. Deloitte and other reputable sources have said that this deal is worth £25 million over three seasons, so with uplifts, it’s around £7.5 million as we speak. Other commentators have probably confused this with City’s previous deal with Thomas Cook that was worth £2.3 million.

If UEFA genuinely want to investigate the value that companies obtain from sponsorship, it might be pertinent to ask why they don’t also take a look at Emirates, which sponsors many different clubs. Or indeed the ethicality of clubs being sponsored by gambling sites, which is a growing trend in football marketing.

Probably the most contentious aspect of the deal is the stadium naming rights, which is virtually unprecedented in football at its estimated value. There are very few decent benchmarks in the Premier League with the obvious comparative being Arsenal’s deal with Emirates, which was worth £90 million (£100 million less £10 million fees), covering 15 years of stadium naming rights (£42 million) and 8 years of shirt sponsorship (£48 million).

This works out to just £2.8 million a year for the naming rights, which is considerably lower than City’s deal, but it’s not really a fair comparison for many reasons. Not only have sponsorship values in general grown significantly since the agreement was signed, but also this particular deal is very much a special case, as Arsenal compromised on the total value so that the cash payments would be heavily front-loaded to help finance the construction of the stadium. When questioning the merits of City’s deal, Arsène Wenger drily observed, “We must have done a bad deal”, but there’s more than a grain of truth in that assertion with Emirates admitting that they “did well with Arsenal.”

"Get your Yaya's out"

It’s worthwhile looking at Germany for a more considered view on naming rights, as the market there is more than four times as large as in England, according to Sport + Markt’s 2011 Naming Rights report. Many clubs in the Bundesliga have sponsorship deals for their stadiums, including Borussia Dortmund (Signal Iduna), Hamburg (Imtech), Wolfsburg (Volkswagen), Stuttgart (Mercedes-Benz) and Eintracht Frankfurt (Commerzbank).

However, perhaps the best known is Bayern Munich, whose deal with Allianz is worth €90 million over 15 years, producing €6 million (£5 million) a year. On the face of it, this might suggest that City’s £10 million deal is over-valued at double the money, but this is far closer than the difference in overseas TV rights, which are around 14 times higher in the Premier League than the Bundesliga. Obviously, this is not quite the same thing, but it’s food for thought.

Or UEFA might look even further afield to America, where naming rights are a well-established feature of the sporting landscape. Virtually every major sports arena is now named after a sponsor that provides the club with a healthy source of income. The concept is nothing new under the sun either, as Times Square was named after the New York Times way back in 1903.

Although the link between football and American sports like baseball, NFL and NBA may seem rather tenuous, fundamentally the principle is identical and it seems quite pertinent with the influx of foreign owners into English football. Some of the stadium deals signed on the other side of the pond provide an indication of where this market may go in the future, going as high as $30 million a year paid by JP Morgan Chase for Madison Square Garden. Citigroup and Barclays both pay $20 million a season, the former to the New York Mets, the latter to the New Jersey Nets. Farmers Insurance have paid an astonishing $700 million over 30 years to name a stadium in Los Angeles where a team is not even established yet.

This does rather beg the question of how the sponsor benefits from such a deal: what’s in a name? The obvious answer is brand awareness with a raised profile, which is particularly well served if it is a new stadium. This point was seized upon by Ian Ayre, Liverpool’s managing director, who noted, “It hasn’t happened in Europe that a football club has renamed an existing stadium and it’s had real value.” This is correct, but it’s doubtful whether too many fans are attached to the name Eastlands (or even the City of Manchester Stadium). It would be a different story if this had been Maine Road. This is why it would be difficult to sell naming rights for grounds like Anfield or Old Trafford, as whatever name anybody tried to call the stadium, everyone would still use the old/real one.

One valid point about City’s agreement is that other Premier League clubs have to date been unsuccessful in securing large naming rights deals, though paradoxically this announcement could potentially help others make progress in their discussions. Chelsea have been looking to secure a partner for some time with analysts suggesting that £10 million is the objective, while Liverpool would be equally eager if they move to a new stadium, as Ayre confirmed, “We already have a very healthy dialogue in place with several leading brands regarding naming rights.”

"Hart and Soul"

That said, the Sports + Markt report confirmed that the value of stadium naming rights has been steadily rising, up over 60% from €48 million in 2007 to €78 million in 2010 with the total projected to increase to €87 million in 2011.

Given the difficulties inherent in finding solid comparatives for naming rights, it is possible that UEFA might look at this as just another commercial deal. If they did so, they could not help noticing that the bar is being constantly raised in the commercial sphere, e.g. contracts with kit suppliers. Liverpool’s recent £25 million deal with Warrior Sports is more than double the amount that they previously received from Adidas, helped by the relationship that the new owners enjoyed with the company, which already provides kit for the Boston Red Sox.

Similarly, Manchester United are in discussions to extend their deal with Nike for a record £450 million, which would be worth around £35 million a year, a £10 million increase. If you think that’s impressive, the French national team’s deal with Nike is worth €320 million over 7½ years, which works out to about £37 million a year for just a handful of matches.

In short, commercial opportunities in football are big business these days and City’s deal should be assessed in that light. In a strange way, it brings to mind the movie “The Wizard of Oz” and the famous line about not being “in Kansas anymore.”

With the exception of Manchester United (£81 million), English clubs have lagged their continental counterparts when it comes to making money from commercial opportunities, growing fatter on a diet of ever-increasing TV contracts. Not only do the Spanish giants, Real Madrid and Barcelona, earn substantially more at £124 million and £100 million respectively, but German clubs also consistently generate more income. This description does not just refer to Bayern Munich, who earn an astonishing £142 million commercial revenue a year, but also clubs like Schalke, Hamburg and Dortmund.

There’s certainly room for improvement, which is exactly what English clubs are belatedly doing. In 2010/11, Manchester United’s commercial revenue will exceed £100 million, while Liverpool’s £62 million will ultimately be boosted by £25 million growth from the Standard Chartered and Warrior deals. Likewise, Chelsea will increase their revenue by £12 million from £56 million following better deals with Adidas and Samsung.

In other words, it’s become a commercial arms race with each of the leading clubs significantly increasing their commercial revenue in their own way – and City are no exception.

Actually, I tell a lie, as City’s deal includes one unique element, the Etihad Campus, which is perhaps the cleverest and certainly the most innovative part of the agreement. This is a gigantic redevelopment project on 80 acres of land adjacent to the stadium, including a relocated training ground, youth academy, a sports science facility, office space, a call centre and City Square retail outlets. The academy will be seriously impressive, catering for up to 400 young players, with 16 football pitches, a 7,000 capacity stadium for youth matches and on-site accommodation.

"Opportunities (Let's Make Lots of Money)"

Such a development will not only benefit the community, but will bring a raft of sponsorship opportunities. Nothing like this has been done before, so it will be very difficult for UEFA to assess and almost impossible to deem unfair. In fact, this is exactly the type of expenditure that UEFA is trying to encourage with direct youth and community development costs being totally excluded from the FFP break-even calculation. For someone with pockets as deep as Sheikh Mansour, this is effectively “free” money, at least in terms of FFP.

On top of that, Annex X allows any profits from non-football operations to be included in the calculation, so long as the operations are: (a) based at, or in close proximity to, a club’s stadium and training facilities, such as a hotel, restaurant, conference centre, business premises (for rental), health-care centre, other sports teams; and (b) clearly using the name/brand of a club as part of their operations.

That sounds very familiar, so it’s a double whammy for City: the costs for this development are excluded, while the profits from the business located there are included. Not only that, but UEFA should be positively delighted, as it’s very much in the spirit of the stated objectives of FFP. Given those factors, the temptation must be to load up the sponsorship on this part of the agreement, so the deal split might be more like £10 million on shirt sponsorship, £5 million on naming rights and £25 million on the campus. We shall see.

Even with the benefit of this deal, City are still a long way from break-even, having recorded a thumping great loss of £121 million in 2009/10. The deficit is anticipated to be even higher last season, as the impact of the previous summer’s incoming players will have further increased the wage bill and amortisation. Nevertheless, City insist that matters will improve. Garry Cook stated, “Clearly our intention is to comply. FFP is on our conscience. We talk about it at every board meeting and it’s part of our long-term plan.”

Even the spendthrift manager Roberto Mancini now appears to have accepted the new financial realities, “FFP is for everyone”, saying that City would no longer “pay £10 million more than other clubs” for new players. Indeed, so far this summer, City have only signed Gael Clichy from Arsenal for £7 million and Montenegro defender Stefan Savic for a similar amount. That’s chicken feed by the Blues’ recent standards, though there’s still time for them to splash out on another big name.

That said, City are very keen to reduce their bloated wage bill by offloading players that no longer fit into Mancini’s plans, including the likes of Emmanuel Adebayor, Craig Bellamy, Wayne Bridge and Shay Given. From this season, the club’s revenue will also be significantly boosted by a Champions League campaign and, of course, the vast growth in sponsorship deals.

They will also be helped by the UEFA’s so-called “acceptable deviations”, namely the €45 million aggregate losses allowed in the first two-year monitoring period, which means that they don’t have to actually reach break-even from day one, so long as the owner covers the losses, which I think we can safely assume.

If that wasn’t enough, the glide path is made even easier by clubs being allowed to exclude wages from players signed before June 2010, so long as they are reporting an improving trend in their accounts. Granted, that “loophole” only exists for the first two monitoring periods (2013/14 and 2014/15), but it will buy City time to execute their strategic plan.

In essence, that has been to spend big in the short-term on transfers and wages in order to break into the Premier League top four, so that they can qualify for the riches of the Champions League, which is easily worth £30 million additional revenue a season. That extra income will contribute towards balancing the books while the academy can be established, producing top class players in-house, but the growth in commercial revenue is still a vital component to that strategy.

One of UEFA’s main objectives in implementing FFP was to “curb the excessive spending and inflated transfer fees and player salaries that have endangered football in recent years.” To a certain extent, there are some signs that this is happening, but new regulations often have unintended consequences and it appears that clubs are also striving to increase their revenue, as opposed to simply cutting costs.

Even though City’s revenue grew by an impressive 44% in 2009/10 to £125 million, which pushed them up to 11th place in the Deloitte Money League, this is still a long way behind other leading clubs. For example, it’s less than half of local rivals Manchester United (£286 million) and £100 million lower than Arsenal (£224 million). On the continent, both Real Madrid (£359 million) and Barcelona (£326 million) generate £200 million more than City every season.

City could look to increase their match day revenue, which they have partially addressed via a new agreement with the council, whereby the club pays them a fixed amount regardless of the attendance instead of the previous percentage. Any further growth would mean raising ticket prices, increasing the corporate seats or expanding the capacity of the stadium. The first two moves would be unpopular with fans, while the stadium expansion is longer-term in nature.

Plans exist to increase the capacity of the stadium from 47,000 to at least 60,000, but this would not be entirely straightforward, due to its awkward design. There have been some concerns that City would struggle to fill a larger stadium. Although their attendances have always been good (4th highest in the Premier League), they do not regularly achieve full capacity. That said, the crowds have risen since the move to Eastlands and continued success on the pitch should produce a further increase, as was the case with Chelsea after Abramovich’s arrival.

Television has been the big driver of revenue growth at football clubs and the latest Premier League deal for the three years between 2010/11 and 2012/13 helped increase City’s distribution from £50 million to £56 million. However, this is a tide that floats all boats with very little difference between the leading clubs. The real distinguishing factor is the honey pot known as the Champions League, so City’s qualification will have a transformational impact on their revenue, but it’s a one-step growth.

So, with match day and TV relatively fixed, it’s really down to the commercial side, notably sponsorships, to substantially close the gap with the big boys. Even before the blockbuster Etihad deal was announced, City’s revenue from commercial activities had more than doubled in 2009/10, including an increase of almost 400% in revenue from corporate partnerships up from £6.5 million to £32.4 million.

This explosive growth has inevitably raised suspicions, particularly given the provenance of the sponsors, but the criticism of City has taken on something of the nature of a moral crusade with many commentators accusing the nouveaux riches of buying success, after Sheikh Mansour ploughed close to a £1 billion into the club since acquiring them in 2008. There’s little doubt that City have contributed to the inflation in transfer fees and wages, with net transfer spend of £343 million in the last three seasons and a wages to turnover ratio of 107%, though they are hardly alone in that.

However, there are two sides to every story and there are a couple of facets of this deal that should be commended. From the point of view of the fan, it is surely better that a club tries to grow its revenue by taking more money from sponsors than raising ticket prices. This is where Arsenal’s criticisms ring a little hollow after they hiked ticket prices that were already among the highest by 6.5% for next season.

And while I yield to nobody in my admiration for Sir Bobby Charlton, his suggestion that big clubs should not think about renaming their stadium should also be considered alongside Manchester United’s stratospheric ticket price rises. Indeed, City were top of the ING Direct Value League last season, measured by comparing clubs’ season ticket costs with Premier League performance.

City’s commercial deal will also benefit the local community, which is why the council agreed to let City sell the naming rights of a stadium that is not owned by the club, but the council. In fairness, the club had already contributed £30 million to the stadium conversion costs after the Commonwealth Games, but the council’s willingness to let the deal proceed on these terms still came as a surprise to some.

However, the council will receive £20 million over the next five years, and, more importantly, their leader points to “the regeneration of the area, delivering significant community and economic benefits”, including the creation of new jobs. Faced by severe government cuts, the cash-strapped local authority have gratefully accepted City’s proposal for this deprived neighbourhood, describing it as “great news for Manchester, reinforcing our sporting, transport and economic growth.”

Of course, other clubs have also been very active in their community, but this plan is on an altogether different scale. Yes, it might feel a little like wealthy philanthropists establishing charities as a way of reducing their tax bill, but the fact is that the community will still gain.

This has not stopped other clubs from sniping, led by Bayern Munich chief executive Karl-Heinz Rummenigge, who also happens to be chairman of the European Club Association. When commenting on City’s large financial losses, “Kalle” sniffed, “Maybe they know a trick I don’t that will allow them to take part in the Champions League.” This is the same Bayern where two of their most prominent sponsors, Adidas and Audi, each own around 10% of the club.

Similarly, Wolfsburg is a wholly owned subsidiary of Volkswagen Group, who also pay for the club’s stadium naming rights and shirt sponsorship. Little wonder that Stefan Szymanski, professor of sports business at London’s Cass Business School, said, “If there’s a question of fair value in relation to an Abu Dhabi client sponsoring Manchester City, I see no reason why the same questions can’t be raised about corporate Germany sponsoring German football.”

"Gael force"

If UEFA did decide to broaden their investigations into other sharp practices, they could also take a look at the ridiculously unfair advantage enjoyed by Real Madrid and Barcelona with their huge slice of the Spanish TV pie. And while they’re about it, what about those clubs that directly inflate the transfer market by paying over the odds for average players (naming no names)?

My simple point here is that if you look hard enough, you will surely find reasons to investigate activities at numerous clubs, so it would be very harsh for UEFA to zoom in on City. There will be many such deals sailing close to the edge and there must be a better use of UEFA’s time than to review each one. Adopting a basic tenet of the English legal system, a reasonable man will know when a deal is completely ludicrous, e.g. a £200 million annual season ticket, but to my mind City’s deal does not fall into that category.

While UEFA’s credibility over FFP is at stake, there’s every indication that they will help clubs towards break-even, instead of throwing them out of Europe. Otherwise, in City’s case, it would feel like they should re-release The Clash’s seminal “Know Your Rights” with slightly modified lyrics: “You have the right to sponsors’ money, providing of course you don’t mind a little humiliation, investigation, and, if you cross your fingers, authorisation.”

"Sometimes a picture is worth a thousand words"

There may be a whiff of creative accounting around this incredible deal, but there’s also genuine substance and benefit to the community. City’s commercial growth might have been fuelled by money from companies that are at the very least “friendly” towards their owner, but when the deals are broken down the sums are not inordinately high, so are more or less in line with benchmarks.

Furthermore, the proceeds will be invested in a state-of-the-art academy with the objective of producing homegrown young players who will ultimately replace the imported “mercenaries”. It’s a well-considered plan that seems to me to be within both the letter and to a large extent the spirit of FFP.