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As fans, I think all of us hope that the loan deal for Dozzell was part of a plan to free up funds for one or more loan signings. Sadly, I think this was a way to cut costs by £400-500k to stay inside the FFP limits this season. I am afraid that nothing of this goes towards new signings.
However, we keep getting linked to new signings, and there could be ways to make signings that won't compromise our FFP situation. It might even include permanent signings that involve a substantial transfer fee. This is what Marti refers to when he says we have to be smart and see if we can find creative solutions. I will explain how, and I will use Tim Iroegbunam as an example.
Let's assume that Villa isn't keen to send Tim out on loan, but wants to sell him. Lets assume they value him at £4m, but will sell if there is a sensible bid above £2m. Lets assume we are the only club that are prepared to fork out £2m for him during this window. Moreover, let assume he is on £15k per week.
Many fans will think that we cannot afford this if we struggle to stay inside the FFP limits. However, it is important to understand how FFP works. FFP works on a running three season basis. This season, we are under very tight constraints. But next season, the picture is looking much rosier, provided we stay up. We have around £10m more to spend next season compared to this.
When looking at costs, it is important to understand how these are booked and how they work from a FFP point of view. The cost of salaries are taken over the profit and loss account as we go, week by week. Any salary we would pay to Tim between now and the end of season would therefore weaken our FFP situation.
When it comes to transfer fees that we pay, these are spread (in the profit and loss account) over the length of the contract period, irrespective of how the payment to the selling club is agreed to be made. This is called "amortisation of player contracts" in the technical terms the accountants use. Lets assume we value Tim at £2m and think he deserves a five years contract, running until summer of 2029. This contract will cover 5 years and 5 months, which is 65 months. The cost that goes into the accounts of QPR every months will therefore be £30.000 per month over 65 months (1/65th of £2m every month). The costs, from a FFP viewpoint will therefore just be 4 months out of the 65 months this season, as QPRs financial year runs until 31 May. Four times £30.000 is £120.000.
On top comes the salary. But lets say we agree with Villa that Villa pays his salary until the end of this season. To compensate for that, we set the purchasing price a little higher. If he has £15k per week, this is £240.000 over the remainder of the season (until 31 May).
If we increase the purchase price from £2m to £2.25m to compensate for Villa paying his salary for the remainder of the season, and agree that the loan is with an obligation to acquire Tim by the opening of the next transfer window, we can both avoid any salary costs for him between now and the end of the season and avoid any costs for the amortisation. Hence, our FFP situation will not weaken. We will have no costs from a FFP point of view for Tim this season.
If I was a chartered accountant, I would say that this deal has a serious flaw. I would conclude that if we now commit to acquire him in five months time, the amortisation of him contract needs to start now. Hence, in this is the case, 4/65 of £2,25m will qualify as costs this season. This is ca £35.000 per month, or £140.000 over four months.
£140.000 is not a lot, but if we are struggling to meet FFP limits it can be the straw that breaks the back of the camel. But if we manage to get rid of enough fringe players between now and the end of the season, we might manage it. Duke-McKenna leaving has hopefully freed up some money. It could be as much as £50.000 if he is paid £3k a month and Sutton covers these costs (and/or SDM accepting a salary reduction to put himself in a better shop window than the one he is is now).
So don't be surprised if we pull a rabbit out of the hat on transfer deadline day - even a seemingly costly acquisition.
Finally, it is worth pointing to the risk involved with signing players now in case we get relegated. If we get relegated, we will face a dilemma, as the FFP rules in League One are linked to player salaries. Making a long term commitment for Tim will make it harder to comply with FFP rules in League One. But if we stay up, we should be able to cope well with Tims salaries, provided it is at levels we presently pay our better players.
However, we keep getting linked to new signings, and there could be ways to make signings that won't compromise our FFP situation. It might even include permanent signings that involve a substantial transfer fee. This is what Marti refers to when he says we have to be smart and see if we can find creative solutions. I will explain how, and I will use Tim Iroegbunam as an example.
Let's assume that Villa isn't keen to send Tim out on loan, but wants to sell him. Lets assume they value him at £4m, but will sell if there is a sensible bid above £2m. Lets assume we are the only club that are prepared to fork out £2m for him during this window. Moreover, let assume he is on £15k per week.
Many fans will think that we cannot afford this if we struggle to stay inside the FFP limits. However, it is important to understand how FFP works. FFP works on a running three season basis. This season, we are under very tight constraints. But next season, the picture is looking much rosier, provided we stay up. We have around £10m more to spend next season compared to this.
When looking at costs, it is important to understand how these are booked and how they work from a FFP point of view. The cost of salaries are taken over the profit and loss account as we go, week by week. Any salary we would pay to Tim between now and the end of season would therefore weaken our FFP situation.
When it comes to transfer fees that we pay, these are spread (in the profit and loss account) over the length of the contract period, irrespective of how the payment to the selling club is agreed to be made. This is called "amortisation of player contracts" in the technical terms the accountants use. Lets assume we value Tim at £2m and think he deserves a five years contract, running until summer of 2029. This contract will cover 5 years and 5 months, which is 65 months. The cost that goes into the accounts of QPR every months will therefore be £30.000 per month over 65 months (1/65th of £2m every month). The costs, from a FFP viewpoint will therefore just be 4 months out of the 65 months this season, as QPRs financial year runs until 31 May. Four times £30.000 is £120.000.
On top comes the salary. But lets say we agree with Villa that Villa pays his salary until the end of this season. To compensate for that, we set the purchasing price a little higher. If he has £15k per week, this is £240.000 over the remainder of the season (until 31 May).
If we increase the purchase price from £2m to £2.25m to compensate for Villa paying his salary for the remainder of the season, and agree that the loan is with an obligation to acquire Tim by the opening of the next transfer window, we can both avoid any salary costs for him between now and the end of the season and avoid any costs for the amortisation. Hence, our FFP situation will not weaken. We will have no costs from a FFP point of view for Tim this season.
If I was a chartered accountant, I would say that this deal has a serious flaw. I would conclude that if we now commit to acquire him in five months time, the amortisation of him contract needs to start now. Hence, in this is the case, 4/65 of £2,25m will qualify as costs this season. This is ca £35.000 per month, or £140.000 over four months.
£140.000 is not a lot, but if we are struggling to meet FFP limits it can be the straw that breaks the back of the camel. But if we manage to get rid of enough fringe players between now and the end of the season, we might manage it. Duke-McKenna leaving has hopefully freed up some money. It could be as much as £50.000 if he is paid £3k a month and Sutton covers these costs (and/or SDM accepting a salary reduction to put himself in a better shop window than the one he is is now).
So don't be surprised if we pull a rabbit out of the hat on transfer deadline day - even a seemingly costly acquisition.
Finally, it is worth pointing to the risk involved with signing players now in case we get relegated. If we get relegated, we will face a dilemma, as the FFP rules in League One are linked to player salaries. Making a long term commitment for Tim will make it harder to comply with FFP rules in League One. But if we stay up, we should be able to cope well with Tims salaries, provided it is at levels we presently pay our better players.
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