Pronostico Sampdoria-Milan 9 novembre 2014 (Serie A)

Ecco il pronostico di Sampdoria-Milan di sabato 9 novembre 2014 con quote, precedenti e consigli per scommettere. Scopri le probabili formazioni di Sampdoria-Milan, con le ultime dai campi sui giocatori indisponibili (infortunati e squalificati) nella 11^ giornata di Serie A. Leggi l'analisi dell'anticipo, i pronostici di calcio di sabato e le schedine di Serie A.

PRONOSTICI SERIE A (11^ giornata): SAMPDORIA - MILAN sabato 9 novembre 2014
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Pronostico Milan-Palermo 2 novembre 2014 (Serie A)

Ecco il pronostico di Milan-Palermo del 2 novembre 2014, ultimo tra i pronostici di Serie A di domenica (10^ giornata). Scopri le probabili formazioni di Milan-Palermo, con quote, precedenti ed ultime dai campi sui giocatori indisponibili (squalificati ed infortunati). Leggi i nostri consigli per scommettere e le schedine di Serie A per questa domenica di calcio.

PRONOSTICI SERIE A (10^ giornata): MILAN - PALERMO domenica 2 novembre 2014
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Milan - Warning Signs

By most people’s standards Milan have just enjoyed a pretty good season. They were runners-up in the league, only behind an undefeated Juventus; they reached the quarter-finals of the Champions League before being eliminated by the mighty Barcelona; and lost in the semi-finals of the Coppa Italia. However, it was still a disappointment, as they had established a healthy lead in the race to the scudetto, and it was a backward step compared to the previous season, when they had won Serie A for the 18th time.

Last year’s triumph was particularly noteworthy, as it was under the guidance of the previously unheralded Max Allegri, who won the title in his first season – just like his more famous predecessors Arrigo Sacchi and Fabio Capello. However, this year Milan have been plagued by injuries, losing the likes of Mathieu Flamini, Antonio Cassano, Alexandre Pato, Thiago Silva and Kevin-Prince Boateng for lengthy periods. As their talisman Zlatan Ibrahimovic lamented, “Injuries have followed us for the whole season.”

Ibra himself had done his utmost to secure another title for the rossoneri, as his 28 league goals earned him the capocannoniere(top scorer) award for Serie A, though this was not enough to continue his remarkable record of gaining a league winners’ medal every season since 2003 (with Ajax, Juventus, Inter, Barcelona and Milan).

"Partial to your Ibracadabra"

However, whether it was down to injuries, second season syndrome for Allegri or the simple fact that the team was not quite good enough, the fact remains that Milan did not win any silverware – unless you count the 2011 Supercoppa, the curtain raiser to the new season. “Close, but no cigar” is not good enough for a side that has a fantastic record in winning trophies, including the Champions League on an incredible seven occasions (only bettered by Real Madrid) and the European Cup Winners’ Cup twice.

No matter how impressive Milan have been in the past – and they can lay claim to having the best side of all time under Sacchi – they are now facing daunting challenges, both on and off the pitch.

Many of the old guard have left the club this summer, including the elegant defender Alessandro Nesta, the prolific Pippo Inzaghi, the tigerish Rino Gattuso, Mark Van Bommel and Gianluca Zambrotta. In addition, there are question marks over the veteran Clarence Seedorf, who is mulling over a one-year extension, and the club has not exercised loan options for Maxi Lopez and Alberto Aquilani (though the latter may yet sign on a reduced package). That’s a lot of experience to try to replace in one fell swoop.

"Allegri - Mad Max"

This mission is made more difficult by Milan’s financial situation, which is by no means disastrous, but is bad enough to give the club pause for thought. Their traditional modus operandi has been to operate with substantial losses, which are then covered by the owners, but this will not be possible in the new world of UEFA’s Financial Fair Play (FFP) rules where clubs will have to live within their means without the assistance of a wealthy benefactor.

This will test to the limit the negotiating skills of Milan’s vice-president Adriano Galliani, who has proved himself to be a wily old fox in the past, especially when he snapped up Ibrahimovic from Barcelona for around a third of the price that the Catalans paid a year before. The need for Milan to find bargains was further emphasised this summer when they signed two international midfielders on Bosman free transfers: Riccardo Montolivo from Fiorentina and Bakaye Traoré from Nancy.

Ibrahimovic of all people highlighted the club’s financial woes, “Milan’s problem is economic. There is no money to buy five players, or even the ones we need. We made a couple of signings, maybe there will be a third.”

When you look at the club’s most recent accounts (for the year up to 31 December 2011), you begin to understand what the big Swede is talking about, as these reported a thumping great loss of €67.3 million. Amazingly this actually represented a slight (€2.4 million) improvement on the previous year’s loss of €69.8 million, an indication of Milan’s structural weaknesses. The losses in both years would have surpassed €80 million without the benefit of substantial tax credits, €15.7 million in 2010 and €13.3 million in 2011.

Revenue grew by 7% to €234.8 million, but this was matched by a €13.7 million increase in the wage bill to €206.5 million, a record high for Milan. Note that this definition of revenue excludes €23.6 million profit on player sales and €8.4 million increase in the value of fixed assets (shown elsewhere). If these are added back, we get the €266.8 million of revenue mentioned in the club’s press release.

This produced operating an operating loss of around €100 million level for the second consecutive year, which is distinctly uncomfortable for a club aiming to be self-sufficient in the near future.

I should clarify that this analysis is based on the accounts for the consolidated Milan Group, as opposed to just the football club AC Milan SpA, as these are the accounts that will be used for UEFA’s FFP review. The group accounts include Milan Entertainment SpA and Milan Real Estate SpA, but there is not a significant difference. In fact, the loss of €67.3 million for Milan Group is €8.2 million better than the €75.5 million registered by AC Milan SpA.

Milan’s poor financial performance is nothing new. The last time that the club made money was 2006 and even then the €11.9 million profit was heavily influenced by once-off factors, namely the €40 million profit from selling Andriy Shevchenko to Chelsea and a €27 million once-off payment for an option on future TV rights. Since then, there have been five consecutive years of losses, adding up to a combined deficit of around a quarter of a billion Euros.

The only recent year that looks good on paper is 2009, when the loss was “only” €9.8 million, but this was almost entirely due to the hefty €74 million profit on player sales, arising from the transfers of Kaká to Real Madrid and Yoann Gourcuff to Bordeaux. As we have seen, it is difficult, if not impossible, to raise similar sums form player sales every year, not to mention the detrimental effect it would have on the team.

In each of the last two years Milan have generated €23-24 million from this activity, much of which has been derived from the special relationship that they appear to have with Genoa, who have contributed over €30 million in this period, including €17 million in 2011: Alexander Merkel €9.9 million, Nicola Pasini €3.3 million, Mario Sampirisi €2.0 million and Sokratis Papastathopoulos €1.8 million.

One more technical point: for profits on player sales I take the plusvalenzeless the minusvalenzeto give a net figure, e.g. in 2011 €23.6 million minus €0.3 million (to release Onyewu Oguchi) gives the €23.3 million in my schedule.

If we exclude tax movements and profit from player sales, then the adjusted loss for Milan over the last four years would add up to a colossal €386 million with three of those four years coming in over the €100 million mark. In other words, with the sale of a world class player Milan make losses; without such a sale they make large losses.

Of course, Milan are not the only leading Italian club to find themselves in this situation. Indeed, in 2010/11 the losses were even higher at Juventus (€95.4 million) and Inter (€86.8 million). The big three contributed 89% (€252 million) of the total Serie A losses of €285 million. Note that I have used Milan’s 2010 loss in this schedule to be consistent with a survey prepared by La Gazzetta dello Sport, but the loss is around the same level in any case.

More encouragingly for Italy’s top flight is that the number of clubs making a profit in 2010/11 doubled from the four in the previous season to eight (Bari, Lazio, Palermo, Catania, Napoli, Udinese, Parma and Brescia). This list includes two clubs that qualified for the Champions League (Napoli and Udinese), so sound husbandry of a club’s finances need not necessarily mean lack of success, though it should be acknowledged that some did benefit from substantial player sales.

Over the last three seasons it has been more or less the same story of colossal losses at both Milan clubs, who are by some distance bottom of Italy’s profit league. Juve’s losses over the period are virtually all because of 2010/11, mainly due to not qualifying for the Champions League and investing in their new stadium, while Milan and Inter’s figures have been consistently poor. At least Milan win the financial Derby della Madonnina with Inter’s astonishing losses of €310 million in this period being more than twice Milan’s €146 million. In truth, neither club has much to write home about on this topic.

But surely all the top football clubs lose money, right? Actually, that’s not really the case, as a few did report profits in 2010/11: Real Madrid made a sizeable €47 million, thanks largely to their enormous revenue; Arsenal €14 million, boosted by property sales; and Manchester United €11 million, as their awesome cash generating capacity was enough to cover interest charges on their massive debt. Bayern Munich only recorded a small profit of €1 million, but this represented their 19th consecutive year of profits. Even big spending Barcelona’s loss was relatively small at €9 million.

Of course, some leading clubs abroad also employ the sugar daddy model, such as Champions League winners Chelsea, who made a loss of €75 million, while Manchester City’s attempt to gatecrash the party cost them €219 million. Even so, it is clear that Juventus, Inter and Milan all face more serious issues compared to the others, as their ability to generate additional revenue in the short-term is more constrained.

 That said, Milan’s revenue is not too shabby by Italian standards. In fact, for 2010/11 (the last season when all clubs have published accounts), their revenue of €220 million was the highest with only Inter anywhere near them (€211 million). The other clubs were miles behind with only three others earning above €100 million: Juventus €154 million, Roma €144 million and Napoli €115 million. This is despite the leading lights effectively transferring some of their revenue to the others after the collective TV deal was implemented.

However, as John Donne said, “No man is an island” and Milan also have to look beyond their borders at other European clubs. At first glance, Milan appear to be sitting pretty at seventh place in Deloitte’s Money League, but problems begin to emerge on a closer inspection, as they are a long way short of their peers abroad. In particular, the Spanish giants generate significantly more revenue with Real Madrid (€479 million) and Barcelona (€451 million) earning around twice as much as Milan, benefiting from huge individual TV deals.

Both Manchester United (€367 million) and Bayer Munich (€321 million) earn around €100 million more than the rossoneri, the English taking advantage of significantly higher match day revenue, while the Germans’ commercial expertise puts everyone else to shame. In fact, at the latest exchange rates United would also break the €400 million barrier. This vast revenue discrepancy makes it difficult to compete, especially when that shortfall in turnover occurs every year.

Eagle-eyed observers will have noticed that Milan’s revenue figure of €235 million is different to the €253.2 million included in the club’s accounts for 2010. There are two reasons for this. First, in order to be consistent with other countries, Deloitte excludes: (a) player loans €0.5 million; (b) profit from player sales €25.5 million; (c) change in asset values €7.6 million. Adding those to the €220 million shown in my analysis gives the €253.2 million reported in Italy.

Second, Milan’s accounts cover a calendar year (up to 31 December), while the majority of clubs’ figures coincide with the football season, so the accounting close is in June. Because of this anomaly, Deloitte adjust Milan’s figures based on information provided by the club, leading to the €235 million in their league table.

Regardless of all these technical adjustments, the underlying themes for Milan (and Italian football) are very much the same. A recent report from the Italian Football Federation (FIGC) concluded, “The current business model is difficult to sustain and not very competitive.” Its president, Giancarlo Abate, noted that in particular match day income, sponsorships and merchandising were in need of urgent attention to reduce the reliance on TV money.

These problems have been reflected in the lack of revenue growth of Italian clubs. Since 2005 Milan have managed to grow their revenue by just €20 million (9%), which is only ahead of Juventus among leading European clubs. In that period they have been overtaken by Barcelona, Bayern Munich and Arsenal. Most strikingly, Barcelona’s revenue was €7 million lower than Milan in 2005, but is now far over the horizon at €216 million higher, while the investment in new stadiums at Bayern and Arsenal has really paid dividends. As Galliani put it, “Twenty years ago Milan invoiced more than Real Madrid, today only half. That’s the real problem.”

Essentially, Milan’s revenue has been flat for the last few years, though this disguises two opposing factors: TV revenue has fallen by €29 million since 2006 to €114 million, largely due to the move to a collective deal, while commercial income has increased by €23 million to an impressive €91 million.

Match day revenue has also risen by €3 million, though it remains a feeble €29 million, just 13% of total revenue, which, in fairness, is typical of all Italian clubs and helps explain their relative revenue weakness. Despite the decline in TV revenue, it is still the most important revenue stream, accounting for just under half of Milan’s revenue. This is partly due to the higher payout from the Champions League, which rose €16 million in 2011, more than offsetting the €7 million fall in domestic TV money.

The €114 million earned from television in 2011 comprised €78 million from the domestic deal and €36 million from the Champions League (a combination of the last 16 in 2010/11 and the group stage in 2011/12). They received the third highest domestic money, just behind Juventus and Inter, but a fair bit more than other Italian clubs, e.g. Napoli and Roma got around €60 million; Lazio about €50 million; and Fiorentina, Palermo and Udinese around €40 million.

This represents an improvement for mid-tier clubs following the implementation of the new collective agreement in 2010/11. Under the new allocation, 40% is divided equally among the Serie A clubs; 30% is based on past results (5% last season, 15% last 5 years, 10% from 1946 to the sixth season before last); and 30% is based on the population of the club’s city (5%) and the number of fans (25%).

The result is a reduction at the top end, so Galliani is not a happy customer, “In football big teams have to share income with other sides and this is an anomaly.” This may be a bitter pill to swallow, but it has been sweetened by the distribution formula, which still favours the top clubs to an extent with the allocations based on historical success and number of fans. Even now, Milan’s TV income is the sixth highest in Europe.

Furthermore, the decrease would have been even higher if the total money negotiated in the new deal had not been 20% higher than before at around €1 billion a year. This cemented Italy’s position as the second highest TV rights deal in Europe, only behind the Premier League, but significantly ahead of the other major leagues, despite the Bundesligaincreasing its rights by over 50% for the next four-year deal. The new French contract has actually fallen from €668 million to €612 million, considered a good result in this harsh economic climate.

As you might expect for a club with media magnate Silvio Berlusconi at the helm, television income has always been important to Milan, climbing as high as €140 million in 2007, the highest in Europe, partly due to a sensational domestic deal, but also thanks to the payment received for winning the Champions League.

Qualification for the Champions League is imperative for Milan with the accounts identifying this as a key risk for the club’s economic prospects. This can be seen in 2008/09, when Milan earned just €0.4 million from the UEFA Cup, compared to €25.8 million from the Champions League in 2010/11. This was made up of €7.2 million participation fees, €2.4 million for performances in the group (2 wins at €800k plus 2 draws at €400k), €3 million for reaching the last 16 and €13.2 million from the TV (“market”) pool.

The money received for 2011/12 should be much higher: (a) Milan progressed further (to the quarter-finals); (b) they will receive more from the TV pool, as they won Serie A in 2010/11 (half is allocated based on finishing positions in the previous season’s domestic league).

The size of the prize is now enormous, as we can see from the finalists in 2010/11 (Barcelona and Manchester United) each receiving over €50 million, not including additional gate receipts or increases in sponsorship payments. Financially, the Europa League provides little compensations, with the four Italian clubs only receiving around €2 million each.

Furthermore, there has been talk in the English media of Champions League revenue significantly increasing in the next three-year agreement, citing David Taylor, UEFA Events’ chief executive, “We have at least achieved triple-digit growth.” Unfortunately the Italian league has lost a place to the Bundesliga, due to lower coefficients, so now only the top two teams in Serie A are assured of direct entry, while the third-placed team goes into the preliminary qualifying round.

The most glaring revenue weakness for Milan is match day revenue. Even though this is the highest in Italy at €36 million (ahead of Inter €33 million, Napoli €22 million and Roma €18 million), it is dwarfed by major clubs in other countries, especially England. Chelsea earn more than twice as much €81 million, while Manchester United €130 million and Arsenal €112 million generate around three times Milan’s figure. Granted, they have staged more home games, but United earn €4.5 million a match compared to Milan’s €1.4 million.

Although Milan have the highest average attendance in Italy of 51,400, this was a 4% reduction from the previous season and means that only 64% of the stadium’s capacity was filled. In fact, Milan’s crowds have dropped significantly from the 64,500 average achieved in 2002/03. In fairness, this is a generic problem in Italy, where total attendances in Serie A have slumped from 9.4 million in 2008/09 to 8.9 million in 2010/11 (per the  FIGC), despite low ticket prices, due to a combination of obsolete stadiums, poor views and, let’s be frank, the suspicion of match fixing.

This is why Milan have been exploring opportunities for moving to a new stadium that could maximise their revenue earning potential. It’s not just that the club currently pay the council over €4 million rental a year under a 30-year lease ending in 2030, but the lack of ownership means that they miss out on profitable opportunities like premium seating, corporate boxes, restaurants, retail outlets, naming rights and non-sporting events. As Galliani explained, “A new stadium is essential for a club that wants to compete in the future. Look at Bayern Munich: since they built a new stadium, their revenue has increased by €60 million.”

Closer to home, Juventus have just moved into a fabulous new arena, but are the only leading Italian club to own their stadium. Although it cost them around €150 million to build, much of the funding was sourced from innovative deals, e.g. 60% of the money was derived from a naming rights deal. Milan would undoubtedly require substantial funds to do the same, but the benefits would be substantial, e.g. Juventus believe that their match day revenue will at least double,

Galliani recently revealed that the club had tried to buy San Siro, but the price quoted by the council was too high, so they have instead turned their attention to modernising the ground in order to develop an “elite stadium”, ready for the 2015 Champions League final. However, he admitted that this was not ideal, due to “the problems that follow when you share it with another club.” Any new development will be a long-term project, e.g. even Juve’s new stadium took more than 10 years to complete after the first discussions with their local council.

"Silva and Gold"

It had been hoped that new stadiums would be developed as part of Italy’s bid for Euro 2016, but unfortunately this was lost to France, as was the catalyst for government intervention. Galliani warned, “Germany have overtaken us thanks to the wonderful new stadiums they built for the World Cup in 2006. Thanks to the new stadiums being built for Euro 2016, I predict that the French will also overtake us.” This is why Italian owners hope that new laws will be introduced to facilitate new stadium construction.

Whatever the solution, something must surely be done, as this massive revenue shortfall means that Milan are not competing on a level playing field, especially with the advent of FFP. As Galliani lamented, “The rankings for revenue and sporting success tend to coincide. The gap comes from different points of departure: in the case of Milan the gate receipts do not reach €30 million a year.”

Where Milan have really begun to motor is in their commercial operations, as revenue here has really taken off in the last two years, rising by €10 million (13%) in 2011 alone to €91 million. This is not only the highest in Italy by some distance (Inter and Juventus are the closest challengers at €54 million apiece), but is also the fifth highest in Europe. That said, Milan still only earn half as much as Bayern Munich’s astonishing €178 million and are a long way behind Real Madrid’s €172 million and Barcelona’s €156 million.

Commercial revenue was inflated by once-off payments in 2009 and 2010: the former contained €20 million for the sale of Milan’s image archive, while the latter included €5 million for the sale of some apartments. Excluding these once-off items, the underlying growth since 2009 has been a very impressive 50%, partly due to the partnership with Infront, who handle all sponsorships except kit deals. Progress can be measured by the raft of new sponsors signed up in the last 12 months, including Taci Oil, Indesit, United Biscuits and Nivea for Men.

Milan have long-term deals with their shirt sponsor and kit supplier. The Emirates contract runs until 2015 and is worth a guaranteed €12 million a season plus performance related bonuses (€2.7 million in 2011), while the Adidas kit deal has been extended to 2017, generating €17.5 million last year, including a €1 million performance bonus.

These deals compare pretty favourably with those at other Italian clubs (a) shirt sponsors: Inter – Pirelli €12 million, Juventus – BetClic €8 million, Napoli – Lete €5.5 million and Roma – Wind €5 million; (b) kit suppliers: Inter – Nike €12 million, Juventus – Nike €12 million, Roma – Kappa €5 million and Napoli – Macron €4.7 million.

However, these agreements are still worth much less than those at foreign clubs, e.g. Manchester United, Barcelona, Real Madrid, Liverpool, Bayern Munich and Manchester City all have shirt sponsorships worth more than €20 million a season. Similarly, the first four of those clubs have penned kit supplier deals for over €30 million a year,

Milan reportedly sell between 400,000 and 600,000 shirts a season, which would put them in the top ten clubs worldwide and around the same level as Inter and Juventus, though the likes of Real Madrid and Manchester United sell nearly three times as many. The rossoneriare now looking to make more from global opportunities, e.g. this summer they will play prestigious friendlies against Real Madrid and Chelsea in the United States.

Fundamentally, the most important challenge for Milan is the wage bill, which rose €14 million in 2011 to a totally unsustainable €206 million. Even though most of this increase was due to higher bonuses for winning the scudettoin 2011, the fact remains that this is the highest wage bill in Milan’s history and the second highest ever for Serie A, only surpassed by the €234 million paid out by Inter in their 2009/10 treble winning season.

Since 2006 wages have grown by 50% from €138 million to €206 million, while revenue has actually decreased by €3 million in the same period, leading to a rise in the important wages to turnover ratio from 58% to 88%. This is much worse than UEFA’s recommended maximum limit of 70%, though Milan are far from alone in struggling to confront this issue in Italy, as seen by Juventus (91%) and Inter (90%).

In Italy only Inter come anywhere near Milan’s wage bill. In 2010/11 they were just behind Milan’s €193 million with €190 million, while the next highest were Juventus €140 million and Roma €107 million. To place Milan’s wage bill into context, it is around the same as Fiorentina €55 million, Genoa €52 million, Napoli €52 million and Lazio €39 million combined. An analysis by La Gazzetta last summer suggested that the cost of Milan’s first team squad of €160 million was far above Inter’s €145 million, but it’s far from certain that their figures are accurate.

Milan’s wage bill also looks excessive in comparison with foreign clubs, only surpassed by Barcelona €241 million (including other sports), Real Madrid €216 million, Manchester City €209 million and Chelsea €202 million. Strikingly, it is higher than Manchester United and Bayern Munich, who have been more successful recently. It is also apparent that most of these clubs have a much better wages to turnover ratio than Milan, because of their higher revenue, e.g. Real Madrid 45%, Manchester United 46%, Bayern 49% and Barcelona 53%.

Galliani has recognised the problem, “Both Fininvest and I are trying to reduce the amount of money spent on wages.” However, we have heard this before. Last year, he said, “Milan absolutely have to reduce the wage bill. It is difficult to increase revenue, so we have to act on the salaries and hope that the players understand, especially with financial fair play.” The problem is that it is difficult to cut the wage bill without reducing the competitiveness of the squad.

That said, Allegri appears to be on message, “We had 33 players in the squad this season, but that was because we had to make some adjustments in January because of injuries. We’ll have a 25-26 man squad, including three goalkeepers, for the new season.” Many senior players have left this summer, while others will be only be given contract extensions on reduced terms, e.g. Flamini has reportedly been offered €1.75 million instead of his current €4 million, while any offer to Aquilani will also be much lower. Using salary figures from La Gazzetta, the gross saving would be at least €30 million. Clearly some players will need to be replaced, but the cost should be much less, e.g. Van Bommel and Gattuso were both costing €7 million.

The other element of player costs, namely amortisation, has also been rising, having doubled from €22 million in 2006 to €45 million in 2011, though it is still lower than Inter €52 million and Juventus €47 million – and miles behind a big spender like Manchester City €101 million. In addition, the club has written-down €9 million in player values in the last two years for the sales of Ronaldinho and Ricardo Oliveira.

As a reminder, amortisation is the annual cost of writing-down a player’s purchase price, e.g. Ibrahimovic was signed for €24 million on a 4-year contract, but his transfer is only reflected in the profit and loss account via amortisation, which is booked evenly over the life of his contract, i.e. €6 million a year.

This growth is a reflection of Milan’s activity in the transfer market, which can be divided into three periods in recent times. First, the boom time with €237 million net spend in the four years up to 2003; then the age of austerity with net sales proceeds of €18 million in the seven years up to 2010, when Milan had to “sell before we can buy” per Galliani; finally a return to investment with net spend of €51 million in the last two years.

Milan might be shopping at the cheaper end of the market, e.g. Stephen El Shaarawy for €10 million and Kevin-Prince Boateng for €7.5 million, but this has still been enough to make them the third highest spenders in Serie Aduring this period, only beaten by Juventus €101 million and Roma €58 million.

The annual deficits have resulted in net debt doubling in the last five years to stand at €292 million, comprising €156 million of bank loans plus €136 million owed to factoring companies based on future income. Most of this is short-term debt, but is supported by a €390 million line of credit from Fininvest. On top of that Milan owe other football clubs €30 million, mainly €16 million to Barcelona for Ibrahimovic and €10 million to Manchester City for Robinho, though are themselves owed €16 million by other clubs.

In fairness to Milan, this is a problem throughout Italy with La Gazzettacomplaining that clubs were “buried under a mountain of debt”, following the 14% increase last year to €2.6 billion, but it is worth noting that Milan’s debt breaches one of UEFA’s warning indicators, as it exceeds 100% of revenue.

In fact, Milan’s balance sheet is the weakest in Serie A with net liabilities of €77 million, even after an improvement from €97 million the previous year. This is a little misleading, as the value of the players in the accounts of €136 million is smaller than their worth in the real world (€271 million according to Transfermarkt), but it is nevertheless an indication of the club’s financial fragility.

This has necessitated the support of the owners with Fininvest pumping in €210 million in the last five years, including €87 million in 2011 alone (plus a further €25 million in March 2012). As Galliani put it, “The losses have been completely covered by Fininvest. I thank the president for his passion. Without Fininvest, we couldn’t be an example of sporting excellence the world over.” Berlusconi wryly echoed these thoughts in a message to new Roma owner Thomas DiBenedetto, “You spend lots of money and earn nothing.”

Although the cash flow statement suggests that Milan are fine at an operating level, the reality is that they cannot afford to purchase players without increasing debt and/or additional funding from the owners. Incidentally, player purchases are much higher in cash terms than has been reported in the media, presumably due to the nature of some of the rights sharing deals with Genoa.

These difficulties have raised the prospect of Berlusconi selling Milan, especially as Fininvest is not exactly thriving in today’s tough economy, exacerbated by the €560 million fine following a court ruling that it bribed a judge during the Mondadori takeover battle. His daughter Barbara, who joined the board in 2011 “to reaffirm and strengthen the tie between the team and the family”, has said that her father has no intention of moving on, but there has been talk of selling a 40% stake to an overseas investor, though they might be put off by the stadium issue.

Even if Berlusconi did want to return to the good old days with a few extravagant purchases, he needs to be mindful of UEFA’s Financial Fair Play regulations, which will ultimately exclude from European competitions clubs that continue to make losses.

Fortunately for Milan, all of the losses made to date are not considered for FFP, but they have to get their act together immediately, as the first monitoring period will taken into account losses made in 2012 and 2013. However, they don’t need to be absolutely perfect, as wealthy owners will be allowed to absorb aggregate losses (“acceptable deviations”) of €45 million, initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions.

Getting to break-even will be an arduous task for Milan, because they will need to radically overhaul their strategy, as conceded by Galliani, “FFP hurts Italy. There will no longer be patrons that can intervene. Until now people like Berlusconi and Moratti would be able to support us, but with the fair play it will no longer be possible.”

"Duck Rock"

Barbara Berlusconi underlined the need for change, “Soccer teams will have to transform into proper companies. If you can only spend what you get, then you have to keep costs in check and increase revenue. It’s a challenge that can become an opportunity.” That’s undoubtedly true, but, given Milan’s limited scope to increase revenue, that effectively means cutting the wage bill, which Galliani accepted, “No question, we’ll need to reduce our expenses.”

Alternatively, Milan could boost profits by selling players and both Thiago Silva and Ibrahimovic are much in demand, though the dilemma was neatly summarised by club legend Paolo Maldini, “If you want to win something, then you can’t do without them. If the objective is to balance the accounts and have a decent campaign, then you can sacrifice one of the two.” On the other hand, the club might be willing to listen to offers for Robinho or Pato, who are not indispensable.

"KPB - a prince among men"

In a certain sense FFP might actually point the way forward for Milan, as the break-even analysis excludes costs for stadium development and the youth academy. The latter has proved a little disappointing in recent years, especially when you consider that Milan’s greatest teams have always included many in-house products like Franco Baresi, Billy Costacurta and that man Maldini, but Galliani only last week stressed the importance of youth players breaking into the first team.

Right now, Milan will need to show some fancy footwork to improve their finances, while maintaining their ability to challenge at the highest levels. Ibrahimovic has already voiced his disquiet about the change in direction, “There used to be a great Milan project, now we’ll have to see if they take it forward”, but the Berlusconi-Galliani axis really don’t have too many options. If they do manage to pull this off, then we will have to accept that the devil really does have all the best tunes.

The Zlatan Ibrahimovic Transfer Analysed

Last week Barcelona sold their enigmatic Swedish striker Zlatan Ibrahimovic to Milan in a transfer that was astonishing not only because it came just 12 months after “Ibra” had moved to the Camp Nou, but also because the price was considerably lower than the amount the Catalans had paid to Inter for the mercurial forward. Although his performances in the blaugrana shirt had been a bit hit-and-miss, Ibrahimovic was by no means a complete failure, having scored 21 goals in all competitions, averaging a goal every other game in La Liga, where he helped Barcelona retain their title.

When rumours first started circulating that Ibrahimovic might be for sale, a deal appeared highly unlikely, especially as Barcelona had apparently inserted an extraordinary €200 million buy-out clause in his contract. Ibrahimovic’s agent, the colourful Mino Raiola, hardly encouraged the transfer initially with a series of negative quotes: “It’s 99.99% certain that Zlatan is staying”; “I have spoken with the club and Guardiola doesn’t want to sell him”; and “Guardiola will leave the Camp Nou before Zlatan does”.

But if a week is a long time in politics, it’s an eternity during the transfer window and a few days later Raiola was congratulating Milan’s vice-president Adriano Galliani on his ability to negotiate Barcelona’s price down from €70 million to €24 million. Making Harry Redknapp look like a rank amateur in the dark arts of wheeler dealing, it was little wonder that Raiola described this as “the greatest deal he ever made.”

"Galliani reaching for his wallet"

So the Rossoneri get to take Ibrahimovic on loan for one year with an option to purchase him for just €24 million at the end of the 2010/11 season. Furthermore, this is a so-called free loan, which means that Milan do not pay Barcelona anything for the loan itself, only having to find the cash to pay Ibrahimovic’s (lower) salary during the year of the loan.

During this saga, all sorts of figures have been thrown around, but much of what has been reported is misleading or incorrect, so it’s worth examining this transfer in some detail, in order to understand the different motivations of the interested parties. Put another way, what are the advantages of this deal for Barcelona, Milan and Ibrahimovic himself?

This transaction also highlights many financial issues surrounding transfers that fans do not generally understand that well, such as the profit (or, in this case, loss) made from a transfer, a player’s value in a club’s accounts and amortisation. Not exactly thrill a minute stuff, but unfortunately very important in these times when football has become big business.

"Heads above the rest"

OK, as our old friend Rafa Benitez would no doubt say, let’s try to establish some facts.

First, the price that Barcelona paid Inter for Ibrahimovic last year has been listed as anything between €46-50 million plus the value of Cameroon striker Samuel Eto’o who moved in the opposite direction. Barcelona’s official website listed the price as €46 million plus Eto’o plus the loan of Alex Hleb, but the Belarus midfielder refused to go to Inter, instead opting to return to Stuttgart, which resulted in the Catalans increasing the cash element as compensation. The figure that we will use for our calculations is the one quoted in Inter’s accounts, namely €69.5 million, which comprises €49.5 million cash plus a €20 million valuation for Eto’o, which we shall round up to €70 million to make life simpler.

At this point we need to understand that when the purchase of a player involves a non-cash consideration, such as a player in part-exchange, then the transaction is accounted for using an estimate of the player’s market value. This is obviously open to some manipulation, but not too much, otherwise the value would be questioned by the club’s auditors.

In years gone by, football clubs used to book the entire purchase price as an expense in the year of acquisition, which had the advantage of simplicity, but meant that a club’s profits over a number of years could be “lumpy”. However, since the introduction of IFRS (International Financial Reporting Standards), in particular FRS10 on Goodwill and Intangible Assets, clubs have used the capitalisation and amortisation method to account for player transfers.

"I'm no makeweight"

Unfortunately we now need to get a little technical in order to understand the concept of amortisation, which is how accountants reduce the value of assets over time. In this case, we mean footballers. At the end of a player’s contract, the number crunchers consider that a player has no value, as he is allowed to leave the club on a free transfer, so they write down (or amortise) his value over the length of his contract. In the case of Ibrahimovic. Barcelona bought him for €70 million on a five-year contract, so the annual amortisation was €14 million (€70 million divided by 5).

After one year his net book value in the accounts was €56 million (the original cost of €70 million less €14 million amortisation). After two years, his value would reduce by another €14 million to stand at €42 million. Simples.

There have also been conflicting reports on Ibrahimovic’s salary at Barcelona, but the figure that makes sense to me is €12 million after tax. As he benefited from the Beckham Law, where foreigners were taxed at 24% (instead of a 24-43% range), the club’s gross salary costs would have been around €15 million per annum. This is also consistent with the statement on Barcelona’s website, which referred to savings from the deal of “approximately €60 million”. Given that Ibrahimovic had four years remaining on his contract, that equates to annual salary savings of €15 million.

Actually, that raises an interesting question: if Ibrahimovic had stayed at Barcelona, how much would this have cost the club in total?

Before I give you the answer to that question, I advise you to take a seat. Sitting comfortably? The figure is a jaw dropping €163 million, which is made up of three elements: €70 million to buy the big fella; €75 million in wages (€15 million times five years); and an estimated €19 million in bonus payments. Looking at Barcelona’s accounts, we can see that a very high proportion of their salary costs actually comes from variable compensation, i.e. bonuses paid out for success on the pitch, so I have assumed that this would be 25% of salary (which is possibly on the low side, given the last two seasons).

This perfectly demonstrates the importance of wages in any transfer. Last summer, football pundit Jamie Redknapp said, “You can’t get cheaper than a free transfer”, when discussing Michael Owen’s move to Manchester United, but this is obviously nonsense, as it can get pretty expensive if you’re paying the player involved £100,000 a week. Even when the transfer fee is enormous, as was the case with Ibrahimovic, the salaries (and bonus) still represent more than half the total cost to the club.

"Right sort of dive"

Some might say that part of this cost will be offset by shirt sales, but you need to sell an awful lot of shirts (average profit €12) to make a dent in this. In any case, I would argue that the club would probably have sold a similar amount of shirts if they had bought another world-class forward, but for less money.

In reality, Ibrahimovic has of course been sold after only a year, which has so far cost Barcelona €88 million (purchase price €70 million plus a year’s salary €15 million and bonus €4 million).

To be fair, Ibrahimovic was bought as a direct replacement for Eto’o, so we should probably bring him into the equation and reduce the cost by the €8 million (or so) wages that Barcelona would have paid to the Cameroon striker, meaning that the net cost should be reduced to €80 million.

On the other hand, Barcelona bought David Villa for €40 million this summer, effectively replacing Eto’o after a year’s hiatus with Ibrahimovic, so this should be added, bringing the total cost for the last year to an incredible €120 million.

"Raiola - football agent extraordinaire"

Arguably, the cost is even higher, as the money paid to Inter last year enabled them to buy a whole raft of top quality players, who were pivotal in their Champions League triumph, not least when they eliminated Barcelona in the semi finals. In exchange for Ibrahimovic, Inter got Eto’o and €50 million, which they used to buy Wesley Sneijder (€13.5 million), Diego Milito (€22.5 million), Thiago Motta (€9 million) and Lucio (€6 million).

You can’t really put a price on a victory like that, but Inter received €49 million from UEFA’s central distribution, compared to Barcelona’s €39 million. That’s €10 million more, so our estimate of Barcelona’s total cost for a year of Ibrahimovic’s services has arrived at a whopping great €130 million.

Of course, when Barcelona receive the €24 million from Milan for Ibrahimovic’s sale, this will come down to “only €106 million”, but to lose that much on one deal in one year shows a distinct lack of financial judgment at the very least. To put it more bluntly, it’s staggering incompetence, especially when you consider that the loss is equivalent to more than 25% of Barcelona’s annual turnover.

Let’s focus on the sale for a moment. In real terms, the loss on sale is easy to see: Barcelona bought Ibrahimovic for €70 million and will sell him for €24 million, producing a horrible loss of €46 million. Last year many wise football men said the price paid was ridiculous and it looks even more absurd now.

However, in the wonderful world of accounting, the loss is a moving target, depending on exactly when you sell the player. It is important to realise that in the accounts, the profit from a sale is not the same as the transfer fee, but is actually equal to the sales proceeds less the carrying value in the books.

As we saw earlier, Ibrahimovic’s value in the books falls as time passes with each year’s additional amortisation. So, his value now is €56 million, but in a year’s time it is only €42 million. This means that if Ibrahimovic had been sold now, the loss on sale would have been €32 million (€24 million sales proceeds less €56 million net book value), but next year the loss would be “only” €18 million (€24 million less €42 million).

Aha, you cry, so that’s why Barcelona structured the deal as a loan with the sale delayed until next year - a smaller loss. Lovely jubbly. Creative accounting at its finest.

Not so fast, big boy.

Yes, the pure loss on sale would indeed be €14 million lower, but that ignores the fact that Barcelona still have to book that €14 million as amortisation in the coming year, as the asset remains on their books during the loan. In other words, over two years the accounting loss is exactly the same for Barcelona whether they sell Ibrahimovic now or loan the player and then sell him.

If they transfer him now, they make a straight loss of €32 million on the sale. If they go for a year’s loan and then sale, they will lose €18 million on the sale, but also have to book €14 million amortisation, giving a total loss of, guess what, €32 million.

So why on earth would Barcelona want to structure the deal in this way? I can think of three reasons:

(i) Part of the loss is postponed until the following year, so the year-on-year growth will look better in the 2010/11 accounts, which, let’s not forget, are the first ones published under the new Barcelona president, Sandro Rosell. If Ibrahimovic had been sold now, the loss in the accounts would have been €32 million, compared to €33 million expenses in 2009/10 (amortisation €14 million, salary €15 million, bonus €4 million), leading to “growth” of €1 million.

However, with the sale slipped by 12 months, the only expense this year is €14 million amortisation, giving a “growth” of €19 million (compared to the €33 million expenses). That will do very nicely with Rosell looking for as large profit as possible in order to demonstrate his financial acumen, which was a key part of his election campaign.

(ii) A straight loan would have been too risky. If Ibrahimovic had flopped in Milan, Barcelona would have had to take him back and his value would have further diminished. On top of that, the Beckham Law has now been revoked, so the cost to the club of his salary would need to be increased to cover the higher tax, as his contract has been agreed “netto”. Equally, Ibrahimovic could be a great success, increasing his value, but that would have been too much of a gamble.

(iii) Ibrahimovic remains as an asset on Barcelona’s balance sheet. Probably not that significant a factor in all honesty, but it helps improve the club’s net assets figure (assets less liabilities), which has been under a great deal of scrutiny with all the talk about Barcelona’s indebtedness.

"Shut the door on your way out"

Of course, the argument that Barcelona’s loss would be lower this year might be invalid if a brave auditor decided to ask the club to book an impairment provision against the obvious reduction in the value of the asset. It’s difficult for the club to argue that he’s still worth €42 million in June 2011, when the club has set the price at €24 million the very next month. In that case, they would have to book the full €32 million loss in the 2010/11 accounts.

Enough accounting already. However much you dress it up, it’s still a poor deal. In fact, there’s a case for saying that Barcelona will not even get €24 million, as Milan will not pay the whole fee next year, but over the following three years. Given the time value of money, even in these times of low interest rates, that means it is probably only worth around €23 million, once the payments have been discounted. Furthermore, Barcelona will also continue to pay Raiola his annual 10% commission on Ibrahimovic’s salary (€1.2 million a year for four years), as the player did not unilaterally break his contract.

The reality is that Barcelona backed themselves into a corner. As Milan appeared to be the only game in town, Barcelona had absolutely no leverage during the negotiations. They really should have tried harder to interest other clubs in the player, so that they could encourage a bidding war, especially Manchester City, the one club that has the riches to pay a much higher price, as we saw with Yaya Toure. City’s absence from the negotiating table seems even stranger when you consider Ibra’s connection to their manager, Roberto Mancini, who had bought him when he was at Inter.

"What does Rosell think of the deal?"

In fairness to Barcelona and their new president Rosell, the situation is in some ways reminiscent of the old joke, when an Englishman asks for directions and an Irishman replies, “If I were you, I wouldn’t start from here.” Rosell can also say that it is indeed an expensive mistake, but it’s really Joan Laporta’s expensive mistake, as it was the former president who over-paid.

And there are actually some redeeming aspects to this deal from Barcelona’s viewpoint. From a football perspective, they have offloaded a player who did not neatly fit into the team’s fast, flexible passing game and was not really part of Pep Guardiola’s plans for the future. The relationship with the manager had obviously broken down, so if Ibrahimovic had remained, he might have been an unhappy, disruptive influence in the dressing room. In short, Ibrahimovic had become surplus to requirements.

As Sporting Director Andoni Zubizarreta explained, “Even with the financial loss, this was the best option.” While it might be good to see the football take priority over money, Zubizarreta also pointed that “the total salaries of the squad have gone down by 5%”, so the financial issues have also been taken into consideration, which is hardly surprising given the hits that Barcelona’s accounts have taken in the last few months.

"David Villa - new kid in town"

This was backed-up by vice-president Josep Maria Bartomeu, who claimed, “We’re very pleased with the way things worked out. We’ve saved €60 million and taken in €24 million.” This might well be the truth, but, as we have seen, in no way is it the whole truth. Even if the savings over the next four years are probably higher at €75 million, if you include an estimate for bonuses, the central point remains the same.

Incidentally, a few people were under the impression that the €60 million savings mentioned on Barcelona’s website arose from a combination of the €24 million sale plus three years of salary at €12 million, but Bartomeu’s statement gives the lie to that, as it explicitly mentions the €24 million on top of the savings. In addition, as Ibrahimovic was on a five-year contract, four years of salary costs have been saved, not three (Milan pay his wages from this year).

Barcelona’s savings in the accounts over the next four years will be even higher, as amortisation is also a factor. With the loan arrangement, Barcelona book amortisation next year, meaning three years will be saved. That would produce another €42 million (3 x €14 million) to add to the €75 million cash savings, resulting in a grand total of €117 million coming off the accounts between 2010 and 2014 (though this will obviously be offset by David Villa’s cost).

"The other side of the tracks"

In essence, Barcelona have decided to cut their losses here, observing the economic principle of “sunk costs”, which are costs that have already been incurred in the past and cannot be recovered, so you should move on. No use crying over spilt milk (even if it’s bloody expensive milk).

The other point worth making is that Barcelona have produced the majority of their first-team squad from La Masia, their renowned youth academy, so they can afford to make a few costly blunders in the transfer market. This deal in isolation is dreadful, but the club should probably be judged on its overall recruitment policy, including those players developed in-house.

For Milan, this looks like a fantastic deal. It’s not just that they have negotiated a cut-price €24 million, but they only have to start making payments next year, when their cash flow will be significantly better, since 11 players’ contracts come to an end, reducing the wage bill by around €70 million a year (though they will obviously have to replace some of these players). Much of the transfer fee will be funded by Milan selling Klaas-Jan Huntelaar to Schalke 04 for €14 million and loaning Marco Borriello to Roma for €2 million (with an option to buy for a further €13 million).

"Meet El Presidente"

Milan have bought “un campione”, as Ibrahimovic has brought success wherever he’s been (seven successive league titles for four different clubs in three different leagues). Along with the purchase of Brazilian striker Robinho, he will bring some much-needed flair to a Milan team that has been toiling in Inter’s shadow the past few years. This will help boost president Silvio Berlusconi’s popularity after he had been severely criticised by fans for his lack of spending.

As for Zlatan, he has come out of this affair rather well. He took a 33% pay cut (from €12 million to €8 million) and without this sacrifice, it’s not entirely clear whether the transaction would have gone ahead, as he has effectively subsidised the deal by reducing Milan’s overall costs. OK, the lower wages are still a huge amount of money, but I’m not sure that every player would have done the same.

In addition, Barcelona did not pay Ibrahimovic a “golden goodbye”. There had been talk of a huge leaving bonus, presumably to compensate for the salary reduction, but in the end Raiola confirmed that nothing was paid. Cynics may argue that this was possibly influenced by Eto’o losing his court claim for a pay-off equivalent to 15% of his transfer value, but other players might have dug their heels in and refused to budge without a sweetener.

"Where did it all go wrong?"

Maybe the boy just wants to play. In a remark reminiscent of Eric Cantona, he is reported to have said, “You don’t buy a Ferrari and just leave it in the garage.” He also promised not to leave Milan “until we’ve won everything”, which is a bold statement of intent, albeit one that could prove expensive to his new employers.

Hopefully, the magic will return to his game and San Siro will once again witness “Ibracadabra”, for at his best Ibrahimovic is one of the most exciting talents in world football.