20 years ago today Barcelona signed Ronaldo for a world record £13.2million fee.
Player Valuations in the Current Market
- Thread starter Viggers
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The player valuations may have been inflated. But the inflation is unnatural for any industry. We're talking about Neymar and Bale being valued at 200-250m, which is 100-150% appreciation in value within 3 years. This is before the massive PL TV deal has even come into effect. They'll quite realistically be at 250m next summer at this rate. Where does this end?
There might have been new, more lucrative sources of revenue but you can't just use that as a justification of increasing player costs. Just to put things into perspective, for three year period between 2012-2015 our revenue increased from 320m to 395m. An increase of roughly 24%.
If we even consider that we'll win the league and bag another 150m from TV money, it would put us to 545m. 70% increase in revenue in 4 years, which is massive but not even close to 150% players' inflation that we're talking about.
Another way to look at it is, if Pogba is worth 125m today, a player of his quality would be worth 80m three years ago. Does anyone here think that would be reasonable?
There might have been new, more lucrative sources of revenue but you can't just use that as a justification of increasing player costs. Just to put things into perspective, for three year period between 2012-2015 our revenue increased from 320m to 395m. An increase of roughly 24%.
If we even consider that we'll win the league and bag another 150m from TV money, it would put us to 545m. 70% increase in revenue in 4 years, which is massive but not even close to 150% players' inflation that we're talking about.
Another way to look at it is, if Pogba is worth 125m today, a player of his quality would be worth 80m three years ago. Does anyone here think that would be reasonable?
A lot of the crazy valuations mentioned in the media are plucked out of thin air, or are based on reports of what selling clubs are demanding for their players. To understand the present state of the market we need to wait until deals go through, and then we'll know how much clubs are willing to pay.
There's no doubt increasing revenues are raising prices, but, imo, we don't yet know by how much.
There's no doubt increasing revenues are raising prices, but, imo, we don't yet know by how much.
I posted in another thread:
When we signed Veron our yearly operating profit was £36m, with his transfer costing £28.5m (79%). Our yearly profit for this year is forecast to be £170m, 79% of this would be £135m.
That season we spent a total of £57m on the operating profit of £36m, which would be 158%... Akin to us spending £268m gross this year.
This is a good barometer to see why player valuations are as they currently are (hint: nothing has really changed in 15 years).
When we signed Veron our yearly operating profit was £36m, with his transfer costing £28.5m (79%). Our yearly profit for this year is forecast to be £170m, 79% of this would be £135m.
That season we spent a total of £57m on the operating profit of £36m, which would be 158%... Akin to us spending £268m gross this year.
This is a good barometer to see why player valuations are as they currently are (hint: nothing has really changed in 15 years).
Agreed. Players like Jao Mario are valued at $50m and when you see lower English clubs rejecting bids for $30m for their players who are nowhere worth it then it's a genuine valuation. Especially when Juve doesn't wanna sell.
Accept it or leave it.
1. Neymar has a buyout clause at the moment, of 200m Euros, that is around £160m.
2. 100 million is still a crazy amount, for someone who hasn't won anything apart from a league trophy. At the time, Ronaldo's fee was crazy, and so was Bale's.
If your point is that he is not an Elite player, then 100m is most definitely an absurd amount.
3. I'd agree, no way we'd spend dangerous money, the club financially is managed excellently, few years ago you couldn't go a day without seeing the Green and Gold threads about the club's finances.
We are trying to buy the best and most marketable player from a current European giant. The club doesn't need to sell. The player is well within his current contract and is only 23. We are in desperate need of a top midfielder this summer, we are fending off Real, and we have the Adidas money to splash right now. It's the perfect storm really. Ergo 100mil.
It's a crazy sum, but I'd rather we spend that money, than to have it sitting in our bank account. Marketing wise, we'll probably get half that sum back straight off the bat.
It's a crazy sum, but I'd rather we spend that money, than to have it sitting in our bank account. Marketing wise, we'll probably get half that sum back straight off the bat.
Fair points but didn't Bayern paid 80m$ for Renato Sanches? This is how market is right now.
That is actually just hear-say and sloppy journalism, the fee includes bonuses that rise to £35m from £28m. Here is the extract from the Benfica website post-transfer agreement (via daily mail)..
It states a "total amount" which a lot of journalists understood as the total amount of add-ons, but that is incorrect, as;
" (via SkySports").
Why would Bayern agree to pay more than double the initial price, when a buy-out clause (of the same value as the add-ons quoted) could be triggered?
£28m or $37m is the initial price.
£35m or $46m is the total price after add-ons.
Given there are well over 4billion people in the world living on less than $2 US a day £100,000,000 is a sickening amount of money to pay for someone to run around s football pitch. It is also sickening when you condider that it is fans who go to the games that will help fund it most likely through ticket price rises or increases in stadium food or whatever. Plus... you could build a football stadium for that kind of money.
I don't stress about it and don't understand why some people do. Prices are market driven and we have very competent people in charge of finances.
I mean, I like it when we get good deals and that.. but I also like to wear fresh underpants every day, but I won't stress about it if I don't.
I mean, I like it when we get good deals and that.. but I also like to wear fresh underpants every day, but I won't stress about it if I don't.
It depends on the point of view really. Of course £100m is obscene amount of money from a general point of view. But from a view of an elite BPL club, with Adidas and Chevrolet deals, with such global pull, with knowledge you are buying global superstar and with the new playing field that the new TV rights deal brings it really isn't that much. It's not to say this is peanuts but they can afford it easily. If Neymar or Messi would be available one of the elite clubs would pay more than £200m without batting an eyelid.
Oh I didn't know that. This makes much more sense.
If we look at the market, we can see the following transfers fees 'in real life':
1st: Gareth Bale, Tottenham to Real Madrid = £86m.
2nd: Cristiano Ronaldo, Manchester United to Real Madrid = £80m.
3rd: Luis Suarez, Liverpool to Barcelona = £75m.
4th: Neymar, Santos to Barcelona = £71.5m
5th: James Rodriguez, Monaco to Real Madrid = £63m.
6th: Angel di Maria, Real Madrid to Manchester United = £59.7m.
7th: Zlatan Ibrahimovic, Inter Milan to Barcelona = £59m.
8th: Kaka, AC Milan to Real Madrid = £56m
9th: Edinson Cavani, Napoli to PSG = £55m.
10th: Kevin De Bruyne, Wolfsburg to Manchester City= £54m.
11th: Radamel Falcao, Atletico Madrid to Monaco = £51m
13th: Raheem Sterling, Liverpool to Manchester City = £49m.
15th= James Rodriguez (right), Porto to Monaco = £38.5m. Hulk (left), Porto to Zenit St Petersburg = £38.5m. Hernan Crespo (centre), Parma to Lazio = £38.5m.
16th: Sergio Aguero, Atletico Madrid to Manchester City = £38m
17th: Juan Mata, Chelsea to Manchester United = £37.1m
18th= Thiago Silva (top left), AC Milan to PSG = £35m. Andy Carroll (top right), Newcastle United to Liverpool = £35m. Lucas Moura (bottom left), Sao Paulo to PSG = £35m. Radamel Falcao (bottom right), Porto to Atletico Madrid = £35m.
19th: Gonzalo Higuain, Real Madrid to Napoli = £34.5m.
20th= Fernandinho (top left), Shakhtar Donetsk to Manchester City = £34m. Cesc Fabregas (top centre), Arsenal to Barcelona = £34m. Asier Illarramendi (top right), Real Sociedad to Real Madrid = 34m. Javi Martinez (bottom left), Atletico Bilbao to Bayern Munich = £34m. Javier Pastore (bottom centre), Palermo to PSG = £34m. Axel Witsel, (bottom right) Benfica to Zenit St Petersburg = £34m.
Please could you explain why it is stupid to say 'I am comfortable (or not) with the supposedly market value (according to the press) of this player'?
If I apply your way of thinking, so it should be forbidden to speak here about Pogba because the deal has not been officialized.
Otherwise, I am OK to say the Pogba thread is certainly 'unbearable' (I don't follow it to be fair because I want concrete facts).
- Moyes was sponsored by SAF.
- LVG - like it or not - has an exceptional CV: former coach of Ajax Amsterdam (CL winner in 95, beautiful style of play), Barcelona, Bayern Munich or Netherlands (WC runner-up in 2014).
- If you look at the CVs of the top management (shareholders, management and diverse committees) and of their advisers, I am inclined to think they are not stupid muppets.
- Of course, the financiers are brilliant when it comes to dividends for shareholders: not only international development but also... 'Leverage Buy-Out philosophy'.
- About the share price, you're certainly right. What I know is a shareholder can loose money only if: share price acquisition > (selling price of the share + sum of all the dividends perceived). The main shareholders have a long-term strategy so they won't sell the shares in the short-term. Moreover, maybe the share price has decreased if they have leveraged a lot the company in the last months meaning a lot of dividends in the short-term, so more risks so decrease of the market value of the share. Whatever the reasons, this share is maybe volatile in one sense...or another.
- The main financial tool for the United shareholders is not a 'derivative product' but simply a 'debt product' (bond, loan...) without looking at some considerations like 'fiscal optimization' or 'creative accounting'.
- Ed thought LVG was the man of the situation: everyone makes mistakes and because he is not stupid has made the necessary to replace him by another CL winner.
- I won't philosophize about the concept of rich but my point was to say United is the most financially powerful club if we excude state-subsidized clubs like City or PSG. And why do we have to keep in mind this? Because the top management would be sacked if they waste shareholders' money. So, they will spend a lot of time to analyse the strengths/weaknesses/opportunities/threats (due diligence if you prefer).
- PSG & City don't care to overpay a player abnormally.
- I'm not a fan of Pogba and don't know the market value of Pogba but I know he could be resold in 3 years at the same price (or higher price)
- Last point: United will invest a lot this summer but please be sure next summer the net spending will be certainly low... Interesting for shareholders when we know United is a cash-cow.
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Hadn't thought about it like that. I hereby demand that Manchester United find all of these people living on less than $2 per day and divide the £100m between them at a rate of 40p each.
Veratti is only valued at 37.7m, let's offer 40m and sign him instead.
Pretty sure all the Portuguese media reported Sanches had a release clause of 80m euros. Hence why Bayern paid 35m euros upfront with 45m euros in add ons (adding up to 80m euros). Even during the euros, the BBC and ITV commentators mentioned several times that Bayern may end up paying £60 odd million for him.
It's not just that it's the fee. It's the abuse it opens our club to and how it changes the dynamics of how it then affects every single future Manchester United transfer from now on and how unlikely it makes us to sign any player henceforth. Because Pogba is NOT worth £100 million. And if we say that he is, then every single "very good" player we go for will command the same fee.
And it gives the media and opposition fans a stick to beat us with if Pogba can't give us Ronaldo esque levels of performance every game - which he won't, he's still a young guy and he's not the player Ronaldo was when Madrid signed him (coming off the back of a 42 goal season).
This is less a Ronaldo and more a Veron kind of signing for us I'm afraid - if it goes through - and at the prices quoted I would rather it didn't.
And it gives the media and opposition fans a stick to beat us with if Pogba can't give us Ronaldo esque levels of performance every game - which he won't, he's still a young guy and he's not the player Ronaldo was when Madrid signed him (coming off the back of a 42 goal season).
This is less a Ronaldo and more a Veron kind of signing for us I'm afraid - if it goes through - and at the prices quoted I would rather it didn't.
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It was 42 goals in 07-08 and then the next season it was only 26. Where are you getting the 49 goal number from?
It was 42, amended.
Still they werent getting him on the back of a 42 goal season. If they had got him then we would have probably charged them closer to £100m since he won the Ballon D'Or too. They got him on the back of a 26 goal season.
Lumping these together, you seem to have missed my point with regards to Ed/smart people in general. It is 2-fold:
1. Being good at one profession - even exceptionally - does not mean you will be good at another.
2. Smart people are not infallible. No one has time to list the examples, but the entire banking industry, for one.
To your points, this is how I read them, purely from an 'Ed is smart so trust him standpoint':
Moyes was Fergie's fault, Ed shouldn't have done a proper executive recruitment plan.
LVG was okay at first, but as CEO it's not Ed's job to change things when it's gone tits up for a year.
United is run by smart people, so despite the share price being down at the moment, that's clearly part of their master plan, because they're smart and do SWOT analyses.
I wish I had that kind of optimism about smart people. I'm not even saying Ed's to blame at all times, but blindly following what he does is naive in the extreme. He has and will continue to make many mistakes. Personally I believe setting precedence of spending 100m on Pogba would be one of those things.
And 20 years before that Vicenza singed Paolo Rossi from Juventus for a world record 1.75million fee. Meaningless.
Even if the Pogba transfer fee was 100million (which I think is being exaggerated by the press) that is a very similar 20 year comparative increase, oh and again it doesn't mean anything...
'If I were the majority shareholder of United', I would not spend 100m on Pogba: so we agree about this at least.
What is the job of Ed? To please the shareholders and appoint the right coach responsible for putting in place a strategy.
Why has United made some bad choices regarding some overpaid acquisitions? Because the coach did want them.
So, I truly believe major decisions are taken in a collective manner: coach, management, approval of major shareholders and internal committees. There are skilled people at United with diverse backgrounds (not only financial backgrounds) if you look at the United website and I don't mean they are perfect.
Of course, Ed certainly plays a big role in the process but I think - naively maybe - all the recent acquisitions were requested by the coach/recruiting team.
Regarding the share price being down at the moment, don't you think the main driver is the failure of LVG to qualify for the Champions League? Sure, the last season was not satisfying.
We will see soon if Mourinho is the man of the situation.
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The details of the acquisition are certainly confidential and that is why there are probably many versions in the press.
Moreover, hard to define an amount sometimes: fixed fee, variable fees, if you include or not the agent fees...
The release clause has to be viewed as the starting point of a negotiation if nobody on the market is ready to pay the release clause.
Our costs include the money we spend on players. So if we run a profit that just means we have earned more than we have spend.
Manchester United does not incur operational cost of 485 mil a year. That figure is much lower. The difference between our revenue and operational costs and financing costs is basically the budget we have for investing. We can easily invest 200m or more per season because our revenue is very high.
Since we already have a big stadium and state of the art infrastructure, players is the biggest investment opportunity United has.
I personally prefer to invest in 1 Pogba over 3 Troy Deeneys.
Well I'm not sure the overall fee is confidential considering Benfica literally released the fee in a statement. But I'm not sure whether the fine details of the variable fees were released. But I'd reckon they would be similar to the structure of the Martial deal.
Also, I wasn't saying Bayern definitively paid (with variables) 80m euros (as I'm not sure myself given that the wording from Benfica was very confusing), rather that it was reported a whole lot more that Sanches' release clause wasn't 45m and 80m euros.
In terms of whether Bayern paid 45m or 80m euros (after all add ons) I'd be very surprised if it wasn't the latter, given how tough negotiators Benfica (and Portuguese clubs in general) are, how quickly Bayern concluded the deal and considering there was a fair bit of competition, especially from United (who are known in recent years to overspend massively).
You can easily see this in our annual reports, just check the EBITDA figure. This kind of ignores the malarky with amortisation and what not. It was 120m in 2015 - this in theory is what we could spend on all transfers. Been around 100m a season. Take off 15m for the Glazers party fund, of course
You were, he is wrong. Benfica came out and verified that it is 80m Euros in total.
Nope. They made it clearer afterwards that it was 35+45.
€5m every 25 games he plays, for a total of 125 games.
€20m if he is in the FIFA Team of the Year, or makes the 3 man shortlist for Ballon D'or.
So yeah, Its probably safe to say that Sanchez will cost Bayern a minimum 60m euros (50m pounds).
You can easily see this in our annual reports, just check the EBITDA figure. This kind of ignores the malarky with amortisation and what not. It was 120m in 2015 - this in theory is what we could spend on all transfers. Been around 100m a season. Take off 15m for the Glazers party fund, of course
United are projecting EBITDA between £165-175M for fiscal 2016. United is a financial juggernaut - the club is generating a lot of cash that could be used to finance transfers. But I think the phrase "in theory" in your post is really critical. There is no doubt that United could afford to spend £100M on Pogba. That doesn't mean they can do that on a regular basis or that doing so for this particular player would be wise.
A couple observations.
1) United's debt is large and seems likely to rise in the next financial statement. The last statement noted that debt rose significantly because of the fall of the pound against the dollar from roughly 1.7 to 1.57 from June 30 2014 to June 20 2015 (the debt must be denominated in dollars and therefore the pound falling makes the reported debt in pounds go up). With the pound now at 1.31, that debt is probably going to be close to £500M. United seems to have refinanced last year to improve terms, but that is still an important line on the balance sheet.
2) United is a business for the Glazers. If the club is generating £500M in revenues (as projected for fiscal 2016), it is pretty reasonable for them to expect something like £50M in profits on an annual basis. Some years, like right now, they may be happy to sink that back into the club in order to improve on the pitch, since that will tend to drive up the value of their investment. But in the long term it is reasonable to expect them to want something like 10% of income in profits on average. Its not a charity for them.
So what is a sustainable average level of transfer spending per year for a club like United going forward? It is hard to do more than make a semi-educated guess but I'd say its something like £70-100 pounds per year. That is a ton of money and will allow the club to keep adding high quality players year after year. But spending £100M on a single player (especially after already spending £60-70 on Bailly and Mkhitaryan) can't be a regular type of occurrence, even for a club with United's financial heft.
To get to an approximation of free cash flow from EBITDA you need to allow for interest, tax and dividend payments. That accounts for £50-60M of the EBITDA leaving, let's say, £115M. We carried into FY2016 about £68M in current payables from previous year transfers - they were partially balanced by £16M in receivables, but that still leaves £52M from prior year's transfers. Which leaves £63M. Through Q3 our additions to intangible assets (that's how players appear on the balance sheet) amounted to £107M to which we have to add the £30M for Bailly that happened in Q4. So, in FY2016, we added £137M in players and had around £63M available to pay for them. So we're carrying a payable of around £70M into FY2017 from the 2016 transfers. Add to this the nearly £50M that is being carried into 2017 from years before 2016 and we can see that there's about £120M in payables that already have some claim on the EBITDA that we generate in 2017. Then we've got the £30M for Mkhitaryan - takes us up to £150M spoken for. And all this is before we start worrying about the increases in player costs from Zlatan and (maybe) Pogba, which will, of course, reduce EBITDA. So, can we afford £100M for Pogba (or anyone else) on top of all this - it's got to be a real stretch, particularly without CL revenues.
1) The change in the balance sheet value of the debt has no practical consequences for United. What might have consequences is the impact of exchange rates on the interest we pay on the debt. However, the likelihood is that those payments are hedged so there should be no impact.
2) United is a public company, not a piggy bank for the Glazers. The dividend (started this year) is 18c per share, a dividend yield of a little over 1% at the current share price ($16 or so). The total dividend payment is around £20M - which will probably go up as a result of the pound's collapse. The Glazers get about 80% of the dividends - around £16M - but before you feel too sorry for them, they've already recouped a large part of their £520M (total) investment in United through share sales.
Can you post a link to this please?
Thanks, that is very informative. The profit point about the Glazers was very silly of me as of course you're right given that its a public company. Long day...
Good work. I don't work in the finance industry - so I can be wrong - but I have some remarks/questions:
1. I don't see the issue with the exchange rate because I guess they use an interest rate swap. So, whatever the volatility of the Exchange/IR rate, financial costs are predictable and relatively 'fixed' (unless they want to repay early: breakage costs and so on).
2. However, the exchange rate has clearly an impact if revenues (denominated in dollars) > costs (denominated in dollars). So, it would depend on the fiscal integration policy
3. If the reported debts in pounds go up, I would consider it as 'artificial' in the Balance Sheet with limited or positive impact in a cash-flow perspective.
4. Yes, refinancing could be a way of improving terms of the debt but also of releveraging the company and improving the return for shareholders (interests related to shareholders loans? upfront exceptional dividends?...). Of course, there are cons: increase of financial costs & risks.
5. The sustainable average level of transfer spending also depends on the amortization base. Not the same impact on the P&L depending the length of the contract. If Pogba signs a 6-year-contract, his acquisition price would be amortized on 6 years. Higher D&A would be partially offset by the decrease of the tax to be paid. Of course, if you focus on the Cash-Flow statement, then you have to look at the payment schedule of the acquisition
6. I'm sure they target rather an annual return superior to 15% via diverse mechanisms (including the management fees)
7. Of course, United won't spend so much each year. The idea is to launch a new project - with Mourinho - meaning many expensive acquisitions. Next year, the net spending would be certainly extremely low imho.
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Good post.
1. I think only young top scorers - like Neymar - could justify such prices. However, I'm sure the idea would be to try to resell Pogba at a similar price in the next 3-4 years. In the meantime, high annual D&A allow tax savings. I don't know the impact of a player like Pogba in terms of sponsoring & international development. In any case, the main rationale is to see Pogba improving and being the leader of the team in the next years.
All in all, very risky acquisition but not so crazy imho
2. Agreed
3. Good to know.
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Good posts, that's exactly what I was trying to say when folks were pointing our revenue and saying we could 'buy 3 Pogbas every season'.