Unfettered Free Agency

[Crow-mo]

The clear implication of Stickman's use of the term "in debt" was that they are struggling financially, or have debts exceeding their assets, not that they have liabilities in their balance sheet, which as you correctly point out, every private sector organisation has.

no, that's not point. I am not saying every private sector organisation "has" debt, I am saying every private sector organisation "should have" debt.

debt finance is a good thing. I am making a value judgement, not just an observation.

The point is that Man U made an operating profit of $160m on revenues of $512m during 2008. It also has a current estimated valuation of $1.8m USD (excess of assets over liabilities). This is a very relevant figure. How you can say net equity is a worthless term is beyond me, especially for a private company.

don't confuse your terms now, you'll just look silly. ManU does not have an estimated valuation of $1.8m. and assets over liabilities isn't a valuation either. its a calculation of book equity which has no bearing on valuation.

further, ManU do not have $2.5 - $3.0 bn worth of assets that would support that calculation (equity of $1.8bn), if it were even relevant.

The issue of how the Glazers funded the purchase of Man U is only relevant to Man U if this funding is currently on Man U's books. While I don't know for sure, my guess would be that it is not. Happy to be proven wrong, if that is not the case, but it would be unusual for the funding source to be on the club's books as opposed to the owner's investement company.

ummm... whilst I don't want to pre-empt a blazing career in finance that obviously awaits but this is execrable nonsense. the debt is absolutely on the books of ManU, which is what all the high pitched screaming little whining of the supporters at the time was all about.

but again, let me give a very basic lesson in leveraged finance.

you have an entity with a market cap of £1.1Bn, and no debt. the enterprise value is £1.1Bn. you buy it for £1.1bn, funding it with debt of £700bn secured against future cash flows, club assets with various tranches of cross default guarantees on your own private assets. So what you now have is a company with a market cap of £400 mio and on balance sheet debt of £700mio again an enterprise value of £1.1bn. but the value of the equity has fallen from £1.1bn to £400mio - that is an appropriation of wealth to the private owners. and as that value has now been extracted from the club, the current valuation of the equity is likely to be somewhere in that vicinity.

effectively they have bought the equity of the club for £400mio of their own money, and £700mio of the club's. they are then using the clubs cash flow to service and pay down the debt - though they are apparently having some issues refinancing the debt, coming pretty close to the wind some 18 months ago.

its also another reason why debt is a good thing, it wards off hostile predators who use your own balance sheet to acquire you.

If the Glazers have to sell to met their obligations, any future valuation of the club will be based upon the profitability of the Man U business model, not how much debt the Glazers have accumulated.

just fundamentally wrong. both in finance principle, and in practice of this particular example.

Incidentally, if the Glazers fail to refinance the various tranches of debt the club will come under the control of the relevant investment banks (i think JPM was the lead placement firm on the buyout), and they will seek to recoup any losses/shortfall from their personal guarantees.

 

[seanoff]

MLB does not have a salary cap. they have revenue sharing but not a cap.

incidentally you'd do well to read this:
http://online.wsj.com/article/SB10001424052748703683804574534021373434110.html?mod=googlenews_wsj

and I quote:

"It's a little surprising, but the statistical relationship between a team's winning percentage and its payroll is not very high. When I plot payroll and win percentage on the same graph, the two variables don't always move together. In other words, knowing a team's payroll does not enable one to know a team's win percentage."

1st i never made any statements correlating payroll to winning %.

2nd the MLB call it a luxury tax, or a competitive balance tax. call it ****ing Claude if you want. it's a number if you go above you get taxed. looks a bunch like the NBA salary cap by a different name to me (to pander to the players mostly who fear a salary cap). is it a huge number, yes. does it often come into play, no but it's still there.

http://sports.espn.go.com/espn/page2/story?page=betweenthenumbers/salarycap/060405

3 using that quote is somewhat bizarre, no idea what you are getting at and in baseball terms (esp NYY) totally false. The Yanks have missed the playoffs once (2008) since 1995. I'd suggest that their payroll has something to do with this.

 

[Crow-mo]

1st i never made any statements correlating payroll to winning %.

sorry, I hadn't thought it was that cryptic.

my bad.

2nd the MLB call it a luxury tax, or a competitive balance tax. call it ****ing Claude if you want. it's a number if you go above you get taxed. looks a bunch like the NBA salary cap by a different name to me (to pander to the players mostly who fear a salary cap). is it a huge number, yes. does it often come into play, no but it's still there.

http://sports.espn.go.com/espn/page2/story?page=betweenthenumbers/salarycap/060405

Right sean, you're going to have forgive me if I think your a logic is a little bizarre.

whilst arguing that Baseball *DOES* have a cap (which is moronic, as a point of fact it does not) you link to an article discussing *WHETHER* baseball should have one.

3 using that quote is somewhat bizarre, no idea what you are getting at and in baseball terms (esp NYY) totally false. The Yanks have missed the playoffs once (2008) since 1995. I'd suggest that their payroll has something to do with this.

so the expert from the Wall Street Journal is wrong, according to a guy who doesn't know what a salary cap is? ok then.

 

[DeanoT]

no, that's not point. I am not saying every private sector organisation "has" debt, I am saying every private sector organisation "should have" debt.

debt finance is a good thing. I am making a value judgement, not just an observation.

Way to miss my point, I am referring to Stickman's comment about debt, the implication being that all EPL clubs are in financial trouble. But if you want to engage in semantics about "has" or "should have", then this will be a very boring discussion.

don't confuse your terms now, you'll just look silly. ManU does not have an estimated valuation of $1.8m. and assets over liabilities isn't a valuation either. its a calculation of book equity which has no bearing on valuation.

further, ManU do not have $2.5 - $3.0 bn worth of assets that would support that calculation (equity of $1.8bn), if it were even relevant.

You're talking to an accountant. Not knowing if you were too, I thought I would spell out in accounting terms at least, what the concept of value is. Clearly, you don't need the explanation.

I readily admitted in this thread that I took the $1.8bn figure from Forbes tables, which, now that I read it again, has a rather peculiar definition of value itself, a method not consistent with the accounting definition, as you point out.

ummm... whilst I don't want to pre-empt a blazing career in finance that obviously awaits but this is execrable nonsense. the debt is absolutely on the books of ManU, which is what all the high pitched screaming little whining of the supporters at the time was all about.

but again, let me give a very basic lesson in leveraged finance.

you have an entity with a market cap of £1.1Bn, and no debt. the enterprise value is £1.1Bn. you buy it for £1.1bn, funding it with debt of £700bn secured against future cash flows, club assets with various tranches of cross default guarantees on your own private assets. So what you now have is a company with a market cap of £400 mio and on balance sheet debt of £700mio again an enterprise value of £1.1bn. but the value of the equity has fallen from £1.1bn to £400mio - that is an appropriation of wealth to the private owners. and as that value has now been extracted from the club, the current valuation of the equity is likely to be somewhere in that vicinity.

effectively they have bought the equity of the club for £400mio of their own money, and £700mio of the club's. they are then using the clubs cash flow to service and pay down the debt - though they are apparently having some issues refinancing the debt, coming pretty close to the wind some 18 months ago.

its also another reason why debt is a good thing, it wards off hostile predators who use your own balance sheet to acquire you.

As said earlier, happy to hear the details, but that is clearly a horribly structured buyout. Most buyouts don't involve dipping into the clubs own assets to payout previous owners, the funds come from the new owners own equity/borrowings which don't affect the club's own financial position.

just fundamentally wrong. both in finance principle, and in practice of this particular example.

Incidentally, if the Glazers fail to refinance the various tranches of debt the club will come under the control of the relevant investment banks (i think JPM was the lead placement firm on the buyout), and they will seek to recoup any losses/shortfall from their personal guarantees.

Gee, you are quick to pass judgement. In any case, I think we are talking two different things here. I am coming from the point of view of a new buyer. The new buyer will look at the potential earnings of the entity, and based on this and forward estimates, will derive a price they are willing to pay. That is the valuation I am referring to. This will of course have to include the cost of debt financing, if as you say, this is on the books of Man U. But the potential buyer is not interested in paying for past mistakes, he is paying for future cash flows. That was my point, if it was not clear.

 

[Crow-mo]

Way to miss my point, I am referring to Stickman's comment about debt, the implication being that all EPL clubs are in financial trouble. But if you want to engage in semantics about "has" or "should have", then this will be a very boring discussion.

sure thing. whatever.

You're talking to an accountant. Not knowing if you were too, I thought I would spell out in accounting terms at least, what the concept of value is. Clearly, you don't need the explanation.

I am talking to an accountant huh? can I have your autograph? lol

sorry, not trying to be funny but seriously dude why mention that? it just means you're not a very good one (ok, maybe harsh, I am sure you're just starting out, but its not much currency to be mentioning on its own)

incidentally there are almost no accounting terms to explain/capture market value of equity.

As said earlier, happy to hear the details, but that is clearly a horribly structured buyout. Most buyouts don't involve dipping into the clubs own assets to payout previous owners, the funds come from the new owners own equity/borrowings which don't affect the club's own financial position.

actually most, if not all, leveraged buyouts do just that. that's why they work.

Gee, you are quick to pass judgement. In any case, I think we are talking two different things here. I am coming from the point of view of a new buyer. The new buyer will look at the potential earnings of the entity, and based on this and forward estimates, will derive a price they are willing to pay. That is the valuation I am referring to. This will of course have to include the cost of debt financing, if as you say, this is on the books of Man U. But the potential buyer is not interested in paying for past mistakes, he is paying for future cash flows. That was my point, if it was not clear.

there is no if, that is fundamentally at the heart of the way buy out finance works.

anyway that's enough on this subject, Deano if that sort of thing interests you, PM me and I'll point you in the direction of a couple of good books.

 

[DeanoT]

I am talking to an accountant huh? can I have your autograph? lol

sorry, not trying to be funny but seriously dude why mention that? it just means you're not a very good one (ok, maybe harsh, I am sure you're just starting out, but its not much currency to be mentioning on its own)

incidentally there are almost no accounting terms to explain/capture market value of equity.

Giving you some background to my comments was relevant since you clearly underestimated my financial knowledge, as I did yours.

When discussing financial issues on here, it is often pointless to use financial terminology, as many posters don't understand, so I use basic terminology to help the issue along. The problem arises when two financiallly literate people engage in such a discussion about the basics, not knowing that both parties are fully aware of the technicalities. Apologies, if my stating my career was annoying to you.

And I never mentioned anything about market value of equity, but nice try in implicating that I did.

actually most, if not all, leveraged buyouts do just that. that's why they work.

there is no if, that is fundamentally at the heart of the way buy out finance works.

anyway that's enough on this subject, Deano if that sort of thing interests you, PM me and I'll point you in the direction of a couple of good books.

Leveraged buyouts yes, but not all buyouts are leveraged.

 

[mdc]

the key to a properly enforced salary cap is easy. publish salaries, but this removes one of the major information asymmetries that the clubs rely on to manage their cap.

In terms of enforcing the cap, yes, good idea.

But as far as any true information asymmetry goes...I can't imagine that it's all that hard for a player manager to get a good sense of what similar players are making within the club and/or around the league.

 

[JeffDunne]

the key to a properly enforced salary cap is easy. publish salaries, but this removes one of the major information asymmetries that the clubs rely on to manage their cap.

if the AFLPA had any sense, or vision, they would insist on FA with publication of salaries.

Couldn't agree more.

Whenever this is mentioned there's the usual blabber about privacy and 'would you like your salary published' - and that's from the AFLPA!

If you ever wanted an example of how this organisation doesn't represent it's members best interests then look no further than this issue.

Publishing salaries would ensure all footballers are better able to achieve their true market value. THat alone should be enough incentive for the AFLPA to push for it.

 

[JeffDunne]

But as far as any true information asymmetry goes...I can't imagine that it's all that hard for a player manager to get a good sense of what similar players are making within the club and/or around the league.

That may be true but it elevates the role of player manager and doesn't hold clubs publicly accountable for their decisions.

 

[Adelaide Hawk]

It's threads like this that makes me realise just how boring football has become.

 

[Wally Carter]

so what you are saying is our code would come to resemble the most successful, popular, and wealthiest league in the world?

are you sure that your conclusion makes sense? the EPL is enormously popular, it hardly seems a big insult.

Comparing an Australian game with the most popular sport in the world that has been entrenched for a century is beyond moronic.

My rationale only applies to an internal perspective.

 

[Bollox]

There is only one REAL reason for free agency...despite the bleatings about being able to move clubs easier its really only about increasing DOLLARS.

Some games can support the effects and may even benefit....whilst others, especially smaller insular codes can have the very fabric that built the game totally and immediately eroded by simple greed...combined with the old "grass is always greener on the other side" mentality.

There are ways to improve player transfers under the current system that havent even been explored yet. The AFL kinda understands this shit a hellova lot more than the average amateur expert in here... and has its reasons for resisisting the free agency advocates devoted to anything new and theories they think should fix something that aint really broken in the first place...just in need of tweaking.

The AFL also seems sensible enough to realise that the supporter base and fabric of our relatively SMALL code of footy is still based upon tribalism and NOT the almighty dollar totally.

Its not important for a smaller code to desperately chase some pipe dream that can totally and irreversibly alter the game and the supporter base....all because the grass is greener brigade think something ought to be fixed when its simply ok the way it is.

People keep trying to come up with all sorts of ways to say how free agency can work...or what they can do to minimise any negative effects. Point they constantly miss though is that its simply not important it be introduced at all in the first place.

Not all player xfers go thru well...always been that way...not everyone is rewarded according to their worth..always been that way in footy and the real world. No big deal...no emergency requiring change..certainly no need to introduce uncertainty and fickleness into what is essentially a small code of footy by world standards and one which is far better off left pretty much left as it is.

I have absolutely no desire to sponsor the new breed of fickle fan that's always in a hurry to mimic anything glossy done elsewhere ..even if it doesnt suit our game. Usually the same types who always ask for something new but end up whinging about the effects when they get it.

Wont matter what version of free agency you can introduce...it will always trend in a certain direction after that.

 

[JeffDunne]

Bollox, quite frankly that is absolute bollox.

The salary cap determines the total spend on players. Free agency won't change that.

The reason why we need free agency is due to the current system ensuring each season we have teams starting out with no chance of success.

Then we have teams that through injury become uncompetitive.

In the latter stages of the season we have a fair % of the league with no incentive to win.

Free agency would change the balance.

 

[Godzke]

Any changes made to allow for a degree of free agency would have to be done gradually anyway. ie. Keep the PSD and introduce a new pool where clubs are allowed 1 free pick for a player. Eventually you could phase out the PSD but I don't think you could do without it straight away.

 

[Bollox]

Bollox, quite frankly that is absolute bollox.

The salary cap determines the total spend on players. Free agency won't change that.

The reason why we need free agency is due to the current system ensuring each season we have teams starting out with no chance of success.

Then we have teams that through injury become uncompetitive.

In the latter stages of the season we have a fair % of the league with no incentive to win.

Free agency would change the balance.

Jeffrey my boy..quite frankly all THAT is absolute bollox.

You;re perfectly entitled to your own tunnel vision though.

There's always arguments to change anything...especially when so few incidents end up being so well thrashed about...and so few problems get the same treatment. Kinda makes things look like an issue that cant be fixed and some sort of change being needed.

But nothing is required except tweaking what we have...no massive irreversible change needed.

grass aint greener over there

nothing to see here

FA wont "fix" anything..simply create new issues the clubs will attempt to circumvent. Out with the old in with the new.

The reason why we need free agency is due to the current system ensuring each season we have teams starting out with no chance of success.

Jeffrey...F.A. aint gonna fix that champ..you know that.. and it would be stupidity of the highest order to introduce it thinking that it would help.

Still havent heard one decent argument FOR free agency which cant be fixed by tweaking what we already have...if they trully want to.

Only natural people always want change or something new.

Luckily the AFL is being professional about it amidst a sea of whingers, soothsayers and vested interests.

 

[JeffDunne]

Bollox, people tend to fear what they don't understand.

I appreciate that.

However you're kidding yourself if you think there isn't problems with the current AFL setup - both from a competition and player perspective.

 

[Pessimistic]

How would the future really look if their was no salary cap, no draft and the cheque book dominated our sport?

I think it would be something like this:

Six or seven Victorian clubs could not compete and would most likely drop down to the VFL.

Brisbane, Gold Coast, Sydney and West Sydney would become extinct.

Port Adelaide as an AFL entity would become extinct.


West Coast and Adelaide would become Chelsea and Man U, Collingwood would become Everton, Essendon would become West Ham, Carlton, Fremantle and possibly Hawthorn would become Bromich West Albion, Middlesborough and Sunderland.

The game would lose millions of supporters and the competition would become a joke.

These arguments always overlook the fact that 'smaller' clubs Hawthorn (who matched big spending carlton) and North (who matched any of the rest) did OK in the last attempt at free agency

it was Collingwood and Richmond that turned into Newcastle and sunderland (massive resources but chronic under achievers)

Hawthorn and North ? Liverpool and Leeds - not powerhouses up till then but trendsetters in the 70s and 80's

 

[Timmy from Thomastown]

Totally uneccessary.

We have a draft, we have trade week, we have a salary cap, and we have plenty of different teams winning premierships. Just look at this years top four. One or two flags each since the 1950's. The system is working.

 

[Timmy from Thomastown]

These arguments always overlook the fact that 'smaller' clubs Hawthorn (who matched big spending carlton) and North (who matched any of the rest) did OK in the last attempt at free agency

Theres a lot of teams who had extended droughts and two who disappeared altogether.

Only four teams won flags between 1966 and 1990.

 

[Wally Carter]

These arguments always overlook the fact that 'smaller' clubs Hawthorn (who matched big spending carlton) and North (who matched any of the rest) did OK in the last attempt at free agency

it was Collingwood and Richmond that turned into Newcastle and sunderland (massive resources but chronic under achievers)

Hawthorn and North ? Liverpool and Leeds - not powerhouses up till then but trendsetters in the 70s and 80's

That is irrelevant now.

The situation has changed drastically since the 1970's/1980's. The fact that both clubs pioneered many of the modern innovations in football has certainly not strengthened their respective causes. Hawthorn and North both went very close to going to the wall since that time.

 

[Wally Carter]

Totally uneccessary.

We have a draft, we have trade week, we have a salary cap, and we have plenty of different teams winning premierships. Just look at this years top four. One or two flags each since the 1950's. The system is working.

You and others are missing my point. I am asking what would the competition be like if it was ruled by the cheque book.

I agree that the system is working and if anything, off field payments should be scrutinised more closely by the AFL.

 

[sherb]

Theres a lot of teams who had extended droughts and two who disappeared altogether.

Only four teams won flags between 1966 and 1990.

Actually it was five:
Hawthorn (7)
Carlton (7)
Richmond (5)
Essendon (2)
North Melbourne (2)

But that doesn't take away from your point at all.

 

[Pessimistic]

Theres a lot of teams who had extended droughts and two who disappeared altogether.

Only four teams won flags between 1966 and 1990.

and they werent all 'rich' clubs - my point

Big clubs Carlton Essendon Richmond

smaller clubs Hawthorn North

 

[Timmy from Thomastown]

Actually it was five:
Hawthorn (7)
Carlton (7)
Richmond (5)
Essendon (2)
North Melbourne (2)

But that doesn't take away from your point at all.

No it doesnt. Add Collingwood to that group who were clearly thereabouts the whole time, but the other six sides were more or less non existent for most of 25 years. It was a six team competition.

 

[Timmy from Thomastown]

and they werent all 'rich' clubs - my point

Big clubs Carlton Essendon Richmond

smaller clubs Hawthorn North

There were six other poor clubs who were nowhere near it.