City Football Group - Financials & Acquisitions

[SoupInNYC]

A couple of thoughts. Yes, it's a shuffling of deck chairs because the same person is writing the checks no matter what.

It's just a bad look. It's almost as if these other entities exist to absorb costs above and beyond want they want to show on the MCFC balance sheet. The interesting tidbit is that NYCFC, by any measure, looks to be highly profitable in its day to day operations. Our club and it's balance sheet appears to be rather healthy.

Well, MLS fans outside of NYC will make it seem like its a bad look.

All it really is, is shifting the costs to allow the one entity where they could benefit from this, to benefit from it. It doesn't impact our club at all whether they are reporting as operating at a huge profit vs a big loss. But it does benefit MCFC to show they are operating at a profit.

I'm sure other MLS fans will use this article to bash our club, but ultimately this doesn't matter at all.

 

[Kjbert]

Well, MLS fans outside of NYC will make it seem like its a bad look.

All it really is, is shifting the costs to allow the one entity where they could benefit from this, to benefit from it. It doesn't impact our club at all whether they are reporting as operating at a huge profit vs a big loss. But it does benefit MCFC to show they are operating at a profit.

I'm sure other MLS fans will use this article to bash our club, but ultimately this doesn't matter at all.

It doesn't matter until it matters. Im with Midas Mulligan thay from a business perspective right now it's meaningless. You just don't know how this may impact thinking moving forward. Certainly doesn't help the farm team narrative.

 

[mgarbowski]

I wasn't convinced by this article at all. The man basis for his thesis is that Man City generates 92% of the revenue but is only charged 82% of the expenses. He seems to think they should be proportional. He also just asserts that as if it is self-evident, but it is not. MC gets tons of revenue from television and licensing. Neither causes it to incur additional costs. There is no reason for revenue and costs to be proportional.
Later, he notes that the MC share of costs goes down to 76% if you exclude player registration fees. OK. Sure, if you exclude an area where MC bears a higher than proportionate share of costs, its overall proportion goes down. I'm not sure that tells us anything.
I'm sure CFG manipulates the numbers as best as it can to benefit the organization. You can do that legally or not. But I don't see evidence that they're especially hiding Man City costs by assigning them to other teams.

 

[SoupInNYC]

It doesn't matter until it matters. Im with Midas Mulligan thay from a business perspective right now it's meaningless. You just don't know how this may impact thinking moving forward. Certainly doesn't help the farm team narrative.

Regarding this part, this article doesn't help the perception of the farm team narrative for those that are too lazy to think it through analytically. (ETA: don't think this is you, but this is quite common among other MLS fans)

The closest thing this club has ever been to a farm team is having Shay Facey and Angelino loaned here Year 1, and my god did the roster that year need them.

 

[SoupInNYC]

Segue tangent: if NYCFC is showing sound operating fundamentals (we know with any infrastructure there will be a loss), then it’s going to be very interesting moving forward with new MLS TV and Sponsorship deals how NYCFC’s balance sheet continues to play out. It’s hard to fathom CFG wouldn’t continue to shift debt away from MCFC to adhere to the FFP rules, but I assume there’s gonna be a point where showing year after year operating losses is problematic (any resident CPA’s want to chime in?), or does it benefit MLS to have teams in the Red as negotiating tactics with the Players Association???

On this, there are several things to consider (note that I am not a CPA, but do have a degree in accounting and work for a large firm doing forensic accounting / regulatory work).

One, I don't think they are, or the author is suggesting, that debt is being shifted to NYCFC, only operating expenses. I do spend a lot of time working with federal government contractors on how operating costs as well as G&A costs from corporate home offices should be allocated (the federal government has strict rules on this). Ultimately, for government reporting and billing purposes, they have to allocate via certain methods, but for financial reporting or managerial accounting purposes, they can allocate how they want (subject to other accounting rules that I don't really need to pay attention to).

That said, I could see CFG perhaps wanting to allocate more of their scouting costs to non-MCFC clubs, or other home office costs elsewhere in order to show a better bottom line at the one club where it would be an advantage to have that bottom line.

But, I'm not certain what the thoughts are on this from MLS. Are they ok with this particular reporting? Do they want NYCFC to show a bottom line that would perhaps be a better representation of their true operating margin? A little over a year ago, I actually saw a job posting on LinkedIn that was with MLS as a financial analyst. Basically, the responsibilities were to visit the different clubs around the league to work on team financials for league reporting purposes. I thought it would be really cool to have that kind of insight into teams' financials, but really wasn't interesting in that posting at all.

The other consideration in all of this (and I think I know the answer to it) is what portion of NYCFC operating costs, if any, are the Yankees responsible for? I'm assuming that they have an agreement pre-determined so that in cases like what I laid out above, the Yankees wouldn't have to pay any additional share of home office costs. But you would have to imagine if they were paying their straight proportion of NYCFC costs, that they would be very interested in how costs are being allocated down.

If I can find some time, I may open up the annual report and play around there a bit. But again, I do want to stress that I don't normally look at things from a financial reporting perspective, but moreso from a federal compliance perspective.

 

[dummyrun]

I wasn't convinced by this article at all. The man basis for his thesis is that Man City generates 92% of the revenue but is only charged 82% of the expenses. He seems to think they should be proportional. He also just asserts that as if it is self-evident, but it is not. MC gets tons of revenue from television and licensing. Neither causes it to incur additional costs. There is no reason for revenue and costs to be proportional.
Later, he notes that the MC share of costs goes down to 76% if you exclude player registration fees. OK. Sure, if you exclude an area where MC bears a higher than proportionate share of costs, its overall proportion goes down. I'm not sure that tells us anything.
I'm sure CFG manipulates the numbers as best as it can to benefit the organization. You can do that legally or not. But I don't see evidence that they're especially hiding Man City costs by assigning them to other teams.

Yeah it's strange he doesn't flesh out the central assumption. But it's hard to imagine why CFG's non-MCFC clubs (none of which is a financial outlier in its league as far as I know) would be crazy money pits spending £120m against revenues of £46m unless they were bearing more than their share of the group's expenses.

 

[LionNYC]

We're basically an offshore expense haven.

 

[Ulrich]

We're basically an offshore expense haven.

Ain’t that a kick in the sack - another country using the US as an offshore haven.... the planets give to align pretty perfectly for that to happen.

 

[adam]

As long as we're competitive and trying to win, I couldn't care less how they structure their own finances. Not even if they use up all their cap space (though that part usually goes hand in hand). We have arguably the best team in the league after 4 years of work (with a year handicap). This wasn't an accident, like a soccer version of The Producers. Look at the Revolution if you want to start complaining a team is used as a tax shelter.

 

[Ulrich]

Look at the Revolution if you want to start complaining a team is used as a tax shelter.

The Revolution are like a box of comics or Star Wars figures that you take to the basement for storage so that in 30years you can sell them at a big profit if they appreciate in value. But in the meantime, you can’t use them, or enjoy them, or do anything with them other than know you’ve got basic maintenance costs to keep them from being ruined completely.

 

[LeeNYCFC]

To flesh out my point on this debt over time from the CFG financials

“Transactions during the 13 month period ended 30 June 2017 with New York City Football Club LLC consisted of the provision of services of £311,000, the purchase of services of £298,000 and the provision of cash loans. A balance of £88,974,000 is included in debtors due within one year.”

The list below is that debt balance over time. To my journeyman eye that looks more like downplaying our debt to the group early on and now moving the debt over to us appropriately, but without the NYCFC financial statement we’ll never see, can’t make a conclusion on that

2013 - £0
2014 - £6.1 million
2015 - £28.9 million
2016 - £37.7 million
2017 - £88.9 million

 

[dannd23]

We have the best / top 3 team in the league. IDGAF what CFG does as long as they continue to run us like they wanna be the best team in North America and not like the Revs or Rapids

 

[Christopher Jee]

A couple of thoughts. Yes, it's a shuffling of deck chairs because the same person is writing the checks no matter what.

It's just a bad look. It's almost as if these other entities exist to absorb costs above and beyond want they want to show on the MCFC balance sheet. The interesting tidbit is that NYCFC, by any measure, looks to be highly profitable in its day to day operations. Our club and it's balance sheet appears to be rather healthy.

I think it's a good look. It's crafty. My only concern would be that there is enough of an uproar that MLS / FIFA changes the rules. I'd hope that CFG have a contingency plan in place, because I'm not sure how heavily invested they are in this affordance. If they weren't able to dump costs in clubs that play in leagues that don't regulate bottom lines, how would they rectify Man City's bottom line? Perhaps they're hoping that the club can reach an orbit high enough such that it can one day dominate without using this accounting hack.

 

[Kjbert]

Here are my takeaways:

NYCFC is profitable. That's fantastic to me.

MCFC wants to show a $1 profit every year. They overspend their resources and assign certain costs to their other teams to accomplish that. That's their prerogative even though I think it's dumb.

CFG is willing to lose money on MCFC. They are taking profits from NYCFC and Melbourne to whitewash those losses.

I do not expect or ask CFG to take a loss on NYCFC. That being said, I do expect that they spend more money on the wage bill if we are profitable. That means a Villa replacement next year, the conversion of Medina to a TAM player and buying more talent to fill a DP slot.

As it looks now, CFG have us on a budget to squeeze out revenues that offset global costs for running MCFC. I have no problem with our club paying their fair share for global scouting services and operating expenses, but it looks like MCFC charged all the other clubs just enough money for shared resources to make MCFC look good. It's a joke.

 

[adam]

Here are my takeaways:

NYCFC is profitable. That's fantastic to me.

MCFC wants to show a $1 profit every year. They overspend their resources and assign certain costs to their other teams to accomplish that. That's their prerogative even though I think it's dumb.

CFG is willing to lose money on MCFC. They are taking profits from NYCFC and Melbourne to whitewash those losses.

I do not expect or ask CFG to take a loss on NYCFC. That being said, I do expect that they spend more money on the wage bill if we are profitable. That means a Villa replacement next year, the conversion of Medina to a TAM player and buying more talent to fill a DP slot.

As it looks now, CFG have us on a budget to squeeze out revenues that offset global costs for running MCFC. I have no problem with our club paying their fair share for global scouting services and operating expenses, but it looks like MCFC charged all the other clubs just enough money for shared resources to make MCFC look good. It's a joke.

Agree. If we're making profit, we can't be cheap with DPs. Unless, the cheaper DP is the better player. Price doesn't always mean quality. Like I said, I'll judge the on field performance. It's the Almiron v Maxi that bothers me sometimes. But at the end of the day, it's the results. Right now we can't complain.

 

[LeeNYCFC]

Here are my takeaways:

NYCFC is profitable. That's fantastic to me.

MCFC wants to show a $1 profit every year. They overspend their resources and assign certain costs to their other teams to accomplish that. That's their prerogative even though I think it's dumb.

CFG is willing to lose money on MCFC. They are taking profits from NYCFC and Melbourne to whitewash those losses.

I do not expect or ask CFG to take a loss on NYCFC. That being said, I do expect that they spend more money on the wage bill if we are profitable. That means a Villa replacement next year, the conversion of Medina to a TAM player and buying more talent to fill a DP slot.

As it looks now, CFG have us on a budget to squeeze out revenues that offset global costs for running MCFC. I have no problem with our club paying their fair share for global scouting services and operating expenses, but it looks like MCFC charged all the other clubs just enough money for shared resources to make MCFC look good. It's a joke.

It’s like the government running a surplus vs the national debt. We may have revenue greater than costs for a particular year, but it’s built off of huge outlays of cash from CFG. When we build a stadium there will be way more debt and service for that debt. So the club may be running a profit but we’re almost certainly underwater from a debt perspective and will be even more so and for a while once the stadium kicks off.

 

[Kjbert]

It’s like the government running a surplus vs the national debt. We may have revenue greater than costs for a particular year, but it’s built off of huge outlays of cash from CFG. When we build a stadium there will be way more debt and service for that debt. So the club may be running a profit but we’re almost certainly underwater from a debt perspective and will be even more so and for a while once the stadium kicks off.

A couple of thoughts. Unless CFG is amortizing the expansion cost (it seems they are for accounting purposes), then we shouldn't have any other debt burden right now. Secondly, it appears that CFG has offloaded some debt onto NYCFC and Melbourne for MCFC purposes.

Finally, yes, there will be some sort of debt associated with a stadium. But we will also control that stadium and revenue. I would imagine we will keep more of our gameday income at a soccer specific stadium than we do now, even with debt service. That's one reason you build a stadium of your own - plus all the ancillary revenue from other events

 

[adam]

A couple of thoughts. Unless CFG is amortizing the expansion cost (it seems they are for accounting purposes), then we shouldn't have any other debt burden right now. Secondly, it appears that CFG has offloaded some debt onto NYCFC and Melbourne for MCFC purposes.

Finally, yes, there will be some sort of debt associated with a stadium. But we will also control that stadium and revenue. I would imagine we will keep more of our gameday income at a soccer specific stadium than we do now, even with debt service. That's one reason you build a stadium of your own - plus all the ancillary revenue from other events

We’ll probably still get screwed on the parking if we choose Willets.

 

[Falastur]

Given that UEFA have previously called out MCFC for utilising payments for "football services" from one CFG club to another, but then explicitly banned any such transfer of monies between CFG clubs as part of their agreement to "only" fine the club £16m instead of the full £49m, and given UEFA pays such incredibly close attention to club accounts and reviews them root-and-branch every year, then either MCFC are being staggeringly blatant about a decision to return to cooking the books in the most flagrant fashion or this whole story is just the result of people who don't get to see the full ins and outs of a set of accounts deciding to draw conclusions based on very limited evidence.

Until UEFA declares that there has once again been a massive manipulation of financials and bans MCFC from the Champions League, I'm going to have to assume the latter is more likely here.