Inter’s Finances Explained Part 3: How Does UEFA’s FFP Effect & Affect Inter?

January 18, 2018 11:30
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Since the Financial Fair Play (FFP) has enter the mainstream football debates, people are absolutely torn about its usefulness or indeed how fair it is. This is mainly due to poor understanding of the rules. As it’s common when it comes to company finances – which is essentially what football clubs are nowadays – there are a lot of articles regulating operational functions, many grey areas, countless adjustable rules and exceptions.

Earlier in the week a brief introduction into what a bank bond is was published here on SempreInter.com, whilst yesterday the first of a three-part series was published explaining how the FFP generally applies. This is the second part of the FFP series and this time we’ll take a look at Inter’s finances and how the FFP affects them.

Inter’s incredibly serious – underlying – problem nobody paid attention to, was always money. The beloved Massimo Moratti, gave his heart and soul for the club. Nobody ever doubted that, but as far as managing the club, saying that he did a less than satisfactory job would be an understatement.

Moratti repeatedly spent lavishly for Inter. His support was absolutely essential, repeatedly funding spending sprees; record deals for Ronaldo and Vieri, splashing out for Crespo and Veron etc. again and again, year after year. This finally culminated in the legendary treble-winning season but the cost was high, essentially ruining the team.

Inter virtually made no profits under his administration, ever. Let’s take a look at the seasons that led to the treble:

2008: 
Turnover: €172.9m
Expenses: -€285.3m
Operating Profit/ Loss: -€112.4m
Player Trading: -€26.7m
Profit/ Loss before Taxation: -€142.4m/ After Tax. -€148.3m

2009:
Turnover: €196.5m
Expenses: -€307.8m
Operating Profit/ Loss: -€111.3m
Player Trading: -€38.4m
Profit/ Loss Before Taxation: -€153.5m/ After Tax. -€154.4m

It’s bad right? Not even close. In 2007 Inter recorded another loss of -€148m and in 2006 a staggering loss of -€208m. That’s a sum of -€658,7m.

Let that sink in. Over half a billion in four years.

Even when our loses were limited, it wasn’t because the team made money. In 2004 the club recorded a loss of only -€31m, but the truth is that our finances were boosted by the sale of Inter’s brand to a subsidiary. The true loss was -€180m.

According to Il Sole 24 Ore (the Italian equivalent of the Financial Times) Inter’s loses during the Moratti era amounted to €1.5bn, of which €730m were covered by the President’s own pocket. That was unacceptable and in no way sustainable. The club was on the verge of bankruptcy. Now, Moratti didn’t do all this out of negligence. This team was his passion, what he did was out of love and that was his mistake: He ran the club not as a business, but as his hobby. Surrounding himself with a team of yes-men didn’t help either, since nobody was determined to keep things under control.

Enter Erick Thohir. He started off well, came with big promises but committed the same mistakes in reverse. He tried to run the club as a business without fully understanding the peculiar nature of managing a club. He also flat-out refused -or was unable- to properly invest in the club. At the same time he made some highly irresponsible moves. In his first year he managed to temporarily boost the team’s finances by re-negotiating our deals with some of our big sponsors increasing the revenue. But that came at a long-term cost, one we’re paying for today, because he chose to try and sign long term deals by selling our commercial rights at a time we would receive the lowest prices possible.

And this is were Suning stepped in. Amidst the FFP and the Chinese government’s restrictions, Suning managed to do an admirable job within a very small time-frame. They refused to get carried away with spending, opting for a slow but steady rebuilding process from within. That is made clear in the team’s revenues.

Let’s have a quick look in the club’s finances in the past three financial years.

2015:
Commercial Revenue: €39.3m
TV Revenue: €77.8m
Operational Revenue: €172.7m
Capital Gain: €25.7m

With the addition of the rest of the various profits, we had a sum of €198.6m in revenues.

With running costs of €338.8m the team ended up with a Net Loss of €-140.5m.

It got better during the next season:

2016:
Commercial Revenue: €47.6m
TV Revenue: €79m
Operational Revenue: €202.3m
Capital Gain: €39.1m

With the addition of the rest of the various profits, we had a sum of €241,4m.

With running costs of €295m the team ended up with a Net Loss of €-59.6m.

And finally this season:

2017:
Commercial Revenue: €110,4m
TV Revenue: €83.8m
Operational Revenue: €268,6m
Capital Gain: €49,6m

With the addition of the rest of the various profits, we had a sum of €318,2m.

With running costs of €342.8m the team ended up with a Net Loss of just €-24.6m.

It’s clear as daylight that whatever Suning is doing, it’s working. Essentially doubled the income and cut in half the expenses. Two especially encouraging facts, are the almost €70m increase in Operational Revenue and the incredible rise of Commercial Revenue to €110m. The club also placed at par value €300m of senior secured bonds in an effort to boost their financial situation.

What seems worrying, and it is, is the increase of running costs. That was largely due to the overpriced acquisitions of João Mário and Gabriel Barbosa, but that was hardly Suning’s fault; they wanted to announce their arrival with a couple of marquee signings as a gift for the team and they were coerced into making the wrong choice (mainly by Kia Joorabchian). Boards don’t have a habit of signing players without the approval of the staff and while not everyone at the time agreed with that move, someone did.

Speaking of transfers, people complaining about our lack of spending power, couldn’t be more wrong. We splashed out almost €300m in transfer fees within three seasons. We are spending, just not well.

All in all, Suning may look like they don’t invest in the team but they do. It’s just subtle, mostly behind the scenes and following a tightly structured program. Many fans do not like it, many call Suning “frauds” that only look to benefit from the club but the numbers are there and the results are already visible.

So, after reviewing the basics of our club’s finances, let’s take a look at what our agreements with the Financial Fair Play are, what our responsibilities and how do we fare in meeting them.

In 2014, two years after the implementation of the Financial Fair Play regulations, the club failed to comply with the requirements set out in Articles 53 to 68. The most serious of which were the break-even requirements of Articles 58 to 63. That forced the club to reach a settlement (spanning from 2015 to 2018) with the CFCB which required the club being brought into compliance with the rules in the near future, the club’s finances to show a stable and positive trend of improvement, proof that the club had already taken steps to comply with the regulations and also required the club to present a reasonable and realistic business plan that would lead to full compliance no later than 2018. At the time the club was hit with fines and a lower limit to the number of players allowed to register.

It’s been a long and arduous procedure but the above have been achieved.

The team fully met the FFP requirements and is awaiting approval from UEFA. The immediate problem now is the team’s glaring need for reinforcements. There are no money to go around and failing to strengthen the squad could mean the loss of continental qualification. This is a scenario the team absolutely wants to avoid and this is what makes things tricky.

If the club makes a desperate move, using an “internal loan” from future revenues to fund transfers this month, it could derail our financial plan. What if the team uses €30m now, €30m that will have to be deducted by this summer’s financial report, and we miss out on continental football? All of a sudden the club will find itself with a self-imposed added debt and in a lot of trouble. As Spalletti told reporters “To keep saying that we must spend a lot in this transfer window, after the club has already set limits, seems to be the best way to harm ourselves”. He couldn’t be more clear.

This is the reason Suning is being very, very strict with the club’s transfers. They already wasted too much money in transfers that didn’t work out and their planning clearly states that the club will not be using money it doesn’t have. The general feeling and expectations across the club is that we’ll manage to be in a situation this summer where FFP restrictions are lifted and the team is once again competing in the Champion’s League. After that, it’s only a matter of responsible management for the club to finally be financially healthy.

Next Up: What can Inter do to remain on the right path?

George Theotokides
By George Theotokides