The £250m millstone that could cost City their European future

Club admit they face a ‘huge challenge’ to pass financial test after Uefa makes a tough new stand

Manchester City face a much tougher fight than they expected if they are to avoid a ban from European football from 2013 onwards because of a £250m burden that must remain on their books for the next five years.

Uefa has told The Independent that this nine-figure sum, accrued from recent transfers, cannot be written off as a loss on next year's accounts alone, but must be spread over the length of the relevant players' contracts. As a result, the club must rethink its strategy as it hopes to meet the terms of Uefa's Financial Fair Play (FFP) regulations, which demand that, from 2013, clubs must lose no more than £13m per year or risk being shut out of all European competitions.

Uefa's calculations are made as an average over a rolling three-year period and, though this would allow some flexibility, City's recent spree means they will be starting each year until 2015 some £50m in the red, before they spend another penny. The club acknowledges privately that "a huge challenge" lies ahead to meet Uefa's break-even targets.

Uefa's head of club licensing, Andrea Traverso, the man in charge of monitoring, has told The Independent that any "wipeout" of historic spending would "be seen as a way to circumvent the rules, and that is not allowed".

The news comes as City's Manchester rivals, United, publish accounts today that are expected to comply comfortably with FFP, not least because they make enormous operating profits. A British record figure of more than £100m for 2009-10 is expected when United post their latest results, even though the overall losses are expected to be tens of millions as a result of interest payments, plus exceptional currency exchange losses and refinancing fees.

The FFP rules dictate that clubs must effectively break even from 2011-12 onwards, when monitoring begins. Two seasons of finances will be considered for entry into the Champions League or Europa League in the 2013-14 season. Initial losses averaging £19.6m per year will be allowed, but from 2012-13, losses will be capped at £13m per year (averaged over three-years), and from 2013-14, be capped at £8.7m per year.

The size of City's task is illustrated by the fact they made a loss of £121.3m in 2009-10, and expect losses of £130m-plus in 2010-11. The trend is hugely problematic and the transfer "backlog" is a damaging part.

Because City will not be allowed to clear that in one go, the £250m will have to be amortised (spread out) over five years. In simple terms, City will start every season between now and 2014-15 with a red hole in the accounts averaging £50m per season – for players they already own – before a ball is kicked. If they sign anyone else from now on, the deficit will only get bigger.

Amortisation of transfer spending is a necessary requirement under FFP regulations relating to British clubs. It makes no difference if City have actually already physically handed over all the money to the selling clubs for the players they have brought in. For accounting purposes, the fees need to be amortised over the length of the players' contract.

The £250m is an estimate calculated by The Independent from data within City's 2009-10 financial accounts, released last week, and has been corroborated by sources with insight into City's financial situation. City's net spending on players including Wayne Bridge, Gareth Barry, Carlos Tevez and Yaya Touré since June 2008 has been £332.6m and the gross spending far higher.

City hope to meet the FFP requirements by achieving giant leaps in income, especially from Middle East firms; by playing Champions League football for the next two years (a sizeable earner); and by producing their own young stars for the first team and for sale in the near future. But there are no guarantees of success – and other challenges. The biggest of those is a wage bill that grew to £133.3m in 2009-10, which alone was greater than City's entire income of £125m. That wage bill is expected to rise to around £160m in 2010-11; again that bill is expected to be close to the club's total income.

In 2009-10, the club's operating losses – income minus operating expenses, of which wages are the biggest single part – were £55.1m, and will rise.

City argue, with some justification, that owner Sheikh Mansour's investment of hundreds of millions is rebuilding not just a club but a community, with spending on everything from facilities to improved pies, a better website and an academy aimed at nurturing home-grown players. (No other club can better City's figure of fielding seven full England internationals in league games alone this season, albeit not all raised in Manchester).

And if City exceed Uefa's FFP limits solely because of spending before the rules were published, punishment may be reduced if not avoided. But even City insiders acknowledge they have actively chosen to keep on spending in 2010 – on players and wages – on the "if you don't spend, you don't grow" principle.

But as one Uefa source said: "While many clubs have been moving actively towards compliance, it is clear others are still deciding to go the other way... The rules are clear, and when they apply, they will apply."

Other European giants at risk...

Internazionale

The reigning European champions are also the continental kings of spending, with losses of £132m to June 2009, £126m to June 2008 and £178m the year before, or £436m in three years, underwritten by the Moratti family. Gargantuan transfer fees and wages need slashing.

Red Bull Salzburg

Bought by the Red Bull drinks firm in 2006, which has subsidised multi-million pound seasonal losses ever since. Titles have been consistent since (three in five years), under coaches and with players previously out of financial reach. But Uefa will take a keen interest.

Schalke

The Bundesliga deserves its reputation for being well-run financially but Schalke's debt climbed to £121m in their last financial year after losses of £14m. The parent company debt is bigger still at £212m, although that is partly due to stadium funding.

Zenit St Petersburg

Owned and bankrolled by Russia's largest company, the gas firm Gazprom, which has spent hundreds of millions of dollars on facilities, players and wages since 2005.The Uefa Cup win of 2008 was one result. The spending of £38m during the summer was typical, and unsustainable.

Nick Harris

News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tvPoldark episode 8, review
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
Arts and Entertainment
Ramsay Bolton in Game of Thrones
tvSeries 5, Episode 3 review
Have you tried new the Independent Digital Edition apps?
Caption competition
Caption competition
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?

Bleacher Report

Daily Quiz
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence