Milan Focusing on Capital Gains: Is It Only Bad?

[00:00:00]But anyway, so let's talk about capital gains. Uh I just want to start this before we go into the mechanics of how they work. You have been doing a little bit more work than me on the website side.

[00:00:13]>> Yeah.

[00:00:14]>> Uh the last week, let's say, and there's been a lot of news coming out uh about the, you know, head of football position, the candidates, so on and so forth. And one of the things that perhaps maybe inspired this bonus podcast for me was the how Milan wanted to hire the king of capital gains. Now, of course, it's looking like we're not going to get Kosha and his assistant or whatever. So, it could it's going to be someone else, but I think the idea remains the same, right? Is that Milan want to really focus on capital gains or what has the news been or how's it sounded in the media? Um it yeah like you say it's been very much focused on that kind of profitability capital gains um the margins thing which I don't really think comes as a shock to be honest I mean there's there's been obviously interviews with Cardonal um I've got one up here from 2024 so it's a bit of a while ago but the kind of messages stayed the same uh if I find the quote is is something about um spending and getting the best value of a euro and getting the most out of a euro for the euro spent and being the best in Italy at that which I guess comes down to capital gains and >> if you're going to profit and sell and buy at the right time which is why I think there was a lot of excitement for Crochia just simply because although yes he is known as a capital gains um expert and there's been so much about him kind of making profitability in recent years at Frankfurt like I think there's something silly like he'd made 150 million euros in the past three windows like profit combined >> and still had them being competitive like Frankfurt aren't one of the like big um Champions League contenders in Germany or at least haven't been like recently um but the fact that like you know they they've won the Europa League they've got to Champions League a few times like that's exceeding expectations and they're profiting a lot and they're not like not reinvesting as well like you look at you can say they sold colani for a lot and maybe at Milan like that's not the idea here like for example if we sold Leia but then he's consistently time and time gone and bought another project striker uh or a striker that was kind of in a similar way and then they've gone and done the exact same thing as well. So they've had Kley who's gone for however much and then they've replaced him with Mush and then Ekatika.

[00:02:40]So they've got a constant chaining of strikers which >> is it's it's intimidating. It's scary to think that Milan are going down this route and that's that's the way we're going to do it and we're going to be focused on capital gains and profits and it sounds scary but I think it all just comes back into the idea of you need to sell profit you need to sell players at the right time in Syria and if the long-term project is going to have us competing I think getting us to a point where you know we we do have those margins and we are profitable and even if not exactly profitable if we if we're spending if we're spending money well um because that's been the big issue like look last summer for example like Ch was sold for however much he was sold was it 40 I want to say 34 >> yeah I looked at this yesterday but I'm forgetting already but it's something like that yeah >> in that region >> 3840 or something like that right >> yeah and then you go and buy conter which might be a good purchase in the long term but obviously everyone was kind of annoyed at how we spent the money for how we sold so that's kind of the then how do you spend the 40 million or how do you get the most out of the 30 million that you've got from that sale So it's definitely like a a scary thing to be like, "Oh, we're focusing on capital gains." But I think when you break it down, it's more of a case of in you don't have the freedom to go and spend 150 million every summer and take in maybe 60. Like you you just can't do that if financially isn't feasible.

[00:04:01]>> So you've got to be smarter with it. And while it's scary, the margins for say for example 150 million profit in three years that isn't going to be the same at Mon like it just categorically will not be the same.

[00:04:13]>> Um so then that's where you go right okay well they might profit say 60 million they might profit 20 million who knows >> as long as the margins are there and they still bring in that type of player that are going to improve drastically because that again is what it boils down to.

[00:04:27]>> Yeah. to make a capital gain, you've got to have the players to make a capital gain. And they they they approve to do that. So yeah.

[00:04:35]>> Yeah. 100% 100%. I also quite like the idea of someone coming in and being like this is the way we're going to do it.

[00:04:42]>> Um just setting clear guidelines. That's what I why I was kind of a fan of Rangnik coming in as well.

[00:04:49]Just so you have I mean there's been so many different thoughts in the last four or five years let's say or since Red Bird took over basically because first you had Redbird versus Maldini then you had I don't know Furlani versus Iglitara and you know there's always been seems like there's always been >> different opinions so you just want someone to come in and say this is how we're going to do it but >> also like I think a lot of people have negative thoughts about capital gains, maybe rightfully so.

[00:05:20]>> Mhm.

[00:05:20]>> But the reality is that every single club works with capital gains and tries to register capital gains.

[00:05:28]>> Yeah.

[00:05:29]>> It's just it's I think where most I mean where it clashes with the Milan fans is that some of these clubs that also focus on capital gains, they also invest a lot back. Mhm.

[00:05:42]>> They're playing a kind of high risk, high reward game by investing a lot, but also selling for substantial amounts and then, you know, you got to keep that up over a long period of time, which we will get to. But I think sometimes just to start this kind of explanation, there's a negative association with caps against that is uh maybe a little bit exaggerated because literally every single club has to focus on it.

[00:06:08]Otherwise, it's really really hard to um reach any sort of good level in terms of break even profit or even like a minor loss um to keep within the or stay within the UIFA guidelines.

[00:06:22]>> Yeah.

[00:06:22]>> Um so for I guess we should I think most people know but we should probably start with something really basic like what are capital gains, right? Um, and essentially to make it as easy as possible, it's when you sell one of your players for more than the player is worth on the accounts. [clears throat] Um, so the the common misconception is that okay, we signed a player for 50 million and let's say 3 years after we sell him for 40 million. And then you might think, okay, we paid 50, we're selling for 40, that's a 10 million loss. But that's not exactly how it works. So it's essentially the value on the accounts when you sell the player that you you know check the difference with the transfer fee. Um and equally you could make losses, right? So we just I just need to throw that in there as well. You can make losses on on the players you sell capital losses which then affects your result. Um but then how does it work? Why is it that okay, we bought for 50, we sold for 40.

[00:07:34]Why is it not 10 million loss? So, I'm going to pull up a picture here. Um, this is for those of you listening. This is a picture of Esignan and some of his um figures. So, um, actually I wrote wrong here. The transfer fee should be 17, but it doesn't matter. The point still stands. So, uh, we signed him for 17 million from Brighton and he signed a four-year contract. Um, and what essentially happens is because, you know, football is cost a lot of money.

[00:08:08]>> Mhm. [clears throat] So it would be impossible for the clubs to you know stay within the the guidelines that UFI have or the restrictions or demands they have in terms of how profitable you need to be to put the entire transfer fee the year you sign the player. I mean that would be crazy. Like think about some some of some signs can cost up to 100 million these days. So if you put that on one financial year then you would it would be crazy like >> you would almost certainly be in a big deficit.

[00:08:45]So what they are allowed to do and this is basic accounting when you buy something that is expected to last over several several years on paper you can you know divide the cost of that whatever you buy it or the player in this case over several years. So in Espñan case, we paid 17 million. He signed a 4-year contract, which means we divide 17 by 4 and that comes out to 4.25 million. So that is essentially what we on paper pay in in citation marks every single year for this player until his contract runs out. And then we also have to factor in the salary, which is a little bit blocked by the player in the image, but uh he costs 4.63 63 million uh gross wages. Um I kind of made it a little bit hidden there because it doesn't really matter when it comes to the capital gains, but it's still important to know like okay we're paying amortization in 4.25 million and then you also have the wages. So that you know makes up the entire cost per year for that player.

[00:09:52]So Ben, I I just need to need to ask you how do you think I got to that figure at the bottom. So for those of you listening, it says residual value, which essentially means what is Espinan's value this summer. So how do you think I got to that?

[00:10:08]>> It's like being in school this Jesus. Um so obviously we had him a year. So that's why we've had a year of him. So we paid the the 4.25 million of the 17.

[00:10:19]And so his his value now >> again commas whatever you call them um is is 12.75 I believe.

[00:10:29]>> Yes that is 100% correct to get a gold star.

[00:10:33]>> Yes.

[00:10:35]>> So yeah exactly like that he's been here one year which means we've uh amortized 4.25 25 million from you know the transfer fee we paid in the beginning and that brings its value to 12.75 uh equally like if you push this if if he stays at the club and we look at this next year again you take 12.75 million minus 4.25 25 million. So it just continues like that uh with the length of the contract.

[00:11:06]And what that this also means is that if we're going to sell Pinñan this summer, we need to do it for 12.75 million or more. So 12.75 million would be break even, which I don't know, it depends on how you look at this. It could be good for Estinan, but I personally think we could sell him for a little bit more.

[00:11:29]So, I in my I can't remember what I put in my I did a marata bonus obviously at the end of last week and then I had him as a potential sale, but I put 15 million in that one.

[00:11:43]>> So, that's why I made a mistake in this graphic as well is that's what I think we're going to get for him. Um, so then that would be a small capital gain.

[00:11:52]Nothing nothing really nothing major. Uh but still something that perhaps um helps the club a little bit. It's better than making loss.