[leftfoot]

originally posted by Masenyah:-

Bussiness' go bankrupt all the time when they leverage their capital to the point where their debts are unsevicable. Companies go under much more often than people realize. If this can happen wall street, as it has been for the last few months, then it can very well happen in football and this should be reflected in the game.

Why would a business go bankrupt based on the decision to invest above their current means? Why do the debts they incurred to make said investment become unserviceable? Essentially they make a financial decision based on projected cash flows that prove to be inaccurate. Where can those projected cash flows go wrong?

1. Sales figures, and thus revenue, are much lower than expected
- new competitors
- slacking product quality
- fickle consumers
- consumers wants and needs affected by disposable income and their costs of living, again affected by complex interactions of economic variables
etc. etc.

2. Costs higher than expected
- increase in cost of raw materials
- inflationary pressures on wages
- interest rates on debt
- power costs increasing due to oil price rises which in turn are due to supply and demand fluctuations which in turn are affected by geopolitical factors, variable economic growth across the global economy etc.
- building rental costs increasing due to localised property market fluctuations again influenced by complex supply and demand issues
etc. etc.

That's just a simplified view.

To reference what has happened in recent months with the credit crisis as a justification for why clubs in FM could go bankrupt based on poor business decisions or unforeseen circumstances like the credit crunch is a false argument. As none of this is actually modelled in the FM world it cannot be used as a legitimate 'it happens in the real world so should be able to happen in the FM world' argument. The reason it happens in FM is not because of unexpected push factors but because there appears to be no financial analysis to begin with.

None of the above factors in a business going bankrupt that I outlined are modelled in the FM world in a true inflationary sense. All costs related to running a club change only relative to success. I am not suggesting that they should be as economic modelling required to do this on a global scale is more processor intensive than the game itself.

There are elements of the FM world (and the footballing world in real life)that are analogous to these revenue/cost pressures. I am not arguing against elements of the FM world changing in an unexpected way that results in a club going into the red, for example:-

1. Poor performance = lower attendances = lower than expected gate receipts
2. Overextension in the transfer market
3. Inflated wage budget due to higher than expected player demands or a larger than necessary squad
4. Failure to progress in domestic cup competitions = lower gate receipts
5. Failure to progress in European competition = lower than expected prize money
6. Poor performance in domestic leagues = lower than expected prize money
7. Poor performance = reduced sponsorship money

What I am arguing against is the lack of financial analysis at all in this particular Board decision that has been well documented on these forums which results in predictable financial trouble which then gets blamed on the manager. It doesn't even have to be all that complex. What Amaroq posted above pretty much covers a simple calculation that would go a long way to making these decisions based more on finances than just a judgement based on attendances (it appears to me that often the game just compares current attendances to potential attendances and gives the green light regardless of expenditure versus revenue).

[retired_MamaLea]

Originally posted by isuckatfm:
<BLOCKQUOTE>originally posted by Masenyah:-

Bussiness' go bankrupt all the time when they leverage their capital to the point where their debts are unsevicable. Companies go under much more often than people realize. If this can happen wall street, as it has been for the last few months, then it can very well happen in football and this should be reflected in the game.

Why would a business go bankrupt based on the decision to invest above their current means? Why do the debts they incurred to make said investment become unserviceable? Essentially they make a financial decision based on projected cash flows that prove to be inaccurate. Where can those projected cash flows go wrong?

1. Sales figures, and thus revenue, are much lower than expected
- new competitors
- slacking product quality
- fickle consumers
- consumers wants and needs affected by disposable income and their costs of living, again affected by complex interactions of economic variables
etc. etc.

2. Costs higher than expected
- increase in cost of raw materials
- inflationary pressures on wages
- interest rates on debt
- power costs increasing due to oil price rises which in turn are due to supply and demand fluctuations which in turn are affected by geopolitical factors, variable economic growth across the global economy etc.
- building rental costs increasing due to localised property market fluctuations again influenced by complex supply and demand issues
etc. etc.

That's just a simplified view.

To reference what has happened in recent months with the credit crisis as a justification for why clubs in FM could go bankrupt based on poor business decisions or unforeseen circumstances like the credit crunch is a false argument. As none of this is actually modelled in the FM world it cannot be used as a legitimate 'it happens in the real world so should be able to happen in the FM world' argument. The reason it happens in FM is not because of unexpected push factors but because there appears to be no financial analysis to begin with.

None of the above factors in a business going bankrupt that I outlined are modelled in the FM world in a true inflationary sense. All costs related to running a club change only relative to success. I am not suggesting that they should be as economic modelling required to do this on a global scale is more processor intensive than the game itself.

There are elements of the FM world (and the footballing world in real life)that are analogous to these revenue/cost pressures. I am not arguing against elements of the FM world changing in an unexpected way that results in a club going into the red, for example:-

1. Poor performance = lower attendances = lower than expected gate receipts
2. Overextension in the transfer market
3. Inflated wage budget due to higher than expected player demands or a larger than necessary squad
4. Failure to progress in domestic cup competitions = lower gate receipts
5. Failure to progress in European competition = lower than expected prize money
6. Poor performance in domestic leagues = lower than expected prize money
7. Poor performance = reduced sponsorship money

What I am arguing against is the lack of financial analysis at all in this particular Board decision that has been well documented on these forums which results in predictable financial trouble which then gets blamed on the manager. It doesn't even have to be all that complex. What Amaroq posted above pretty much covers a simple calculation that would go a long way to making these decisions based more on finances than just a judgement based on attendances (it appears to me that often the game just compares current attendances to potential attendances and gives the green light regardless of expenditure versus revenue). </BLOCKQUOTE>


While your analyses is precient and detailed it does not refute my argument. My reference to wall street was to point out thr fact even in the financial markets, where you would expect to find the best bussines minds and practices bad bussiness deciesons and miscaculations occur. This. Extends to the real football world. There are examples abound of teams making bad financial deciesons that have put them in or close to insolvency (many examples in germany and italy a
few years back) or may do so in the future (man u). Where we diverge is how accurately this is modeled in FM. From my experience, especcially in 08, I have seen no reason to believe the games financial model to be too out of whack. If it was every other thread on this forum would be about club bankrupcy. As it stands, there are a few threads such as this, which is expected and reflective of a realistic number of managers having this problem as they do in real life.

[leftfoot]

Having re-read over my original post it does read as condescending which was not my intention so if it came across this way I apologise. What I write below is also not intended to come across as a ‘know it all response’, but as a constructive argument against your points and I hope you take it as such.

originally posted by Masenyah:-

My reference to wall street was to point out thr fact even in the financial markets, where you would expect to find the best bussines minds and practices bad bussiness deciesons and miscaculations occur. This. Extends to the real football world.

I misinterpreted what you wrote so apologies for that :thup:. I agree 100% about poor business decisions being part of the football world and therefore the FM world. In this way I have no problems with the current FM financial model with regards to the board making decisions that are representative of the real world.

For example in my current game (a small sample but the only reference point I have) the clubs that have had financial problems are those that have had drops in attendance due to poor performance, the board allowing an excessive transfer/wage budget, wages exceeding already overinflated budgets, and a lack of prize money income (due to missing out on European qualification).

The issue I have is not with the overall financial model but with the specifics of how a board decides whether or not to expand/build a new stadium and the impact this has on the finances of the club. From my own experience on FM 07 and reading posts on this forum it appears that this decision is often taken with little regard for current/past/potential future financial performance.

originally posted by Masenyah:-

There are examples abound of teams making bad financial deciesons that have put them in or close to insolvency (many examples in germany and italy a
few years back) or may do so in the future (man u).

You mention the German and Italian clubs issues. I could not find any of these that related to decisions to expand or build a new stadium. If you know of examples of this occurring then fair enough.

The general Italian crisis was predominantly related to out of control wages. I have no problem with this being a contributing factor in the FM world (which it is). Two specific clubs, Lazio and Parma, had a secondary factor in that the companies with controlling interest in those clubs faced financial crisis themselves with consequential knock on effects.

The German crisis of 2002 was initiated by the company which controlled the TV rights, and the related flow of income, facing insolvency. This was compounded by income/expenditure being too finely balanced such that existing player wage contracts pushed the balance into the red. This in itself would be difficult to implement realistically as modelling the external factors at play would be in the majority of cases a waste of precious processing power. The case of Borussia Dortmund in 2005 was one of spending for success that did not materialise thus resulting in a lower than expected revenue stream.

I have no problem with a club spending on wages/transfers beyond current means, whether that be TV money or not, and driving a club into debt. This is a realistic representation of an over ambitious chairman making decisions that are not as clear cut financially as the decision to build a stadium. The financial implications of building a stadium are quantifiable in terms of risk vs return whereas the effect of spending X amount on players is not. Thus a club board can call on expertise to assess the impact of building a new stadium but can only rely on his/her judgement and trust in the manager when deciding on transfer expenditure.

Using Man Utd's potential problems as an example is illustrative of the aspect of financial modelling in FM that I have no issue with. If Man Utd fail to perform on the pitch (lower attendances, lower sponsorship, lower global profile leading to lower merchandising income, no Champions League money) then yes their current level of debt will have disastrous consequences. But if they continue to be at the summit of English football, and European/global footballing consciousness, then servicing the debt should not become a major issue (allowing for no unforeseen circumstances), although there are divergent opinions on this. I would speculate that someone such as Glazer who has gotten rich through wise investment would not have made the decision without a comprehensive financial analysis.

The potential for a new stadium causing financial meltdown is due to unforeseen circumstances, namely costs far exceeding projections of said costs, existing revenues and potential revenue gains in the future. Let’s break these potential issues down:-

1. The cost of the stadium exceeding projections due to raw materials, wages etc. I don’t believe this to be the contributing factor in FM as in my experience (you may have experienced differently and if so fair enough) the cost of the loan (and by extension the cost of the stadium) remains fixed.

2. The cost of servicing the debt rising due to economic shifts and rising interest rates. Again there is no economic fluctuation in the game and interest payments remain fixed as far as I have noticed (I concede I could be wrong about this as it is based only on my experience).

3. The costs of servicing the debt remains fixed (unlikely in the real world but assume it for simplicity in supporting the hypothesis) but falling revenues result in the club running at a loss and sinking into debt. In other words Team A plans a new stadium based on current level of success and related revenue streams. By the time the new stadium is built the team has fallen from that level of success, thus resulting in empty seats and lower than projected gate receipts, stadium sponsorship, corporate box sales and related income streams. Expenditure exceeds income and the club folds without any external investment. If this were how it played out in the FM world I would have no issue with it.

With my own experience of the game and posts such as this one it is clear that often none of the above 3 points are the reason for new stadium/expansion decisions resulting in financial meltdown. By and large it is a case of the board acquiring loans whose payback structure far exceeds current income levels. This in of itself in my opinion does not reflect what would likely happen in the real world.

A key point in arguing realism is the ability to secure funding for any stadium development proposals. Look at soundian's example of making 300k profit in the financial year prior to making the decision to build a new stadium at a cost of 1.8m p/a to service the loan. In the simplest possible scenario (and one that I concede is considered to be the least accurate way of predicting future financial performance but does serve as a base point for analysis) if we assumed future profits would remain stable then I find it highly unlikely that any financial institution (whether that be a bank or via stock flotation or other investment paths) would approve a loan in that situation.

Would you yourself take out a loan whose annual repayments were 6 times your current disposable income?

Just to summarise I have no issue with the financial model as a whole, but with the apparent lack of complexity in how boards decide whether or not to invest in the stadium from a purely financial perspective.

[retired_hmknight]

Originally posted by bcarson:
<BLOCKQUOTE>Originally posted by copperhorse21:
When I spent some time in Wexford, they also built a new stadium. My stadium cost more than yours. Mine was 19 million.

Needless to say, they were horrified with my concern. In the bugs forum, it does indicate that this is a bug with the board.

That being said, they still pumped boatloads of money into the club for me. I think the board was putting more than 200K a month into the interest payments for my stadium.

They seemed to be fine with my league standings, but I could never seem to get higher than 6th after the first transfer window because any quality player I had was transferred.

I did sell many players (72 players over 2 seasons). Most in the 20-30K range. Obviously the team had a difficult time working together, I got sick of scouting and checking reports all the time so I resigned after three seasons. It was a good time though.

Since then, I've moved on to Boston River (another amateur club in Uruguay 2nd division) in a different game. They also built a stadium. The interest payments are only 5K a month. Much more reasonable.

Just curious ... did you actually get to the point where you had professional contracts? Is there a way to sell players who have amateur contracts and don't get paid? </BLOCKQUOTE>

[retired_hmknight]

Originally posted by copperhorse21:
<BLOCKQUOTE>Originally posted by bcarson:
<BLOCKQUOTE>Originally posted by copperhorse21:
When I spent some time in Wexford, they also built a new stadium. My stadium cost more than yours. Mine was 19 million.

Needless to say, they were horrified with my concern. In the bugs forum, it does indicate that this is a bug with the board.

That being said, they still pumped boatloads of money into the club for me. I think the board was putting more than 200K a month into the interest payments for my stadium.

They seemed to be fine with my league standings, but I could never seem to get higher than 6th after the first transfer window because any quality player I had was transferred.

I did sell many players (72 players over 2 seasons). Most in the 20-30K range. Obviously the team had a difficult time working together, I got sick of scouting and checking reports all the time so I resigned after three seasons. It was a good time though.

Since then, I've moved on to Boston River (another amateur club in Uruguay 2nd division) in a different game. They also built a stadium. The interest payments are only 5K a month. Much more reasonable.

Just curious ... did you actually get to the point where you had professional contracts? Is there a way to sell players who have amateur contracts and don't get paid? </BLOCKQUOTE> </BLOCKQUOTE>

Sorry for the double post folks...

I was only able to offer amateur contracts. Most of the players were considered key players when I offered them their amateur contract.

All of the players were listed for prices that were equal to the average salaries of key players in the same league (i.e.20-30K). They were not transfer-listed specifically, however.

I spent a lot of time renewing contracts as quickly as possible for all my players when I was within the 6 month window, especially for those players aged 24 and under. They'd always renew with me if they had some playing time. I couldn't allow my coaches to do it automatically, because they wouldn't renew them and other clubs would bid them away. If they had a contract, were happy at the club, had listed me as a favorite, they'd want to stay and needed to be bid away within the typical transfer rules. I accepted all offers above my listed amount automatically. Being humble helped me to sell a lot of players who were improving in their attributes, but it did nothing to help my team gel into a cohesive unit. It did seem to show the board that I was trying to meet their unrealistic wage demands.

I also had to switch my tactics to meet the quality of players who were with me at the time. Sometimes, I'd be a 4-4-2, but other times, I'd need to play a 5-3-2 or a 3-5-2. It all depended on who my strongest players were at the time.

Definitely made it more difficult with finding a winning tactic and truly stretched my coaching abilities. If only they didn't buy the huge stadium....I'd still have been trying to get them to become a semi-professional team.