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Explaining AC Milan's risky transfer business in accordance to UEFA Financial Fair Play rules

Explaining AC Milan's risky transfer business in accordance to UEFA Financial Fair Play rules


Explaining AC Milans risky transfer business in accordance to UEFA Financial Fair Play rules

AC Milan are playing a dangerous game

With the Rossoneri already spending more than €200 million in this summer's transfer window, many people are wondering how Milan will be able to adhere to UEFA's Financial Fair Play rules.

AC Milan have bought 10 players so far in the form of Leonardo Bonucci, André Silva, Andrea Conti, Hakan Calhanoglu, Mateo Musacchio, Ricardo Rodríguez, Lucas Biglia, Franck Kessié, Antonio Donnarumma and Fabio Borini

While Milan fans are excited about the on-field performances as manager Vincenzo Montella aims to bring back the glory days, many people are wondering how the club is shouldering the massive expenditure on players, especially with UEFA's strict Financial Fair Play (FFP) policy.

In truth, Milan are technically not adhering to those rules at this time. FFP only allows clubs to spend up to €5 million more than they earn per year while only allowing an annual loss of up to €30 million. AC Milan have accumulated losses of €250 million.

However, the Rossoneri are currently taking advantage of and hinging on two things - the Voluntary Agreement and player amortisation.

Firstly, the Voluntary Agreement is like a timed escape route UEFA gives to clubs who have recently changed ownership. They give these teams three years to come within the parameters set by FFP while avoiding any potential sanctions like heavy fines or being banned from entering European competitions. 

Rossoneri Sport Investment Lux, owned by Chinese businessman Yonghong Li, bought the club from Italian holding company Fininvest in April this year. Hence, the club have already applied for the Voluntary Agreement, with UEFA set to announce their approval in October.  

Within these three years, Yonghong Li will hope that his investment in players will pay off with more commercial success. Entry into competitions such as the Champions League will also give the club more money in terms of broadcasting income.  

Secondly, player amortisation is a financial strategy many clubs currently adopt to ensure a profit for any player that is sold.  

A prime example of this is Manchester United's sale of Angel Di Maria. The Argentine was bought for £59.7 million and signed a five-year deal with an annual salary of £14.5 million. United spread the transfer fee over five years, hence their annual accounts registered a £11.94 million amortised transfer fee, and the total amount spent on Di Maria per year including his wages was £26.5 million. 

Di Maria, having left only a year after being bought, had a remainder of £47.76 million of amortised transfer fees and PSG's £44 million bid meant that United only incurred a £3.76 million loss in transfer fees. 

However, because Di Maria was no longer on United's wage bill, they could forgo the annual £26.5 million cost and they ended up making an annual profit of £22.7 million instead. 

AC Milan will have to bank on this concept should their commercial and broadcasting income fail, which means that the players and manager will be under tremendous pressure to perform as quickly as possible, more specifically within three years.

In their quest to return to glory, Milan are delving into very risky business, something many of their fans are completely oblivious to. It is little wonder that Milan are trying to bring in more top players before the summer window closes to guarantee success as they are in a very dangerous situation.