Financial Fair Play (FFP) has already begun to affect the way Championship clubs are run — everything from transfer fees to wages and developing facilities — but what does it really mean?
It’s easy to dismiss the idea of spending millions more on transfers or wages with the goal of promotion and cite the forthcoming FFP regulations.
But does anybody understand what the next 18 months means to teams in the Championship?
There are no sanctions until the 2014/15 season — and even then it depends on which division you’re in — but the effects have already begun in earnest.
Last season’s accounts are due for publication on 1 December but it’s this season’s financial results, to be published on 1 December 2014, that will be subject to scrutiny.
So clubs are clearly being mindful of their spending this summer. You’ve got two options: adjust your outgoings accordingly or go for broke… and, as is blatantly obvious in the Championship, spending huge amounts of money does not equate to promotion.
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Nottingham Forest made a loss of £11.6m for the 2011/12 season — just short of the permitted loss of £12m. However, revenues were down approximately £0.5m due to the “tougher economic conditions and the lower performance levels of the first team”. The average league attendance was 21,969 so, in theory, last season’s finish and average attendance of 23,082 should help boost revenues for the 2012/13 season.
That said, it remains to be seen what the costs were for the Al Hasawis’ first season. The signings of the likes of Simon Cox, Henri Lansbury and Adlene Guedioura as well as the new players’ wages — and the cost of managerial sackings — will add to our expenditure. Although amortisation of transfer fees will balance out the costs over the duration of the players’ contracts.
Permitted losses for the 2012/13 season drop to £10m so there is an urgent need to reduce costs and boost revenue.
Quite how the finances stand, we won’t know until the next accounts are released — but reducing further again from £10m to £8m won’t be easy.
Depreciation and amortisation of players’ registrations fell from £4.3m in 2010/11 to £3.2m in 2011/12 — there’s no breakdown but last summer’s spending of around £5m shouldn’t significantly affect that. Wages are the biggest issue and moving on players — or at least sending them on loan — who won’t figure in first team plans should help.
How much has Fawaz managed to trim the wage bill? How much extra revenue has he managed to bring in? We wait and see…
But it’s the sanctions that will be place from 1 December 2014 that are undoubtedly concerning most clubs in the Championship — failure to comply with the regulations this season will see clubs losing more than £8m facing sanctions.
Ed Thompson, a financial projects manager who runs the Financial Fair Play website, says: “The club can lose up to £8m in this coming season. However, it’s not quite that simple. There are a few things that can be deducted from this figure — mainly the cost of building and financing ground extension/building; youth team spending; and bonuses paid to players should you gain promotion.”
However, as Thompson explains, you can only go up to the £8m loss figure if you have an owner who is willing to put in £5m in equity. This means that if the owner is unable or unwilling to fund the losses, the club can only lose £3m this coming season.
He continues: “If an owner injects equity, the club will create shares which the owner will buy. The owner will have held 100% of the shares before the purchase, so all he would get for is £5m would be some more pieces of paper. The club will receive the cash and the bank overdraft will not appreciably grow.
“This equity requirement is in place to ensure the club does not appreciably grow its debt. However, for an owner there is a real downside as they may never get their money back – they will only get it back if the club reports a profit (and the owner pays himself a dividend), or if the owner sells the club.”
Remain in the Championship for the 2014/15 season and a transfer embargo, ahead of the subsequent transfer window beginning on 1 January 2015, will apply.
And while missing out on one transfer window might not mean much, transfer embargoes could last for several seasons ‘until the club is able to lodge financial information that demonstrates that it meets the Financial Fair Play regulations’.
The Football League is under no obligation to reveal details of a club under a transfer embargo so it would require the club to inform fans that such a situation has arisen.
Promoted teams during 2014/15 will be required to ‘pay a ‘Fair Play Tax’ on the excess by which the club failed to fulfil the Fair Play requirement, ranging from 1% on the first £100,000 to 100% on anything over £8m’.
The incentive being that any proceeds will be distributed equally amongst those clubs that complied with the FFP regulations for the season in question.
If you’ve been promoted, and have an owner with deep pockets, this won’t really bother clubs stepping up to the Premier League.
Although as Daniel Geey, a solicitor and sports lawyer, points out: “It appears the FL has drafted general anti-evasion provisions to ensure clubs comply with the spirit of the regulations. Interestingly, there is a specific provision in the regulations which aims to ensure that clubs:
“at all times and in all matters within the scope of these Rules, behave with the utmost good faith both towards The League and the other Championship Clubs” and do not “take unfair advantage which is intended to seek to or does take any unfair advantage in relation to the assessment of fulfilment (or non-fulfilment) of the Fair Play Requirement.”
Whether there are loopholes that clubs seek to exploit remains to be seen but it would take significant sponsorship deals to try and legitimately bypass the regulations.
Given that the 72 clubs in the Football League carry a collective debt of £1bn, it’s important for the professional game to become sustainable. Time will tell how it plays out.
As it stands UEFA’s FFP, on which the Football League’s is based on, is currently being disputed in the courts by a lawyer involved in the landmark Bosman ruling 18 years ago.
According to Reuters: “[Jean-Louis] Dupont, who filed a complaint with the European Commission last month, is arguing that the FFP contravenes EU competition law and the right to free movement of workers, services and capital.”
But that’s another story…
Getting around FFP is not as easy as some think…
UEFA are aware that owners of clubs could look to inflate a club’s profitability by injecting funds into clubs via artificially inflated commercial deals. Paris St-Germain recently announced a huge sponsorship deal via a body that is connected to the club owners. For this reason UEFA FFP rules require any transaction from a ‘related part’ (i.e. a company or body connected to the club owners) to be assessed to ensure it was a genuine transaction at a ‘fair value’. UEFA has the power to adjust any artificial ‘mates rates’ deals and apply a lower value to the Break Even calculation. This assessment will be carried out by the CFCB panel.
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