Often Partisan

Financial Fair Play and Blues

The Football League yesterday announced that they were going to implement Financial Fair Play (FFP) regulations to the Championship as they look to make the division a fairer playing field and to clamp down on irresponsible ownership of football clubs.

Of course, the instant worry for many people are the words “financial fair play” in juxtaposition with Blues’ current financial status – accounts months late, an embargo on transfers and the possibility of an uncertain future because of the legal woes of Carson Yeung. I can well understand that; indeed, in these rules clubs accounts have to be filed by December 1 (rather than the current March 1) and thus if they had been in place this season Blues wouldn’t have been able to sign a player at all in January or the rest of the loan window. However, it’s my belief that such worry would be misplaced.

One of the key things to take into account are that sanctions from these rules wouldn’t be put into place until the 2014/15 season – so not next season, nor the one after that but the one after that, which you would hope would give Blues plenty of time to put their house in order – if we are even in this division. From my reading of the rules the idea is to try to level the playing field up a bit so that teams cannot simply buy their way to promotion without paying out heavily for the privilege. Blues have done what they can this season to reduce outgoings and to become more self-sufficient and if we can stay on that path then we’ll have nothing to worry about.

Furthermore the rules are slightly skewed in favour of relegated teams; any team with a parachute payment will have more money to start with and thus it will give them more room to pay for players etc without going over limits. If Blues hadn’t gone up or down by the time the sanctions come in they would be in the final year of their parachute payments, receiving £8million.

In addition, clubs who invest in their academies under the Elite Player Performance Plan (EPPP) guidelines will have this money ignored from the final “fair play result”; likewise teams who improve their stadia or training grounds, or invest in the community. The only real overspending that will be punished will be that on player transfer fees and wages. Whilst teams who remain in the division will be punished with a transfer embargo until they prove that they are back within limits, teams who are promoted and break the rules will be paying out – and through the nose.

Teams are allowed a “deviation” and a “shareholder equity investment”. What that means is that a certain amount of loss is allowable, and a certain amount of infusion of funds from an owner is allowable before sanctions are emplaced. For this season’s accounts, those stand at a £4mil loss (after the excluded things are taken out of the equation) and an £8mil investment. These drop to £4mil and £6mil next season, £3mil and £5mil the season after and the year the sanctions kick in they stand at £3mil and £3mil, reducing once more in the 15/16 season to £2mil and £3mil.

Teams that break this “deviation” and are promoted are liable for a “fair play tax”, which is worked on a sliding scale based on how far outside the provided scope that they are. As an example, QPR who posted a £25.4mil loss last season would have been hit for a fine of around £3million. The more you overspend, the more you have to pay – and all this money that is paid in is split between the Championship teams, thus equalising the table further financially.

League One and League Two operate salary caps, whereby they have a limit of wages to turnover that they are allowed to spend; in League One no club is allowed more than 65% of turnover – in League Two it’s 55% of turnover – with the threat of transfer embargoes if they breach this. Again using QPR as an example of overspending, their current wages to turnover ratio is apparently 184%. In layman’s terms, that means for every £1 the club brings in – not in profit, but just the money that comes in, they spend £1.84 on player wages – something which is clearly irresponsible and unsustainable.

Should Blues fans be worried? Part of me would like to be egotistical enough to say “of course not, we’ll be Premier League next year” but you wouldn’t catch me dare say something to tempt fate in such a manner. The fact is this year’s troubles have done much to put Blues onto an even keel as it is. The club runs on a day-to-day basis fine enough, and whilst it’s certainly not rolling in cash they aren’t on the phone to the administrators yet either. The accounts may have been delayed currently however I don’t believe it’s a situation that can carry on for a lot longer; if they aren’t (or can’t be) released by the summer, then you would think circumstances would force BIH’s hand into selling the club. I believe this idea from the FL has more positives than negatives and could be a good thing for the club.

Tags: , ,

22 Responses to “Financial Fair Play and Blues”

  • Mark Peacock says:

    To be fair though, if a chairman is prepared to spend and have a loss of £24 million and the fine is only £3 million then this is not going to change anything.

    The only way they will change it is if they say if you report a loss then you won’t get promoted!

    £3 million fine to somebody like the Leicester owner is nothing.

  • DoctorD says:

    Blimey, those rules sound pretty sensible to me. I like it.

  • chris says:

    In June 2011, the Football League (FL) announced that Financial Fair Play rules would be introduced into the Championship from the 2012/2013 season.
    So this proposal now means another delaying tactic by Championship chairmen of three years.
    It goes to show how many clubs would fail this test and need this time to get their house in order.
    Haven’t some teams failed the wage cap in League’s One & two and just been fined?
    It’s not enough, the only punishment they understand is points deduction and demotion / relegation.
    The QPR example proves this, as adding a £3 million fine to the £25 million overspend is peanuts to them and worth the risk and fine. If they started with a 15 points deduction or automatic demotion then they wouldn’t even think of taking this route to potential success.
    I wouldn’t put it past the Championship chairmen to scrap these rules if by 2014 the country and or football is out of recession or gets a better TV deal.

  • bryn says:

    when will our transfer embargo end?

  • chris says:

    Bryn , this Monday i believe is the day.

    Almajir, is your QPR example correct?
    £25 mill minus this years allowance £12 mill = £13 mill . fine is 100% so = £13 mill.
    Which i would say looks more like a real punishment.

    Took the info below from League website,
    (a) 1% of the excess between £1 and £100,000;
    (b) 20% of the excess between £100,001 and £500,000;
    (c) 40% of the excess between £500,001 and £1,000,000;
    (d) 60% of the excess between £1,000,001 and £5,000,000;
    (e) 80% of the excess between £5,000,001 and £10,000,000; and
    (f) 100% of the excess over £10,000,000

    Season 2011/12 2012/13 2013/14 2014/15 2015/16 onwards
    Acceptable deviation £4 m £4 m £3 m £3 m £2 m
    Shareholder equity investment £8 m £6 m £5 m £3 m £3 m
    Total Permitted Allowances £12 m £10 m £8 m £6 m £5 m

    The Football League is currently in the process of consulting with the Premier League regarding the implementation of these Financial Fair Play regulations, so if they don’t agree they won’t be able to fine the clubs that get promoted and overspend (cheat).

  • Macc lad says:

    The fine for QPR would actually be £9,500,998 made up as follows
    (a) 1% of £100000 = £1000
    (b) 20% between £100001-£500000 = £79999.80
    (c) 40% between £500001-£1000000 = £19999.60
    (d) 60% between £1000001 – £5000000 = £2399999.40
    (e) 80% between £5000001 – £10000000 = £3999999.20
    (f) 100% above £10000000 = £3000000

    Pedantic maybe, but it’s important to get these things right if you’re going to comment on them. Interestingly, the BBC have incorrect figures on their website this morning as well.

    • almajir says:

      That’s because the BBC and I aren’t wrong…

      The problem you have is that you used a baseline figure of £25.4mil loss to work out the FFP tax. However, it doesn’t work like that – as explained in the article various things are taken out of the equation – money spent on stadia, community projects and the academy for instance. I know from my prior research that the BBC did take a look at their accounts, removed the excluded expenditure and then applied the rules to come up with the figure that they did.

      If you’re going to be pedantic you have to be correct about it.

      • Macc lad says:

        Yep quite correct. I re-visited the QPR part of the BBC article, and they’ve estimated a figure based on the overspend less spending on infastructure.
        This does, however, have the effect of making any fines issued as clear as mud!

        • almajir says:

          That is true Macc Lad.

          Hopefully when accounts are produced there will be figures to make it easier to work out the situation without having a degree in accountancy.

  • chris says:

    Macc fair do’s, i can see how you’ve done that, clarity is what i was looking for.

    All but three of the Championship’s 24 clubs voted in favour of introducing the model, which is based on UEFA’s financial fair play regulations.
    So who are the three?
    West Ham, Leicester, Cardiff, Blues, Forest, Blackpool or Leeds ? Haven’t included top two.

    • almajir says:

      According to Matt Slater of the BBC he doubted very much West Ham, Blues or Blackpool would have vetoed it as it put those clubs in a strong position.

      Boro were on the working party so they probably were for it too

  • Oldbluenose says:

    Roll-on the end of the month,!!. Let us hope that the ” long overdue ” accounts are finally released, and yet another problem is finally dealt with,!!.

  • NICKbcfc says:

    just saying, SSN says that QPR would have been fined around 13 mill

  • NooBloo says:

    All these regulations are only agreed in principle and the regulations have not been finalised; however, the new rules will not matter one jot because with good creative accounting any club can get round the rules. Wealthy Directors can write off loans so they wouldnt be taken into account. Rights issues of shares could be used to set off large investments. The list could go on.

    over and above this, how are the football league going to finance the auditing of clubs account. it will be impossible to implement, so really all these proposals are just a load of old nonsense so that the people at the football league can draw massive salaries to pretend they are actually trying to do something.

    Theory is fine but in reallity it will be ”same old, same old ”

  • […] are spending approximately 184% of their turnover on salaries. This was described very well on Often Partisan ”that means for every £1 the club brings in – not in profit, but just the money that […]

  • Mark says:

    Elite Player Performance Plan is the biggest farce in football history… You wait until we get an amazing 16 year old and along come Man Utd to pick him up for £133k IN THE INTERESTS OF THE GAME!!!!!

    Still fuming that the football league agreed to this HAVE THEY NO BACK BONE!!! these clubs have took a paltry increase in monies from the greedy premier league in order to hand pick all the best players!!

    • almajir says:

      I’m working on a piece for this… it’s not as bad as made out to be I don’t think.

      What doesn’t help is the regs aren’t out yet and thus some outlets are taking a flyer on what the situation may be.

      • Bluenosejohn says:

        The fact that the likes of Dario Gradi were very critical of it at the time it was announced doesn’t give me any confidence that it would be the first selfless act from the Premier League.

  • Bluenosejohn says:

    If the financial rules prevent another Portsmouth then they will be worthwhile. Be interesting to see how Pompey if they still exist next season manage 65% wages to turnover with Ben-Haim on over £30000 plus!

Leave a Reply

Personalised Gifts for a Bluenose
Haircuts and League Cups
Open Tax Services
Corporate Solutions UK
PJ Planning
Rodal Heating