The future of Financial Fair Play is at a critical crossroads

Watford Observer: Hull City made a £26m loss when securing automatic promotion last season. Picture: Action Images Hull City made a £26m loss when securing automatic promotion last season. Picture: Action Images

Financial Fair Play (FFP) is, in essence, a fairly simple concept. It is designed to stop football clubs spending beyond their means and running up huge losses. Sounds straightforward enough?

However, when it comes to football teams and money, it inevitably becomes convoluted and FFP has been heavily scrutinised by clubs, media and almost everyone involved in the sport. Many believe it will not be enforceable.

This season is the first where clubs’ accounts will be scrutinised and they could face sanctions for breaching the regulations.

Those punishments will not be implemented until December 2014 but clubs have already started challenging possible sanctions.

But why is FFP deemed necessary? Cash-rich owners are willing to plunder millions of pounds into clubs to try to reach the Premier League and then stay in the top tier once they have reached the so-called promise land.

After all, promotion to the Premier League is believed to be worth £120m, including parachute payments.

It means sides like Cardiff City and Hull City achieved promotion despite loses of £31m and £26m respectively.

FFP, which Championship clubs voted 21 to three in favour of after two years of discussion, attempts to stop that lavish spending.

So how do they plan to do it?

FFP came into force at the start of the 2012/2013 campaign, with clubs submitting their accounts from the previous season. The loss accepted was £8m with another £4m guaranteed by an owner. However, there were no sanctions in place at that point if the £12m total figure was breached.

Clubs again faced no punishment if their accounts from the 2012/2013 campaign showed a loss of more than £6m, with an owner again putting in £4m.

This season was supposed to be the first when teams could face sanctions. If a side makes a loss of more than £3m, with another £5m guaranteed by an owner, and remains in the Championship, then under current regulations they would be barred from signing players from the 2015 January transfer window.

It’s an embargo that is only lifted once a club shows their spending has been brought down within the Football League FFP limits, which reduces yearly until 2016/2017.

Teams who breach that total yet secure promotion to the Premier League would face ‘fair play tax’, ranging from one per cent on the first £100,000 to 100 per cent on anything over £10m.

For the first £10m above the £8m permitted loss, clubs are fined on a sliding scale up to £6.68m. Any further loss above that initial £10m, would have to be paid back in full.

Originally the money was going to be shared out equally amongst Championships clubs but any fines will now be paid to charity.

But, unsurprisingly, clubs want to challenge the suggested fines and transfer embargoes. Leicester City are currently top of the Championship table and look on course to secure promotion to the top flight.

The Foxes were bought in 2010 by the Thai duty free company owned by Aiyawatt Raksriaksorn. Since then around £120m has been spent by the club and in 2011/2012 they made a £30m loss.

So far their losses have been not been penalised but, should the club achieve promotion yet make a loss of more than £8m, they would face the ‘fair play tax’.

QPR made a reported loss of £65.4m for the 2012/13 campaign. As an example, if they were to lose the same sum once again, their fair play tax would be £54.08m.

But, according to David Conn at The Guardian, several clubs have instructed solicitors, Brabners, to make a legal threat to the financial fair play rules.

Leicester City, Queens Park Rangers, Blackburn Rovers and Bolton Wanderers are believed to be among the teams, whilst Watford refused to state if they were one of them.

The six-page letter to the Football League argued Championship clubs believe they suffer from the FFP rules not being the same as those of the Premier League, that it will prevent clubs competing, restrict investment by owners and reduce players’ wages.

The Guardian reports that the Brabners letter warned: “It is likely that, unless the FFP rules are modified, the Football League should expect a challenge from any number of clubs and/or players or agents suffering sanctions or the consequences of sanctions.”

The Watford Observer understands clubs want two main alterations made to the current regulations. They are that the loss threshold is increased beyond the current £8m and they would like real-time testing used rather than relying solely on just annual accounts.

It has been argued for FFP to work in the Football League, it must follow the Premier League’s model – although the sums involved will almost certainly be different.

In March 2016, Premier League sides have to submit accounts from the last three years.

Clubs in the top flight, from this season, will not be allowed to make a loss of more than £105m over three years.. Player wages are capped at £52m with an increase of only £4m for the next three seasons.

For losses of more than £15m over the three-year period, teams must provide the Premier League with future financial information as well as evidence of secure funding of up to £90m. Loans can’t be used as evidence of secure funding, according to the rules.

For certain clubs, it will be easier to conform to the Championship’s FFP rules. Watford’s chief executive Scott Duxbury has stated the club will be compliant under the current regulations and those being discussed.

For others though, they will inevitably struggle to adhere to the current FFP restrictions.

Football League chief executive Shaun Harvey has pledged to “vigorously defend” the FFP rules. How easy that will be remains to be seen.

Comments (7)

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10:51am Mon 7 Apr 14

BlakeyJ says...

Glad we are compliant, but still seems to dangle the promotion carrot as the penalty if you get promoted is different to that if you do not?...
also this will only mean clubs accounts will get more creative, or purchases of players will become more obscure - joint ownership, the wealthy owners will buy the player and lease them to club... amortised purchase costs?...
when this much money is at stake people will go to extraordinary lengths to get there...
Glad we are compliant, but still seems to dangle the promotion carrot as the penalty if you get promoted is different to that if you do not?... also this will only mean clubs accounts will get more creative, or purchases of players will become more obscure - joint ownership, the wealthy owners will buy the player and lease them to club... amortised purchase costs?... when this much money is at stake people will go to extraordinary lengths to get there... BlakeyJ
  • Score: 4

11:33am Mon 7 Apr 14

gloryhornet4 says...

So the top 2 last season bought promotion with money they did not have and Leic have done the same. QPR are in the soup?

So after 150 years we have clubs buying promotion with creditors money who may see a small dividend payment if the club goes belly up.

The latest promoted side have thumbed their noses at the new rules as they have promotion and will be able to repay out of TV money etc.

Great.
So the top 2 last season bought promotion with money they did not have and Leic have done the same. QPR are in the soup? So after 150 years we have clubs buying promotion with creditors money who may see a small dividend payment if the club goes belly up. The latest promoted side have thumbed their noses at the new rules as they have promotion and will be able to repay out of TV money etc. Great. gloryhornet4
  • Score: 6

2:45pm Mon 7 Apr 14

Mark-H says...

"Cash-rich owners are willing to plunder millions of pounds into clubs"

Surely that should be 'plough'?
"Cash-rich owners are willing to plunder millions of pounds into clubs" Surely that should be 'plough'? Mark-H
  • Score: 6

2:50pm Mon 7 Apr 14

Mark-H says...

gloryhornet4 wrote:
So the top 2 last season bought promotion with money they did not have and Leic have done the same. QPR are in the soup?

So after 150 years we have clubs buying promotion with creditors money who may see a small dividend payment if the club goes belly up.

The latest promoted side have thumbed their noses at the new rules as they have promotion and will be able to repay out of TV money etc.

Great.
You have to laugh. Last season plenty of my mates (I live in the East Midlands, so mostly Forest and/or Leicester fans) were giving me grief because Watford were 'ruining football' with the loans. Both of those clubs have run up enormous debt chasing promotion, as have Cardiff beforehand, yet we're in the wrong. Strict rules are the only way to encourage competition.
[quote][p][bold]gloryhornet4[/bold] wrote: So the top 2 last season bought promotion with money they did not have and Leic have done the same. QPR are in the soup? So after 150 years we have clubs buying promotion with creditors money who may see a small dividend payment if the club goes belly up. The latest promoted side have thumbed their noses at the new rules as they have promotion and will be able to repay out of TV money etc. Great.[/p][/quote]You have to laugh. Last season plenty of my mates (I live in the East Midlands, so mostly Forest and/or Leicester fans) were giving me grief because Watford were 'ruining football' with the loans. Both of those clubs have run up enormous debt chasing promotion, as have Cardiff beforehand, yet we're in the wrong. Strict rules are the only way to encourage competition. Mark-H
  • Score: 8

3:00pm Mon 7 Apr 14

mellow yellow says...

It's a nice idea in principle, but will always fall foul to creative accountancy and thus is rendered largely pointless. The quote that can be seen on the side of the Rous stand is similarly futile... Football stopped being 'just a game' many years ago.
It's a nice idea in principle, but will always fall foul to creative accountancy and thus is rendered largely pointless. The quote that can be seen on the side of the Rous stand is similarly futile... Football stopped being 'just a game' many years ago. mellow yellow
  • Score: 0

5:44pm Mon 7 Apr 14

andyhooked says...

Is this bit of smoke and mirrors? Some clubs are going to instruct solicitors to try and make the FFP rules unfair to their interests. Then, how is any penalty fine to implemented when some clubs make seek first of all a judicial review and even go to court? IF a team breaches the FFP rules and makes it to the Prem do they give a ****? I wish it was a level playing field but it is not. From what I see reported, WFC are minded to be complaint and run the club as a business and not run up big debts or pay massive wages and gamble on the financial security of the club. Look at Leeds now and before then Pompey and perhaps Birmingham for slightly different reasons.
Is this bit of smoke and mirrors? Some clubs are going to instruct solicitors to try and make the FFP rules unfair to their interests. Then, how is any penalty fine to implemented when some clubs make seek first of all a judicial review and even go to court? IF a team breaches the FFP rules and makes it to the Prem do they give a ****? I wish it was a level playing field but it is not. From what I see reported, WFC are minded to be complaint and run the club as a business and not run up big debts or pay massive wages and gamble on the financial security of the club. Look at Leeds now and before then Pompey and perhaps Birmingham for slightly different reasons. andyhooked
  • Score: 0

3:39pm Tue 8 Apr 14

soulfulhornet says...

Some kind of regulation is necessary as it is not good for the game that historic English football clubs find themselves in financial difficulties - albeit mainly because of their owners' own making.

Clubs like Forest, Leeds, Portsmouth, QPR, Coventry and Leicester form the backbone of English Football and whatever our opinion of the individual clubs, this financial crisis is not in the long term good of the game and therefore of every single club in it including those well run.

As Duxbury has said the FFP regs need fine tuning - it would have been amazing if the league had got it right first time. One of the side effects of the new regs is a mad rush to get to the promised land of the Premier League before the regulations come in, so we get teams like Leicester and Forest (and Hull and Cardiff before them) paying unsustainable wages for the Championship to get out of it. In effect buying promotion or attempting to. Obviously this cannot work for all (remember Leeds paying Champions League wages when not in that competition every season - and look what happened).

This season Sean Dyche's Burnley has put the spanner in the works by (probably) getting a good side on a modest budget promoted. One less place for those who gamble recklessly, (like we gambled after we came down from the Premier League on both occasions - £20k pw for Nathan Ellington!.)

I am not having a go at those clubs' fans as we all want our team to be successful at whatever level we compete, but expectations including ours need to be realistic.

Many contributors on here have criticized Nani for our acquisitions, though there weren't too many critics last season. Agreed the purchases/ loans have been variable. Pre Pozzo, who would have thought that we would see players of the calibre of Abdi, Vydra, Forestieri, Cassetti, Angella, Tozser, Battochio in a Watford shirt ? And in the same team at the same time!! Nani deserves credit for the good buys as well as taking responsibility for some of the less good ones. Even Sir Alex and Wenger didn't get it right all of the time.

And all this, whilst at the same time, the club solved the near terminal financial crisis the club was in c. 2012. We made a modest profit in 2012/13 whilst the two teams that finished above us in the league lost £57m between them and Leicester lost £64m over two years (since capitalised by the owner). Alongside that we had the relegated sides of Bolton, Blackburn and Wolves posting huge losses struggling to cut ridiculous wage structures! The football world has gone mad!

This season without any large player sale and no play-off final monies, we will probably make a small loss - though our increase in home gates will offset this a bit. In addition the improved off-field activities that Scott Duxbury has done should alleviate that further.

Despite a disappointing season results/ table wise, I am cautiously optimistic as our competitors have to at least try to comply with FFP. We are already there- according to Duxbury and we have players of higher standard than our wage structure would normally permit. Anyone want Dickinsson or Mirfin back. Thought not.
Some kind of regulation is necessary as it is not good for the game that historic English football clubs find themselves in financial difficulties - albeit mainly because of their owners' own making. Clubs like Forest, Leeds, Portsmouth, QPR, Coventry and Leicester form the backbone of English Football and whatever our opinion of the individual clubs, this financial crisis is not in the long term good of the game and therefore of every single club in it including those well run. As Duxbury has said the FFP regs need fine tuning - it would have been amazing if the league had got it right first time. One of the side effects of the new regs is a mad rush to get to the promised land of the Premier League before the regulations come in, so we get teams like Leicester and Forest (and Hull and Cardiff before them) paying unsustainable wages for the Championship to get out of it. In effect buying promotion or attempting to. Obviously this cannot work for all (remember Leeds paying Champions League wages when not in that competition every season - and look what happened). This season Sean Dyche's Burnley has put the spanner in the works by (probably) getting a good side on a modest budget promoted. One less place for those who gamble recklessly, (like we gambled after we came down from the Premier League on both occasions - £20k pw for Nathan Ellington!.) I am not having a go at those clubs' fans as we all want our team to be successful at whatever level we compete, but expectations including ours need to be realistic. Many contributors on here have criticized Nani for our acquisitions, though there weren't too many critics last season. Agreed the purchases/ loans have been variable. Pre Pozzo, who would have thought that we would see players of the calibre of Abdi, Vydra, Forestieri, Cassetti, Angella, Tozser, Battochio in a Watford shirt ? And in the same team at the same time!! Nani deserves credit for the good buys as well as taking responsibility for some of the less good ones. Even Sir Alex and Wenger didn't get it right all of the time. And all this, whilst at the same time, the club solved the near terminal financial crisis the club was in c. 2012. We made a modest profit in 2012/13 whilst the two teams that finished above us in the league lost £57m between them and Leicester lost £64m over two years (since capitalised by the owner). Alongside that we had the relegated sides of Bolton, Blackburn and Wolves posting huge losses struggling to cut ridiculous wage structures! The football world has gone mad! This season without any large player sale and no play-off final monies, we will probably make a small loss - though our increase in home gates will offset this a bit. In addition the improved off-field activities that Scott Duxbury has done should alleviate that further. Despite a disappointing season results/ table wise, I am cautiously optimistic as our competitors have to at least try to comply with FFP. We are already there- according to Duxbury and we have players of higher standard than our wage structure would normally permit. Anyone want Dickinsson or Mirfin back. Thought not. soulfulhornet
  • Score: 0

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