Financial Fair Play

'Profit and Sustainability' (FFP) tests in Championship 2016/17 Dec 29 

Along with Death and Taxes, you can be certain that there will always be new set of Financial Fair Play rules to get your head around. This is actually my second attempt at explaining this season’s rules in the Championship – my effort to 23 December contained an error so I’ll start this one again. I am particularly grateful to Mike Thornton (twitter: @AdrianTeakdesk) for identifying the issue and for his input into this new article.

New Rules

This season (2016/17), new ‘Profitability and Sustainability’ rules operate in the Championship; for the first time, clubs will be assessed over 3 seasons (rather than just a single season). This change brings the Championship clubs into alignment with the Premier League – both have ‘Profit and Sustainability’ rules that are now fully aligned. Crucially, this harmonisation of the rules comes with the blessing of the Premier League - so we shouldn’t see any repeat of the stand-offs that arose (and are still ongoing) with QPR and Leicester. Previously, the Premier League bosses refused to help the Football League collect the ‘Fair Play Tax’ fines for clubs that overspent but won promotion – this lack of support significantly undermined the Football League and severely impacted on the effectiveness of the Football League punishments.

There are a number key changes:

• The assessment is carried out in March (rather than December)
• The maximum loss limit is now £13m per Championship season (or £5m a season of the owner does not inject equity to cover losses).
•  Losses are assessed over three seasons (rather than just over the single, previous season)
• The assessment of each club’s finances is a combination of a historic assessment (looking at figures for the two previous completed season) and an assessment over the season currently taking place

The last point is particularly significant; in addition to historic account information about past seasons, clubs now have to submit a financial projection for the season that is still taking place. All the information has to be with the Football League by the 1 March. The Football League have confirmed that they are aiming to have any punishments announced before the end of the season.

Rule confirmation text supplied by Football League:

This can be summarised in a table for this season:

Any punishment for breach of the rules will be determined by an independent panel (the ‘Fair Play Panel’).

But what are the potential punishments? Previously the Football League has only been able to either; fine promoted clubs (a fine the Premier League didn’t help them collect), or impose a transfer embargo for historic overspending (which always like a stable-door/horse scenario). With this change, a wide range of punishments are now available. Nothing is off the table; the Football League are now able to impose a points deduction during the current season, or demote a club from an automatic promotion position into the play-offs (or out of the play-offs altogether). Transfer embargoes are also available (with the earliest one potentially applying during the Summer 2017 Transfer window.

Moving from an assessment over one season to an assessment over three seasons has presented some challenges. Interestingly, rather than introduce the changes on a staggered basis, the Football League has introduced the change in one go. The contentious issue here is that for some clubs, a historic ‘rogue’ season which the club had put behind them, suddenly becomes part of the assessment criteria. Where this has happened and where a transfer ban has previously been imposed and subsequently lifted (eg Fulham, Forest, Cardiff), it seems unlikely that the Football League would apply a further punishment if the projections for the current season show the club is currently operating within the £13m maximum loss figure.

Maximum loss limits

Championship clubs will be allowed to lose an average of £13m a season (or £5m if the owner doesn’t inject cash into the club to cover the loss). Hence, a long-standing Championship such as Brighton, is able to lose up to £39m over the three-season assessment period.

Clubs are permitted to exclude some expenditure (Youth development spend, Charitable Community spend, and Women’s Football spend). For a Championship cub this rarely exceeds £500k per season (and is usually less).

Clubs relegated from the Premier League are allowed to make losses of up to £35m in respect of any season spent in the top flight – this should allow clubs to better manage the transition.

The following table illustrates how the maximum permitted loss for Championship clubs is dependent on the league they were in during the two previous seasons.

Limits for clubs in Championship in 2016/17 season

*Maximum loss is assessed in March/April 2017 based on submission relating to two previous seasons plus projection for 2016/17

Are there any clubs facing punishment?

There are probably two clubs worth discussing:

Brighton & Aston Villa

Brighton

Brighton have been on the edge of promotion to the PL for several seasons and have released some figures for 2015/16. Although their full accounts are not released, they have advised that they made an Operating Loss of £25.9m last season (up from £7.4m the previous season) – in previous seasons, the Operating Loss figure also represented their Loss For Financial Year figure.

The club acknowledged that last season’s increase in losses was largely due to additions to the playing squad; it also appears that a lack of profit on player trading has impacted on this figure (for example in 2013/14 they made over £6.3m profit – largely on Ulloa).

The club cancelled a number of contracts this summer but don’t appear to have made any appreciable profit on player trading so far in 2016/17. The figures for the current season should have improved but it is hard to see them getting over the FFP line without some further action. Based on some educated guesses, it looks like they may fail the FFP test by around £10m this season.

Of course this is all heavily caveated, and it is entirely possible that the club will have sufficient exclusions to get over the line. However on the face of it, it does look like Brighton could be in some trouble. It certainly suggests the club won’t be big net spenders in January. And even if the club is close to the limits, it would be within their gift to resolve any problem by trading players for a profit in the January window (although that wouldn’t be popular and could impact on their promotion push).

Moving further into the world of conjecture, it would be interesting to speculate on the punishment a club would receive in March/April if it was on course for securing a promotion slot but had overspent in the process. The Football League have often been fairly draconian and it is possible that such a scenario would result in a points deduction (a transfer embargo, imposed at the end of the season would probably be supported by the Premier League but certainly result in other clubs crying ‘foul’).

The problem with applying any punishment beyond a transfer embargo is that it would probably be challenged by the club – however, no-one would want a scenario where promotion isn’t settled by the end of the season and where, potentially, CAS (Court for Arbitration in Sport) were involved.

Aston Villa

Newly relegated Villa will be captured under the new FFP rules and will be required to submit their figures to the Football League along with other Championship clubs. Unfortunately, we don’t have either the 2015/16 figures or those for the current season. It is therefore difficult to do too much with Villa’s figures.

The last accounts that we have for Villa (2014/15) were dreadful. There is every reason to expect the 2015/16 accounts to be similarly awful (perhaps even worse).  Villa have been saddled with an expensive wage bill and infrastructure that will be difficult to change. They also have struggled to make profits from player trading.

For purposes of illustration, I have assumed the 2014/15 figures are repeated in 2015/16. I have made a guess for the current season’s losses – looking at other similarly bloated clubs, a loss of £30m for the current season looks conservative if anything.

There are so many unknowns that the above is simply an illustration rather than any kind of projection. However it suggests that Villa could come close to FFP limits this season and it is not impossible that they will face some FFP sanction this season.

However, the real issue for Villa will probably come next season if they don’t win promotion this season. Trying to work towards a £13m maximum loss figure would prove a real challenge for Villa next season. They did manage to terminate some contracts this season but there are still plenty of expensive players on the wage bill (and they were net spenders in the summer).

Interestingly, they were recently reported to have turned down a £25m Chinese offer for Amavi (representing around £18m of book value profit). Of course, it is possible that the player didn’t want to go to China but it does suggest the club has the ability to comply with the FFP rules if the owner is willing to rein-in spending and trade out some of the playing squad in the summer.