What’s the point of Financial Fair Play?
The Football League is trying to prevent clubs from spending way beyond their means by imposing a limit on the losses a club can make within a season. It hopes to end the trend towards sugar daddy owners bankrolling clubs in an attempt to reach the Premier League and safeguard the future of clubs against those who would gamble with their future for a shot at the bit time.
What are the rules?
Clubs will be set a limit on the size of the losses they can make within a season. The Football League will impose sanctions from the 2013/14 season on clubs failing to bring their finances within the acceptable range. In 2013/14, clubs will be allowed to make a loss of no more than £6m although allowances are made for spending on youth development and community programmes.
Owners will be prevented from sustaining their clubs through significant loans. By 2015/16 they will be able to make loans totalling no more than £3m each season. Leicester City received £15.1m in loans from Asia Football Investments during the 2010/11 campaign.
The Football League will require clubs to submit their accounts by 1st December following the end of the season in order to assess whether clubs have complied with the regulations. Clubs will submit their first accounts this December, but no sanctions will be applied until the 2013/14 reporting period.
What are the sanctions?
Due to the complicated nature of financial reporting it won’t be possible to impose sanctions in the same season as the offences took place. As a result, sanctions vary depending on the division the offending club finds itself in the following season.
If the club is in the Premier League they will be required to pay a Financial Fair Play Tax. This will be calculated based on the excess by which they failed to fulfil the Fair Play requirement ranging from 1% on the first £100,000 to 100% on anything over £10m.
For example, had the regulations been in place last season and had Leicester been promoted, they would have been required to pay a tax based on the £15.2m loss the club made during the season. The excess over the £6m limit would have been £9.2m, making Leicester liable to a fine of £4.278m.*
Money collected from the Financial Fair Play Tax will be distributed evenly amongst clubs who stay within the Financial Fair Play limits.
If the club is still in the Championship, they will be placed under a transfer embargo until such a time as they can demonstrate to the Football League that they are meeting the Financial Fair Play requirements.
If the club has been relegated, no sanctions will be imposed, but the club will be required to comply with the stricter regulations already in place in League One.
Sanctions won’t come in for another season, should we worry?
It depends on your outlook. If you think Leicester will be promoted in the next season, then no. If however, the club do not address their overspending and fail to reach the Premier League next season then things could become difficult. Sanctions begin from the 2013/14 reporting period, so it’s likely we’ll see the first sanctions on failing clubs in 2015. Without significant changes at the club either in its league position or its finances, Leicester could be among the first to be hit by them.
Aren’t there easy ways around this? Couldn’t the owners just sponsor the kit for £30m?
It seems unlikely that the Football League have not considered the possibility of such ruses. Leicester City’s accounts state the club has “through its owner’s relationships in Thailand, been able to enter into some significant new sponsorship deals which will contribute positively to the club’s revenues in the future.”
Whatever the deals, clubs like Leicester will surely have to justify the reasoning behind any sponsorship deal which goes far beyond the going rate for a club of its size and marketing potential. And you would hope all clubs played by the spirit, not just the letter, of Financial Fair Play.
*Yesterday on Twitter I incorectly calculated the club’s fine would be £10.25m. This was based on a BBC report which still suggests clubs will be liable to a fine on all losses, not just the losses beyond the excess. The Football League statement on the matter makes clear that it is the amount above the excess that will be liable to the FFP tax. Apologies for the error.