The Benefactor Model - permitted in League 1 and 2

April 23, 2014

The Football League has clarified an important aspect of how their FFP rules operate within League and League 2. Interestingly, the FL have confirmed that their Salary Cost Management Protocol (SCMP) rules permit 'benefactor' owners to finance a club's ongoing losses (something that is restricted within UEFA, the Premier League and Championship rules). 

The League 1 and League 2 rules require clubs to submit regular financial forecasts to the Football League. Only if a club is operating within the permitted limits are clubs allowed to sign new players - clubs that are clearly heading for an overspend will have a transfer embargo imposed. Within League 1, clubs need to keep their total wage-spend below 60% of club Turnover (the limit is 55% in League 2). When a club's forecast brings them within 5% of the permitted threshold, the Football League will start to take a much closer interest in the club's finances.  There are no restrictions (in themselves) on the amount a club can lose or spend on transfer fees. For the SCMP rules, the crucial issue is the definition of 'Turnover' as this is used to determine the maximum wage-spend. 

From a traditional accounting perspective, there are only three elements of turnover: 

  • Match-day Income 
  • Commercial Income (such as sponsorship) 
  • TV revenue (and any 'merit payments' based on league position)

The Football League have confirmed that their definition is broader definition of Turnover than is usually used. Crucially, the FL Turnover figure includes donations from the owners to the club and injections of equity. Although loans from club owners are understandably not included in the Turnover figure, the inclusion of cash injections from the owner is particularly interesting. In League 1 and League 2, a wealthy owner can fund the club spending in a way that is not permitted in other divisions. Manchester City and Leicester for example seem set for punishment for their excessive losses (from UEFA and the Championship respectively) despite the fact that the owners have injected hard cash into the club to finance the spending - an approach that is permitted in League 1 and 2.

The 'benefactor' model can operate unrestricted in League 1 and League 2 and there is nothing to prevent a wealthy owner purchasing a lower division team and funding a huge overspend via cash injections (although it is worth pointing out that the lower divisions are not awash with wealthy owners willing to throw money into their club.  Permitting benefactor donations to a club is interesting; benefactor-spending of course has an inflationary effect on the wages in the division (something clubs are keen to avoid). Coventry's manager recently confirmed that the club owners will inject cash into their club to fund player wages - without equity injections being included as 'Turnover', Coventry would be operating under a transfer embargo. 

Championship clubs are currently discussing the introduction of new rules and it seems they will probably also introduce interactive account-projections into their process (rather than the current retrospective assessment process based on filed club accounts). There has been some significant support for spending constraints amongst a number of member clubs and in the Championship and it remains to be seen whether Championship club will adopt quite such a relaxed approach to their equity-injection criteria.


 

Would Hull City be allowed into the Europa League next season?

March 9, 2014

 Following today’s FA Cup semi-final draw, supporters of Hull and Sheffield United must feel there is every chance that they could secure a Europa League place next season. This could be achieved either by getting through to the final and beating Wigan, or simply by getting through to a final against Arsenal. Unlike the League Cup, the losing FA Cup Finalist will be rewarded with a Europa League place if the winners have already qualified for UEFA competition.  Arsenal would need to finish ...


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Will Liverpool face any FFP punishment?

March 6, 2014

Since Tuesday's release of Liverpool’s annual accounts for last season (2012/13), fans have been asking whether they will receive a punishment for breaching the Break Even rules.  Unfortunately the FFP rules aren’t straight-forward and it is only when you produce a projection of this season’s finances that you can see how the land lies.

As I advised a couple of days ago, Liverpool will be assessed for FFP compliance over three footballing seasons - they will be able to compete in the Cha...


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Liverpool’s accounts raise interesing question of ‘fairness’ of FFP

March 4, 2014

Last Friday UEFA held an FFP update in Nyon which provided some excellent information about the current process – however it also gave rise to a number of interesting questions.

UEFA explained that the teams that potentially faced punished for an overspend during the first Monitoring Period are those professional teams that qualified for UEFA competition in 2012/13 and had a Break Even deficit in the 2011/12 season. Although the Monitoring Period looks at accounting performance over two seas...


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UEFA Financial Fair Play update – Nyon 28 Feb 2014

March 2, 2014

On Friday UEFA held an FFP press briefing in Nyon. The 2 hour session provided number of interesting updates - only a few of which have been reported in the British press.

76 clubs referred for Break Even Deficit

As has been widely reported, 76 clubs were required to provide additional financial information to UEFA. Some media outlets probably not at the session seemed to sensationalise what UEFA were saying in respect to the 76. Essentially the 76 clubs are those that met all the following cri...


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Manchester United unable to spend their way out of trouble

February 12, 2014

In December Martyn Ziegler wrote an interesting piece outlining the financial implications for Manchester United if they don’t secure a Champions League place at the end of the current 2013/14 season. As Ziegler pointed out, the club’s CL income will be reduced next season by around £35m, with the club missing out on a further £10m in gate-receipts. 

Given this probable fall in income, it is interesting to overlay the new Premier League spending constraints and see what impact this fairl...


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Man City release controversial accounts

February 3, 2014

Manchester City's long-awaited financial results were released last week. In many ways they raise more questions than they answer. 

As a number of journalists have pointed out, there are a host of Related Party Transactions, Inter-company transactions as well as a sale of Image Rights to a company that the City Press Office insists is outside the club. These obscure transactions have been designed to generate one-off income for the club during the final accounting year that will be covered by ...


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Deloitte's Rich List gives sneak preview of Man City's accounts

January 23, 2014

The annual Deloitte's Rich List reveals some interesting information about Man City's income - figures that have not yet been published owing to delays publishing the club accounts. 

Before we look at the figures, I should point out that  the income catergorisation used by Deloitte in their report is different to the one used by the Club accountants - however it does include all club income. Deloitte catergorise  some of the club's revenue as 'Match Day Income' whereas the club put more of the...


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Wage Spend versus points achieved

December 27, 2013

Article and table updated 3 Jan 2014

After West Ham lost to Manchester United just before Christmas, their manager Sam Allardyce remarked tha
“where you actually finish in the league depends on the money you’ve spent. It’s a statistical fact that”.  This raised an interesting point; clubs will spend money to gain a competitive advantage, but, how by much does a high spend influence results? And what kind of spending? It also raises the question of to what extend a team's performance a...


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EC to formally investigate Spain for providing State Aid to clubs

December 16, 2013

The European Commission has opened disciplinary proceedings against Spain for giving illegal State Aid to 7 clubs (Real Madrid, Barcelona, Athletic Bilbao, Osasuna, Valencia, Elche and Hercules). The proceedings could have a significant impact on Spanish football.

Independent journalist Sam Wallace originally broke this story. See his articles here and here and here.

There are three areas in which the rules may well have been breached:

Member status

Whilst all other clubs were obliged by the Span...


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