Championship clubs have voted 21-3 in favour of introducing strict new Financial Fair play rules. Clubs that overspend will be punished with a Transfer embargo. The details are attached here.
Plans to introduce a model that restricted clubs to spending a percentage of their turnover have been abandoned in favour of 'breakeven' model that restricts the level of losses a club can make. In the face of practical and legal challenges (outlined in my previous article), the first sanctions will not now be in place until 1 January 2015, in the form of transfer embargoes.
The rules introduce the new 'Fair Play Tax', whereby clubs that overspend will have to pay 'Tax' that will then be shared out amongst the clubs that comply with the rules and remain in the Championship. The introduction of this tax is dependent approval from the Premier League - gaining their approval is likely to be very difficult. Reading, Southampton (and Leicester) voted against the proposals - this suggests that PL clubs may well not vote in favour of the Fair Play Tax. However, this uncertainty only leaves the Fair Play Tax in doubt - all the other rules have been agreed.
Any club relegated from the Premier League will be exempt from the rules for one year - it will then have to comply fully or face a transfer embargo. It is probably this rule that will worry Premier League clubs the most as it makes it more risky for a club to spend heavily in an attempt to 'bounce-back' immediately. There are a number of exclusions in the new rules, but Premier League clubs will have noticed that the cost of servicing existing debt is not amongst them. Some clubs, such as Aston Villa and Bolton, routinely pay around £5m a season to pay interest on their debt; the new rules will make life in the Championship particularly uncomfortable if the can't escape in the first year after relegation.
Interestingly, any promotion bonuses are exempt from the FFP calculations - we may see clubs structure their wages so that promotion bonuses make up a larger percentage of total pay.
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