Now that QPR have finally been relegated, it seems an appropriate time to outline the financial implications for the club (and other clubs in the Championship).
Perhaps the best place start is with a projection of the financial position for the club up to the end of next season (i.e. the end of their first season in the Championship):
I should point out that this carries a much heavier ‘health-warning’ than most of my projections – we simply don’t know how successful the club will be in getting players to leave in the Summer and we don’t have a full picture of the impact of any relegation clauses the club may have in place to reduce wages. However it does provide a useful yardstick for comparison.
Although we are going to have to wait nearly 12 months to see the impact of this season’s foolhardy spending. The projection suggests QPR will have lost around £68.4m during the current season. It appears that the wage spend is now well over £80m and the amortisation (i.e. the impact of transfer fee expenditure) has doubled. The Exceptional items represent the cost of sacking Warnock (2010/11) and Hughes (2011/12).
The last annual accounts (2011/12) records the net debt at £88.9m. The club recently took out a further loan of £15m for development of a Training Ground. Factoring in the above projection, net debt at the club at the end of the current season is likely to be around £168m.
With this level of debt, fans are likely to be concerned that the club could represent another ‘Portsmouth’. However, due to the club’s ownership profile, QPR are highly unlikely to suffer the same fate. QPR are 66% owned by Fernandes, Meranun and Gnanalingham and 33% owned by the Mittal family. The Mittal family are by all accounts extraordinarily wealthy (worth $10.4bn according to Forbes). Gnanalingham also has significant family money. Fernandes and Meranum will more impacted by the ongoing losses at QPR (via loans from their Tune Group). Both made their money with AirAsia and have large share-holdings in the company (valued at around £220m each). However, it is the ongoing support of the Mittal family that is the key to QPR’s stability – both the Mittal family and Tune Group provided further loans to the club in 2011/12. It seems extraordinarily unlikely that the Mittal family would be willing to let QPR get into financial difficulty.
It is interesting to note that if QPR had escaped relegation, they would not have been able to meet UEFA’s FFP Break-Even criteria (losing £91m over the two seasons of the first Monitoring Period vs the £38m maximum permitted loss). As a Championship Club, QPR do not have to apply for a UEFA licence next season unless they are fortunate enough to win a UEFA place via the League Cup or the FA Cup. However the figures suggest that the club would not be granted a licence in this scenario – QPR fans might think twice about supporting their team in the domestic cups next season, knowing that it is not possible to gain a UEFA slot even if they win the competition. In any event the UEFA rules would require the owners to put their hand in their pocket and convert around £80m+ of debt into equity – the fact that the club recently took out a £15m loan suggests the owners are not looking to reduce club debts in this way.
Looking into next year, QPR will benefit from a £23m parachute payment. However, this does not make up for the lost TV income (see TV Revenue row for the impact). It seems likely that the club will be able to manage some players out of the club and it will probably have some wage-reduction clauses in the existing contracts (although reports suggest that most high-earners don’t have these contract clauses). The heavily caveated projection suggests the club could report a loss of around £61.5m during their first season in the Championship. This figure is well above the new FFP rules for the Championship and will have significant implications for the club.
From next season, strict new FFP rules for the Championship have been introduced (with penalties). All clubs (including QPR) will need to keep future club losses below £8m for the coming season. Any overspend will become apparent when the accounts for the 2013/14 season are submitted in December 2014. An overspending club will be given a transfer ban (with the first ban coming into effect in January 2015). Once this is understood, the need for QPR to ‘bounce back’ and win promotion at the very first attempt becomes apparent. If they don’t bounce-back immediately, QPR will almost certainly not be able to sign any new players after end August 2014. This would severely hamper their campaign during their second season in the Championship.
Given that only one club out of the last 9 have bounced back at the first attempt, QPR’s challenge should not be underestimated. The matter becomes even more pressing when you consider that the Transfer Ban would not be lifted until the club can prove that it was on track to bring losses below £6m season (£5m from 2016) – conceivably QPR could have Transfer Ban in place for several seasons.
If QPR were fortunate enough to win promotion at the first attempt, they would be affected by the new ‘Fair Play Tax’. Any club that wins promotion as a result of overspending will have to pay ‘tax’ based on a sliding scale. Assuming QPR lose £61.5m next season, the club would end up paying a tax of £48.7m – a huge amount (see here for details of the rules and the calculation). This tax would then be divided up and allocated to those clubs in the Championship that have complied with the FFP rules (adding an extra incentive for overspending clubs such as Leicester to comply). Interestingly, as any unused parachute payments are also divided up amongst clubs, some Championship outfits may ultimately be happy to see QPR bounce back as the scenario would benefit them by a further £2m.
Given the need for QPR to win promotion at their first attempt, it will be interesting to see if the new FFP rules actually encourage QPR to continue their overspending. The club will have to weigh up the potential benefits of a place in the Premier League, against the Transfer Tax and the risk of becoming a 'zombie club' with an almost indefinite Transfer Ban should they fail to quickly return to the top flight.
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