Article published 5 April 2012

Football League proposals for the introduction of Financial Fair Play rules appear to have run into difficulty and a delay in implementing the rules looks increasingly likely.

In June 2011, the Football League (FL) announced that Financial Fair Play rules would be introduced into the Championship from the 2012/2013 season.  The FL set out a schedule that would have seen the proposals circulated and then ratified at their Quarterly Meeting of all 72 clubs in February.   However, the February date has been missed and clearly things haven't gone according to plan. When contacted, the Football League advised that the FFP proposals "are still being looked-into".  As the rules will need to be circulated, ratified and put in place by the end of July 2012, all the indications are that the implementation will now slip by at least a year.

The Football League faces a number of obstacles and even legal challenges in order to implement the new rules to curb spending.

The initial proposal was for Championship clubs to restrict their spending on wages to 60% of the turnover. Conceptually, this sounds fairly straight-forward.  However the devil is in the detail and some clubs are clearly not happy with the proposals - West Ham let it be known that they were considering a legal challenge as they felt the rules were unfair and would restrict a clubs ability to compete in the Premiership. Perhaps, somewhat missing the point of the FFP rules, it was also reported that West Ham also apparently "fear that transfer fees will fall in the Championship and League 1 and that ambitious clubs will be penalised".

The consultation process faces a number of challenges - one of them has been identifying who to actually consult.  Owing to relegation and promotion, turnover in the Championship is high (25% of teams leave the Championship each season), making it difficult to effectively consult. Potentially, the top half of League 1 and the bottom half of the Premiership should be involved in the consultation process. However this would dilute the input from the existing Championship clubs and, somewhat uncomfortably, allow clubs not in the Championship to have input to the rules of the division.

And then there is the thorny problem of how to punish clubs that break the rules - the initial proposal was for errant clubs to face a transfer ban as a first sanction, with possible points deductions for major offenders. As I outlined in the 4 April article, it will be difficult to impose fair and consistent  sanctions when financial targets that can be missed by one pound or tens of millions of pounds.

However as club accounts are produced retrospectively (i.e. they always relate to the previous season), there are difficulties in using historic figures as a deterrent.  In addition, any club living under a transfer ban for previous high wage-spend in the previous year might find itself shackled to their high-wage-earning players and unable to bring in cheaper replacements.  As an example of how complicated this issue is, it is worth looking at high-flying Championship club Southampton. They recently announced their results for last season (i.e. when in League 1).  They ran a wage-bill of 93% of turnover and lost £11.5m. However, this season they have increased their TV and Commercial income, sold Oxlade-Chamberlain and will probably come fairly close to Break-Even. Southampton also appear to be heading for the Premiership, where seemingly no punishment could be applied.   It would therefore be extremely hard to implement an appropriate and timely punishment system for a club like Southampton based on a rigid formula that could also applied fairly to Championship clubs and clubs relegated from the Premier League. The issue of how to handle clubs relegated from the Premier League highlights other problems, as Sports Lawyer, Daniel Geey explains, " it would be a very brave regulator to sanction clubs for breaching the FFP regulations for accounting periods when they were outside of the Championship".

There is also concern that the timescale for implementation has been too ambitious. Clubs in the Premier League were aware in 2009 that FFP rules were coming (the final rules being issued in 2010).  There is an appreciation that Championship clubs may need a similar time to adjust to the new financial restrictions (especially given the potential complexity of the rules).

It is important to remember that strictly speaking, no FFP rules currently apply, as such, in the Premier League. UEFA's FFP rules only apply to any club wishing to apply for a license to compete in UEFA competitions. Clubs are therefore not obliged to comply. Indeed it is entirely possible that the owners of some clubs will baulk at the rules requiring them to inject equity to cover club losses and may choose to rule themselves out of UEFA competitions.  The UEFA competitions are very much the 'icing on the cake' for Premier League clubs -the situation is entirely different for Championship clubs who face potentially complicated restrictions that will apply to their 'bread and butter' activity.

All this makes it difficult to envisage how the Football League can easily take FFP forward in the Championship. A more straight-forward approach may be called for, perhaps one that simply requires owners to convert losses to equity (or face a points deduction).  This approach would not be an entirely satisfactory solution as it would not address the issues around the wealthy-benefactor model and 'financial doping'. However, this alternative would at least impact on general spending levels and recent events suggest that increasing debt, rather than an excess of owner funds is the more pressing  issue outside the top flight.

Update: This article was used (with full permission) as the source for an article in the Independent on 5 April