My Top Ten Tips on Understanding Football League Financial Fair Play – Daniel Geey

March 15, 2013

Number 1: FL FFP regulations only apply to clubs participating in the FL Championship. Clubs in the FL Leagues 1 and 2 have to adhere to separate regulations called the Salary Cap Management Protocol (SCMP) which ties cost to a percentage of turnover.

Number 2: The overall aim of the rules is to ensure Championship clubs balance their books and do not spend more than they earn so that they become self-sustainable. In the context of the Championship clubs, this is to be achieved through:

  • some losses being acceptable in the first years of implementation;
  • sanctions (fines and a transfer ban) being brought in from the 2014/15 season; and
  • clubs being incentivised to comply with the rules by receiving a share of the non-compliant club’s fines.

Number 3: Football League Financial Fair Play (FLFFP) came into play for the 2012-13 Championship season. There are no sanctions for breaching the regulations in the 12/13 and 13/14 seasons. A club can be fined (if the club is in the Premier League at the time of the decision) or be subject to a transfer ban (if the club remains in the Championship at the time of the decision). The below table sets out the different permutations.

Clubs Promoted to the PL

Clubs Relegated From the PL

Clubs promoted to the PL must provide FFP information for their promotion season by December 1 (i.e. for the season they were in the FL Championship). If a PL club has breached the regulations, they will befined according to the sanctions table set out below.

Clubs relegated from the PL will not be subject to sanctions in their first season in the Championship as long as they have complied with all relevant PL regulations. The club would however be fined if it achieved promotion in its first season in the Championship whilst not complying with the FFP regulations.

Clubs that Remain in the Championship

Clubs Relegated From the Championship

Clubs that fail to comply with the FFP regulations will be subject to a transfer embargo. The first embargo can be enforced by the FL from the beginning of January 2015.

Clubs relegated from the Championship will not receive any Fair Play Tax pay out but will be required to comply with the SCMP.

Number 4: The below table sets out the acceptable permitted losses Championship clubs can make

Reporting Period

Date of Accounts Submission

Reporting Period Equity Contributions

Reporting Period Acceptable Deviation

Total Acceptable Deviation

FL Sanction Available

2012-13

Dec.’12 for 2011-12 season

£8m

 

£4m

 

£12m

No

2013-14

Dec.’13 for the 2012/13 season

£6m

 

£4m

 

£10m

No

2014-15

Dec.’14 for the 2013/14

£5m

 

£3m

 

£8m

Yes

2015-16

Dec.’15 for the 2014/15

£3m

 

£3m

 

£6m

Yes

2016-17

Dec.’16 for the 2015/16

£3m

 

£2m

 

£5m

Yes

2017-18

Dec.’17 for the 2016/17

£3m or lower

 

£2m or lower

>£5m

Yes

Number 5: By way of practical example, for the 14/15 season, a club’s Fair Play Result (for the purposes of this example before calculating any acceptable deviation) is minus £6m. A club for the 13/14 reporting period can make a £3m loss and not fall foul of the regulations. However, as the club has made a £6m loss, an owner would have to inject £3m of equity into the club. If the owner does not, the club, all other things being equal, will be in breach of the FFP regulations. Note that an owner, in that season, can only inject up to £5m into the club. Any more and the club would be in breach of the regulations because it made losses over the combined £8m total acceptable deviation limit.

Number 6: Come the 14/15 season, a club that is in breach of the regulations will face sanctions. Failure to stay within the defined limits (leading to a negative Fair Play Result) will lead to the imposition of sanctions. The sanctions will vary depending on whether the club is promoted to the PL, remained in the Championship or was relegated to League 1.

Number 7: A calculation table of fines has been published to enable clubs to understand the potential size of the penalty. Clubs promoted to the PL will have to pay a ‘Fair Play Tax’ 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. Clubs who comply with the regulations will receive a share of any fines imposed on non-compliant clubs. Any proceeds will be distributed equally amongst those clubs that complied with the FFP regulations for the season in question. Clubs that remain in the Championship, who breach the FL FFP regulations will have a transfer embargo imposed. Clubs who are relegated out of the Championship will not be entitled to any Fair Play Tax payout but will not be sanctioned.

Percentage of the Excess

Excess

Calculation (rounded up)

1% of the Excess between

£1 & £100,000

£1,000

20% of the Excess between

£100,001 & £500,000

A maximum of £80,000

40% of the Excess between

£500,001 & £1m

A maximum of £200,000

60% of the Excess between

£1,000,001 & £5m

A maximum of £2.4m

80% of the Excess between

£5,000,001 & £10m

A maximum of £4m

100% of the Excess over

£10,000,001 +

No Maximum

Number 8: The following is an example  for a club that is promoted to the Premier League but is in breach of the FLFFP for the year they were in the FL. If a club’s accounts (after available FLFFP reliefs have been discounted) show that it is exactly £10m over acceptable deviation parameters, the fine will be £6,681,000 (i.e. £1,000 + £80,000 + £200,000 + £2.4m + £4m). As explained all fine proceeds will be distributed equally amongst FFP compliant clubs. It is not however expressly set out whether a fine could be part of a clubs costs or a distribution of a fine for a compliant club could be used as revenues for future Fair Play Result calculations.

Number 9: The new rules require clubs by December 1 of each season to provide annual accounts to the FL, setting out details relating to the previous playing season. The FL will use the financial information received to determine whether a club has complied with the regulations. As will be shown below, it is possible for a club to make a loss and still pass the FL FFP regulations. The FL will establish a Financial Fair Play Panel to hear challenges brought by clubs in relation to the initial Fair Play Result.

Number 10: There are also certain cost exclusions which can be removed from a club’s cost base. This is in relation to “specific areas of club infrastructure or losses in certain extraordinary circumstances.” Such categories of cost exclusion include investment in youth development, sale and depreciation of fixed assets (e.g. a club’s stadium or training ground), investment in a club’s community scheme, promotion related bonus payments, career ending injury costs, bad debts from other clubs and losses sustained from a defaulting major sponsor.

 


 

Daniel Geey, Associate in the Competition and EU Regulatory Group at Field Fisher Waterhouse LLP.

Daniel has provided advice and presentations on a whole raft of football related issues and can offer industry specific legaladvice on football takeovers, Premier League, Football Association, UEFA, FIFA, FFP and more.

Check out Daniel’s blog, ‘The Final Score on Football Law’ here >> and follow Daniel on Twitter here >>

Please feel free to get in touch with Daniel Geey should you or your club have any questions concerning the regulations.

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