FFP explained

[EdinburghFox]

What actually is it?

I get the gist of it but I don't know much about finances and how will it affect us and other teams?

[Harry - LCFC]

I came on this thread expecting for a thorough explanation of how FFP would affect us. Disappointed.

[JJS84]

FFP is being challenged in the European high court by a football agent that states the fair play rules break league laws in the major European leagues and also locks in rich clubs and stops smaller clubs ever being an attractive proposition to invest in, as they can't operate at a loss ever. The agent is using the same lawyer that won the Bosman case.

It'll be interesting if this holds up the implication of the laws into the game.

There seems to many who want to oppose these laws and agents are the main ones.

[EdinburghFox]

I came on this thread expecting for a thorough explanation of how FFP would affect us. Disappointed.

sorry, I shoulda made that mire clear

[Foxes_Trust]

FFP is being challenged in the European high court by a football agent that states the fair play rules break league laws in the major European leagues and also locks in rich clubs and stops smaller clubs ever being an attractive proposition to invest in, as they can't operate at a loss ever. The agent is using the same lawyer that won the Bosman case.

It'll be interesting if this holds up the implication of the laws into the game.

There seems to many who want to oppose these laws and agents are the main ones.

 

Agents are the main ones - complete self interest, as footballers pay will fall, they might blame the agents & look to use a more cost effective option - the PFA offer a contract negotiation service for players without commanding a huge slice for doing so

[Harry - LCFC]

sorry, I shoulda made that mire clear

 

Oh it's no problem at all mate, just poking fun at it a bit. 

 

Here are some of the specifics off the FL's website in case you haven't already seen them:

 

 

 

- Permitted losses will reduce from an acceptable deviation of £4m for 2011/12 to £2m by 2015/16, with additional investment in certain areas of club infrastructure being excluded (e.g. youth development and community programmes).

- The permitted level of shareholder equity investment will reduce from £8m for the 2011/12 season to £3m by 2015/16.

- Failure to stay within the defined limits will lead to the imposition of sanctions. The sanctions will vary depending on whether the club was ultimately promoted to the Premier League, remained in the Championship or was relegated to League 1.

- Clubs promoted to the Premier League 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. Any proceeds will be distributed equally amongst those clubs that complied with the FFP regulations for the season in question.

 

- Clubs remaining in the Championship will be subject to a transfer embargo until they are able to lodge financial information to demonstrate they comply with the FFP regulations (either for the previous reporting period or a future reporting period).

- Sanctions will not be applied until the 2013/14 reporting period in order to give clubs a sensible period of transition.

 

 

So that gives you an impression of how much we'll have to limit our spending in future. If someone could post details about the club's accounts then we could analyse how closely we're complying with these rules and how much we need to change.

[bmt]

Basically we're fvcked

[Vlad the Fox]

Agents are the main ones - complete self interest, as footballers pay will fall, they might blame the agents & look to use a more cost effective option - the PFA offer a contract negotiation service for players without commanding a huge slice for doing so

This is what I've been saying for a long time. Agents are leeches bleeding money out of the game, if such a service existed clubs could pay an annual levy to cover the cost of salaries for the contract negotiators who would act solely in the interest of the player.

With regards to the challenge against financial fair play I hope it succeeds and the authorities are forced to look at alternatives such as capping wages and transfer fees.

[Dan]

I'm all for introducing something to stop clubs spending money they haven't got, but I can't help but feel there'll be loopholes that will be exploited.

 

I find that EPPP to be a far more worrying rule, so little coverage about it yet it'll practically end any small sides academy. Sums up football in this country I'm afraid. Money's killed every single aspect of the game bar absolutely none, in this country at least.

[MooseBreath]

Lucrative sponsorship deals between business friends, creative accounting, offsetting new signings, multi-club ownership and player sharing systems... All the kind of things which the FFP ensures will determine success in football in future

[Guest Bilo]

Lucrative sponsorship deals between business friends, creative accounting, offsetting new signings, multi-club ownership and player sharing systems... All the kind of things which the FFP ensures will determine success in football in future

 

I agree that FFP is going to be undermined.

 

Expect a 'record sponsorship deal' with King Power for the shirts and stadium in the near future to offset the losses. I imagine Singha and Air Asia will sling a lot of money in as well.

 

There will be a lot of departures over the summer but the main thing that Top et al will do is offsetting the losses through creative accounting.

[MooseBreath]

I agree that FFP is going to be undermined.

Expect a 'record sponsorship deal' with King Power for the shirts and stadium in the near future to offset the losses. I imagine Singha and Air Asia will sling a lot of money in as well.

There will be a lot of departures over the summer but the main thing that Top et al will do is offsetting the losses through creative accounting.

I'm not sure KP will be able to put excessive money in directly through sponsorship as there is something in the FFP which requests clubs act in a certain spirit, or something, which seems to give the FFP regulators discretionary powers to stop any obvious attempts to get around the rules.

But if third parties get involved it will become impossible to determine what is going on. Top will be on the blower down to his mates at Air Asia placing a huge order for a large business flight contract in exchange for a big sponsorship deal etc. Far from making things fairer it just forces football further into the murky world of business connections and jobs for the boys.

[MrSpaM]

Basically we can spend as much money as we like and we just won't get a share of this 'fair play tax' which we don't need anyway. So what if they give us a transfer embargo, we'll have already got the players we want by then. We could spend 50 million on players and what's going to happen? they stop us buying players for the rest of the season and don't give us our pocket money?

Am i missing the point here or is this not as bad as it seems?

[Foxblogger]

Basically we can spend as much money as we like and we just won't get a share of this 'fair play tax' which we don't need anyway. So what if they give us a transfer embargo, we'll have already got the players we want by then. We could spend 50 million on players and what's going to happen? they stop us buying players for the rest of the season and don't give us our pocket money?

Am i missing the point here or is this not as bad as it seems?

You're missing the point.

[hackneyfox]

At the moment it seems likelt that a very high percentage of clubs will fail FFP and receive a transfer embargo.

So who on earth are the other clubs meant to sell players to so that they don't fail FFP?

[MrSpaM]

You're missing the point.

 

Whats actually stopping us doing that just out of interest, I have to admit I don't really understand it fully, alot of it just seems to be 'Were not going to be your friends if you don't follow these guidelines'. It seriously seems like teams can spend as much as they like as long as they don't mind having a transfer embargo.

[Oasisedup]

You're missing the point.

 

No he's not. It isn't as bad as it seems. FFP is a paper tiger.

 

If the FL really think that organisations like KP can't get round these rules then they're having one.

[Greatness_Since_1884]

May not happen at all http://www.guardian.co.uk/football/2013/may/06/agent-legal-threat-uefa-financial-fair-play

[Guest Bilo]

I'm not sure KP will be able to put excessive money in directly through sponsorship as there is something in the FFP which requests clubs act in a certain spirit, or something, which seems to give the FFP regulators discretionary powers to stop any obvious attempts to get around the rules.

But if third parties get involved it will become impossible to determine what is going on. Top will be on the blower down to his mates at Air Asia placing a huge order for a large business flight contract in exchange for a big sponsorship deal etc. Far from making things fairer it just forces football further into the murky world of business connections and jobs for the boys.

 

That wouldn't surprise me at all; although technically King Power International, the company responsible for the duty free shops in Thailand, is a different company to King Power Holdings who own the club and the stadium. Obviously in reality they're one and the same, but they are different companies on paper. 

 

As you say though, there seems to be a great deal of third party involvement as Vichai is clearly an extremely influential and connected individual. Once Air Asia, Singha and various other Thai companies get involved it becomes impossible to track which is genuine sponsorship and which is a means of getting around FFP. 

 

Expect to see even more adverts for companies based in Bangkok flashing up on the advertising hoardings next season.

[Lobsterboyuk]

If I'm an owner of a big club and also own a timpot club in the arsehole end of nowhere, what stops me from buying a players contract for my shitty little club which is not subject to FFP and then loan the player to my big club whilst charging a small fee and structure the players contract so that the shitty club pays most of his wages. I can also inject several holding companies in to the mix to make it almost impossible to pin down who owns what. How are FA/UEFA/FIFA really going to police that?

[MooseBreath]

Whats actually stopping us doing that just out of interest, I have to admit I don't really understand it fully, alot of it just seems to be 'Were not going to be your friends if you don't follow these guidelines'. It seriously seems like teams can spend as much as they like as long as they don't mind having a transfer embargo.

The transfer embargo lasts until you can prove you're back within the rules. At the very least you'd be looking at a full season where you couldn't make any further signings.

[MrSpaM]

The transfer embargo lasts until you can prove you're back within the rules. At the very least you'd be looking at a full season where you couldn't make any further signings.

So again, what's to stop you buying everybody you want at the start of the season and just settling for an embargo? you could literally spend as much as you liked

[MooseBreath]

So again, what's to stop you buying everybody you want at the start of the season and just settling for an embargo? you could literally spend as much as you liked

Nothing really. I suspect if you went on a big spending spree it would take you a few years to get back on track and able to sign players again. You'd have to be extremely confident that the money was going to be well spent.

Also if you did get promoted you'd have to pay the fair play tax which would likely be close to 100% of your overspend, so if you overspent by 20m and then got promoted it would effective cost you 40m.

Even then, with the financial rewards of the prem on offer, some particularly gung ho owners might be tempted into taking a big gamble. Which kind of entirely defeats the claimed object of the ffp, but that's life bro.

[Foxblogger]

What actually is it?

I get the gist of it but I don't know much about finances and how will it affect us and other teams?

 

Here is a long, but hopefully interesting and comprehensible explanation of FFP as it applies to the Championship.

 

First things first.

 

The Principle

 

When clubs released their accounts for the 2010/11 season it became apparent that for the first time the total debts of all the Championship clubs added together totalled more than £1bn. For a division which had revenues of just over £300m in the same year, this was a problem. Some projections suggested the debt could double to £2bn in as little as five years as clubs chased the Premier league dream and fell short.

 

Very few Championship clubs turn a profit. Most make losses. Some clubs, like Leicester City are making huge losses. Big losses, mean even bigger debts.

 

In Leicester's case, the losses are being covered by loans from the King Power group. Other clubs use this model too. Before his death Nigel Doughty loaned enormous sums to Nottingham Forest. You'll find similar stories at clubs like Middlesbrough, Cardiff, Hull and Ipswich.

 

These loans are controversial. Some observers call the process of pumping unearned money into a football club 'financial doping'. That debate is probably for another thread. The important thing here is that impression exists, and at a meeting of all 24 Football League clubs in April last year 21 of the 24 voted for a new system of Financial Fair Play to stop it.

 

The general idea is that clubs should not spend beyond their means.

 

The Rules

 

So this is essentially how it works.

 

Every December clubs who competed in the Championship the previous season will be required to send their accounts to the Football League.

 

So in December 2014, regardless of whether they have been promoted, Leicester City will need to submit their 2013/14 accounts.

 

The rules say that for the 2013/14 season clubs are (with certain exemptions e.g. youth programmes, developing the stadium etc.) allowed to make a loss of £3m. If the club wants to make a loss bigger than that it's owners will have to buy equity (see below) up to a total of £5m. That gives a total allowed loss of £8m.

 

If a club fails to stay within the limit there are a few things that can happen. It all depends on the division where the club ended up.

 

If the club is in the Premier League it has to pay a tax on losses it makes above the allowed maximum. So if you lost £11m and the limit is £8m, you'd have to pay a tax on the excess £3m. That tax is calculated progressively, the greater the loss, the bigger the fine.

 

Some examples;

 

Loss of £1m over threshold = £289,000 tax

Loss of £3m over threshold = £1.49m tax

Loss of £5m over threshold = £2.69m tax

Loss of £10m over threshold = £6.68m tax

Loss of £15m over threshold = £11.68m tax

Loss of £20m over threshold = £16.68m tax

 

 

Any money made from the FFP tax is split equally between the teams that stayed within the rules. 

 

If the club is in the Championship the Football League will impose a transfer embargo until such a time as the club can demonstrate it is operating within the Financial Fair Play limit.

 

If the club is relegated to League One then they will have to comply with it's so called Salary Management Protocol. In short, clubs in League One are not allowed to spent more than 60% of their turnover on player salaries.

 

What this means for Leicester City

 

The last accounts we have (2011/12) showed Leicester making losses of nearly £30m. So by the end of 2013/14 (even if the owners are prepared to pay in the maximum equity allowed) those losses have to be cut by £22m to stay within the rules

 

This can be done in a number of ways. Most obviously increasing turnover (more bums on seats, more sponsorship, more shirt sales), and cutting costs (player wages, excessive transfer and agent fees).

 

Again, the debate about how effectively the club are currently doing this is something I'll leave for another time.

 

Of course, as some have suggested here, the club could gamble. The drawbacks are clear though.

 

1) If promoted TV money could be used to pay the fine, but the club would be putting itself at an immediate disadvantage. Every other Premier League team gets the TV money as well, but they'd be spending it on players (like say, a £5m striker who could score the goals that kept the team up at Leicester's expense).

 

2) If still in the Championship, there's no telling how long the embargo could last. We've already seen what can happen when money is thrown at players who don't cut it. If FFP had existed two years ago Nigel Pearson would probably still be lumped with a large chunk of Sven's squad, unable to make additions of his own.

 

Bending the rules

 

This is where things start to get messy. Inevitably there will be some clubs who try to bend the rules. However, I doubt it will come in the form of suddenly inflated sponsorship for the stadium, shirt or match ball. The Football League has a panel to that will assess whether it thinks clubs are acting within the rules and that sort of transaction is unlikely to wash. 

 

Whatever ways clubs find of being cute with FFP, I doubt they will be suggested here.

 

And finally a note on...

 

Equity

 

If a club's owners buy more equity (i.e. more shares - if they already own 100% they just make some more) they cannot get that money back until the club is sold. And even then, when they sell to get a money back in full they will need to sell the club for as much as it was purchased for, plus and addition equity put in.

 

To use Leicester City as an example. Asia Football Investments (now King Power) was reported to have bought the club from Milan Mandaric for around £40m. So if they put in £5m more in equity they'd have to sell for at least £45m to get their full investment back. 

 

The owners have talked about buying equity. We will have to wait and see on this one.

[EdinburghFox]

Here is a long, but hopefully interesting and comprehensible explanation of FFP as it applies to the Championship.

First things first.

The Principle

When clubs released their accounts for the 2010/11 season it became apparent that for the first time the total debts of all the Championship clubs added together totalled more than £1bn. For a division which had revenues of just over £300m in the same year, this was a problem. Some projections suggested the debt could double to £2bn in as little as five years as clubs chased the Premier league dream and fell short.

Very few Championship clubs turn a profit. Most make losses. Some clubs, like Leicester City are making huge losses. Big losses, mean even bigger debts.

In Leicester's case, the losses are being covered by loans from the King Power group. Other clubs use this model too. Before his death Nigel Doughty loaned enormous sums to Nottingham Forest. You'll find similar stories at clubs like Middlesbrough, Cardiff, Hull and Ipswich.

These loans are controversial. Some observers call the process of pumping unearned money into a football club 'financial doping'. That debate is probably for another thread. The important thing here is that impression exists, and at a meeting of all 24 Football League clubs in April last year 21 of the 24 voted for a new system of Financial Fair Play to stop it.

The general idea is that clubs should not spend beyond their means.

The Rules

So this is essentially how it works.

Every December clubs who competed in the Championship the previous season will be required to send their accounts to the Football League.

So in December 2014, regardless of whether they have been promoted, Leicester City will need to submit their 2013/14 accounts.

The rules say that for the 2013/14 season clubs are (with certain exemptions e.g. youth programmes, developing the stadium etc.) allowed to make a loss of £3m. If the club wants to make a loss bigger than that it's owners will have to buy equity (see below) up to a total of £5m. That gives a total allowed loss of £8m.

If a club fails to stay within the limit there are a few things that can happen. It all depends on the division where the club ended up.

If the club is in the Premier League it has to pay a tax on losses it makes above the allowed maximum. So if you lost £11m and the limit is £8m, you'd have to pay a tax on the excess £3m. That tax is calculated progressively, the greater the loss, the bigger the fine.

Some examples;

Loss of £1m over threshold = £289,000 tax

Loss of £3m over threshold = £1.49m tax

Loss of £5m over threshold = £2.69m tax

Loss of £10m over threshold = £6.68m tax

Loss of £15m over threshold = £11.68m tax

Loss of £20m over threshold = £16.68m tax

Any money made from the FFP tax is split equally between the teams that stayed within the rules.

If the club is in the Championship the Football League will impose a transfer embargo until such a time as the club can demonstrate it is operating within the Financial Fair Play limit.

If the club is relegated to League One then they will have to comply with it's so called Salary Management Protocol. In short, clubs in League One are not allowed to spent more than 60% of their turnover on player salaries.

What this means for Leicester City

The last accounts we have (2011/12) showed Leicester making losses of nearly £30m. So by the end of 2013/14 (even if the owners are prepared to pay in the maximum equity allowed) those losses have to be cut by £22m to stay within the rules

This can be done in a number of ways. Most obviously increasing turnover (more bums on seats, more sponsorship, more shirt sales), and cutting costs (player wages, excessive transfer and agent fees).

Again, the debate about how effectively the club are currently doing this is something I'll leave for another time.

Of course, as some have suggested here, the club could gamble. The drawbacks are clear though.

1) If promoted TV money could be used to pay the fine, but the club would be putting itself at an immediate disadvantage. Every other Premier League team gets the TV money as well, but they'd be spending it on players (like say, a £5m striker who could score the goals that kept the team up at Leicester's expense).

2) If still in the Championship, there's no telling how long the embargo could last. We've already seen what can happen when money is thrown at players who don't cut it. If FFP had existed two years ago Nigel Pearson would probably still be lumped with a large chunk of Sven's squad, unable to make additions of his own.

Bending the rules

This is where things start to get messy. Inevitably there will be some clubs who try to bend the rules. However, I doubt it will come in the form of suddenly inflated sponsorship for the stadium, shirt or match ball. The Football League has a panel to that will assess whether it thinks clubs are acting within the rules and that sort of transaction is unlikely to wash.

Whatever ways clubs find of being cute with FFP, I doubt they will be suggested here.

And finally a note on...

Equity

If a club's owners buy more equity (i.e. more shares - if they already own 100% they just make some more) they cannot get that money back until the club is sold. And even then, when they sell to get a money back in full they will need to sell the club for as much as it was purchased for, plus and addition equity put in.

To use Leicester City as an example. Asia Football Investments (now King Power) was reported to have bought the club from Milan Mandaric for around £40m. So if they put in £5m more in equity they'd have to sell for at least £45m to get their full investment back.

The owners have talked about buying equity. We will have to wait and see on this one.

wow!! It's simple then!

thanks a lot that's really helped