Clubs make legal threat to Football League over financial fair play

[Babylon]

I meant in line with the prior year financial statements. That's all that was said, all will be revealed on Friday though!

The last financial statements were the time we lost 30 million, so I rather hope not.

[Jobyfox]

When FFP is discussed you always get a lot of morally self-righteous comments about what a good thing it is and how virtuous we are for trying to comply. I see it slightly differently simply because FFP will exacerbate the inequalities in the game.

It is only the rich benefactor model that has allowed teams like Forest and Leicester to be able to compete with clubs in receipt of huge parachute payments from the Premier League. The difference in revenue will get even worse as parachute payments get even larger and are maintained for longer. Clubs trying to balance their books, without the parachute money, will literally be in a different league financially.

Now I know that there are plenty of examples where parachute money hasn't guaranteed success, but it still gives clubs a significant advantage even if it is ultimately squandered. That advantage will only grow.

If you go further up the league then you see that Chelsea have become a big club on the back of investment and that Man City are now able to compete with the elite. That has made for a much more interesting and competitive Premier League .

[BoyJones]

FFP is clearly in breach of many EU rules and regulations. Only works on a voluntary basis where all parties agree and adhere to the rules. In football nobody does, every team pushes the rules that's why we need a referee.

FFP will lose in any court case for a variety of reasons. Restraint of trade, infringing human rights to try and improve team / spend money etc., discrimination against wealthy clubs who can afford a bigger loss in excess of rules. Maybe Yeovil can't afford £8m loss, but QPR could lose fives times that amount.

It's an ill thought out can of worms by people who probably love the game, but know nothing about money and owners who are desperate for their team to succeed.

Obviously no team loses money on purpose, but I do believe that nearly all clubs these days are more sensibly run. Portsmouth was a salutary lesson. You will still get the odd club go to the wall, but that's life - should well run clubs all have to suffer with illegal rules to help the badly run football club.

I am glad City are adhering to good business accounting procedures, that's more important than FFP (which in case you didn't realise I think is a very flawed concept)

[Harry - LCFC]

Obviously no team loses money on purpose, but I do believe that nearly all clubs these days are more sensibly run. Portsmouth was a salutary lesson. You will still get the odd club go to the wall, but that's life - should well run clubs all have to suffer with illegal rules to help the badly run football club.

I am glad City are adhering to good business accounting procedures, that's more important than FFP (which in case you didn't realise I think is a very flawed concept)

 

When clubs spend money on players in excess of their revenues they know what they're doing. It isn't the sort of thing you just notice one day without having thought about it at the time. Owners take a gamble because of the huge rewards available which seems to be the root cause of the debt problem football has.

[Bert]

The Guardian is a shit paper anyway.

[Vlad the Fox]

When FFP is discussed you always get a lot of morally self-righteous comments about what a good thing it is and how virtuous we are for trying to comply. I see it slightly differently simply because FFP will exacerbate the inequalities in the game.

It is only the rich benefactor model that has allowed teams like Forest and Leicester to be able to compete with clubs in receipt of huge parachute payments from the Premier League. The difference in revenue will get even worse as parachute payments get even larger and are maintained for longer. Clubs trying to balance their books, without the parachute money, will literally be in a different league financially.

Now I know that there are plenty of examples where parachute money hasn't guaranteed success, but it still gives clubs a significant advantage even if it is ultimately squandered. That advantage will only grow.

If you go further up the league then you see that Chelsea have become a big club on the back of investment and that Man City are now able to compete with the elite. That has made for a much more interesting and competitive Premier League .

A similar thing will happen in the premier league with champions league clubs getting vastly more sums of money which in effect will lock out the rest of the league. I'm sure the people who devised FFP have the best intentions but they are trying to moderate spending without offending the big boys. Teams like Chelsea and man city got where they are on the back of investment which wouldn't be allowed under FFP, for them to be in favour of FFP is basically climbing into the loft and pulling the ladder up behind them.

[Carl the Llama]

Where have all these anti-FFP EU law students come from?  A minute ago FFP was fantastic because we were within it and it was hilarious how Forest were planning on taking it to court where they'd clearly get dicked over.  But the second we get vaguely associated with legally challenging it...

[MooseBreath]

The biggest flaw with ffp for me is that it doesn't actually protect clubs from reckless gambling owners. All it means is that they only have one chance in one season, which does nothing to prevent the gamble but instead just makes it that bit more reckless.

[Babylon]

This article has also appeared, love how they single us out.

Vincent Tan’s Cardiff City won the Football League Championship last season at the cost of a £31m loss. Photograph: Stu Forster/Getty Images

David Conn

The Football League Championship's financial fair play rules, which have been threatened with a legal challenge by "several clubs" who have not identified themselves, were introduced in April 2012 to address the huge losses sustained by many clubs in a division most are desperate to escape. Gaining one of three precious promotion places, in a fierce competition of 24 clubs playing 46 league games, is customarily done by paying lucrative wages to attract the right players, which makes it difficult for allclubs to keep their spending under control.

The "parachute payments" made by the Premier League to cushion the financial blow of relegation for its clubs, now up to £59m over four years, hugely more than the other Championship clubs receive from their TV deal, further inflate wages.

Vincent Tan's Cardiff City won the Championship last season at the cost of a £31m loss while at Hull City Assem Allam financed a loss of £26m so Steve Bruce could sign players good enough to finish second. In recent years overseas owners have bought larger Championship clubs, including Leicester City, Watford, Nottingham Forest and Leeds United, perceiving the division as a cost-effective route to world club football's greatest riches, now up to a minimum £120m bonanza, including parachute payments, for a single season in the Premier League.

Some of those owners have been bankrolling huge losses to amass a squad capable of winning promotion, notably Leicester, top of the Championship, who are believed by Championship sources to have instructed the solicitors, Brabners, to make the legal threat to the financial fair play rules. The Manchester-based solicitors have written to the league's chief executive, Shaun Harvey, objecting over six pages to the FFP rules, arguing they suffer from not being the same as those of the Premier League, will prevent clubs competing, restrict investment by owners and reduce players' wages – which is in fact one of its principal aims.

"It is likely that, unless the FFP rules are modified, the Football League should expect a challenge from any number of clubs and/or players or agents suffering sanctions or the consequences of sanctions," warns Brabners' letter, which the Guardian has seen.

Other clubs believed to be involved in instructing Brabners are Queens Park Rangers, who lost £23m in 2011-2012, the year of their most recently published accounts, Blackburn Rovers, who lost £37m in 2012-2013, and Wolverhampton Wanderers, who made a £2m profit in 2011-12 in the Premier League but have since suffered consecutive relegations. None of those clubs responded to questions from the Guardian about whether they are in fact involved with the challenge to FFP. Harvey has responded by writing to all league clubs promising to "vigorously defend" the rules.

Since taking over Leicester in 2010, King Power, the Thai duty free company owned by Aiyawatt Raksriaksorn, has since spent around £120m on the club, including financing a £30m loss in 2011-12.

After Greg Clarke became the league's chairman, succeeding Lord Mawhinney in 2010, he made it his priority to warn Championship clubs they could not keep making such deep losses and he hailed the clubs' vote in favour of FFP as a "courageous decision". Harvey says the rules, which will be enforced for the first time in December based on this season's accounts, are already having the intended effect of dampening down spiralling wages.

"The existence of FFP has certainly helped achieve one of the principal objectives, to bring down the wages of players, particularly of squad players," says Harvey.

That assessment is echoed by Lee Hoos, chief executive of second-placed Burnley, strong supporters of FFP, who says the limits are helping him to negotiate players down from wage demands of £12,000 per week and inflation which "kills clubs trying to keep to budgets". Paul Barber, chief executive of Brighton, who lost £15m in 2012-13, said it is a struggle to explain to supporters how players' wages cause such losses at a club that appears to be generally flourishing. The context for Leeds United's turmoil and prospective takeover by the Cagliari owner Massimo Cellino is losses of about £1m per month, which the owners, Bahrain investment bankers GFH, have said they are no longer prepared to finance.

The Championship's FFP rules, agreed by an overwhelming majority of clubs, 21 to three, after two years of detailed discussion, set limits for losses and real sanctions for overspending. Clubs which spend this season above the total permitted loss of £3m, plus a further £5m if paid in by an owner, and remain in the Championship, will be barred from signing players from January. The transfer embargo will be lifted only when a club shows that its spending has been brought within the limits, which reduce to £6m in total next season and £5m from 2015-16 onwards; a £2m loss, plus £3m invested by an owner. These limits are now to be reviewed after the huge increase in parachute payments after the Premier League's £5.5bn TV deals from 2013-16, which mean relegated clubs are paid £23m in their first year in the Championship, £18m the following season and £9m in each of the two seasons after that.

Clubs which breach the allowed losses and are promoted to the Premier League will, under the Championship FFP rules, be fined on a sliding scale, with potentially massive payments at the top end. Clubs overspending the allowed limits, £8m, by more than £10m, a strong probability for some, will have to pay a fine of almost £7m plus a figure equal to their spending above £18m. If a club is promoted and has lost, for example, £30m, as Leicester did in 2012, it would have to pay £7m plus £12m, the level of overspending above £18m – a total fine of £19m.

This possible level of financial penalty for seriously overspending clubs has focused clubs' minds as the rules come to be enforced and is believed to have been a substantial prompt to the threat of legal challenge. Brabners' letter takes issue with the fact that the detail of the fines has changed. The Championship clubs originally agreed they would share fines equally among themselves but the Premier League, which pays £2.3m a year in "solidarity" to each Championship club, disapproved, and now any fines will be paid to charity. The Premier League is understood to favour clubs whose owners are investing, even to subsidise losses, and did not want to see money shared from fines among clubs which do not have wealthy owners backing them.

Harvey has promised the league will maintain the FFP rules, which aim to promote financial sanity in this most difficult of competitions, which suffers the enormous financial gap created by the top division after it broke away from sharing TV money in 1992 to form the Premier League.

"We are comfortable that the [financial fair play] rules were incorporated properly," Harvey wrote to the league's clubs, "and that this is an attempt by a few clubs to impose their views on the majority, who approved their implementation. A position we will vigorously defend if required."

[Kitchandro]

I've always said I'm not a fan of FFP, I think it completely misses the point of what it suggests it's trying to achieve.

 

On the other hand, I can't see why we'd be complaining.

[Jobyfox]

FFP is a mechanism devised to curb the excessive and gross expenditure in the game - especially by those who can ill afford it. The problem is that it's addressing the symptom rather than the route cause.

Clubs only spend in excess to compete with clubs who earn millions from TV revenue. The obscene amount of money the PL negotiate for their TV rights is only responding to the market forces of supply and demand. People who spend vast sums on TV sport subscriptions are creating the demand. The people who pay for TV sports are predominantly those that don't watch their team play live. The majority of these people are those who probably support a big club who are on TV a lot. They probably don't even live near these teams.

That's right ladies and gents the route cause of this vile cancer in our game is:

Manchester United fans!

[ealingfox]

If we're making a legal threat over FFP it's probably us threatening to sue the FA if they don't fvck Forest for trying to ignore it.

[maxwelld_]

All FFP does is create a bigger gap between us and the prem. I agree with the principle but all that needs to happen with clubs with wealthy owners is money is invested but not "loaned" so you can balance your books that way

[maxwelld_]

This article has also appeared, love how they single us out.

Vincent Tan’s Cardiff City won the Football League Championship last season at the cost of a £31m loss. Photograph: Stu Forster/Getty Images

David Conn

The Football League Championship's financial fair play rules, which have been threatened with a legal challenge by "several clubs" who have not identified themselves, were introduced in April 2012 to address the huge losses sustained by many clubs in a division most are desperate to escape. Gaining one of three precious promotion places, in a fierce competition of 24 clubs playing 46 league games, is customarily done by paying lucrative wages to attract the right players, which makes it difficult for allclubs to keep their spending under control.

The "parachute payments" made by the Premier League to cushion the financial blow of relegation for its clubs, now up to £59m over four years, hugely more than the other Championship clubs receive from their TV deal, further inflate wages.

Vincent Tan's Cardiff City won the Championship last season at the cost of a £31m loss while at Hull City Assem Allam financed a loss of £26m so Steve Bruce could sign players good enough to finish second. In recent years overseas owners have bought larger Championship clubs, including Leicester City, Watford, Nottingham Forest and Leeds United, perceiving the division as a cost-effective route to world club football's greatest riches, now up to a minimum £120m bonanza, including parachute payments, for a single season in the Premier League.

Some of those owners have been bankrolling huge losses to amass a squad capable of winning promotion, notably Leicester, top of the Championship, who are believed by Championship sources to have instructed the solicitors, Brabners, to make the legal threat to the financial fair play rules. The Manchester-based solicitors have written to the league's chief executive, Shaun Harvey, objecting over six pages to the FFP rules, arguing they suffer from not being the same as those of the Premier League, will prevent clubs competing, restrict investment by owners and reduce players' wages – which is in fact one of its principal aims.

"It is likely that, unless the FFP rules are modified, the Football League should expect a challenge from any number of clubs and/or players or agents suffering sanctions or the consequences of sanctions," warns Brabners' letter, which the Guardian has seen.

Other clubs believed to be involved in instructing Brabners are Queens Park Rangers, who lost £23m in 2011-2012, the year of their most recently published accounts, Blackburn Rovers, who lost £37m in 2012-2013, and Wolverhampton Wanderers, who made a £2m profit in 2011-12 in the Premier League but have since suffered consecutive relegations. None of those clubs responded to questions from the Guardian about whether they are in fact involved with the challenge to FFP. Harvey has responded by writing to all league clubs promising to "vigorously defend" the rules.

Since taking over Leicester in 2010, King Power, the Thai duty free company owned by Aiyawatt Raksriaksorn, has since spent around £120m on the club, including financing a £30m loss in 2011-12.

After Greg Clarke became the league's chairman, succeeding Lord Mawhinney in 2010, he made it his priority to warn Championship clubs they could not keep making such deep losses and he hailed the clubs' vote in favour of FFP as a "courageous decision". Harvey says the rules, which will be enforced for the first time in December based on this season's accounts, are already having the intended effect of dampening down spiralling wages.

"The existence of FFP has certainly helped achieve one of the principal objectives, to bring down the wages of players, particularly of squad players," says Harvey.

That assessment is echoed by Lee Hoos, chief executive of second-placed Burnley, strong supporters of FFP, who says the limits are helping him to negotiate players down from wage demands of £12,000 per week and inflation which "kills clubs trying to keep to budgets". Paul Barber, chief executive of Brighton, who lost £15m in 2012-13, said it is a struggle to explain to supporters how players' wages cause such losses at a club that appears to be generally flourishing. The context for Leeds United's turmoil and prospective takeover by the Cagliari owner Massimo Cellino is losses of about £1m per month, which the owners, Bahrain investment bankers GFH, have said they are no longer prepared to finance.

The Championship's FFP rules, agreed by an overwhelming majority of clubs, 21 to three, after two years of detailed discussion, set limits for losses and real sanctions for overspending. Clubs which spend this season above the total permitted loss of £3m, plus a further £5m if paid in by an owner, and remain in the Championship, will be barred from signing players from January. The transfer embargo will be lifted only when a club shows that its spending has been brought within the limits, which reduce to £6m in total next season and £5m from 2015-16 onwards; a £2m loss, plus £3m invested by an owner. These limits are now to be reviewed after the huge increase in parachute payments after the Premier League's £5.5bn TV deals from 2013-16, which mean relegated clubs are paid £23m in their first year in the Championship, £18m the following season and £9m in each of the two seasons after that.

Clubs which breach the allowed losses and are promoted to the Premier League will, under the Championship FFP rules, be fined on a sliding scale, with potentially massive payments at the top end. Clubs overspending the allowed limits, £8m, by more than £10m, a strong probability for some, will have to pay a fine of almost £7m plus a figure equal to their spending above £18m. If a club is promoted and has lost, for example, £30m, as Leicester did in 2012, it would have to pay £7m plus £12m, the level of overspending above £18m – a total fine of £19m.

This possible level of financial penalty for seriously overspending clubs has focused clubs' minds as the rules come to be enforced and is believed to have been a substantial prompt to the threat of legal challenge. Brabners' letter takes issue with the fact that the detail of the fines has changed. The Championship clubs originally agreed they would share fines equally among themselves but the Premier League, which pays £2.3m a year in "solidarity" to each Championship club, disapproved, and now any fines will be paid to charity. The Premier League is understood to favour clubs whose owners are investing, even to subsidise losses, and did not want to see money shared from fines among clubs which do not have wealthy owners backing them.

Harvey has promised the league will maintain the FFP rules, which aim to promote financial sanity in this most difficult of competitions, which suffers the enormous financial gap created by the top division after it broke away from sharing TV money in 1992 to form the Premier League.

"We are comfortable that the [financial fair play] rules were incorporated properly," Harvey wrote to the league's clubs, "and that this is an attempt by a few clubs to impose their views on the majority, who approved their implementation. A position we will vigorously defend if required."

So if we or looking like QPR get finned, where does that fine money go?

[foxfanazer]

Strangely enough I think FFP may have helped us this season. Although NP would never have spentmmillions anyway

[loAf]

i have to admit i find it quite hard to believe that we are one of thd three challenging it. qpr and forest have certainly ignored it, and then id imagine the third would be one of blackburn/wigan/bolton. My money would be on bolton as im sure they came out complaining recently that it was going to be impossible to reach. Source: http://www1.skysports.com/football/news/11672/9095448/sky-bet-championship-bolton-wanderers-net-debts-rise-to-1638million

[Babylon]

So if we or looking like QPR get finned, where does that fine money go?

"Charity".... If that's anything other than grass roots footballs, then it's ridiculous and is just taking more money from the game.

I doubt we will get fined (if we do then not much), we have been doing a lot to cut back. The year we lost £30m we bought loads of expensive flops on big wages, they have mostly gone, we sold a couple of millions worth of players in the summer and had only one small fee paid out.

Our protest would be more about us being scared of going up, spending to stay up, but then coming back down with players we can't afford I'd guess.

By who knows, financials at the end of the week will tell us more!

[Guest ttfn]

"Charity".... If that's anything other than grass roots footballs, then it's ridiculous and is just taking more money from the game.

I doubt we will get fined (if we do then not much), we have been doing a lot to cut back. The year we lost £30m we bought loads of expensive flops on big wages, they have mostly gone, we sold a couple of millions worth of players in the summer and had only one small fee paid out.

Our protest would be more about us being scared of going up, spending to stay up, but then coming back down with players we can't afford I'd guess.

By who knows, financials at the end of the week will tell us more!

My understanding is that the fine is re-distributed evenly between the teams that actually played by the rules, which I think is a great idea.

 

And also there are no sanctions for non-compliance either last season or this season, so no matter what the accounts say, there won't be any punishment.

 

Basically, given that we are well on track to meet FFP for the first year in which sanctions will apply (i.e from next season) and the bookmakers seem to think there's an 88% chance of us going up, it doesn't make sense that we'd be one of the clubs kicking off about FFP.

 

However, if what Leicester Lass has said about there being a similar level of losses in 2012-13 as 2011-12 turns out to be true then I would be pretty concerned. There's no doubt that a huge chunk of Pearson's squad trimming should be reflected in 2012-13, if not substantially all of it.

[Guest ttfn]

"Charity".... If that's anything other than grass roots footballs, then it's ridiculous and is just taking more money from the game.

I doubt we will get fined (if we do then not much), we have been doing a lot to cut back. The year we lost £30m we bought loads of expensive flops on big wages, they have mostly gone, we sold a couple of millions worth of players in the summer and had only one small fee paid out.

Our protest would be more about us being scared of going up, spending to stay up, but then coming back down with players we can't afford I'd guess.

By who knows, financials at the end of the week will tell us more!

This will have had less impact than you'd think.

 

For accounting purposes (and, I believe, for FFP purposes), the transfer fees are amortised over the length of a player's contract. Beckford, for example, was signed for £2.5 million, and was 2 years into a 4 year deal. As such, his book value when he was sold was about £1.25 million. If we sold him for £1 million then for accounting purposes we actually lost £250k on the transfer in the accounts for this season.

 

Likewise, if we spent £1 million on Chris Wood last season in January and he signed a three and a half year deal, probably only £150k of that counts as an expense in the accounts for last season. The rest will be noted in future years. 

 

At Championship level, it is the wages that are the key thing because they will more often than not equate to significantly more than the value of the transfer fee over the length of the player's contract.

[Babylon]

My understanding is that the fine is re-distributed evenly between the teams that actually played by the rules, which I think is a great idea.

 

And also there are no sanctions for non-compliance either last season or this season, so no matter what the accounts say, there won't be any punishment.

 

Basically, given that we are well on track to meet FFP for the first year in which sanctions will apply (i.e from next season) and the bookmakers seem to think there's an 88% chance of us going up, it doesn't make sense that we'd be one of the clubs kicking off about FFP.

 

However, if what Leicester Lass has said about there being a similar level of losses in 2012-13 as 2011-12 turns out to be true then I would be pretty concerned. There's no doubt that a huge chunk of Pearson's squad trimming should be reflected in 2012-13, if not substantially all of it.

It has now been changed to the money being distributed to charity, rather than other clubs.

Sanctions take place on accounts 2013-2014, so what we are spending this year. If we go up and overspend, we will be fined.

We are only presuming we are on track from what has been said, we'll know how on track when last seasons accounts come out in a few days, as they should give an indication of how far we have come from 30m losses.

[Iwan is a Welshman]

If Conn's names us and we're not denying our involvement then it suggests we're, at the very least, complicit. Which does make sense, it hardly suits our financial model because (for the time being) we have backing and there's far from any certainty that a) we're definitely going up and b) if we do we'll be up there for long.

Also, am interested that so many people are sure FFP breaches EU Law. As far as I'm aware, and I'm no expert, the EU's primary legislation in the area is to prevent cross-border barriers to trade. Since this is a model designed to reinforce UEFA-wide provisions I can't see how it'd automatically breach EU Law, or that we can confidentally say it would anyway.

I'm not confident I'm right on the last point, but does anyone know different? It'd be interesting to know.

[LCCFox96]

We must be on track to meet FFP.

Output has dropped with minimal transfer fees, no work done on the stadium/training facilities etc and the wage bill decreasing significantly.

Input has also risen slightly as attendances have risen this season as well. As much as we hate we also have a decent chunk of TV money from sky this season as well. How when compared with QPR do we not meet this?!

Also the last accounts with £30mil were from 11/12 so the financial forecastle should have improved loads since then.

[Guest ttfn]

It has now been changed to the money being distributed to charity, rather than other clubs.

Sanctions take place on accounts 2013-2014, so what we are spending this year. If we go up and overspend, we will be fined.

We are only presuming we are on track from what has been said, we'll know how on track when last seasons accounts come out in a few days, as they should give an indication of how far we have come from 30m losses.

The Football League website says sanctions start from 2014-15, but perhaps it means when the accounts are submitted and therefore fines payable.

You'd have thought that losing Abe, Fernandes, Johnson and Mills' wages from 2011-12 should reduce losses seen in this year's accounts but them again we'll have virtually a whole year's 8% interest on about £80 mill of loans to counter-balance that.

[Babylon]

The Football League website says sanctions start from 2014-15, but perhaps it means when the accounts are submitted and therefore fines payable.

You'd have thought that losing Abe, Fernandes, Johnson and Mills' wages from 2011-12 should reduce losses seen in this year's accounts but them again we'll have virtually a whole year's 8% interest on about £80 mill of loans to counter-balance that.

Yeah sanctions happen in that season, as this years accounts won't be submitted to the league until end of 2014. Any fines will always be retrospective/bans.

You would hope! Depends on what we are still paying players who we wanted rid of.

The whole thing is a shambles really.

[suffolk fox]

My understanding is that the fine is re-distributed evenly between the teams that actually played by the rules, which I think is a great idea.

 

And also there are no sanctions for non-compliance either last season or this season, so no matter what the accounts say, there won't be any punishment.

 

Basically, given that we are well on track to meet FFP for the first year in which sanctions will apply (i.e from next season) and the bookmakers seem to think there's an 88% chance of us going up, it doesn't make sense that we'd be one of the clubs kicking off about FFP.

 

However, if what Leicester Lass has said about there being a similar level of losses in 2012-13 as 2011-12 turns out to be true then I would be pretty concerned. There's no doubt that a huge chunk of Pearson's squad trimming should be reflected in 2012-13, if not substantially all of it.

Nice thought but you are wrong here. Money in fines is going to be given to charity. Not football, so teams who do comply are not going to benefit in any way.