Financial Fair Play - The Championship Model

Before I publish part 3 of my Championship Finances Review I want to outline Financial Fair Play in the Championship. The purpose of Financial Fair Play, how it is implemented, how it affects each club in the league, and how you should interpret your club's figures.

Financial Fair Play (FFP from hereon) is a set of regulations, negotiated between the Football League and its clubs, that attempts to establish a league of financially sustainable and responsible football clubs.

Each division in the Football League has its own set of regulations which differ slightly, but I will be focussing on the Championship as this is the league I have been covering in previous posts.

Acceptable Losses & Shareholder Equity

The clubs in the Championship must abide by the UEFA FFP model which requires clubs to at least break even, with operating losses only being acceptable within defined limits during the 'adjustment period'.

Shareholder influence will also reduced over time in order to stop a club being solely reliant on funding from ownership (known as shareholder equity).

Clubs will be required to provide The Football League with detailed financial accounts before December 1 of every year, which will then be assessed by the league and a 'Fair Play Table' will be released that ranks every club.

The Football League will assign each team a “Fair Play Result” which is based upon their financial performance. There are two tiers of the “Fair Play Result”.

1. A club that is break even or profitable (excluding external investment from ownership) will be given a positive value that is equal to the club's profit for the previous financial year. The league has outlined a plan to exclude certain items when calculating a club's P&L, such as infrastructure investment, but I will cover this later.

2. A club may be loss-making provided it is within an acceptable deviation and must be covered by shareholder equity. The permitted level of acceptable deviation or the amount of shareholder equity allowed will be reduced over time – the overall aim of this “adjustment period” is to remove the reliance and influence of ownership funds and force clubs to be sustainable as an independent entity.

Season	Acceptable Loss Deviation Permitted (£m)	Shareholder Equity Permitted (£m)	Total Permitted Allowances (£m)
2011/12	4	8	12
2012/13	4	6	10
2013/14	3	5	8
2014/15	3	3	6
2015/16 +	2	3	5

Spending Allowances

Whilst calculating a club's annual profit or loss, which in turn determines their 'fair play result', the Football League have outlined a few exceptions that will be made.

1. Investment in Youth Development or Infrastructure (including charitable or community expenses) which are deemed beneficial to the club or league will not be taken in to account when calculating their P&L.

2. The profit affecting element of the purchase, sale and depreciation of fixed assets excluding players (e.g. a club's stadium).

Sanctions

The financial performance of clubs in the 2011/12 and 2012/13 seasons will be monitored, but no sanctions will be put in place.

Going forward, any club that remains in the Championship that does not meet the regulations set out in FFP, will be subject to a transfer embargo, starting with the 2015 January transfer window. The club will not be permitted to make any signings (including free players) until they lodge information with the Football League that clearly shows they are falling in line.

Fair Play Tax - Promotion

If a club is promoted to the Premier League and it is later deemed that they have done so whilst not following the FFP regulations, will be subject to a fair play tax.

Clubs that are relegated from the Premier League will not be forced to abide by FFP regulations in their first year. This season of unregulation is strictly limited to one year.

If the club is immediately promoted back to the Premier League then they will be subject to a 'fair play tax' which is determined by the extent to which they deviated from FFP, and applied at the following thresholds:

Deviation from FFP	Fair Play Tax
£1 - £100,000	1%
£100,001 - £500,000	20%
£500,001 - £1,000,000	40%
£1,000,001 - £5,000,000	60%
£5,000,001 - £10,000,000	80%
£10,000,001 +	100%

Funds raised through the Fair Play Tax will be distributed amongst the clubs that have conformed to FFP.

Salary Cost Management Protocol (SCMP)

The Championship and the Football League have decided not to limit expenditure on player's salaries, whereas League 1 and 2 have defined spending limits which are directly linked to a club's total turnover.

By not agreeing a SCMP, it is at the discretion of each club to decide how much they want to spend on players salaries, but in deciding this amount, they must abide by the overall FFP model.

For sake of comparison, going forward from this season, League 1 clubs must not spend more than 60% of their total turnover on players salaries.

Points for discussion

1. A club may chose to ignore FFP regulations provided they are willing to gamble on immediate promotion and are happy to pay the fair play tax.

2. A club relegated from the Premier League will have an obvious advantage in the Championship as they are not required to abide by FFP in the first year.

3. If a club is promoted and has ignored FFP, surely stepping in and stopping them from being promoted would be a better disincentive? This might not be possible because they only have to submit their accounts by December 1 so the Premier League season would have already started.

4. A transfer embargo may actually worsen a club's financial position if their losses are not related to their spending on players but actually due to another factor.

I hope the above clears things up for you and puts you in a good situation to understand how FFP will affect your club. Make sure you stick around for "Part 3 - Profit & Loss" of my Championship Review.

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Over & out,

JW