The FFPR threatens to have a monumental impact upon football. Yet very few of us understand precisely what it all means beyond the basics. Using the example of Manchester City Colin Savage breaks it all down and explains how it will effect each club in the seasons to come.
This article is based on a longer piece I did for King of the Kippax and is an attempt to sum up, as succinctly as possible, the rules and timescales around FFPR. That’s no easy task but here goes.
UEFA already licence clubs to compete in the CL or Europa League and this can be withheld in certain circumstances. FFPR goes further and formalises the accounting and reporting rules that clubs should adhere to.
2013/14 is the first season that club finances will be assessed for FFPR purposes and normally they will look at the previous 3 years accounts but for that first year, it will be the previous 2 years. So for us that will be the accounts for financial years 2011/12 and 2012/13. Those two years will also be used in 2014/15, along with the accounts from financial year 2013/14. UEFA will look at the aggregate result over those financial years so it will be possible to show a loss in one or two years as long as that is offset by a profit in the other.
A profit isn’t actually necessary as an aggregate loss of €5m is allowed but, as a transitional arrangement, larger losses are OK if the owner is prepared to cover these. For the first two monitoring periods (2013/14 & 2014/15) the allowable input will be €45m, falling to €30m for the next 3 years. So we could make a loss of €50m over this year and next and still be within FFPR.
The income we are allowed to include is the normal income associated with football clubs (tickets, TV, commercial) plus any non-football income from sources that either use club branding or derive from activities at or in close proximity to the stadium. So revenue from a hotel owned by City on land around the stadium could be included. As for expenses, the normal operating expenses are counted apart from any expenditure on youth development or infrastructure (i.e. the ground or training complex). This exemption will also cover expenditure on any building/development around the stadium on land owned by us.
Obviously City have been in the news with the Etihad deal and there have been complaints that it’s not “fair value”
I mentioned commercial income and this includes sponsorship. Obviously City have been in the news with the Etihad deal and there have been complaints that it’s not “fair value” so what does FFP say on this? UEFA have tried to ensure that club owners can’t get round the rules by artificially inflating commercial deals with connected people or companies so they introduced the “fair value” test, so that any deals between related parties have to be commensurate with deals that could have been done if the two parties were not related.
So the Etihad deal has to pass two tests. The first is are Manchester City & Etihad related parties? The fact that both are owned in Abu Dhabi is not in itself enough; City & Etihad have to be controlled by the same person or group. If UEFA think they aren’t, then no fair value test is applied. If they believe they are related parties, then the deal is assessed against what UEFA consider “fair” in the market. They can’t veto the whole deal – just exclude the amount they believe is excessive. With the deal covering the stadium, shirts and the newly-announced Etihad campus, this will be a difficult test to apply, as will the ‘related party’ test. The standard for shirt naming has to be around £20m per annum, as United and Liverpool have both done deals for this amount. Stadium naming is harder to assess; some European deals have been done for £5m a year but American deals are now running at $20m (£12.5m) a year so £10m could possibly be considered fair. The Etihad campus part of the deal simply has no equivalent therefore there is no way of assessing this. So even if the whole deal is for the supposed £40m a year, then it’s hard to see how UEFA could knock much off even if it failed both tests.
So a fee of £25m for a player on a 5-year contract will be written off by £5m a year
So what are the other get-outs? Well there are a few, some of which are transitional and only apply for a short time and some are more long-lasting. The main transitional one is that UEFA allow a club to exclude the contract value (i.e. wages) of any player signed before June 1st 2010 from the 2011/12 accounts, for FFPR assessment purposes. However, you can only invoke that if, by doing so, it would enable you to meet FFPR. So if we made a loss of £100m this year but our wages for players meeting this provision were £120m then we would be able to exclude them from the FFPR calculation but not if our losses were £180m. This is good for us as these accounts will be used twice, as I explained earlier, and our wages in the accounts to 31 May 2010 (which by definition include the wages for all players signed before 1 June 2010) were £133m.
Another get-out is that we can exclude the amortisation charge for all players classed as ‘held for sale’. Amortisation is the annual write-off of the player’s transfer fee over the life of the initial contract. So a fee of £25m for a player on a 5-year contract will be written off by £5m a year and we can exclude this for any players on our books we deem surplus to requirements and are looking to sell, including Adebayor, Santa Cruz, Bellamy, Bridge, etc.
In addition, even if you don’t meet FFPR’s break-even requirement with these adjustments, you could still get licenced as UEFA have stated that they will take the trend of any losses into account. This means that if you can demonstrate that you will break even in the future and the trend of your results supports that, they may well grant a licence even if your losses are higher than the allowable amount. So FFPR is more of a guideline that a black-and-white rule.