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Legal battles rage in the championship as football disintegrates into the courts.

By Tony Attwood

If you thought that FFP in the Premier League was complex (and it seems to get more complex hour by hour at the moment), just wait til you get to the Championship – the second tier of English football.

But before you do, let me answer the question – why bother with FFP, giiven that Arsenal are ok, and anyway we don’t play in the Championship?

First because Championship one day Premier League the next – and vice versa.  They are, as it were, our next door neighbours.

Second because there are legal cases being threatened all over the place both by Championship clubs being threatened with fines, and Premier League clubs trying to avoid the drop.

Third because there is a new model of football being developed, which put simply is, buy a lower league club, throw money at it, get it into the Premier League and flog it off at a profit.   And that policy is filtering through to the Premier League and by and large it means clubs are becoming pawns in a game that has nothing to do with the fans.

Those three points cover a huge amount of ground.  So, to start somewhere let’s try FFP.

In essence Championship FFP seems simple.  Clubs were permitted a maximum loss of £8m in 2013/14, providing that is covered by an injection of capital by the owner.  If the owner doesn’t oblige the loss can only be £3m.

There is no wages restriction up to £52m p.a..  If it is above that figure the maximum increase per year allowed under the rules is £4m per annum plus any extra revenue the club gets from new commercial deals.  (That will of course be open to challenge –  just how fair a deal is it if, in the style of Man City, the owner is also the sponsor).

Up to 60% of income can be paid on salaries – nothing more.

The punishment for breaking any or all of these rules is a transfer ban and fines – and the first round of punishments will start in December this year.

Except the Championship clubs have already threatened legal action.  I’ll come back to that anon.  But first, a case study.

Bournemouth is a club I know quite well, because during my teenage years my parents chose to move from north London to Dorset, and thus I moved from being able to watch Arsenal to watching either Bournemouth and Boscombe Athletic or Poole Town.

Now, years later, I find Bournemouth is owned by a Russian, Max Demin, who has loaned the club £8.7m.

AFC Bournemouth as they are known these days, lost £15.3m in the financial year ending July 2013, which looks careless, especially since that season (2012/13) they were actually a League One (ie third division) club.  But they were also promoted to the Championship.   So £15.3m in the red (as it were), as opposed to a loss the year before of just £3.4m.  That’s the cost of promotion from the third to the second division these days.

Meanwhile Bournemouth have other debts including £7.5m owed to a company owned by the Max Demin we mentioned above.  That is due for repayment rather soon.

So here we have a tiny club entering only its second spell in the second tier and with debts now of £15.5m.

And that brings us to FFP which says that Bournemouth must cut those losses quickly to about half that level, or else start facing penalties.

Meanwhile the clubs MD has spoken of having “invested heavily in our first team’s support, employing a team of top quality analysts, sports scientists and medical staff. We use medical facilities amongst the best in Europe, which has enabled our injured players to return to the squad in record breaking time.

“We also have in place an international scouting network, keeping the manager aware of opportunities in the transfer market.”

OK.  This is a club that is in  a fairly sleepy backwater of football, talking the big talk.   Are they really planning to get any of this huge investment back?  Will they be able to overcome FFP?

On the face of it the answer is no, both times.

But never say never when there are lawyers around – especially when a lot of clubs are ganging up on their own league to have FFP thrown out.

The problem is not so much Bournemouth’s spending, but the fact that Cardiff City got promotion by losing £31m while Hull City rather carelessly lost £26m in coming second.

In recent years Leicester City, Watford, and Nottingham Forest have been bought in the same way as Hull and Cardiff, with a view to grooming them for Premier status and £120m (including parachute payments when they come back down) that one season at the top brings.

And these wanna-be big timers have got their solicitors to write what is known in the trade as a “frightener” to the League saying “stop messing with us – we’re the big guys”.

The legal arguments are similar to those of Manchester City over FFP in the top league, saying that FFP will prevent clubs competing, restrict investment by rich  sugar daddies, cut salaries etc etc.

According to the Guardian, the legal threat says, “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 e consequences of sanctions.”  Interestingly the solicitors that sent the letter are based in Manchester.

Queens Park Rangers, (losses £23m in 2011-2012), Blackburn (£37m in 2012-2013) and others are also involved.

As things stand, clubs found guilty of excess will have a transfer embargo imposed in January which will be lifted when the club brings its spending down. By 2015/16 that limit is £5m of which £3m is covered by the owner.

But what about Leicester who have gone up?   Under the Championship FFP clubs overspending the limits by more than £10m will have to pay a fine of around £7m plus a figure equal to their spending above £18m. Leicester’s fine is expected to be around £40m.  The money, once paid, goes to charity.
So, the chances are that just as we find out what Man City are really up to with Premier League FFP, we will then settle down to the battle of the Championship clubs.  QPR and Leicester will be having fun!
But I started by talking about legal cases, and there is one I have omitted.
The Premier League is being threatened by Cardiff City, Norwich City and Fulham have joined forces and instructed lawyers to fight the controversial decision not to dock Sunderland points for fielding an ineligible player.

This relates to the way Sunderland were fined but not docked points for playing Ji Dong-won in four league games.  The point being made is that AFC Wimbledon were knocked back three points for fielding an ineligible player – which is the traditional punishment.

FA Rule 6.9 says “any club found to have played an ineligible player in a match shall have any points gained from that match deducted from its record”. It adds that “the board … may also levy penalty points against the club in default”.

Ji played in Sunderland’s 4-2 win over Milton Keynes Dons in the second round of the Capital One Cup but the League didn’t kick them out.  They were fined and there was an agreement by all parties to keep the matter secret.  It leaked out, now a lot of people are getting edgy.

And you thought it was just about football.

13 comments to Legal battles rage in the championship as football disintegrates into the courts.

  • Gord

    I posted a link to a BBC article a few days ago, where the head of Leicester said something to the effect that he planned to spend 180 million over the next 3 years with the idea that this would place Leicester in the top 5.

    Everybody seems to regard that 5th place as undesirable, so I don’t know why this person from Leicester mentioned 5th.

    You are saying the Leicester will be able to speculate in the transfer market this summer (building up an even larger debt), and that when Christmas rolls around, the FA is going to hit them with a 40 million fine (for having too much debt from this last season) and slap a transfer embargo on them. I recognize few names on Leicester’s squad now, so it would seem that Leicester is going to do an impersonation of Levy at Spurs, and buy a bunch of players (I’m presuming 100 million), which would put Leicester at about 140 million in spending (fine plus transfers) come Christmas. At which point, he sells Leicester to someone else (recuperating his losses and fines).

    Does the new owner of Leicester assume an unencumbered status with respect to transfer embargo and a clean slate with respect to FFP? Is this how they plan to get around FFP?

  • Pete

    Gord – it is the club that is the relevant legal entity, not the owner. See Luton as an example where a new ownership were punished for the crimes of their predecessors. It is incumbent on any purchaser to undertake appropriate due diligence to ensure that he or she is fully aware of all contingent and actual legal liabilities.

    At least, that is how it should be!

  • Gord

    So the owner of Leicester was just wasting oxygen and making noise? I don’t see how he could operate effectively even a single season the EPL, if he is going to be hit for a 40 million fine and transfer embargo come Christmas.

  • proudkev

    Great post Tony.

    Financial sanity is something every fan should support. One of my mates is a Leeds fan and look at where they have fallen. When I grew up they were a massive club, you will recall we knew them as dirty Leeds back then. But Ridsdale and O’Leary gambled. They spent money they assumed they were going to get from CL qualification and the rest is history. That Peter Wood bloke wrote a piece against FFP and said big clubs don’t go bust but they do. Then he calls for our own Russian to take over, it’s crazy.

    What about Leeds? They were a massive club. Look at Rangers in Scotland and where they have fallen. It is this kind of naivety and lack of support for Financial FairPlay that irritates. It’s essential. This is a sport that belongs to the Fans. Clubs should not be used as ego trips or profit making opportunities for wealthy men. They may be businesses but they really should belong to the fans.

  • proudkev

    proudkev
    Your comment is awaiting moderation.
    May 15, 2014 at 11:07 pm
    Great post Tony.

    Financial sanity is something every fan should support. One of my mates is a Leeds fan and look at where they have fallen. When I grew up they were a massive club, you will recall we knew them as dirty Leeds back then. But Ridsdale and O’Leary gambled. They spent money they assumed they were going to get from CL qualification and the rest is history. That Peter Wood bloke wrote a piece against FFP and said big clubs don’t go bust but they do. Then he calls for our own Russian to take over, it’s crazy.

    What about Leeds? They were a massive club. Look at Rangers in Scotland and where they have fallen. It is this kind of naivety and lack of support for Financial FairPlay that irritates. It’s essential. This is a sport that belongs to the Fans. Clubs should not be used as ego trips or profit making opportunities for wealthy men. They may be businesses but they really should belong to the fans.

  • bjtgooner

    Slightly off topic, but relevant to many of our debates: –

    http://www.bbc.co.uk/sport/0/27422078

  • Mark

    In the USA there was a failed soccer league because one team disregarded the need for other teams. So that one team used so much money while all the other teams failed earn enough. So in the end all the clubs failed as the league went out of business. The MLS has tried to work on a different model and it is succeeding. The audience is increasing, the quality of play is increasing, the number of clubs has increased and the clubs are very competitive. I don’t think a single club has gone bankrupt.

    The rules governing leagues have to be different then the rules governing other businesses. Because the clubs only make sense if there is a league. So the success of the league needs to be considered. If practices of some clubs harm the over all health of the league then the league needs to take action against those clubs. Even in business it is recognized that monopolies are a problem and so governments have anti-trust laws. So just having lots of money does not give an individual the right to use their money to build up one business while destroying others.

  • Andy

    Leicester will not be hit with a £40m fine, stop believing what you read in newspapers and do some research, perhaps ask some Leicester fans who know what has gone on.

    LAST seasons accounts included loan repayments to the owner (£7m – not actually paid back but added to what they were owed). Those debts have since been written off (£100m) so no repayments on this seasons books, the ones that count towards FFP.

    Last seasons accounts also includes squad revaluation. Not a loss in the sense of money out the door, but valuing the squad less than the previous seasons goes down on the books as a loss. (£5m)

    So that’s £12m on last seasons books that won’t be on this seasons. Then there were things like paying off historic debts on players and outstanding wages to players no longer here. Some of our highest earners like Beckford sold and replaced with cheaper alternatives. “Big spending Leicester” have actually made a transfer profit the last two seasons.

    Then you have an allowable loss of £8m, plus lots of other costs such as youth setup that don’t count towards FFP (club estimate £5m worth of costs that don’t count to FFP).

    Then you have massively increased revenue due to increases crowds and sponsorship. All in all, any fine coming in will be very small. If there is one at all.

    Oh and as for the £180m stuff, I’d suggest people read what they said in full in the Thai press, rather than sensationalised snippets in the English press. We aren’t going to spend that.

  • Andy – as it happens Untold is run from the Northants/Rutland border which is not Leicestershire, but is close, and makes Leicester our nearest team of significance, so asking locally isn’t too hard for us.

    But if all you say is true, are you also saying that Leicester did not sign up with Brabners, the solicitors, to get them to draw up the document threatening the League with legal action? If that is so I would love to see the evidence – because everything I have seen shows that they did indeed sign up to that arrangement – indeed they were one of the instigators of bringing in Brabners.

    But why would they bother will all that cost if they had precious little to pay and were so clearly going to get promoted?

  • M18CTID

    Andy,

    Tony believing sensationalist headlines in the press and passing them off as fact? That has a familiar ring to it 😉

  • nicky

    @Proudkev,
    Interested to hear more about this Peter Wood bloke.
    Is he the former Chairman of Arsenal?

  • Andy

    Tony,

    FFP isn’t just for this season it is for future seasons ahead and our owners want to be able to spend their money as they see fit. They want to invest to stay in the premier, that becomes harder when you have the dark clouds looming over you about relegation and falling back into the much with FFP in the championship.

    As you will notice with the recent appeal against FFP clubs were seeking to amend the rules with big focus on the problem with relegated teams. Coming from one environment with different rules to the one they will then be entering. That could be one of their concerns, it might have nothing to do with potential fines.

    The club was against FFP from the start and was one of the few teams to vote against it. So I would not be shocked if they were still against it now.

    With regards Brabners, as far as I know there is zero evidence of what clubs are involved. David Conn from the Guardian has been spreading muck about Leicester for months now.

    The letter he referred to from Brabners made no mention of the teams who instructed them. He then stated his source was from within the Football League… who themselves would not now who had instructed Brabners as the teams were not mentioned.

    Back to our books, they are at companies house and anyone can look for a pound. Anyone spending 10 minutes going through them properly could see the £34m loss isn’t what it’s cracked up to be.

    £34m Loss
    – £7 interest no longer payable
    – £5m squad readjustment cost
    – £8m allowable losses
    – £5m of costs that don’t count towards FFP
    = £9m over FFP limit.

    And that is before you take into account losing some of our biggest earners, turning a transfer profit, massively increased gate receipes and corporate money and any creative accounting that may have taken place.

    Will we pass, maybe not… but the above things are true, so there is no way we’re going to have some huge fine.

  • Andy

    PS: Good luck next season, I expect the usual thrashing we get from you guys.