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Premier League club finances and the future of FFP

By Tony Attwood

It’s been a while since we looked at FFP, but I was reminded of the subject by a rather curious coincidence.

When I dealt with FFP in depth last time we were in the period following 28 April 2014 when Uefa said that they were looking in depth at 20 clubs including Manchester City and Paris Saint-Germain and that Uefa had rejected both club’s sponsorship deals as legitimate income streams.

What really makes this a moment to remember for me was that I stuck my neck out over what was happening, most particularly when after PSG and the other clubs had settled with Uefa, Man City refused to deal with Uefa.  I felt pretty much on my own, not least when Man City supporters came to this site (as of course they are welcome to do) and said that the reason for Man City’s non-settlement was anything from the fact that the FFP process had gone to the European Court, to an internal dispute at Uefa had led to a revision of the proposed sanction.

My argument rejected this, and my loneliness was not relieved until unexpectedly Guillem Balagué  came on Radio Five Live and expounded exactly the same conclusions as I had reached.  Since he’s one of the few journalists whose opinion I’ll stand back and note, it was a sudden boost at a moment when I was wondering if my sources had got it utterly screwed.

Then on 16 May 2014, Uefa announced that they agreed to settlements with nine clubs after investigations, with sanctions ranging from limited of wage bills), limited squad sizes and fines.

Now we are approaching the accounts season when clubs reveal their latest sets of accounts, something which becomes more interesting all the time, given the existence of European FFP and the imminent arrival of Premier League FFP.

As before, only a club’s outgoings in transfers, wages and benefits, transfers (spread over the length of the contract), finance costs and dividends are counted.  Against them is recorded gate receipts, TV revenue, advertising, marketing deals (such as kit payments, merchandising, disposal of fixed assets, finance, sales of players and prize money). Any money spent on infrastructure, training facilities or youth development will not be included as expenditure.

Of all the ways that it has been suggested that clubs will try artificially to raise their income, the use of sponsorship deals and stadium naming rights from companies with a vested interest in the club’s success, and the sale of overseas rights at what are considered to be inflated prices, are the methods that Uefa is particularly exercised about.

It is interesting that despite the claims that Man City would overturn FFP or be shown to be in the clear, last time around, there is a lot of faith expressed again in some quarters that once again Man City will come through FFP without a hitch.  This is despite the fact that sponsors such as Etihad Airways, Abu Dhabi Tourism Authority, Etisalat and Aabar, have clear links to the owner of Manchester City. That doesn’t look very clever to me, but just because I was one of the few who predicted things right last time around, doesn’t mean my luck will hold.  All I can say is that I believe that these sponsorship deals will be questioned.

What particularly makes me think this, apart from the comments I’ve picked up, as one does, is that Uefa has added what is in effect a new FFP regulation which says that clubs have to prove that are not trying to get around FFP by taking on inflated sponsorship deals with companies that have links to their owner.  In Man City’s case this is Sheikh Mansour.  And indeed it is Sheikh Mansour that might be the problem given that he is deputy prime minister of the United Arab Emirates, and a member of the ruling family of Abu Dhabi, chairman of the ministerial council for services, the Emirates investment authority and the Emirates pacing authority, the Supreme Petroleum Council, the International Petroleum Investment Company, and a member of the Abu Dhabi Investment Council and Abu Dhabi United Group along with having a partial ownership in Virgin Galactic and Sky News Arabia plus a link to New York City FC.  Which is quite a lot

Meanwhile on 11 April 2013 Premier League clubs ratified their own set FFP which says that from last season Premier League clubs can’t lose more than £105 million over the period 2013-16, (£35 million per year on average). Clubs that have a wage bill higher than £52 million per year in 2013-14, £56 million in 2014-15 and £60 million in 2015-16 (which is all the big clubs that might expect to win things) have restrictions on their spending amounting to £4m a year plus however much their allowable income goes up (ie excluding sponsorship from related companies).  We are expecting the first news on these restrictions in December.

As for Man City’s supporters hope for intervention from the European Commission, on 20 May 2014 the EC rejected the complaint made about FFP and said it did not intend to investigate it any further.

On a different tack, between 2011 and 2013 Liverpool lost over £90m, however it hopes that the club can write off the interest free loan it received from their owners, Fenway Sports Group, to repay a £38m loan from former owners, Tom Hicks and George Gillett, as “infrastructure costs”.  Uefa has yet to rule.

So this is where we stood with last year’s figures…

Club Turnover Wages as proportion of turnover Profit before tax
Arsenal £283m 54% £7m
Chelsea £260m 69% (£56m)
Liverpool £206m 64% (£50m)
Man C £271m 86% (£52m)
Man U £320m 50% (£9m)
Tottenham H £147m 65% £4m

Man U’s accounts for the year ending 30 June 30 2014 will make interesting reading.  Revenues are said to be up by £100m for that period.  But the following year’s accounts will be a lot more challenging with high levels of purchasing, much higher salaries, pay offs to unwanted staff and no Champions League.

But Man U won’t be in trouble despite a net spend of £122m in the summer,  because they have accumulated profits, and that hike in revenue – plus their wages as a percent of turnover is low.  Arsenal likewise have lots of spare room since they too have a low wages to turnover percentage, and a constant profit.  Chelsea, Liverpool and Man C are all very close to FFP non-compliance, and have the problem that it is their wages that is causing the problem.

Chelsea look to be heeding the warning by spending on £10m net this summer.  Tottenham, making a profit last time around actually made a profit in the transfer window of £6m and have nothing to be concerned about except how to finance the stadium.   Arsenal’s net spend of £46m is irrelevant because of past profits and a very low base of salary to turnover to begin with.

But the net spend of £36m by Liverpool  and £32m by Man City suggests that there might well be some questions asked by Uefa.  Liverpool like Tottenham have not fully revealed where the money for the stadium is coming from.

Of course the Man C supporters who argued that the new sponsorships will get through without question last time, might be right this time.  We wait and see.

The books
The complete Arsenal Anniversary series is to be found on the Arsenal History Society site.

26 comments to Premier League club finances and the future of FFP

  • menace

    Well done Danny boy! Your on your way.

  • Quincy

    Only Man City supporters believe all their commercial deals are legitimate. What I fear is either the oilers will by-pass FFP through corruption, or by spending vast amounts on lawyers who have worked on the drafting on FFP. But let’s see.

  • Borntobeagunner-btbag

    Exceptionally excellent. Lets wait and see. I feel Arsene will be a footballing God in the nearby future.

  • nicky

    @Quincy,
    You’re quite right, of course.
    The lawyers will make hay of the Regs and will be paid accordingly.

  • AL

    Off topic
    Well done Danny boy. And just read video refereeing to be trialed at the 2015 youth world cup. Two things about football that put a smile on my face today. A rarity these days.

  • AB

    We will thrash city have no doubt I don’t !

  • Andy Mack

    $ity only have a problem if the sponsorship isn’t at a fair market value. So although they’re PL champs, they aren’t as big/successful as their neighbours/The scousers/The Chavs or even as us, so they can’t receive 200% of the value of any of our shirt sponsorship deals and call it fair. However they can get sponsored by every single company in Abu Dhabi for the appropriate value. But they then get to the problem of economics in as much as they would have to have each company sign a detailed and quite tailor made contract and are there enough hours in the day to arrange/sign etc etc.
    The Shirt/stadium deal of 400m was (as I understand it) for a 10 year deal = 40m per year. Not unreasonable and certainly not great.
    If they don’t pass the next uefa ffp it will be interesting to see what penalty they get. $ity fans may say that they wouldn’t chuck them out of competition because of the TV revenue but $ity aren’t a big draw for any of the networks (maybe in 3/4 years as their international following grows).
    I think they would have been this year if it wasn’t for the PSG situation. Next time they have to grow some balls or they’ll give the EPL an easy out as well.

  • AL

    Tony/Walter
    Do you have more details about this video referral plans, which septic bladder announced will be tried next year? So far all articles I read just quote what blatter said, in his not so perfect English without exact details of how it’ll work. If he can promise this by 2015 then I’d want to see him voted into a fifth term, even though I like many think he’s overstayed his welcome and should have left 10 years or so ago. The risk is someone else who comes in might want to shelve that project, or even be against it.

    If this is true then Arsenal might actually win our first league in 2015 as the pgmob’s influence to tilt matches will be severely weakened 🙂

  • esxste

    I stopped reading the Blatter thing when I saw his comments about how the FA were sore losers and should learn to play fair.

    I bet he had a good laugh about that one.

    One can only hope it will be case of “pride before a fall”

    We just need someone to actually do something about FIFA.

  • esxste

    Not that I’m saying the FA have no faults… but compared to FIFA, they’re paragons of virtue.

  • Chapman's Ghost

    I doubt there’ll be any video referral in the league for sometime. Football is always slow to catch up with the times. As to us winning the league if it’s introduced I doubt that too. We have a much improved squad, no doubt, but we do not have the depth of quality that City or Chelsea have. We are still a work in progress, going forward definitely but I think the Wenger objective is to secure CL football and build the team over the next couple of seasons into the best in England. Patience is required.

  • Quincy

    AL, Bladder suggested only one or two appeals would be given per half. So we could still see several more bad calls per half. But it’s definitely a good start, whenever it becomes implemented.

  • Carsy

    I’m afraid City has already found a loop hole to exploit FFP. What’s to stop Man City from loaning players signed by New York City FC? This means NYC can sign Ronaldo for £100m and loan him to the parent club Man City.

  • Carsy, what’s to stop them is the amended FFP approach which allows FFP authorities to look at any device which exists for the purpose (at least in part) of avoiding FFP. The same approach exists in British tax legislation and was used to trap a number of media stars who tried to avoid tax.

  • Andy Mack

    Carsy, on top of Tonys comment. I suspect the loan would be possible but $ity would have to take 1 fifth (assuming NYC/Ronaldo contract was 5 years) of purchase cost plus the salary for the year on to their books for each year whilst gaining none of the resale rights. So it would just move the real problem to another year whilst gaining little. Fat Frank didn’t cost anything except his salary which MCFC have stated they will pay in full for the period he’s with them, so they haven’t really exploited any loop hole.

  • TommieGun

    Thanks Tony !

    I will only say, that the written word of FFP regulations is solely the basis for further deliberation, interpretation and application. I skimmed through the regulations a few years ago, as I’m sure a few of you did. However, I have seen enough to say that the letter of the law (or a contract, or any text for that matter) is always a BASIS. Whatever you read, and may seem very clear to you, can be interpreted in many different ways, according to certain agendas.

    That’s why the “wait and see” recommendation is very true in this case. I think that anyone who thinks that they can forsee the way UEFA will apply those regulations, is being very naive. I certainly cannot map the interests of UEFA vs. the “new” rich clubs, the “old” rich clubs, the rest of Europe, Platini vs. Blatter, etc. All of the above might influence the way FFP regulations will be interpreted and applied.

    I hope – for Arsenal’s benefit (as I’m not particularly sure if it’s in “football’s” benefit, in general) – that the regulations will be applied strictly and broadly. Will that be the case? I have no idea.

  • simon hill

    the EPL’s rules on wage rises are what is really biting. It looks likely that despite their ever surging commercial income, United needed a profit from selling welbeck to help cover their champions league revenue hit in 2014/5 and stay within the rules post falcao and City have been careful with wages, going to great lengths to get players off the books. The rules clearly are having some impact but the huge TV revenues the EPL enjoys means we are seeing a relative spending boom (ie. look at the cash spent by Hull on transfer fees) and the “arm’s race” is set to continue. Keep watching too for tactical profit taking by clubs-selling players with a large book profit that can be used to justify wage costs and don’t be surprised if Hazard is next to go at Chelsea…

  • Will Rickson

    City owning other clubs is nothing to do with FFP

  • Will Rickson

    Another poor FFP article

  • Andy Mack

    Anyone owning other football clubs is only relevant to FFP if it’s being used to circumvent the regulations. In the same way as owning other businesses is only relevant to the taxman if you’re trying to evade tax.

    I guess you didn’t understand most of the article or else you’d pick the bits you don’t agree with and write an intelligent considered response.

  • Black Hei

    Good article and very informative. I will be eagerly waiting for the 2013/2014 accounts and reports to be released and your subsequent report.

    On another note The Swiss Ramble has his wage to revenue turnover @ 64% for AFC while we have 54% here. http://www.101greatgoals.com/blog/fascinating-financial-blogger-swissramble-breaks-down-premier-league-1213-finances/

    Can you help check what makes up for the difference?

  • Will Rickson

    I was not going to waste my time tell you what I disagree with in the article given that its the whole article really. Owning other clubs is not away round FFP for city anyone who thinks otherwise is deluded and or stupid. Thats point one. Point to is the commission has sided with UEFA the court has not. The Commission is of little importance when its a matter of law and who knows why certain a certain member or members do not understand EU law or want protection for old elites or perhaps they just want football to be less risky finance wise and have not actually considered properly the fact that City are the safest football club around financially.And The blogger is also wrong about why in which he claims city handled the sanctioning process and the comments on the radio relating to it. Combine that with previous bias articles bias commentators and distinct lack of understanding by you lot of the speed and direction of travel and vision of MCFC and its associated bodies and you have a poor article annoying comments and nothing i agree with so it was easier to say that than explain it it had nothing to do with my lack of understanding it is you lot that lack understanding

  • Will Rickson

    O and whilst we are at it none of our deals are over priced or related party and all clubs have growing revenue city also have falling costs and faster growing revenue than most. We will break even this year

  • Black Hei

    “O and whilst we are at it none of our deals are over priced or related party”

    Yeah, and Iran is researching nuclear power in order to cure cancer.

  • Notoverthehill

    To Black Hei!

    Tony’s wage percentage is based on the full Turnover of £283 Millions.

    TSR, is based on his reduced turnover of £242.8 millions. See Profit & Loss for The Arsenal, lower down in the Premier League 2012/2013.

    ALL the Gross Wages are distorted, by the difference in the number of employees, each club employs.

    The Arsenal debt is distorted!

  • Will Rickson

    Black Hei No evidence has been given that they are related party deals UEFA completely left the deals alone unlike with PSG and Related party deals are shown in the accounts they have to be by law this did not happen for any of the sponsors only the trading between clubs owned by city and sales of assets to our owner