Wednesday, November 19, 2014

Football League Championship Clubs Tweak their Financial Regulations

On November 6, representatives at an EGM of the Football League’s 24 Championship clubs voted in favour of a new set of new financial regulations which will, in two seasons, replace their previous financial fair play regulations (FFPRs). They have however taken the lead from the Premier League in renaming their new regulations that will be implemented from the 2016/17 season, the ‘Profitability and Sustainability Regulations’ (PSRs). Daniel Geey, a Senior Associate with Field Fisher Waterhouse LLP, examines the implications and consequences of this.
 

The Football League’s Press Release and Some Initial Comment

1. ‘At an EGM at Derby County, Championship clubs have agreed a new set of “Profitability and Sustainability” Regulations that will bring the division’s approach to Financial Fair Play into line with that used by the Premier League.’

Three quarters of all Championship clubs were required to vote in favour of the rule changes for any agreement to be reached. From a consensus building perspective, the Football League administration has done well to persuade at least 18 clubs to vote in favour of the new PSRs. This is because the current Football League FFPRs rules benefited a number of compliant Championship clubs that would have the competitive advantage of signing players at a time when other Championship clubs in breach (because of losses over the acceptable permitted amounts) would have been sanctioned with a transfer embargo from January.

2. ‘From the beginning of the 2016/17 season, Championship clubs will have their financial performance continuously monitored over a three season timeframe and will be permitted to lose up to £15 million during that period without having to be prescriptive over how that loss will be funded.’

Interestingly, the Football League PSRs framework will be similar in substance to the Premier League PSRs (click here for an explanation on the Premier League regulations). It would appear beneficial to have two regulatory systems that align especially because of the fluid nature of relegation and promotion between the two leagues. As is explained below, the Football League PSRs now provide practical compliance guidance for clubs that ‘yo-yo’ between the leagues to ensure they know what losses will be permitted. This was not previously set out in such a joined-up manner. Similarly, whereas before the Championship FFPRs were only based on one years’ set of accounts (see here for the detail), from the 2016/17 season, both Premier League and Football League PSRs will align to cover a three year rolling accounting period.

The example provided for in the Football League press release explains that ‘A club that moves between the Premier League and Championship will be assessed in accordance with the average allowance that is permitted in the relevant division (for example, a club that had played two seasons in the Championship and one in the Premier League would have a maximum permitted loss of £61 million – consisting of one season at £35 million and two at £13 million)’.

As such, both sets of PSRs work regardless of whether a club is in the Premier League or the Football League for the relevant calculation season. This joined up approach from a regulatory compliance perspective will be of value to clubs and, to some degree, shows both the Premier League and the Football League working together to make the PSR process more manageable and straightforward.

3. ‘In addition, they will be permitted to lose more than £15 million, but not more than an aggregate of £39 million (compared to an equivalent figure of £105 million in the Premier League) but will be subject to additional regulation when doing so. This will include providing evidence of Secure Owner Funding and Future Financial Information for the two seasons ahead. The maximum deviation under the regulations will remain at £6 million for 2014/15 and will increase to £13 million in 2015/16, in line with the maximum loss (£39 million over three seasons) permitted under the new rules.’

From the 2016/17 season (i.e. the previous Football League FFPRs continue in force for the current two seasons), Championship clubs will be permitted to lose £13m per year (up to a total of £39m over three years if they remain in the Championship) so long as club owners provide, a guarantee for the overspend. Based on the fact that the acceptable FFPR loss that a club could make in their 13/14 accounts was £8m and next year will be £6m, there will be a large increase in the acceptable loss amounts permitted so long as an owner is willing to guarantee such spending. This will give clubs from the 2016/17 season, more leeway than under the current FFPRs.

4. ‘Clubs also agreed transitional arrangements for the period leading up the introduction of the new regulations in 2016. These can be summarised as follows:
- The existing Championship FFP framework will remain in place for the 2014/15 and 2015/16 seasons.
- Any sanctions for accounts relating to the 2013/14 season will continue to take effect as intended (and in accordance with the amounts specified at the time).’
 

As explained above, the clubs that were in line to comply with the current Football League FFPRs would have needed incentivising to accept and vote in favour of the new Football League PSRs. It appears that the method for coaxing some clubs to sign up to the new regulatory framework was to ensure that the existing FFPRs will still bite for this and next season. As such, Championship clubs that are in breach of the £8m figure for the 13/14 accounting period season, during this current season, will to be sanctioned with a transfer embargo in January 2015. Similarly, clubs who were promoted to the Premier League and are in breach of the £8m acceptable deviation amount for the 13/14 season when they were in the Championship will be fined. This suggests that, if reports are to be believed, the Football League will still impose a hefty fine on QPR for their Football League FFPR breach regardless of these recent changes.

Some may argue that clubs like QPR that were promoted to the Premier League, that are no longer in the Championship and that are inherently affected by this vote have unreasonably had no say in shaping the amended regulations. Others may disagree and say they are no longer in the Football League Championship and as they are not a member they do not get a say. Similarly, it appears that no substantive changes have been made to the current sanctioning punishments so that any Championship club in breach of the £8m threshold will incur a transfer embargo (with some leeway in specific circumstances) regardless of whether they are £10,000 or £10m over the acceptable loss amount.

Conclusion

The next steps for the Football League are likely to involve issuing sanctioning decisions for those clubs in breach of the current FFPRs, imposing fines on clubs promoted to the Premier League (i.e. QPR) and transfer embargos on current Championship clubs. The rules have changed but the current FFPRs still remain in force for this and next season. In short, expect clubs to be embargoed and fined come January 2015.


Daniel Geey
Senior Associate
Field Fisher Waterhouse LLP, London
daniel.geey@fieldfisher.com

 

This article originally appeared on Daniel’s Blog, ‘The final score on football law’. You can access the original by clicking here.

 


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