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Clubs Getting To Grips With Financial Fair Play

Tue 13th Aug 2013 | Money & Finance

British football clubs are on track to comply with the so-called ‘financial fair play’ (FFP) regulations, according to new research from business advisory and accountancy firm BDO LLP.

‘A New Dawn for Fair Play?’ – a survey of 66 teams from the English Premier League, Football League Championship, Football Leagues One and Two, and the Scottish Premiership – found that clubs are getting to grips with restrictions on wages or financial losses, which, for the first time, will apply across all English professional divisions this coming season. 

FFP is beginning to change club behaviour

The report reveals that 85% of clubs expect to comply with FFP rules in 2013/14 without any significant changes to their business models.  A further 10% plan to meet the regulations following major revisions of their financial plans, and the remaining 5% will not comply for at least one further season. 

In total, 88% of clubs affected by domestic league FFP last season [when the rules applied to the Championship and Leagues One and Two] claim to have met relevant regulations during this time.

The survey also found strong evidence that FFP is beginning to change club behaviour:

  • Compliance with the FFP regulations was cited as the third most pressing concern for Premier League and Championship clubs [after inflexibility of player salaries and loss of income due to relegation]
  • Only 17% of clubs are planning to spend more on payroll costs for the first team squad, compared with 24% last season; 56% are expecting to spend less
  • Of the 83% of clubs planning to spend less or the same on payroll costs, 42% revealed that their decision was influenced by FFP, and FFP was a factor for 86% of Premier League and 77% of Championship  teams
  • Only 12% of clubs expect to increase their transfer budgets this season; 24% plan to reduce them
  • Of the 88% of clubs planning to reduce or keep their transfer budget constant, 22% stated that FFP was a driver, and this figure rises to 44% and 41% for Premier League and Championship clubs respectively
  • 84% of clubs have relegation clauses in their player contracts, up from 79% last year; for the Premier League, this figure has risen from 56% to 75%.

 

The report’s authors argue that the need for FFP is stronger than ever because balancing the books remains challenging, particularly outside of the Premier League.  The survey reveals that only 30% of finance directors describe their club finances as ‘very healthy’ - although there are marked differences between the divisions, with Premier League finance directors the most positive  (83% describing their financial position as ‘very healthy’) and their counterparts in League One the most concerned (14%).

Trevor Birch, a business restructuring partner in BDO’s Professional Sports Group, said: “The divisions below the Premier League are crying out for a sustainable business model.  Football clubs play a vital role in their local communities, so there is a clear need for greater financial stability and a higher proportion of clubs living within their means.   

“Though many would prefer the sport to find its own sustainable financial equilibrium, the pressure on clubs and their owners for success has not allowed this to happen.  This is why it is important for the FFP regulations to be embraced not just in letter but in spirit. 

“The initial signs suggest that clubs are taking the new requirements seriously and beginning to adapt their behaviour in the way the football authorities intended, which is encouraging.”

Pressure builds on major shareholders…and on the benefactor model

In addition, ‘A New Dawn for Fair Play?’ reveals a growing reliance on benefactors to plug funding gaps at their clubs.  In total, 65% of clubs acknowledged a dependence on principal shareholder(s) to finance operating losses compared with 58% last year; for the Championship the figure is 94% and for League One it is 64%.

Faced with the challenge of plugging a funding gap while also keeping the club competitive on the pitch, it is perhaps not surprising that 28% of Championship club owners and 36% of League One club owners are considering a full or partial exit in the next 12 to 18 months.  At the same time, a similar proportion of clubs, 33% and 21% respectively, have been approached by potential new external investors in the past year.

Trevor Birch continued:  “Intense competition for a limited number of promotion places has pushed the majority of Championship and League One clubs into the red and created a dependency on principal shareholders bankrolling trading shortfalls.  In this context, we now see around a third of existing owners seeking a full or partial exit. 

“While a similar proportion of clubs are being approached by new external investors, in reality there is a dwindling number of genuine potential owners outside the Premier League.

“Our recent experiences at Portsmouth, Dunfermline and Hearts demonstrate that football clubs continue to attract huge interest and publicity but, when it comes to the crunch, only a limited number of potential investors have the resources and the appetite to bankroll the cost of their club’s ambitions. 

“Buyers are increasingly likely to be supporters, who recognise the important role that clubs play in their local communities and seem to be willing to go back to basics, with overly ambitious promises of silverware traded for closer ties and greater financial stability – a backlash, perhaps, against the profligacy of previous regimes.”

In response to the survey, Supporters Direct Chief Executive, David Lampitt said: “With so many clubs up for sale, it is increasingly obvious that the pool of investors is fast drying up.  Supporter ownership is the obvious answer – putting clubs back at the centre of their communities for the long term, making them more open and better run.   We’ve seen this happen successfully at numerous clubs from Swansea to Portsmouth via Exeter, Wimbledon and Wycombe Wanderers.

 “Football and the Government should be doing all they can to make it easier for supporters to take ownership of football clubs.  It is not an alternative model of ownership; it is the best model of ownership, full stop.  The authorities need to have the courage and foresight to help make this happen so that collectively we can deliver a game that is more sustainable, closer to communities and that prioritises the interests of fans.

“Our own research shows that proper, structured supporter involvement in the ownership of clubs brings more responsibility in the community, in the boardroom and on the balance sheet.

“If we are to learn anything from the on-going debacle at Coventry City, it is that a game that prioritises the private interests of speculative investors over the interests of supporters and local communities is not only financially broken but is also broken in terms of its model of governance.”

Read the full report HERE

Posted by: Aaron Gourley

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