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Financial ‘fair’ Play?

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Summary: In recent years the Football League has introduced stricter rules to encourage the greater financial stability of its member clubs. This was part of a wider attempt by the footballing authorities to discourage clubs from incurring unsustainable losses and thereby placing them in financial danger. If clubs overspent they were to face transfer embargoes, a points deduction and possibly, expulsion from the Football League.

Whilst the above may sound like a good idea on paper, the actual consequences of this may have a devastating impact on competition in the Football League, as this article will consider later.

Under the rules for the 2013-14 season Championship clubs were permitted losses of up to £8m (with £5m funded by a club’s owners). Beyond that, the next £10m of losses incur fines on a sliding scale, with a maximum fine of £6.681m. But once losses exceeded £18m, the fine imposed is on a strict pound-for-pound basis. However, clubs are given some leeway for certain investment activity, and, as a result, spending on areas, such as youth investment schemes and training facilities, can be excluded from the calculations – in much the same way as is permitted under the UEFA regime. QPR’s filed accounts for that season showed losses of £9.8m. However, this included a write-off by the club’s owners of around £60m of historic loans made to the club. It is understood that the Football League's financial fair play rules purportedly (they don’t actually make the rules available to the general public!) prohibit the use of this sort of “write off” so as to reduce the club’s indebtedness when calculating losses.

Other clubs were more agile in dealing in advance with the incoming FFP rules. Rather than overtly writing-off loans made by owners to the club they apparently avoided showing large losses in future years by accelerating the losses of player transfer fee depreciation for their squad and “booking” them before the FFP rules came into effect. By doing this they reduced future losses in one of the biggest areas of potential loss - player acquisition. It is much easier to make your clubs books balance for FFP if you don’t have to worry about the first 3 or 4 years’ worth of player depreciation.

If the League ultimately rule that QPR's 'real' losses are £69.8m, then they could face a fine of around £58m. Whilst the Hoops had argued that the Football League could not force them to pay any fine whilst they remained in the Premier League (and outside of the Football League’s jurisdiction), their subsequent relegation means this argument has now become academic as the Football League will now assert jurisdiction over QPR’s adherence to their rules.

This is not just an argument for lawyers and academics. There are huge amounts of money and the very survival of well-established football clubs at stake. If QPR are found to be liable to pay the fine but then refuse this could technically result in QPR’s expulsion from the Football League altogether. In reality though, this appears to be quite an unlikely outcome – especially as under both the Premier League and Football League rules both leagues may decide to take the somewhat unusual step of deducting payments due to QPR, such as any “parachute payment”, that the league receives on QPR’s behalf. This money could then be used to pay the fine even if this is against QPR’s wishes. In the past, deductions have only tended to occur when a club has become insolvent and the Football Creditors’ Rule has been invoked; the most famous case of this was when Portsmouth found itself in financial difficulties earlier this decade and the Premier League and Football League directed funds straight to its creditors.

In any event, Tony Fernandes, QPR’s owner, has suggested that they have started legal proceedings to contest the legality of the FFP rules and, if it got that far, one would expect him to challenge any attempt by the leagues to claw back the fine in this way. The club has not publicly stated the grounds for its challenge but they may argue that the rules are prohibited by UK and/or EU competition law. If they do, the Football League would probably argue that the rules are intended to be pro-competitive rather than restrictive of competition, and that even if they do restrict competition, they promote economic progress, give consumers (or in this case, fans) a fair share of the resulting benefit from the fairer competition that results, do not eliminate competition and are indispensable to achieve the relevant benefit - all of which, it could be argued, would allow them to push on with the rules.

But do these rules really promote competition among clubs operating in the second tier? Instead, the rules seem to encourage a greater concentration of power (and indeed funds) in the hands of the Championship’s biggest clubs as only they would have the fan base and therefore revenue generation required to compete for the best talent. Outside investors, such as experienced businessmen like Tony Fernandes, are less likely to invest in lower league clubs for fear of censorship and from being restricted from pouring in the resources necessary to get to the top of the tree – as they have done with their own business successes. In short, market forces are being ignored. Eventually, this may well lead to the slow and painful dilution in quality and competitiveness of the Championship and re-enforce the likelihood of any newly demoted team, fresh from enjoying the lucrative riches of the Premier League, of bouncing straight back up to the top division.

It seems inevitable that the financial gulf between the Premier League and the rest of football is set to widen unless new owners or investors are encouraged to own and invest in clubs outside the Premier League and this could explain why UEFA has now indicated that it is willing to re-assess its own FFP rules. To do otherwise will make breaking into the Premier league, in the fashion of Bournemouth this season, an unlikely event alongside an elite group of clubs which rarely, if ever, really change their constituency.

Going back to QPR’s present predicament. Whilst the most sensible outcome would probably be for the parties to reach some kind of settlement, both sides are keen not to lose face, especially as other Football League clubs, tempted to spend big in order to reach the prize of the Premier League, will be watching closely as they consider their transfer budgets for the summer transfer window which is due to open in June. Ultimately, though, is it time the Football League re-considered its approach to fair play before many more outside investors turn their back on investing in the lower divisions of the beautiful game?

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