What is Financial Fair Play and why does it affect Cardiff C

What is Financial Fair Play and why does it affect Cardiff City?


From this current season, the loss a club is permitted to make is up to £13m a year.



By Chris Wathan

Wednesday 1st March 2017


The words Financial Fair Play have cropped up time and time again in recent weeks at Cardiff City.





But what exactly is it, and why does it affect Cardiff City?

What is Financial Fair Play?

Financial Fair Play – or FFP – are rules set out by the Football League that were seen as an attempt to encourage financial stability in the Championship and below.

They were initially agreed and voted on by all clubs in April 2012 to take effect from the following season, but have subsequently been adapted and updated – with this current season the first under new rules.

In basic terms, the rules were designed to reduce and limit losses being made by clubs, with the amount of money allowed to be lost by clubs decreasing year on year.

Sanctions are available to be placed upon those who do not stay within those limits.

The whole idea is to try and encourage clubs to live within their means and getting as close as possible to a business where you spend what you earn, theoretically stopping clubs racking up large debts.





What are the loss limits?

The losses permitted – or permitted deviation as it is called in the rules – has ranged from the first introduction. It was originally on a sliding scale that saw it down to as low as £3m, but rules were changed after a vote between the clubs. The regulations have been re-drawn as ‘Profitability and Sustainability’ regulations and are more aligned to the rules in place in the Premier League.

From this current season, the loss a club is permitted to make is up to £13m a year.






Is it that straightforward?

No. The changes to the rules now analyse three years’ worth of accounts rather than a single season, so the £13m loss is actually an average; the loss clubs are allowed to make is actually £39m over three seasons. The number does vary for those clubs who have spent one or more of the relevant seasons in the Premier League where the loss limits are greater.






Is that it?

No. That £13m figure is only relevant when it includes “shareholder investment” – i.e. a club owner such as Vincent Tan injecting money into a club to cover losses. The basic loss without that is a maximum £5m a season – or £15m over three.

In other words, an owner can decide to fund the club spending more money than it brings in - but only up to £13m a year. If an owner doesn't provide spare cash to add to a club's incomings from other revenue streams, then the £5m limit applies.






What period does it cover?

The regulations have also changed to add greater immediacy. Previously, clubs had to submit their accounts for the previous season to the Football League by the December. It saw clubs being retrospectively punished if it emerged they had not stayed within loss limits.

One of the criticisms of this process was that teams who might have gambled on promotion and broken loss limits had already escaped any meaningful sanctions by entering the Premier League. Now, the two previous seasons are taken into account while projections for the ongoing campaign are also required.

That information had to be supplied to the Football League by this week, with cases of clubs who have failed to stay within loss limits referred to a disciplinary committee ahead of potential punishment. The aim is that sanctions will take place before the end of the season, bringing about a more immediate impact on transgressors.

Ken Choo, Executive Director & CEO, is tasked with managing the finances
What are the sanctions?

Previously, the Football League has been able to fine clubs who failed FFP and subsequently gained promotion, or impose a transfer embargo on those who remain in the Championship. Cardiff were placed under a transfer embargo last year when they fell foul of a technicality in the rules following Vincent Tan’s extra equity as a result of his debt write-off.

The new changes have strengthened the Football League’s power when it comes to sanctions. Respected FFP writer Ed Thompson has stated that “nothing is off the table” and that points deductions for the ongoing season are an option. Transfer embargoes can still be used, which would kick in for the summer window at the end of the season.






Why does it affect Cardiff City?

Quite simply because it affects all clubs. While clubs recently in the Premier League – such as Aston Villa – have a greater loss limit and parachute payments to aid their housekeeping, Cardiff will have to work hard to stay in line.

For an example, based on the last accounts, Cardiff had to cope with a drop of revenue of 52% when they were relegated into the Championship, with around £25m of their £40.2m revenue coming from that season’s parachute payments,

The new increase in loss limits to the more realistic, basic £5m-per-season should make things a little easier, but they have not been helped by the beginning of the end of their parachute payments and loss of revenue from falling attendances. With greater, more immediate sanctions now available, the idea of risking overspending for a crack at promotion is no longer an option for clubs.

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Where do Cardiff stand at present?

It’s not easy to say. The club’s latest accounts will give a greater indication and are due with Companies House shortly. However, those accounts will cover the 2015/16 season and not show what the most up-to-date state of play is with regard to wage bills and so on.

Regardless, FFP means there is no option but to balance the books (or at least get close to it) in terms of incomings and outgoings.

It generally means the need to reduce the wage output if revenue has continued to fall, with Warnock having recently pointed to large salaries as reason for wanting to sell players, or that the club are still having to pay for deals despite players not being at the club.

As an illustration, Cardiff’s wages in the 2014/15 season – their first back in the Championship after relegation from the Premier League – stood at around £30m, taking up around 75% of the club’s income.

In recently-published accounts, Sheffield Wednesday’s wage bill last season as they beat the Bluebirds to a place in the play-offs stood at around £17m.

An educated guess given their transfer activity since then would suggest the Owls have subsequently increased that amount for this season and Cardiff have reduced.

Still, it is the final tally of loss that matters most. Cardiff’s debt – at around £100m in those last accounts but expected to have been reduced further following Tan’s pledges to make the club debt-free by 2021 – is not overly relevant when it comes to FFP.

FFP does not require the club to show they are clearing debt. What matters is whether they are within those aforementioned loss limits for a season.

Without the most recent accounts, it is impossible to say with any certainty though it is expected to be unlikely they have breached those.

Indeed, a Football League statement confirmed no clubs had breached the rules for the 2015/16 season ahead of the rules changing for the 2016/17 campaign.

With previous seasons now being taken into account, Cardiff should be OK, having posted a profit (thanks to transfer sales) in their 2014/15 figures and having already been sanctioned for that technicality.












How can other clubs get away with spending more?

Whether they ‘get away with it’ will be determined once the Football League examine the submitted accounts – two historical and one current/projected. Every case will be different. The likes of Aston Villa will be boosted by parachute payments as part of their income, allowing them to spend more. Newcastle and Leeds will have large revenues through gate receipts so have more room to spend.

Other clubs may have posted profit in previous years and, because of the regulations now assessing a three-season period, can afford to overspend for one season without breaking the overall limits.

Ultimately, clubs will have to justify losses – and even a ‘sugar daddy’ owner will only be able to help so far. Whether teams have gambled will become clear.









What does it mean for next season?

Next season is Cardiff’s final one with parachute payments from the Premier League, with the £10m for the 2017/18 season their last hand-out.

It does suggest that Tan and the club hierarchy know that this could be a key year to try and make a concerted bid to get back into the Premier League. At the same time, they also know they cannot tie themselves down to inflated wages over a number of years given that they face a reduction of income of £10m if they don’t win promotion, making future battles with FFP that much harder.

The hope will be that the impact made by Warnock will boost attendances and commercial revenue as fans enjoy the feel-good factor generated since the Yorkshireman’s arrival, as well as the public statements of ambition in the wake of his new contract.

If wages can’t be slashed much further, it could well mean a scenario that Warnock would be prepared to sell players to generate money for the transfer window – something he has already suggested he would be prepared to do.

It is important to remember that this is not because of a ‘hand to mouth’ scenario, but because of the demands of FFP.

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This is an excellent article by Chris Wathan , setting out what the newly rebadged "Profitability and Sustainability" rules are starting this current season