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WATRB and other fans sites met with Lee Hoos last week to discuss FFP and to hopefully clear up some of the ongoing confusion and questions surrounding the topic. The following is what we gleaned from the meeting. Hope it's helpful. Any further questions, just ask below or they can be raised at the forthcoming Fans Forum on the 22nd of this month.
FFP regulations limit the amount of money clubs can lose over any rolling three year period. Therefore they limit the amount of cash investment shareholders can inject into the business.
In the Championship the regulations allow for losses of £39million over a rolling three year period (i.e. an average of £13million each season over three consecutive seasons).
For example:
£13m Year 1 + £13m Year 2 + £13m Year 3 = £39m
Alternatively:
£17m Year 1 + £13m Year 2 + £9m Year 3 = £39m
These losses are called 'permissible losses'.
In the Premier League the regulations allow for losses of £105million over a rolling three year period (i.e. an average of £35million each season over three consecutive seasons).
For example:
£35m Year 1 + £35m Year 2 + £35m Year 3 = £105m
Alternatively:
£50m Year 1 + £35m Year 2 + £20m Year 3 = £105m
A club can only apply to have certain items deducted from the permissible losses such as Community Trust donations, investment in Academy and Youth Development.
These items are called 'exceptional items'.
So, if a club spends three years in the Championship, its permissible losses are £39million over the three year reporting period. (£13m Year 1 + £13m Year 2 + £13m Year 3. Total: £39m)
If a club spent Year 1 in the Championship, Year 2 in the Premier League and Year 3 in the Championship, then its permissible losses would be £61million. (£13m Year 1 + £35m Year 2 + £13m Year 3. Total: £61m)
Example of how FFP Profitability and Sustainability works
A club spends three years in the Championship, its permissible losses are £39million.
Say for example, it had revenue in Year 1 of £25m, Year 2 of £25m and Year 3 of £25m, it would report £75m in total revenue for the three year period.
Suppose costs and expenses to the club in Year 1 were £50m, Year 2 was £40m and Year 3 was £30m, it would report total costs of £120m
So the costs of £120m would exceed the revenue of £75m by £45million.
And if the club spent £2m per year in each of these seasons on 'exceptional items' (such as Academy or Community Trust), they would deduct £6m from the permissible losses (£2m x 3 years = £6m), bringing the FFP reporting figure to £39m. (£45m total loss over 3 years less the £6m in exceptional items = £39m).
The club would therefore be compliant with the Profitability and Sustainability Regulations under this scenario.
How can the Club stretch its resources and maintain compliance with Profitability and Sustainability?
Simply put, the two ways to stretch a Club's financial ability to compete within the confines of Profitability and Sustainability Regulations are to:
Cut costs and expenses AND Increase revenues.
The days of buying the players everyone wants and then shareholders writing a cheque for the difference above the Revenue streams of the Club are over under the Profitability and Sustainability Regulations.
Examples of stretching the resources
SALE OF A PLAYER
This has a dual effect. The savings from the player's wages would help increase the available headroom as would the lump sum received from the player sale.
For instance, if Player X was earning £1million per year and was sold at the beginning of the season for £10million, the Club would record an additional £10m in revenue and would have a reduction of £1m in expenses.
So if the sale accrued in Year 3 of the previous example, instead of recording £25m in revenue and £30m in costs, the Club would record £35m in revenue and £29m in costs in Year 3, thereby giving a Profitability and Sustainability result of £28million for that period.
This would provide the club with additional resources to invest into the Club and the playing squad.
Obviously increases in revenue streams (i.e. tickets, retail, commercial revenue) increases the resources available to invest into the Club and the squad.
Correspondingly, every pound we can save goes to increasing the FFP headroom and the resources available to invest into the squad and the Club.
What happens if we breach FFP?
There are no specifically prescribed penalties for breach.
Breaches are referred to an independent disciplinary commission who have a wide range of sanctions they could issue based upon the facts of the case.
Sanctions could be anything from a slap on the wrist to a fine, points deduction or expulsion from the League.
We all have a part to play and we can all help.
FFP regulations limit the amount of money clubs can lose over any rolling three year period. Therefore they limit the amount of cash investment shareholders can inject into the business.
In the Championship the regulations allow for losses of £39million over a rolling three year period (i.e. an average of £13million each season over three consecutive seasons).
For example:
£13m Year 1 + £13m Year 2 + £13m Year 3 = £39m
Alternatively:
£17m Year 1 + £13m Year 2 + £9m Year 3 = £39m
These losses are called 'permissible losses'.
In the Premier League the regulations allow for losses of £105million over a rolling three year period (i.e. an average of £35million each season over three consecutive seasons).
For example:
£35m Year 1 + £35m Year 2 + £35m Year 3 = £105m
Alternatively:
£50m Year 1 + £35m Year 2 + £20m Year 3 = £105m
A club can only apply to have certain items deducted from the permissible losses such as Community Trust donations, investment in Academy and Youth Development.
These items are called 'exceptional items'.
So, if a club spends three years in the Championship, its permissible losses are £39million over the three year reporting period. (£13m Year 1 + £13m Year 2 + £13m Year 3. Total: £39m)
If a club spent Year 1 in the Championship, Year 2 in the Premier League and Year 3 in the Championship, then its permissible losses would be £61million. (£13m Year 1 + £35m Year 2 + £13m Year 3. Total: £61m)
Example of how FFP Profitability and Sustainability works
A club spends three years in the Championship, its permissible losses are £39million.
Say for example, it had revenue in Year 1 of £25m, Year 2 of £25m and Year 3 of £25m, it would report £75m in total revenue for the three year period.
Suppose costs and expenses to the club in Year 1 were £50m, Year 2 was £40m and Year 3 was £30m, it would report total costs of £120m
So the costs of £120m would exceed the revenue of £75m by £45million.
And if the club spent £2m per year in each of these seasons on 'exceptional items' (such as Academy or Community Trust), they would deduct £6m from the permissible losses (£2m x 3 years = £6m), bringing the FFP reporting figure to £39m. (£45m total loss over 3 years less the £6m in exceptional items = £39m).
The club would therefore be compliant with the Profitability and Sustainability Regulations under this scenario.
How can the Club stretch its resources and maintain compliance with Profitability and Sustainability?
Simply put, the two ways to stretch a Club's financial ability to compete within the confines of Profitability and Sustainability Regulations are to:
Cut costs and expenses AND Increase revenues.
The days of buying the players everyone wants and then shareholders writing a cheque for the difference above the Revenue streams of the Club are over under the Profitability and Sustainability Regulations.
Examples of stretching the resources
SALE OF A PLAYER
This has a dual effect. The savings from the player's wages would help increase the available headroom as would the lump sum received from the player sale.
For instance, if Player X was earning £1million per year and was sold at the beginning of the season for £10million, the Club would record an additional £10m in revenue and would have a reduction of £1m in expenses.
So if the sale accrued in Year 3 of the previous example, instead of recording £25m in revenue and £30m in costs, the Club would record £35m in revenue and £29m in costs in Year 3, thereby giving a Profitability and Sustainability result of £28million for that period.
This would provide the club with additional resources to invest into the Club and the playing squad.
Obviously increases in revenue streams (i.e. tickets, retail, commercial revenue) increases the resources available to invest into the Club and the squad.
Correspondingly, every pound we can save goes to increasing the FFP headroom and the resources available to invest into the squad and the Club.
What happens if we breach FFP?
There are no specifically prescribed penalties for breach.
Breaches are referred to an independent disciplinary commission who have a wide range of sanctions they could issue based upon the facts of the case.
Sanctions could be anything from a slap on the wrist to a fine, points deduction or expulsion from the League.
We all have a part to play and we can all help.
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