In Part 1 of this series, we looked at a detailed overview of FFP's inception under UEFA, including the history of financial turbulence which preceded it, suffered by clubs such as West Ham and Leeds United. These events prompted a call for and the taking of action for increased regulation and rules. A link to Part 1 can be found here.
In Part 2 below, we examine the rules and regulations of FFP when they first came into force and the way these interacted with the Premier League’s own stance on Profitability and Sustainability.
Under UEFA’s initial FPP regulations, implemented at the outset of the 2011–12 football season, clubs were not permitted to spend more than €5 million (£4.2 million) of what they earnt over a three-year rolling period, or €30 million (£25 million) if the owner was able to cover the losses.
On announcing the new legislation on 15 September 2009, former UEFA President Michel Platini said:
"Fifty per cent of clubs are losing money and this is an increasing trend. We needed to stop this downward spiral. They have spent more than they have earned in the past and haven't paid their debts. We don't want to kill or hurt the clubs; on the contrary, we want to help them in the market."
Clubs would be allowed to lose €60 million (£53.6 million) over a three-year accounting period, with an extra €10 million (£8.9 million) annual loss permitted if the club was deemed to be "in good financial health".
Only a club's outgoings in transfers, employee benefits (including wages), amortisation of transfers, finance costs and dividends would be counted over income from gate receipts, TV revenue, advertising, merchandising, disposal of tangible fixed assets, finance, sales of players and prize money. Any money spent on infrastructure, training facilities or youth development would not be included.
Similarly, the Premier League's rules on Profitability and Sustainability allow for a £5 million loss per annum, which can then be boosted by a £30 million equity injection, giving allowable losses of £35 million a year. Under the rules, each club has an obligation to provide the Premier League with the following information before March 1st each year:
- Copies of the annual accounts, director reports and auditor reports; and
- An estimated profit and loss account and balance sheet based on the latest information available to the club and an accurate forecast of future financial information.
Losses are measured in the context of a PSR calculation, which includes the following:
- Adjusted earnings before tax for the current season (e.g. 2022/23);
- The mean of the adjusted earnings before tax for the two previous seasons (e.g. 2021/22 & 2020/21); and
- Adjusted earnings before tax for the season prior (2019/20).
If the overall figures indicate losses of less than £15 million, the Premier League board will engage with the club in order to ensure that their current liabilities can be met within the running season.
However, if the overall figures show a loss greater than £15 million, then the club has to produce forecasted projections for the next two seasons, as well as what the end of the current season will look like.
In the event of the PSR calculation showing losses greater than £105 million, the Premier League board will charge that club with breaches under rule E.15, which specifically applies a budget and places potential restrictions on transfers.
Finally, sponsorship has proven to be an especially thorny issue with which FFP has found it difficult to engage. Any sponsorship revenue received by a club, having had the underlying deals investigated and given a clear bill of health, will be considered an exemption from FFP. But getting to the bottom of what does or doesn't amount to a legitimate sponsorship deal has proven extremely tricky in practice. Hence the storm clouds currently swirling around Manchester City. As and when the charges levelled against it have been resolved and the extent of any sanctions weighed, the future for Pep Guardiola's well oiled machine together with the Premier League's other state owned club, Newcastle United, in addition to others thinking of following in their footsteps, will become much clearer.
Stay tuned for Part 3 of the series, which will take a "deeper dive" into the rules as they currently stand, as well as debunking a series of myths surrounding the objectives of FFP and its application on the ground, including the many mysteries of amortisation and the way this interacts with Chelsea's recent power moves in the transfer market.