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Premier League Cost Control and Sustainability Provisions Published

Actual Moneyball

The Premier League (PL) published its latest handbook yesterday which contained two important cost control and profitability and sustainability provisions. The PL does not use the term Financial Fair Play (FFP) to characterise their new rules but they bear some of the hallmarks of break-even which are prominent in the UEFA and Football League FFP provisions.

Short Term Cost Control

Rule E.18 states that

“If in any of Contract Years 2013/14, 2014/15 and 2015/16 a Club’s aggregated Player Services Costs and Image Contract Payments:

E.18.1. exceed £52m, £56m, or £60m respectively; and

E.18.2. have increased by more than £4m when compared with the previous Contract Year or by more than £4m, £8m or £12m respectively when compared with Season 2012/13;

then the Club must satisfy the Board that such excess increase as is referred to in E.18.2 arises as a result of contractual commitments entered into on or before 31 January 2013, and/or that it has been funded only by Club Own Revenue Uplift and/or profit from player trading as disclosed in the Club’s Annual Accounts for that Contract Year.”

The definition of “Club Own Revenue Uplift” is set out at A.1.32 of the PL rules and means “any increase in a Club’s revenue… when compared with its revenue in … 2012/13 (excluding Central Funds fee payments.”

The practical effect of the above is that only a £4m increase in the wage bill for PL clubs per season will be permitted.  If a PL club spends more than an additional £4m on wages from the previous season, the additional wage cost can only be funded by increased commercial revenues that the club has made during that same season. The below table sets out the defined amounts:

Season The extra amount of PL Central Fund revenue that can be used to fund player wage costs (cumulative) If the wage bill is below the following figure, then the club are exempt from the restrictions
2013/14 £4m £52m
2014/15 £8m £56m
2015/16 £12m £60m

By way of practical example, if Liverpool’s 2012/13 wage bill is around £125m and for the 2013/14 season it increases to £130m, the club has spent £1m more than is permitted under Rule E.18. Liverpool must demonstrate to the PL that, in the same year of the wage cost increase,  the £1m additional wage cost arises either from:

  • contracts entered into before 31 January 2013;
  • its own revenues excluding centrally distributed PL monies; or
  • profit from player transfers.

Rule E.19 states that the 1 March 2014 (for the contract year 2012/13) will be the first time that each PL club will have to submit Form 3 to the PL but that the first substantive assessment will occur in February 2015. Presumably assessment will occur around this time as the PL will in March 2015 have the 13/14 contract year figures to compare against the 12/13 figures for compliance purposes. It appears from the guidance in the handbook that a Financial Regulatory Panel will be established  to determine whether a club has complied with the cost control provisions and to sanction the club accordingly if they have been in breach.

Profitability and Sustainability

PL clubs can make a £15m loss over a three year rolling accounting period. This means that a £5m per season loss can be covered by owner loans. Clubs can make a cumulative £35m loss per season over a three year rolling accounting period (i.e. the first being 2013/14, 2014/15 and 2015/16) I.e. a total loss of £105m with certain conditions attached (set out below).

Importantly, Rules E.52-E.58[1] will only come into effect from the 2015/16 season.

By 1 March 2016, PL clubs will have to submit three years worth of accounts. For losses up to £15m over the three year period, no owner guarantee will be required. If a club’s losses exceed £15m for the three year period, the club in the relevant season has to provide:

  • future financial information to the PL; and
  • evidence of sufficient Secure Funding (as defined in Rule A.1.143) of up to £90m injected into the club by way of shares (Rule E57 and E.58).

If a club breaches the £105m limit, the PL board has the power to compel a club to adhere to a defined budget (Rule E.15.1) and/or refuse to register any new or existing player contract (Rule E.15.3). Rule E.58.2 appears to give a Regulatory Commission the power to further sanction a club for breaching these provisions. The outcomes of such reporting requirements may thus result in breaches which could lead to sanctions like points deductions though a sanctioning tariff has not yet been published.

Related Party Transactions (RPT)

In the Football League and UEFA regulations there are provisions to combat accusations of companies which have connections to the club from providing the club with an artificially high sponsorship deal. The UEFA regulations make reference to the test being “fair value” for assessing the value of the contract. Interestingly, the PL are using a “Fair Market Value” test (Rule A.1.32). However, the test for whether a deal is a RPT appears to be somewhat limited (Rule A.1.132). It sets out that a RPT is only if “the transaction [is] disclosed in a Club’s Annual Accounts as a related party transaction”. If it is not disclosed then it cannot be classed as a RPT. This is a different approach to the UEFA test.

Promotion and Relegation

Lastly, it is not expressly clear how the PL will deal with relegated and promoted clubs. From first reading of the regulations it appears:

  • accounts for years that clubs were in the FL will be used to assess PL compliance; and
  • a promoted club’s accounts for the previous year then they were in the Football League will be used as the wage benchmark for how much a club can spend on wages whilst in the PL.

Conclusion

Any sanctioning decisions for breach of the above rules are still some time away but by March 2014, clubs will have to submit financial information to comply with the latest PL regulatory requirements. By the Spring of 2015, the first wage control decisions will occur but it will only be in 2017 that the first break-even decisions will be taken.



[1] Rule E.52 states: “Each Club shall by 1 March in each Season submit to the Secretary:

E.52.1. copies of its Annual Accounts for T-1 (and T-2 if these have not previously been submitted to the Secretary) together with copies of the directors’ report(s) and auditors’ report(s) on those accounts;

E.52.2. its estimated profit and loss account and balance sheet for T which shall:

E.52.2.1. be prepared in all material respects in a format similar to the Club’s Annual Accounts; and

E.52.2.2. be based on the latest information available to the Club and be, to the best of the Club’s knowledge and belief, an accurate estimate as at the time of preparation of future financial performance; and

E.52.3. if Rule E.55 applies to the Club, the calculation of its aggregated Adjusted Earnings Before Tax for T, T-1 and T-2 in a form approved by the Board.”

Rule E.55 states: “If the aggregation of a Club’s Earnings Before Tax for T-1 and T-2 results in a loss, any consideration from Related Party Transactions having been adjusted (if appropriate) pursuant to Rule E.53, then the Club must submit to the Secretary the calculation of its Adjusted Earnings Before Tax for each of T, T-1 and T-2.”

Rule E.56 states: “If the aggregation of a Club’s Adjusted Earnings Before Tax for T, T-1 and T-2 results in a loss of up to £15m, then the Board shall determine whether the Club will, until the end of T+1, be able to pay its liabilities described in Rule E.14.7.1 and fulfil the obligations set out in Rules E.14.7.2and E.14.7.3.”

Rule E.57 and E.58 states: “If the aggregation of a Club’s Adjusted Earnings Before Tax for T, T-1 and T-2 results in a loss of in excess of £15m then the following shall apply:

E.57.1. the Club shall provide, by 31 March in the relevant Season, Future Financial Information to cover the period commencing from its last accounting reference date (as defined in section 391 of the Act) until the end of T+2 and a calculation of estimated aggregated Adjusted Earnings Before Tax until the end of T+2 based on that Future Financial Information;

E.57.2. the Club shall provide such evidence of Secure Funding as the Board considers sufficient; and

E.57.3. if the Club is unable to provide evidence of Secure Funding as set out in Rule E.57.2, the Board may exercise its powers set out in Rule E.15.

E.58. If the aggregation of a Club’s Adjusted Earnings Before Tax for T, T-1 and T-2 results in losses of in excess of £105m:

E.58.1. the Board may exercise its powers set out in Rule E.15; and

E.58.2. the Club shall be treated as being in breach of these Rules and accordingly the Board shall refer the breach to a Commission constituted pursuant to Section W of these Rules.”

 

About

I am an associate in Field Fisher Waterhouse LLP’s Competition and EU Regulatory Law Group. First and foremost, I am a football fan. After completing my law degree with a dissertation on the Bosman ruling, I embarked on a Masters Degree in Competition Law and European Football Broadcasting Rights.

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