The Newcastle Takeover: The Rules on Spending Will Still Bite
First Published in the Mail on Sunday
Should the Newcastle takeover happen, it’s important to understand the spending restrictions in place at domestic Premier League (EPL) and UEFA level. It will be difficult for the club to spend astronomical amounts on transfer fees and wages because of the EPL Profitability and Sustainability Regulations and the UEFA Financial Fair Play Regulations (FFP).
The above rules were put in place to ensure that clubs become more self-sustainable by breaking-even in the medium to long term. UEFA, the EPL and the Football League all have different regulations setting out the acceptable losses that clubs are able to make. In the EPL, a club can make ‘acceptable losses’ of up to £105m over three years and €30m over three years for UEFA competitions.
Sanctions vary depending on the regulations but can involve potential points deductions in the EPL and spending, squad size restrictions and even expulsion from competition in UEFA competitions. PSG and Man City previously fell foul of the UEFA regulations and were restricted, among other things, in their transfer and wage spending for a number of seasons.
UEFA FFP relates only to Champions League and Europa League club participation, and not to domestic leagues. However, even if the club has not qualified for the Champions League or Europa League, if it wishes to play in future years, it will need to adhere to the spending regulations now because UEFA will effectively look back three years to ensure compliance.
The UEFA regulations do allow clubs in certain instances to spend over the €30m loss amounts through entering into a voluntary agreement (VA) with UEFA. This would allow Newcastle to potentially spend significant amounts on transfers and wages in the short term as long as a detailed business plan is in place to demonstrate to UEFA how the club will break-even over a longer period. A club owner who wishes to spend significant sums must guarantee such losses and commit funds as part of the VA. There will always be a risk that the VA business plan is not adhered to and monitoring by UEFA could still lead to disciplinary sanctions imposed on the club.
The club will also have to bear in mind the EPL Profitability and Sustainability regulations.
In summary, clubs can make a cumulative £35m loss per season over a three year rolling accounting period i.e. a total loss of £105m with certain conditions attached. If a club’s losses exceed £15m for the three year period, owners would have to provide evidence of ‘secure funding’ i.e. guaranteeing the remaining £90m so if the owners do not want to invest further monies, the remaining £90m can be used to cover the overspending.
For EPL purposes, Newcastle can spend more than they earn (up to the £105m mark over three years) so long as their owners are willing to provide secured funding. Practically however, as the club will want to participate in UEFA competition, they will be required to adhere to more stringent UEFA FFP rules (i.e. a maximum of a €30m loss over three years).
It will be imperative as a result for Newcastle to substantively grow its commercial revenues via high value partnerships with apparel manufacturers and brands. The greater the revenue generated, the greater the permitted expenditure on transfers and wages.
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