FOOTBALL’S FINANCIAL FRAMEWORK
One one level, English football - and the EPL in particular - is outstandingly successful. It generates far more TV revenue than other competitor Leagues in Europe and consistently attracts bigger crowds.
However, a closer, more forensic look shows that there are some deep seated problems that are significantly harming the game’s financial health :
• UEFA recommends that, as a matter of basic prudence, wages should never exceed 70% of turnover in any given year
• in the EPL this ratio is around 73% ; excluding the so-called “Big Six” it is running at 87%
• in the Championship the figure is 120%, and around two thirds of clubs pay out MORE in wages than they take in in turnover
Surely this could be addressed under current rules?
In theory, yes. But current rules are designed to allow clubs to lose significant amounts in any given three year period without sanction. This is not sustainable.
How much can they lose?
A good question, and the answer depends upon which League you are in, or whether you are playing in a European competition or not.
So in the EPL allowable losses over three years are £105m. But in the EFL the figure is £39m, and any club playing in Europe has to meet a threshold of 30m euros. And not only are the numbers different - the rules on permissible investment in things like infrastructure are different too.
So is the current system able to address these issues?
It is hard to see it doing so, when :
• it allows for clubs to routinely lose large sums
• there is no incentive in the system for clubs to act sustainably
• regulation by the Leagues is very inconsistent, and often only catches up with problem clubs when the situation is very grave
• clubs find it easy to find ways to circumvent those rules that there are, with little in the way of punishment at the time they do so
What is financial regulation for?
Ms. Crouch identified five broad objectives for the financial regulatory system :
1) delivering long term financial sustainability
put plainly, ensuring that there are checks and balances that will give all clubs a sustainable future. She was very clear that far too many clubs are not in a secure position and the currently regulatory system does nothing to address this
2) avoiding “monopolisation” of leagues.
the concentration of power and money in just a select few clubs is unhealthy. It creates a glass ceiling for well-run, upwardly mobile clubs who aspire to be even better. It also inhibits competition, which is detrimental to the enjoyment of supporters.
3) maintaining international competitiveness
notwithstanding (2) above, it is important that clubs playing in European competition remain competitive. It helps them to attract and retain talent ; and brings prestige to the domestic game
4) it needs to be proportionate
regulation comes at some cost, but a good system should not be punitively expensive. Those on the receiving end of it should feel that it delivers value for money, and that the amount of effort involved to comply with it is not excessive
5) it should be compatible with other systems
At the moment, there are big differences between EPL and Championship, and the EPL and other European Leagues. Reducing those differences, and making various competitions more compatible with one another, would help clubs to control their costs and compete effectively
What sort of systems could we have ?
Ms. Crouch looked at three variations on the current system before settling on a fourth. The three she rejected were :
• fixed salary caps
• fixed salary caps supplemented with a “luxury tax” levied on bigger clubs
• capping wage costs as a proportion of turnover
It was felt that all these approaches had merit - but risked failing against some or all of the five objectives described above.
What does she propose instead?
First and foremost, that football does not try to reinvent the wheel. The Financial Conduct Authority has produced a lot of guidance on what constitutes good practice. This should be the starting point.
Clubs should :
• have enough cash in place to sustain their plans
• have proper procedures in place to control costs
• have proper plans to manage and mitigate risk
How would the regulator assess this ?
By looking at four things :
• liquidity arrangements
• the credibility of clubs’ plans
• the effectiveness of any costs controls in place
• accounting standards, and whether they are being met
Would owners be able to put extra money in?
Ms. Crouch believes that this should be allowed, but very tightly controlled. She suggests that any such extra financial support :
• comes “up front” and committed
• is ring-fenced for football purposes and cannot later be withdrawn
• is subject to a “proportionality test” to to be set by the regulator which stops owners simply attempting to buy success