FFP - What I don't understand.

[Super Steve Earle]

Today is 5th February 2013 right?
We have just announced losses for 2012/13 season.
I quote from FFP Rules: Clubs remaining in the Championship who fail to comply will be subject to a transfer embargo in the January 2015 window until they can demonstrate that they meet the Financial Fair Play regulations.
But we won't announce our figures for Season 2013/14 until say 5th February 2015 i.e. after the January 2015 window. So too late to impose an embargo if we breach the rules. So how does that work?

 

[Jim D]

Don't all accounts have to be in by December this year?

 

[Giraffe]

It's one of a number of flaws in FFP, which is why a large amount of clubs are totally ignoring it.

 

[Jim in the West]

Today is 5th February 2013 right?
We have just announced losses for 2012/13 season.
I quote from FFP Rules: Clubs remaining in the Championship who fail to comply will be subject to a transfer embargo in the January 2015 window until they can demonstrate that they meet the Financial Fair Play regulations.
But we won't announce our figures for Season 2013/14 until say 5th February 2015 i.e. after the January 2015 window. So too late to impose an embargo if we breach the rules. So how does that work?

I would imagine there must be a rule within FFP which requires accounts to be filed with the Football League by (say) 31 December. Companies House has a 9 month deadline, so we're not required (from a corporate law perspective) to file our accounts until 31st March.

 

[Creaky]

I would imagine there must be a rule within FFP which requires accounts to be filed with the Football League by (say) 31 December. Companies House has a 9 month deadline, so we're not required (from a corporate law perspective) to file our accounts until 31st March.

There is - accounts have to be presented to the League by the 1st of December

 

[Super Steve Earle]

There is - accounts have to be presented to the League by the 1st of December

Thanks Creaky. Missed that. Looking forward to Christmas already!

 

[Giraffe]

So if you've spent millions on players and are stirring there with a great squad they will stop you signing anyone in January. Ooh amazing. Is there any other sanction?

 

[DarrenFreemansPerm]

So if you've spent millions on players and are stirring there with a great squad they will stop you signing anyone in January. Ooh amazing. Is there any other sanction?

made me chuckle

 

[Creaky]

So if you've spent millions on players and are stirring there with a great squad they will stop you signing anyone in January. Ooh amazing. Is there any other sanction?

Well . . . . . . . . no - unless the accounts are very straightforward.

Take Forest for example - they present their accounts which show they comply but there is an enormous sponsorship deal in the accounts hiding true losses.

Fine the League may try and disallow that income but anyone who thinks all the steps necessary to do so, (appeals, legal challenges etc.), can be completed in 30 days in time for the opening of the transfer window in January is living in cloud cuckoo land.

 

[Giraffe]

But what actually is the sanction? It's a load of horseshit isn't it?!!

 

[Magicman]

Today is 5th February 2013 right?

Are we not in 2014 ?
Man this is strong beer

 

[Super Steve Earle]

Are we not in 2014 ?
Man this is strong beer

oh serious doh!

 

[Gazwag]

Im pretty sure FFP accounts and statutory company accounts are two completely different entities, with different reporting periods and deadlines

 

[Mackenzie]

What I don't understand about FFP is summed up in these two paragraphs from the Argus

It states that Championship teams must run at an operating loss of no more than £8m or else face penalties.

Although the exact nature of the penalties is not yet known, they are expected to be in the way of fines and transfer restrictions.

How on Earth can the FL impose a system of regulations and penalties on football clubs, which will take the teams a while to work towards, but not let the clubs know what the penalties for failure will be. Is it just me that thinks that that is utterly ridiculous.

Why aren't the clubs seeking clarification on this, its a massive issue.

 

[El Presidente]

What I don't understand about FFP is summed up in these two paragraphs from the Argus



How on Earth can the FL impose a system of regulations and penalties on football clubs, which will take the teams a while to work towards, but not let the clubs know what the penalties for failure will be. Is it just me that thinks that that is utterly ridiculous.

Why aren't the clubs seeking clarification on this, its a massive issue.

The penalties are clear.

 

[Mackenzie]

The penalties are clear.

Really? Could you point me in the right direction.

 

[AZ Gull]

Really? Could you point me in the right direction.

Oh look the Football League have a page on their website that discusses FFP

 

[Mackenzie]

Oh look the Football League have a page on their website that discusses FFP

Thanks.

I'll forward that to the Argus as well.

 

[Seasider78]

It's ridiculous and see below what clubs are already doing to get around this

From http://www.financialfairplay.co.uk


Man City release controversial accounts 3 Feb 2014

Manchester City's long-awaited financial results were released last week. In many ways they raise more questions than they answer.

As a number of journalists have pointed out, there are a host of Related Party Transactions, Inter-company transactions as well as a sale of Image Rights to a company that the City Press Office insists is outside the club. These obscure transactions have been designed to generate one-off income for the club during the final accounting year that will be covered by the first Monitoring Period. City have remained publically silent over whether they will actually pass the FFP Break Even test and curiously, the accounts don't even mention FFP or the potential for reduced income if they were to be excluded from future competition. Given that their thousands of fans are keen to know if the club have passed the FFP test, the club's silence seems remarkably remiss.

If UEFA's CFCB panel were to accept City's accounts on face-value and not contest any of the items, then it seems that City will just squeeze under the FFP limits (largely due to a transitional clause that allows them to exclude a huge chunk of wages paid in 2011/12 to players who originally joined the club before the FFP rules were voted-in).

However, the CFCB panel are required by the rules to review a number of transactions, totalling £35 m, which have been badged as 'Related Party Transactions' in the club accounts. The CFCB will attempt to identify and apportion a market rate to these transactions In addition, a number of other items could also conceivably be reviewed. These items:

May be classified as Related Party Transactions by CFCB
May not be considered 'Relevant Income' and will need to be excluded from the FFP Break Even test
As we know, City's accounts included a number of contentious items. These included payments to the club from the Manchester City Women's team and the new New York City franchise. These payments have been justified on the grounds that the payment is for use of the club coaching and infrastructure, in addition to use of the City brand. The payment from the women's team is particularly interesting. The club set up a separate limited company for the women's team and although this team is almost certainly a loss-making enterprise, it has apparently paid the main club millions for the use of the City brand (plus use of infrastructure). As all the benefit from the City branding of the women's team will be received by City, it is difficult to see the commercial justification for this payment. With the New York City transaction, Man City gain millions from this transaction despite the fact that the US franchise has yet to kick a ball.

The sale of Image Rights is both interesting and intriguing. The club has not disclosed precisely what they are trying to achieve. In their usual form, Image Rights are essentially a vehicle to avoid/reduce tax and National Insurance. For example a footballer will have a sum equal to up to 10% of their salary paid into an offshore company (often paying zero tax). The rationale is that, as a proportion of their earnings essentially come from use of their image overseas, there is no requirement to pay UK tax on the overseas earnings. HMRC cap this benefit at 10% of salary.

On the face of it, it looks like City are introducing a commercial company through which a percentage of their overseas earnings can channelled in order to reduce their tax liability. It looks like this company has paid Man City for 'Image Rights' so that they can collect their designated overseas earnings. Presumably this company will ultimately process the revenue off-shore so tax is greatly reduced on any profits. However, Manchester City have not made any profits for a number of years and as such have not had to pay Corporation Tax - any benefit from such an arrangement is therefore likely to come in future seasons. In an ideal world, the club should provide more information on what they are attempting here - it is possible that the club have simply sold a percentage of Image Rights to a completely separate company (as their Press Office seems to be suggesting). However, even if the rights revert to the main club after a defined period of time, this seems rather unlikely - why would City (a club with zero debt) genuinely want to sell a percentage of their future Image earnings? Depending on the rationale, it seems possible that CFCB may determine that the Image Rights payments do not represent 'Relevant Income' (a term that defines income generated from broadly football-related sources).

Man City have every reason to feel pleased with the performance of their accounting teams. Whereas PSG decided to fudge the Break Even test with a single commercial tie-in with the Qatar Tourist Authority (a deal that appears to be a fairly transparent Related Party Transaction), City have very deliberately adopted a much more complex approach. The CFCB will have unpick a multitude of Related Party Transactions, deals with associated companies; third party companies; Image Rights deals; a complex Naming Rights and sponsorship/development deal, in addition to further sponsorship deals from parties connected (if not 'Related') to the owner. You have to wonder whether CFCB will have the desire and tenacity to unravel and challenge each element


City's increase in Commercial Income is also intriguing. Their non-Broadcast Commercial Income increased by a huge £36m (from £107m to £143m) and it is difficult to understand where this comes from. It is the convention for club websites and publications to list club partners/sponsors in order of their contribution to the club - City list their top sponsors/partners in order as Etihad, Nike, Etisalat, TCA Abu Dhabi and aabar. Four of their five top sponsors are from parties connected to the club owner (Mansour is part of UAE's absolute monarchy which effectively controls all government and all state-owned assets). The only non-Mansour-related partner in their top five appears to be Nike (who are reportedly paying £12m a season, a £6m increase from the previous season). The remaining key-partners were all sponsoring the club during 2012/13 and none are new. As I say, it is difficult to say where the £36m increase in commercial income has come from. The CFCB will presumably want to know and depending on the answer this might open up the debate of Related Party Transactions.

The suspicion arises that various Image Rights and intellectual property deals were essentially 'balancing items' and that these deals would have appeared in their accounts for however much City needed to nominally pass the test. Interestingly, Mancini was sacked just three-weeks before the end of the accounting cut-off date. His pay-off resulted in a one off charge in the club accounts for at least £7.5 m (quite possibly considerably more). City's accountants would have us believe that if the sacking had not happened, the club would have reported a very healthy and somewhat implausible FFP pass. One of City's 'Intellectual Rights' deals apparently included in their accounts (Melbourne Hart women's team) was only announced this month; this rather gives the game away.

So, what does this mean for City? The most likely scenario is that the CFCB will challenge most of the contentious items and that some will be overruled. City's FFP pass will be turned into an FFP failure. It seems likely that UEFA will use their newly beefed-up FFP sanction for City (and PSG) - see below for extract. This sanction enables UEFA to withhold players from their competitions based on their overspend. So, if for example, City are ruled to have failed FFP by £20m, the club will have to field a Champions League Squad without a number of players who are paid a total of £20 m in wages. The mechanics of this punishment are still be outlined but UEFA seems happy that this provides a punishment that is directly proportionate to a club's overspend. Unlike an outright ban, this punishment would insulate them from any later legal challenge and claim for damages (i.e. should FFP be eventually overturned via the Striani case).

 

[Weststander]

With the Man City, Chelski and PSG examples, they have to abide by totally different UEFA rules. Over to them to unpick the cheating there.

The FL rules are totally unconnected to UEFAs, appearing much simpler. For Forest and Leicester to get a softening of the rules to suit them, that would require at least 75% of the clubs to agree in a vote.