August 2017 - Our one-shot at promotion? A look at the implications of the EFL’s FFP Regulations
Updated: Feb 3
Our one-shot at promotion? A look at the implications of the EFL’s Financial Fair Play Regulations
Although I generally have a ‘half glass full’ type of personality, I am acutely aware that there is a risk that this piece might come across negative. That is not my intention for this article and I therefore urge you to read the article in full before drawing your own conclusions. The objective of this article is to consider what we know and attempt to understand the requirements and the implications of the FFP regulations.
The need for critical analysis
Now, whilst we have been told on numerous occasions in the past by both Keith Wyness and Dr. Tony Xia that we will not breach Financial Fair Play (FFP) and that the situation is under control, it is not in my nature to simply take such statements at absolute face value. I have no reason to suspect and nor am I accusing the club of lying. I believe that Dr. Tony Xia, Keith Wyness et al are the best thing to happen to this football club in a long time. In fact, they have saved our beloved club.
However, I like to understand the mechanisms underlying the operation of our club and I like to form my own opinion on such matters. One of the constant criticisms of fans critically analysing such information fed from the club is that we are not furnished with all of the facts. Therefore Dr. Tony and Keith are in a much better position to truly know AVFC’s FFP predicament. That is undeniable and something which I cannot dispute. However gaining an understanding of these mechanisms enables me to understand why certain players might be sold or why we appear to be less active in the transfer market. Any opinion I form is based on the facts available to me and I am prepared to accept that I might be wrong with hindsight. However such analysis gives me perspective when we don’t sign someone who realistically is unreachable financially.
It must also be noted that I cannot get rid of the lingering nagging that such statements made by Keith concerning the Financial Fair Play position are made from a conflicted position. I mean, imagine if Keith turned around and said publically “we are significantly behind our FFP budget and we need to desperately sell players”. This would weaken our negotiating position when selling players, it would alert the English Football League (EFL) to crawl over our accounts and it would drastically lower fan morale. Therefore, all statements made by the club have to be taken with knowledge that they are made from a conflicted position. I reiterate though, I am not stating that the club has, or is, lying, in any way.
What have the club said about the our FFP position?
I personally listen avidly to all of the club communications and information released through various key personnel Twitter accounts. It is remarkably refreshing how open the club is now with the fans and the club must be applauded for taking this approach.
Concerning FFP, the rhetoric coming out of B6 is that we are just outside of FFP but the budget submitted to the EFL does not allow for player transactions. Furthermore, if we fail to go up this season, there is a plan to ‘deal’ with the situation so that we don’t fall foul of the penalties.
Although I appreciate that there is a mention of creative accounting techniques surrounding property and land valuations, how might this ‘plan’ affect incoming and outgoing players and our budgets going forwards? We’ll consider this further later in the piece. However some snippets of what we have been told are listed below:
2nd March 2017
"Financial Fair Play is a very annoying rule in my view because it discourages people to invest in their own assets…We are OK this year [16/17] and next season [17/18]. The season after is what we are having to plan for [18/19]."
17th May 2017
“We are marginally just outside and have sort of breached the financial fair play, but we can easily adjust it with a mixture of commercial and player trading… We have no fears at all of breaching fair play this year. But, of course, that is a factor.
Financial Fair Play gets more serious next year but there are ways around that with property valuations and different bits of planning….There’s no imperative that we’re going to fall off a cliff if we don’t do it next year... We will carry on next year and try again, but of course we want to do it this year, absolutely.
It can be handled”
3rd August 2017
"Certainly, we’re on the cusp of it and that’s been on-going now for a good few months. Ultimately, the club has spent too much… It’s the problem we’ve had all summer. We need to box a little bit clever because of FFP. We’ve got to restrict what we spend.”
So, prior to player transactions, as at the FFP assessment period for the 3 years up to March 2018, we are told that our budget shows that we are currently failing FFP (marginally). However, player and commercial transactions not budgeted for are expected to bring us just under the FFP limit… Phew!
Let’s now look at how the FFP assesses whether a club passes or fails the FFP test and the implications of parachute payments.
EFL FFP calculation methodology
With effect from the beginning of the 2016/17 season, the EFL’s new ‘Profitability and Sustainability’ regulations were introduced.
The regulations state that each Championship club can announce losses of up to £13m per season assessed over a 3 year period from March annually.
However, in the Premier League, the regulations allowed losses of up to £35m per season. Therefore, for relegated clubs, transitional protection is in place. Looking solely at our requirements:
March 2017 – Maximum loss (March 2014 – March 2017) = (£83m) (£35m + £35m + £13m)
March 2018 – Maximum loss (March 2015 – March 2018) = (£61m) (£35m + £13m + £13m)
March 2019 – Maximum loss (March 2016 – March 2019) = (£39m) (£13m + £13m + £13m)
Now as a consequence of our relegation from the Premier League, and coinciding with the rapidly reducing loss ceiling under FFP, Parachute payments reduce as follows:
2016/2017 season = £40m
2017/2018 season = £33m
2018/2019 season = £14m
Therefore, the stark reality of not being promoted this season means that the 3 year total losses assessment are £44m less than the 2016/17 three year accumulated loss assessment. This is then against a backdrop of a reduction in parachute payments of £26m. Just looking at those figures alone, we have to find £70m of efficiencies and savings between the 16/17 season and a potential 18/19 season.
Recent and projected AVFC accounts
For the purpose of illustrating our potential FFP position, I have assumed the accounting position based on the information known. These are informed guesses but provide background for further analysis…
EFL sanction powers
Following the farcical position the EFL found itself in with QPR and Bournemouth previously, the EFL introduced the ‘Profitability and Sustainability’ regulations and created a ‘Fair Play Panel’.
The three year assessment looks at two years actual audited accounts and the current season forecasted accounts. These must be supplied by 1st March annually and they are then evaluated by the 30th April annually. Any club failing the FFP regulations are hauled before a disciplinary panel before the end of the current season and punishments are determined prior to the end of the season.
Whilst previously, the EFL could only fine a club or place a club under a transfer embargo, with effect from the 2016/17, ‘every option is on the table’. This includes a point’s deduction or relegation from promotion places if applicable. This is the game changer as far as clubs looking to buy themselves out of the league are concerned.
The EFL’s regulations concerning FFP are completely separate to both the Premier Leagues FFP requirements and UEFA’s requirements. Therefore, comparisons with PSG etc. and the purchase of Neymar are irrelevant when considering our position.
Having arrived at the results above, it is clear that we are sailing close the wind with regards to the FFP regulations. The first set of figures of £108.5m accumulated losses are above the FFP threshold. However, it is my understanding that during the first year of new ownership, the regulations are relaxed. This would explain the accounting position of writing off such large exceptional items for the first year of audited accounts signed off by Dr. Tony Xia concerning the final year under Lerner.
From the illustrations above, I believe that we might well be nearly £11m outside of the FFP regulations for the March 2018 assessment and therefore the disappointment of not selling Amavi for nearly £7m is better understood. Currently, these figures allow for the £6.5m profit to date this summer on transfer activities and therefore we might need another £11m in sales!
However, assuming that we don’t encounter problems this season, it is next season where it really does become crunch time. Based on the illustrations above, we are possibly £16m away from complying with FFP should we fail with promotion this season. Should this be the case, a significant number of players will need moving on or alternatively the sale of a star player might be needed. It is encouraging that Keith Wyness has made reference to obtaining new property and land values to creatively manipulate the forecast for next year should we need it however I get the distinct impression that the EFL will try and clampdown on such accounting techniques and we might therefore be publicly beaten by the EFL to create an example should we not get promoted.
Is it this season or bust? No. However, it would be incredibly helpful if we do get promoted this season to save both Keith and Dr. Tony significant headache’s next summer.