NY VERSJON NÃ…!!!!
New FFP Tests
The Unspoken Details of Profit and Sustainability Rules
There is a lot of confusion about FFP and the punishments now involved. This essay attempts to explain how FFP changed recently when Profit and Sustainability Rules (P&S Rules) were introduced.
This essay also introduces the extra tests, obligations and sanctions that have been added to FFP by the Profit and Sustainability Rules (P&S Rules).
Simple Summary
FFP tests and rules are much different to the original versions that the likes of Leeds United, QPR, Bournemouth etc have fallen foul of.
The tests are much more than a simple “you can lose up to £39m in any three year periodâ€.
The penalties are much more flexible than just “a transfer embargo†and there is no longer any mandatory punishment, such as a transfer embargo.
All accounts are adjusted by the EFL to remove any excessive sponsorship or advertising income received from owners or related parties before the Tests are started.
All initial information must be provided by the club to the EFL by 1st March of the current season. Any further information must be provided on demand by the EFL.
The tests mentioned below start to be done by the EFL after 1st March and can continue during the summer, or beyond, depending upon the extra information provided by clubs.
Test 1 – Companies House Accounts
Add together the profits or losses shown on the last two accounts published at Companies House.
If the total shows a loss of any amount, then the Club FAILS Test1.
A Club that fails Test 1 then moves to a three year analysis and must supply to the EFL the last two years’ published accounts plus an estimate for the current season’s accounts.
These accounts are adjusted to remove any costs due to “allowed spending†such as depreciation of stadium costs, cost of community football, cost of women’s football, etc.
When the accounts have had these allowable costs removed we call them “Adjusted Accounts†or “Adjusted Earningsâ€.
Note – if the club has been profitable over the previous two seasons then they do NOT have to submit an estimate for the current season, even if they have made huge losses in the current season.
Test 2 – three year LOWER loss threshold
Add together the Adjusted profits and losses for the three Account years (current season plus two previous seasons).
If these added profits and losses result in a loss of more than £15m then Test 2 (three year LOWER loss threshold) is FAILED.
Note – this LOWER loss limit is £15m total over three years, do not confuse it with the £39m UPPER loss limit for later tests.
Failing Test 2 Consequences
Clubs who fail Test 2 must then provide extra information to the EFL about their plans for the next 2 seasons. The clubs must convince the EFL that they:
have enough cash to pay all their creditors, wages and transfer fees due over the next two years
have the cash to play all their games
will be able to fulfill all their obligations under EFL rules
stay within FFP limits for the next two seasons
If a club can convince the EFL that all is well (by providing proof of secure funding along with predicted trading within FFP rules) it can continue next season without EFL interference but those who cannot do so then become subject to EFL restrictions.
I think Birmingham City have failed Test 2 (three year LOWER loss threshold) and have been unable to satisfy the EFL and so are now subject to EFL sanctions. I also suspect that Sheffield Wednesday are still negotiating with the EFL as to whether all is well at the club for the coming two seasons and may even already be subject to “soft sanctionsâ€.
Sanctions for failing Test 2
As above, if Test 2 is failed then it is possible for a club to convince the EFL that all is well. If not, then the EFL can impose the following sanctions:
require the club to agree a budget with the EFL and force the club to keep to it. The budget to show that the club has the ability to pay all transfer fees, compensation fees, loan fees and any other payments relating to transfers, wages and agents fees (this is soft sanctions and embargo)
require the club to continue to provide financial information (including proof of secure funding) for as long as is necessary
the EFL can refuse to register any new player or register a new contract of an existing player (this is hard sanctions and embargo)
This is why I think Birmingham City cannot register Kristian Pedersen. I think they were initially placed under a soft embargo sanction, but were unable to keep to the EFL’s requirements, and have now moved to a hard embargo sanction. Birmingham’s directors and owners hope to convince the EFL to move back to a soft sanction state shortly by providing extra information.
Also, from news reports that I’ve read, I think Sheffield Wednesday may be under, or still negotiating, a soft embargo sanction.
Test 3 – three year UPPER loss threshold
This test is essentially done the same way as for Test 2 but the limit used for this test is £39m (not £15m as before and see note at end of essay re EPL relegated clubs). This test is similar to the original FFP test and many people think that this is the only test, however as I have shown, Test 2 (three year LOWER loss threshold) also now exists.
When the profits and losses of the estimated Adjusted accounts for this season plus the Adjusted accounts for the last two years are added together they must not exceed £39m. If they do then Test 3 (three year UPPER loss threshold) is FAILED.
The consequences of failing Test 3 are set out below.
Failing Test 3 Consequences
There are two parts to the consequences of failing Test 3.
The first consequence is that exactly the same sanctions as failing Test 2 can be imposed. I won’t repeat them – just read the paragraph above “Sanctions for failing Test 2†about agreed budgets and soft and hard embargoes.
The second consequence is more serious: The Club can be held to be in breach of the EFL Rules and referred to the Disciplinary Committee. The Disciplinary Committee has a wide range of sanctions it can impose and these include a warning, a fine, points deduction, transfer embargo, suspension or expulsion from the EFL.
Summary
This essay has shown that the current FFP regulations, which now include the EFL Profit and Sustainability Rules, have three tests within them, two more than the simple single test of the original FFP.
The new rules do not have mandatory penalties and some clubs may already be sanctioned under the new tests.
Mike Thornton 1st August 2018
NOTE – Limit for Test 3 for EPL clubs
The limit I have given of £39m maximum loss is for clubs who have only been in the Championship.
This is calculated as £13m per EFL season. For clubs relegated from EPL their limit is £35m for each season spent in EPL plus £13m for each season in EFL.