Financial Fair Play (Leicester City – NFFC Programme Notes)

 

It’s no secret that since the formation of the Premier League in 1992, English football has been walking a financial tightrope. Most clubs lose money every year and only continue to exist because of investment from rich owners and/or high interest loans.

The current amount of debt in the Premier League is estimated to be £2.6billion. The existing debt of the 72 Football League clubs totals around £700million.

Due to the sheer size of the football industry and the amount of money it generates, it’s possible that the majority of clubs could go on like this for another decade … but not indefinitely. Most people within the game have realised that unless something changes there may be dark times ahead, hence the introduction of UEFA’s Financial Fair Play (FFP) regulations.

The basic principle of FFP is that clubs must balance their books – they can no longer be propped up on stilts of debt. In other words, expenditure on wages and transfer fees must not exceed income received from gates, TV money, prize money and commercial income.

Nottingham Forest’s total loss for 2010 was £12.3million. It is a similar story for a lot of Championship teams, year upon year, but when the new regulations are fully implemented this will no longer be allowed to happen.

Forest’s business model is currently sustainable because of the investment of Nigel Doughty but in order to comply with FFP (which is due to be implemented in time for the 2013/14 season) the club will no longer be able to spend more money than it makes.

One area of expenditure that falls outside of UEFA’s glare is that of youth development and it’s within this area that Forest’s future strategy lies. UEFA’s decision to not include this area of expenditure within their review will undoubtedly provide young British players with a better opportunity to succeed in the game and as a by product it may well have a positive impact upon our International team.

The main reason that Forest, along with the majority of football clubs, are currently losing money every year is the astronomical salaries of players (in 2010, Forest spent more on salaries than their total turnover for that year.)

In theory FFP will solve this problem and in turn make league competition in England a lot fairer. At the moment clubs who have the richest owners, or are willing to be the most reckless in terms of accruing debt, are able to pay the highest salaries and therefore can attract the best players. The implementation of FFP is supposed to reduce the amount of disparity between wages, meaning clubs will be competing on an even playing field.

However we all know that the amount of revenue available to Premier League Clubs is far greater than that available to Football League Clubs. It’s estimated that promotion to the Premier League is worth about £90million over a three year period. The concern is that by eliminating the potential for lower division clubs to speculate, you are driving a wedge between the Premiership and the Football League. Those who do not secure promotion within the next few seasons may be cut adrift … and that’s not the only potential flaw.

I have little doubt that FFP is a well intended step in the right direction and UEFA, along with the Clubs who have supported the motion, should be applauded for it. My major concern is that in itself it isn’t enough; the real problem is the amount players are paid and the principle of FFP alone does not directly address this.

Decreasing the salaries of players is not going to be an easy task and it’s not necessarily something that all clubs want to do. Manchester City’s recent success has been solely based on the fact that they are willing to pay higher wages than any other club. What if clubs just seek to drastically increase their revenues to avoid the difficult task of lowering their wage bill?

The problem of debt in football would be solved but the increased revenues would have to come from the fans in one way or another. Perhaps the cost of tickets and merchandise will be increased. Perhaps all televised football will be pay per view in years to come. Or perhaps Football grounds will be completely dedicated to commercial hospitality.

I appreciate that these are cynical leaps but it represents my fear that by telling clubs they have to balance their books, but not specifically attacking the cause of the problem, i.e. player’s wages, there is the possibility that the bigger clubs (who do not necessarily want an even playing field) will increase revenues by whatever means they can. Other clubs will be forced to do likewise just to compete and the average football fan may be completely priced out.

I believe that FFP is a necessary and positive change to the financial running of the game but I think that in order to achieve fairness and avoid making football inaccessible to the masses, the details of UEFA’s plan must include firm guidelines on how football clubs are to reduce salaries.

 

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