Financial Fair Play in The Football League

Introduction

Following two years of detailed discussions, The Football League and its clubs have agreed a Financial Fair Play framework that will operate in all three of its divisions from the beginning of the 2012/13 season. It aims to reduce the levels of losses being incurred at some clubs and, over time, establish a league of financially self-sustaining professional football clubs.

The decision to adopt Financial Fair Play regulations follows a strategic review by The Football League Board which identified the state of club finances as the organisation's greatest challenge. During this process, each division has been given the flexibility to determine its own Fair Play regulations, given that clubs of different sizes face differing financial challenges.

In the Championship, clubs have agreed to introduce a breakeven approach based on the UEFA Financial Fair Play Regulations. Whilst in League 1 and League 2, clubs will implement the Salary Cost Management Protocol (SCMP) that has been in use in the latter division since 2004/05. The SCMP broadly limits spending on total player wages to a proportion of each club's turnover.

How will it work?

The Championship

Financial Fair Play in the Championship will see the introduction of a breakeven model based on UEFA Financial Fair Play Regulations. It will require clubs to stay within pre-defined limits on losses and shareholder equity investment that will reduce significantly over the next five seasons.

The new system will require clubs to provide annual accounts to The Football League by December 1 every year, covering the previous season/financial year. Using this information a 'Fair Play Result' will be determined for each club that will equate to the club's profit/loss for the year, excluding investment in specific areas of club infrastructure or losses in certain extraordinary circumstances.

In order to comply with the Financial Fair Play regulations each club is required to demonstrate a Fair Play Result that is either:

a) nil or greater.

or:

b) A loss of less than the permitted level of acceptable deviation and shareholder equity investment for the season in question.

The permitted level of acceptable deviation and shareholder equity investment will reduce over time from £4m and £8m respectively in 2011/12 to £2m and £3m by 2015/16.

The Football League will establish a Financial Fair Play Panel, led by its Chairman, to consider any challenges by clubs to the determination of the Fair Play Result.

What counts towards the Fair Play Result?

The Fair Play Result is based on the club's profit or loss before tax with the exception of:

• Investment in Youth Development (as defined in the Elite Player Performance Plan)
• The profit affecting element of the purchase, sale and depreciation of fixed assets excluding players (e.g. a club's stadium)
• Investment in a club's Community Scheme
• Promotion related bonus payments

A club is also entitled to apply to the Financial Fair Play Panel to have certain exceptional items excluded from the Financial Fair Play Result in a particular year. Such as (but not limited to):

• Career ending injury costs
• Bad debts from other clubs
• Losses sustained from a major sponsor defaulting

The timetable for implementation

As with UEFA's Financial Fair Play regulations, The Football League will phase in its Financial Fair Play framework for Championship clubs. This is outlined below.

Season 2011/12 2012/13 2013/14 2014/15 2015/16 onwards
Acceptable deviation £4 m £4 m £3 m £3 m £2 m
Shareholder equity investment £8 m £6 m £5 m £3 m £3 m
Total Permitted Allowances £12 m £10 m £8 m £6 m £5 m

The first reporting period will be the current season (2011/12) - with the first set of accounts due to be submitted on 1st December 2012.

Sanctions

Failure to stay within the defined limits will lead to the imposition of sanctions. However, there will be no sanctions implemented during the first two seasons (2012/13 and 2013/14) in order to give clubs a sensible period of transition.

From the 2014/15 season, sanctions will be introduced that will differ depending on whether the club ultimately remained in the Championship, was promoted to the Premier League or was relegated to League 1.

i. Sanctions for clubs remaining in the Championship

Clubs that fail to comply with the Financial Fair Play regulations (from December 1st 2014) will be subject to a transfer embargo. This embargo will come in to force ahead of the subsequent transfer window beginning on January 1, 2015.

The embargo will remain in place until the club is able to lodge financial information that demonstrates that it meets the Financial Fair Play regulations (either for the previous reporting period or a future reporting period).

ii. Sanctions for clubs promoted to the Premier League

Clubs promoted to the Premier League will be required to provide Financial Fair Play information for their promotion season by December 1. Any club found to have breached Financial Fair Play regulations will be required to pay a 'Fair Play Tax' on the excess by which the club failed to fulfil the Fair Play requirement, ranging from 1% on the first £100,000 to 100% on anything over £10m.

The Fair Play Tax will be applied at the following thresholds:

(a) 1% of the excess between £1 and £100,000;
(b) 20% of the excess between £100,001 and £500,000;
(c) 40% of the excess between £500,001 and £1,000,000;
(d) 60% of the excess between £1,000,001 and £5,000,000;
(e) 80% of the excess between £5,000,001 and £10,000,000; and
(f) 100% of the excess over £10,000,000
Any proceeds will be distributed equally amongst clubs that have complied with the Financial Fair Play regulations for the season in question.

The Football League is currently in the process of consulting with the Premier League regarding the implementation of these Financial Fair Play regulations.

iii. Sanctions for clubs relegated to League 1

Clubs relegated to League 1 will not be entitled to any payout derived from the Fair Play Tax and will be required to comply with the FFP rules in operation in that division.

Transition arrangements for clubs relegated from the Premier League

Clubs relegated from the Premier League will not be subject to sanctions in their first season in the Championship as long as they have met their financial obligations under Premier League regulations. They would, however, be subject to the potential of a Fair Play Tax if they achieved promotion in their first season in the Championship whilst not complying with the FFP regulations.

League 1 and League 2

League 1 and League 2, clubs have chosen to implement the Salary Cost Management Protocol (SCMP) first used in League 2 in 2004/05, although it will operate at different thresholds in each division.

The SCMP broadly limits spending on total player wages to a proportion of each club's turnover, with clubs providing budgetary information to The League at the beginning of the season that is updated as the campaign progresses.

Any club that is deemed to have breached the permitted spending threshold will be subject to a transfer embargo. Wherever possible, The League will seek to tackle the issue 'at source' by refusing player registrations that take clubs beyond the threshold.

At the beginning of the current season, League 2 clubs reduced the permitted spending threshold to 55% from 60% and this figure will continue to be operated next season.

League 1 clubs are currently operating a 'pilot' of the SCMP with clubs complying with a 75% threshold but with no sanctions being applicable this season. This threshold will reduce to 65% in 2012/13 and 60% in 2013/14 with sanctions (transfer embargoes) being applicable in both seasons.