The Championship FFP Thread (Merged)

[Delta]

May 2019, we were a PL side (transfer window opens June 1st).

May 2018, we were in all sorts of financial difficulty and could not sign anybody.  I have no idea whether we were on any sort of embargo but it really didn't make much difference anyway as we couldn't afford to bring anyone in.

A registration embargo is what Birmingham were placed on (and subsequently cleared of breaching).  This is because they signed Pederston and argued that if the EFL decided not to register him, they would have loaned him out.  The panel decided that the EFL had not been clear enough. 

 

[Mr Popodopolous]

You were rumored to have been under a soft embargo in May 2019. That could just have been a hangover from the EFL granted.

Window opened before June 1st actually, we sold Kelly mid May 2019 but it has often been June 1st- I assumed it was as well.

You were technically a PL side having won the playoffs but the official handover or transfer- it's a formality granted- takes place early June I believe.

It's an unanswered question for sure- maybe good, maybe bad, maybe meaningless but if the soft embargo thing is true, well it could've been pre approval of the ground sale.

I'd hope the EFL would have tightened up their procedures between Pedersen and May 2019. 

There could easily be different takes on enforcement- it's a live issue.

Just imagine for one minute- and this is clearly a big no surely in reality, that you signed all those players while under a soft embargo? Signed them but the PL didn't carry over the soft embargo...the amount of issues you would be in back in the EFL would be enormous.

On a serious note, the jury is out BUT if the ground value adjusted and the FFP figures adjusted accordingly and you found guilty of a breach to May 31st 2019 here is my proposed punishment- as punishments should fit the crime, IF the crime proven of course:

1. The points penalty based on the overspend, so that would be 12 on a sliding scale downwards. Say the overspend is like Birmingham that'd be 7 points.
2. Deliberate overspend as per Birmingham? Arguable but that's another 3 points.
3. One point back for abiding by soft embargo in summer 2018.
4. IF proven, just for the sake of argument, say it's proven that you are guilty, Parachute Payments either docked or removed from the FFP calculations. You'd have benefitted from the season in the PL buit if proven, the Parachute Payments should be off limits, whether in reality or for FFP. Either way that would ensure you don't benefit from them IF you were found guilty.
5. EFL Business Plan perhaps, like Birmingham.
6. Resetting of FFP limits to a £13m limit for the first season back at this level- like Birmingham, it'd have to be set somehow to have a target for 2020/21 IF found guilty.

I think that's a fairly broad palette.Oh and it wouldn't reset the clock to zero, merely the excess limits to bring it back to £13m + youth, infrastructure etc.

That's my proposal IF found guilty. Number 4 I couldn't see happening though- as big a fine as possible or as close to the Parachute Payments over 2 years would be a reasonable equivalent. Fine would have to count towards FFP though.

Edited February 18, 2020 by Mr Popodopolous

[Delta]

I think that any rumors of embargos in May 2019 can safely be dismissed.

The Birmingham decision came in March 2019 so the EFL wouldn't have had too much time to tweak wording.  Whilst it's true that there could be different takes on enforcement, a precedent was set and the odds are that any future panel would follow the decision/precedent set by the original panel.

I think you are clutching at straws with a ground adjustment.  With Derby's being set at around £49m, it makes ours look cheap at £56m.  Furthermore, can you really see the EFL nit picking over a couple of million on a ground sale?  If it was 20 or 30 m then yes but not 4 0r 5 million.  Nobody is going to be that precise.  You are just setting yourself up for disappointment if you think otherwise.

[Mr Popodopolous]

The precedent thing might have validity in some areas but in other areas, it's really a new type of case IF there is a breach. If being the real key term.

I don't know, because Matt Lawton is a pretty reliable source on these issues- him, John Percy and Matt Hughes seem to have strong contacts either in clubs or at the EFL. Anyway what I think CAN be safely dismissed is the idea that you'd be under a soft embargo but breach it by spending £100m...that would leave the EFL with no choice but to look to impose huge sanctions and I'm sure no club would really chance that. Possibly the Soft Embargo was lifted the day your Registration was officially transferred to the PL- see Golden Share. I was mischief making slightly on the idea that you'd disregard a soft embargo by spending £100m- I don't believe that but I do believe that there may have been one in May 2019, but that it may have been lifted or cleared.

Where the Precedent thing would apply is in terms of the sliding scale of points to loss ratio. There is one- you think they wouldn't punish minor breaches? How come they are seeking to dock Birmingham 3 points for the Business Plan issue- granted a minor breach might mean a minor punishment but if you think the EFL would be looking to let say a minor breach go entirely then that wouldn't be the case.

It does not necessarily make it look cheap because it was sold to a Related Party and Accounting and valuation rules are applicable- but I see what you are saying, yes.

https://pbs.twimg.com/media/D2SEpMeX0AI4h7S.png

This appears to be the sliding scale and this is line with what media said- if an adjustment took you into overspend then the EFL WOULD be duty-bound to investigate and charge if necessary.

Any breach would surely get a points deduction- how could it not? The question is the size of the breach and whether there are mitigating and aggravating factors.I would also add that based on the Birmingham case, an EFL 'agreed' Business Plan and a loss limit of £13m for the existing season, would be on the table- as it was what Birmingham had last season and part of that might still be in force.

You will also be aware that IF you win the Carling Cup, UEFA will have something to say surely about your accounts. Because UEFA rules specifically exclude fixed asset sale transaction profits from their calculations- so a place in Europe would be open to question. As the UEFA 3 year loss limits are €30m plus allowable costs.

Edited February 19, 2020 by Mr Popodopolous

[CyderInACan]

On 18/02/2020 at 10:55, 29AR said:

Hi Mr P. Yes, it's not uncommon at all, and to prevent conflicts you would set up 'Chinese Walls'.

In China, they’re just called walls. 

[Mr Popodopolous]

In terms of one of the other clubs, ie Sheffield Wednesday, I'm still struggling with the £60m sale price for Hillsborough.

Will post some snippets later, from accounts to give context. All I do know is that it was revalued on a Depreciated Replacement Cost basis 2014 at £22.25m.

Make of this what you will?

Asset inflation in Sheffield must be through the roof? Granted there is/has been a Revaluation Reserve and there were some additions stated at cost, but I still think around £30-35m all told.

 

Edited February 19, 2020 by Mr Popodopolous

[Mr Popodopolous]

For comparison purposes, the year before the sale and leaseback was meant to have occurred- still using the 2014 revalued figure as a starting point...

All seems reasonably consistent- and actually does going back to 1990 within certain ranges.

Seems like they suddenly started carrying it at cost in 2016!

However transitional arrangements between old accounting and FRS 102 or not, I see nothing to justify an automatic upswing- the flip-side is that they were carrying it well below what they should've beem for over 2 decades. I don't see how the two stack up.

Because even if that cost figure is the new one, I struggle to see how the value or cost have shifted so much in 4 short years- or was it 5!

Edited February 19, 2020 by Mr Popodopolous

[Mr Popodopolous]

Will look at Aston Villa and their stadium price or otherwise later, or tomorrow.

Ah screw it, why not- have it to hand!

 

Now in fairness, it is consistently, has been consistently, carried at cost it seems BUT the Impairment makes a difference, absolutely.

We have to assume there are some reasonably in line calculations with fair value based on what we know because in 2007.

As we can see, in 2007 the Fair Value Adjustment on takeover was made- this was the new Value of the Tangible Fixed Assets, however it stated "Provisional Fair Value". There appears to have been no adjustment, in fact the closest from the data we have available that we can see was the Impairment in 2016.

As we can see, as of 2006-07, the Fair Value of the Fixed Assets was equal to the Book Value following Revaluation. Actually, it wasn't quite! Maybe that takes into account historical differences in depreciation? Was broadly the same anyway, save for about £600k difference.

It is therefore fair to state, IMO that there will be undoubted questions to answer, to be answered- fair to state it at this stage.

Edited February 19, 2020 by Mr Popodopolous

[Mr Popodopolous]

I've worked out the mistake I made I think- wasn't factoring in Tangible Fixed Assets before Additions, plus was focusing on Tangible Fixed Assets only under the relevant bit for Villa Park, whereas I should've factored in the whole lot at that stage.

It goes Acquisition of Subsidiaries at Book Value + Fair Value Adjustment (Provisional)=Provisional Fair Value.

Point is that these seem broadly in line or were at the time and there was no broad adjustment, apart from the obvious e.g. Additions, Depreciation- up or down- made until the Impairment.

Edited February 19, 2020 by Mr Popodopolous

[Mr Popodopolous]

Now this COULD be a valid argument.

For Sheffield Wednesday, taken from Owlstalk.

Quote

Valuation of commercial property isn't straightforward. The value can often be more about the lease than the bricks and mortar. For instance, an empty shop in a town centre isn't worth a great deal but sign a 25 year lease with Marks and Spencer and its a good solid investment and worth much more. If Chansiri has a lease with the club it would make the transaction more credible and if it is for say £3m-£4m a year for 25 years,  it would back up the £60m valuation as you would expect a return of 4 - 6% if renting to a  'blue chip' company which Chansiri would be classed as based on his wealth.

The problem with this is, that it assumes a £3-4m lease per year.

The Accounts suggest the following:

Well for some reason, it won't let me take a full on snapshot of the two years but...

As we can see they are paying or will in the season just gone, if this is accurate, be paying £369k per year rent on Hillsborough AT MOST! Certainly in Year 1. That 2nd attachment is the figures for the corresponding years. 2017. Seems they paid £98,000 i 2016/17 on finance leases.

This means that if this is right, they're paying the princely sum of £271k per season on a £60m transaction!! Some assumptions here as the rent not disclosed anywhere else...0.45% yield!

[Delta]

For anyone who thinks the HS2 money went towards keeping in line with FFP, here's another myth dispelled:

https://www.birminghammail.co.uk/sport/football/football-news/aston-villa-hs2-bodymoor-heath-17777373

[Mr Popodopolous]

A while ago I DID wonder about Bodymoor Heath or otherwise. Would it class as income for FFP purposes? The article really doesn't make it clear on first glance.

I did point out a while back that the chairman of HS2 in that area was a certain Steve Hollis...wouldn't be a former Aston Villa chairman would it?

https://wmgrowth.com/article/steve-hollis-announced-as-the-new-chair-of-the-west-midlands-combined-authority-hs2-growth-delivery-board

http://www.railtechnologymagazine.com/Rail-News/former-aston-villa-chair-announced-as-wmca-hs2-growth-delivery-chair

Which year did it fall in- was it income or Infrastructure spending?

A quick skimread of the Q and A preview/exerts, has Purslow stating compliance with FFP.

Seems taxpayers funded their new academy, due to HS2?!

Edited February 20, 2020 by Mr Popodopolous

[Mr Popodopolous]

According to an HS2 Spokesman last year, 10% of Bodymoor Heath was required for HS2.

Academy expenditure does not count towards FFP of course.

That article doesn't really discuss FFP though so it's still a bit of an unknown quantity in that respect- or is it that the money banked offsets losses but then the academy expenditure or Infrastructure expenditure- however we want to classify it- quite rightly doesn't count as a loss under FFP?

[Davefevs]

I don’t think that article explains anything. Not sure what Delta gleans from that????

[chucky]

*Me on this thread still*

[Davefevs]

1 hour ago, chucky said:

*Me on this thread still*

Mr too for all the property stuff. Mr P had built a wealth of knowledge in this area. 

[downendcity]

55 minutes ago, Davefevs said:

Mr too for all the property stuff. Mr P had built a wealth of knowledge in this area. 

I think Mr P is on a roll, has built up a head of steam and momentum so that nothing will stop him now!

 

[Mr Popodopolous]

I was having a bit of a think and I do remember seeing something which could help to shed some light on the process for at least some of these.

Middlesbrough by luck revalued in 2018...seems to show a calculation or set of calculations of some kind.

 

Throws fresh doubt on Hillsborough's surge in valuation between 2014 and the time of sale?

As we can see it's valuation + additions + additions + additions.

Using the above method, a rough and early calculation therefore for that might be:

 £22.25m 

PLUS £250,000 (2015)

PLUS £920,000 (2016)

PLUS £41,000 (2017)

PLUS £115,000 (2018)

Let's assume you add in the Revaluation Reserve too? Don't know if you take it from 2014 or 2018 price- but it's between £6-7m.

Plus Eliminate Depreciation between 2014 and 2018 on disposal.

Still £30-35m and maybe less!

I'm struggling to see how it's anymore?

Edit: Additions appear to be measured at cost.

Edited February 21, 2020 by Mr Popodopolous

[downendcity]

FFP turned round Premier League clubs’ losses and helped restore Liverpool

David Conn

Uefa’s desire to encourage long‑term investment instead of owners bankrolling losses on wages is working

 

In the days after Manchester City were found to have seriously breached Uefa’s financial fair play rules by overstating their sponsorships from Abu Dhabi

companies, some of the ensuing discussion rapidly diverted from that guilty finding to questioning the merits of FFP itself. Approved by Uefa in the 2009 season after years of wondering how to drag European football from overspending on players’ wages, FFP has since transformed top division clubs’ finances overall, and was introduced by the Premier League in 2013.

City’s impatient ambitions after the great fortune of the 2008 takeover by Sheikh Mansour of the Abu Dhabi ruling family were based on him bankrolling mega-spending, rather than the FFP principle that clubs should not spend more than they make in revenues and not rely on owner funding. Mansour’s executives were adversarially hostile to FFP and threatened to sue Uefa in 2014 as its club financial control body (CFCB) assessed City’s deficit at around €180m, far greater than the €45m allowable then.

The idea has grown that FFP was specifically introduced after the big clubs lobbied to prevent Manchester City competing with them, based on the new Abu Dhabi fortunes. Senior people who were involved in developing the regulations reject that; one recalled that discussions about incorporating financial discipline into Uefa’s licensing system continued for years and the detailed work began on creating FFP in 2008.

City were in crisis then, at risk of becoming a classic illustration of the need for such rules. Their owner for a single season, the former prime minister of Thailand Thaksin Shinawatra, had backed heavy spending but was then accused of corruption in his homeland and had his assets frozen. City made a loss of £33m but Thaksin had no more money to fund it. That year, 13 clubs in the Premier League, the world’s richest, made losses, and six subsequently fell into some form of crisis after their owners decided they could no longer keep pouring the money in.

Mansour’s purchase was a startling reversal of City’s luck over the previous 30 years – apart from inheriting the City of Manchester stadium after the 2002 Commonwealth Games. City could have fallen like Portsmouth, or Leeds, or Bolton, then in the Premier League, who finally went into administration last year after their owner, Eddie Davies, called a halt after writing off £180m, or Málaga, the Spanish club whose crisis was cited by Uefa when FFP was finally introduced.

The then Uefa president, Michel Platini, had talked about debt being the issue, but as accountants worked on the principles, they formed the view that debt can be taken on for investment purposes, but losses, overspending, was the key problem driving clubs into trouble.

Platini and his officials notably said at the time that they were not aiming to stifle investment in football but to encourage it for long‑term development. Owners’ money could not count to reduce allowable losses if it was just paying excessive wages but they could make unlimited investment in stadium improvements, youth development and other infrastructure.

Uefa can point to Liverpool’s recovery since then as an example of the system working as they hoped. In 2009-10, Liverpool were falling into financial crisis under the debt‑loading ownership of Tom Hicks and George Gillett; they finished seventh in the Premier League, made a loss of £20m and owed the Royal Bank of Scotland £200m.

When crisis bit and RBS in effect took control of the failing club, John W Henry ultimately bid and fought the court battle to buy the club partly because he believed FFP made it a viable prospect. A private equity investor and owner of the Boston Red Sox, Henry believed from his business experience that if unlimited spending on players backed by owner funding were allowed, nobody could compete with a Gulf state. However, the FFP framework restricting losses meant that his FSG ownership could plan for rebuilding Liverpool through its revenues.

In almost 10 years since his FSG takeover, they have not put money in to bankroll player signings, but have advanced a £110m interest-free loan to build the new main stand, ending years of Anfield stadium stagnation. Revenues have grown steadily as the recruitment of players and, transformationally, Jürgen Klopp as manager have improved the team’s performances.

Liverpool were always a big club and similar growth would not produce a Champions League victory and impending Premier League title for many others. The issue of “competitive balance” is real, as success is consolidated in a few rich clubs, but that was not the problem FFP was designed to solve. The richest clubs were carrying off the trophies before, as they do, but unlimited spending was no rational model for football competition, because a club needed a Gulf state backer, as City and the Qatar-owned Paris Saint-Germain had, or a Russian oligarch as Chelsea had, to fund the necessary wage bill.

In 2017, after six years of FFP, clubs across Europe’s top divisions recorded an overall profit for the first time, €615m, finally reversing years of losses. Premier League clubs were also transformed into profit immediately FFP was introduced in 2013, although City and a small group of other clubs had voted against it.

City got through their initial years of massive losses by agreeing a settlement with Uefa in 2014, involving relatively modest restraints. Making agreements with Uefa to enable large initial investment is now built into the FFP system. City are now looking to build a global football empire and not share more money to facilitate competitive balance: they led the campaign by the Premier League’s “big six” in 2018 to have more of the international TV rights than the other 14.

Contrary to some of the fury expressed this past week, City have not been found guilty of breaching FFP rules by exceeding permitted loss limits. The finding, which City are appealing against, is that they overstated their Abu Dhabi sponsorships in their accounts and in their submissions to Uefa, a different issue entirely.

Not City or championship, but an interesting read about Premier League ffp background, and reasoning behind it, especially that it was not brought in to protect big clubs from big spending foreign investors. 

[Mr Popodopolous]

Courtesy of Kieran Maguire.

Dave covered it on another thread but unsure whether to use Deepdale Holdings or PNE FC Limited as the marker.

Interesting to see a breakdown of Football staff related salary costs- ie a specific line about players and management.

Looks like Football staff related costs about 88% of total staff costs according to a quick calculation. Wonder if it's broadly the case at most?

Even quite a large jump in wages- albeit from a low base! Combine that with rising amortisation and Depreciation of Player costs- I've only really used Amortisation so interesting to see how the latter would be measured, and no notable player sales...even quite a well run club like Preston losing not far off £15m!! A club who seem to have or seemed to have quite a low cost base.

Accounts due this week or early next:

Barnsley, Nottingham Forest, QPR and though they've gone up, Aston Villa because of a possible but still unknown FFP question that could become a live issue again.

Birmingham's 6 month results to December 31st 2019 also due in Hong Kong within the next 7 days or so.

Luton's might be due too.

Edited February 24, 2020 by Mr Popodopolous

[Mr Popodopolous]

QPR's accounts are apparently at Companies House- both Holding and club.

Final year of Parachute Payments last season- interesting to see if they hit FFP issues this or next season- they seem to be run much differently to a few years ago however.

[Mr Popodopolous]

https://www.telegraph.co.uk/football/2020/02/25/championship-clubs-discuss-proposals-new-financial-rules/

Behind Premium which I don't have but seems there is a Championship meeting this week to discuss new/changes to the FFP regulations.

Hopefully the stadium loophole will be shut off for starters- well stadium and fixed assets in general!

Edited February 26, 2020 by Mr Popodopolous

[Mr Popodopolous]

QPR lost £10,387,000. Final year of Parachute Payments, the net difference I think would be Parachute Payments-Solidarity Payments- so that's the amount to lop off this years when guessing.

Fair play- got the wage bill down by £6.7m!

Interesting to see that included within the Finance costs of £1,007,000 is the Amortised cost charge of the FFP fine- £977,000! IF- and I stress this is included as part of their overall loss, that's an example of fines having a bit of a knock on effect, a drag on expenditure!

Edit, it appears not to. Pointless!

Edited February 27, 2020 by Mr Popodopolous

[Davefevs]

Mmmmmm

[Mr Popodopolous]

You beat me to the punch Dave- was about to post it and tag you!

[Mr Popodopolous]

Remember as well that NSWE Stadium Ltd until middle of May last year- as per CH at least- was part of the group, until mid May when it was taken under the dfirect control of the owners.

This means that as far as CH is concerned at least- and that's all that we can go on at this time- this was part of the group albeit a subsidary by the time of the March 2019 submission of the Projected Accounts.

Could this make a difference in judging compliance or otherwise?

Edited February 27, 2020 by Mr Popodopolous

[Mr Popodopolous]

Just so we can all follow:

More questions than answers IMO!

 

 

 

 

Edited February 27, 2020 by Mr Popodopolous

[marcofisher]

On 20/02/2020 at 11:52, chucky said:

*Me on this thread still*

Ditto, just waiting for the news that Villa are going to start on minus 30 points when they get relegated!

[Mr Popodopolous]

I'd also add that as well as the points penalty if guilty, the parachute payments should also be a hot topic. 

I'd like to see it be the case that any- any- side who has overspent their way up gets stripped of parachute payments or has them excluded from the Ffp calculations. 

More realistic perhaps is a formula. Quite simply  eg 

Exceed FFP by 20% and Year 1 Parachute Payments £40m. Well you only receive £40m or have £10m of that stripped out of the calcs.

Year 2 is £33m I believe. Same again, £8.25m removed or disregarded for FFP purposes. 

Any thoughts @Davefevs? 

[Davefevs]

3 hours ago, Mr Popodopolous said:

I'd also add that as well as the points penalty if guilty, the parachute payments should also be a hot topic. 

I'd like to see it be the case that any- any- side who has overspent their way up gets stripped of parachute payments or has them excluded from the Ffp calculations. 

More realistic perhaps is a formula. Quite simply  eg 

Exceed FFP by 20% and Year 1 Parachute Payments £40m. Well you only receive £40m or have £10m of that stripped out of the calcs.

Year 2 is £33m I believe. Same again, £8.25m removed or disregarded for FFP purposes. 

Any thoughts @Davefevs? 

Nah....too soft.

If deemed to be “cooking the books” and the punishment is for a retrospective season, and that season resulted in unfairly in gaining promotion, they should take the points penalty and not be able to use any of their Parachute Payments over any years they they are entitled to receive them.