The Financial Aspect- Mix of Covid and FFP- Factor?

[Mr Popodopolous]

I've gone on about it a bit but I feel it deserves its own thread- can be merged if not!

I question whether we are in a tighter spot than we realise, what with a mix of the two.

We all think of the £39m as the be all and end all but consider- and I'll stick up the rules in q and try to explain them, as well as one or two other good sources.

Quote

1.1.12 T means the Club’s Accounting Reference Period ending in the year in which assessment pursuant to Rules 2.2 to 2.9 takes place, and:

(a) T-1 means the Club’s Accounting Reference Period immediately preceding T;

(b) T-2 means the Club’s Accounting Reference Period immediately preceding T-1;

(c) T+1 means the Club’s Accounting Reference Period immediately following T; and

(d) T+2 means the Club’s Accounting Reference Period immediately following T+1.

Quote

2 Profitability and Sustainability

2.1 Rules 2.2 to 2.9 shall apply with effect from Season 2016/17.

2.2 Each Club shall by 1 March in each Season submit to the Executive:

2.2.1 copies of its Annual Accounts for T-1 (and T-2 if these have not previously been submitted to the Executive) together with copies of the directors’ report(s) and auditor’s report(s) on those accounts;

2.2.2 its estimated profit and loss account and balance sheet for T which shall:

By 1st March 2020 of the existing season, all clubs are expected/obliged to have their real accounts for the prior season and the season before that- and their Projected Accounts for the existing season- at least Profit and loss account and balance sheet.

Quote

2.5 If the aggregation of a Club’s Earnings Before Tax for T-1 and T-2 results in a loss, any consideration from Related Party Transactions having been adjusted (if appropriate) pursuant to Rule 2.3, then the Club must submit to the Secretary the calculation of its Adjusted Earnings Before Tax for each of T, T-1 and T-2.

Certainly it would- it would be applicable for us and basically the bulk of Championship clubs, maybe all!

Quote

2.6 If the aggregation of a Club’s Adjusted Earnings Before Tax for T, T-1 and T-2 results in a loss of up to the Lower Loss Threshold (calculated in accordance with Rule 3), then the Executive shall determine whether the Club will, until the end of T+1, be able to fulfil its obligations as set out in Regulations 16.19.8(a), (b) or (c).

It is my opinion that this too would be applicable. I believe we will be able to fulfill our obligations 100%. Could it be linked to needing to pay back wage deferrals before splashing out?

The below would also likely be applicable.

Quote

2.8 If the aggregation of a Club’s Adjusted Earnings Before Tax for T, T-1 and T-2 results in a loss that exceeds the Lower Loss Threshold, then the following shall apply:

2.8.1 the Club shall provide, by 31 March in the relevant Season, Future Financial Information to cover the period commencing from its last accounting reference date (as defined in section 391 of the 2006 Act) until the end of T+2 and a calculation of estimated aggregated Adjusted Earnings Before Tax until the end of T+2 based on that Future Financial Information;

I believe that this would be applicable too- so our 3 year losses adjusted for FFP to summer 2020 will be greater than £15m but certainly less than £39m. Therefore we need to supply projections for the 2020-21 and the 2021-22 season and we are on the EFL's radar albeit at the further end of it- along with probably the bulk of the clubs in the division!

I won't cover the bits about secure funding as I believe that is no issue. SL always covers losses, sticks in equity etc.

Quote

3 Loss Thresholds

3.1 The Lower Loss Threshold and Upper Loss Threshold for each Club shall be calculated based on the aggregation of the Annual Lower Loss Thresholds and Annual Upper Loss Thresholds set out in the following table, by reference to the league of which the Club was a member in the Season covered by the applicable Accounting Reference Period:

	Annual Lower Loss Threshold	Annual Upper Loss Threshold
Premier League	Subject to Rule 3.2, £5 million	Subject to Rule 3.2, £35 million
The League	Subject to Rule 3.3, £5 million	Subject to Rule 3.3, £13 million

I believe that we are firmly in the ballpark of the Upper Loss Threshold annually. SL sticks in the equity for a start and Cash Losses wouldn't be an issue either.

Another factor that can alert the EFL is if losses spike in a single season, not for hard sanctions but for checks/monitoring.

Anyway I suppose my Q is, could we be under some kind of soft embargo or EFL advice/guidance as there is a concern we might go over if not this coming season then in 2021-22?

If this is the case then it would undoubtedly have an impact or force us to think hard about wages we can offer to a new manager- let alone wages, acquisition costs of their desired coaching staff and then transfer and wage budget in the summer- there doesn't appear to have been any loss limit amendments just yet for the 3 year rule or if they have, there's nothing yet reported!

The mixed messages from the club make me wonder too. SL made his TalkSport statement on the one hand but in the latter part of mid-April/late April Ashton declared 'a season of austerity'. So which is it??

It would be a ****-up of huge proportions if we had blundered into some kind of cost control measures or 'hand-holding' by the EFL, but the longer this drags the more I wonder if it is at least a small risk.

Of course if it's solely due to Covid then that's different. No blame attached to anyone!

[eardun]

Yes I’m sure the financials due to COVID are having a big part to play. Suspect Ashton is privy to the worst case scenario planning given his role at the EFL as well. I’m sure we’ll need a coach who is prepared to work with largely the squad that we have already. 

[formerly known as ivan]

Maybe so, but that wouldn't that go for 99% of clubs?

[Mr Popodopolous]

It would- especially at our level. Don't yet know the domestic FFP regs in Europe...haha.

It could be a flat market this summer, time will tell. Think there is a lot of uncertainty about. I'm just trying to rationalise things as well tbh- could be way out!

[Davefevs]

Ok, my summary of your summary ().

• we are breaking lower threshold (£15m over 3 years)
• but are within £39m upper cycle threshold - and these are covered by SL each year

because of the first bullet:

• we have to provide future projections for the next 2 seasons as well

I believe 75% of Championship clubs are following this process each year....and the vast majority aren’t falling under any embargo.

If you look at the profile of our contracts and the amortisation attached it drops off significantly next summer.  Remember my spreadsheet with a timeline of each players amortisation.

I’m not blasé about the finances but I think they are under control...unlike a lot of other clubs.

[slartibartfast]

Can't the EFL/FA show common sense and ditch ffp for as long as covid is about ?

[Mr Popodopolous]

Dave are the ones in the 2nd chart those who will as it stands be there in 12 months??  That is only 14 though I'm sure some will be extended in due course. Some good and correctly aged players to build around- and would represent an opportunity in one respect. I knew we had a number out of contract but blimey!

I think we are better off than many certainly- is a bit of speculation on my part to throw into the mix- wages and amortisation will as you rightly say drop off in summer 2021 in pretty strong numbers. Good age profile of the remaining!

If I'm reading it right, we have the following out of contract in summer 2021 as it stands?

• Gilmartin
• Rowe
• Hunt
• Watkins
• Baker
• Weimann?
• Paterson
• Diedhiou
• Adelakun
• Eliasson
• Moore
• Smith
• O'Leary
• Cundy
• Wollacott
• Vyner?
• Pring
• Walsh
• Holden
• Hinds
• Nurse

Could be a big rebuild needed one way or another but perhaps some better headroom than I feared. I'd be happy enough to keep Weimann, Paterson- plus O'Leary, Vyner, Moore, Morrell and Walsh of course- maybe some more as well! Eliasson and Diedhiou certainly represent saleable assets.

What a big squad though! Just looking at it written down like that?

[Davefevs]

1 minute ago, slartibartfast said:

Can't the EFL/FA show common sense and ditch ffp for as long as covid is about ?

No, enforce it more effectively.....or else you’ll have even more clubs both exploiting it and / or going bust.

[Mr Popodopolous]

2 minutes ago, slartibartfast said:

Can't the EFL/FA show common sense and ditch ffp for as long as covid is about ?

I think clubs need to vote on it, at divisional level? Suppose if the FA came out and made modifications that might override divisional votes?

Also what @Davefevs said- it could save a number of clubs who might have acted stupidly and gone bust, or just plain exploited it. Could be an argument for £39m + Covid Losses maybe.

[slartibartfast]

2 minutes ago, Davefevs said:

No, enforce it more effectively.....or else you’ll have even more clubs both exploiting it and / or going bust.

Well, that's their own damn fault.

[Davefevs]

Just now, Mr Popodopolous said:

Dave are the ones in the 2nd chart those who will as it stands be there in 12 months??  That is only 14 though I'm sure some will be extended in due course. Some good and correctly aged players to build around- and would represent an opportunity in one respect. I knew we had a number out of contract but blimey!

I think we are better off than many certainly- is a bit of speculation on my part to throw into the mix- wages and amortisation will as you rightly say drop off in summer 2021 in pretty strong numbers. Good age profile of the remaining!

If I'm reading it right, we have the following out of contract in summer 20201 as it stands?

• Gilmartin
• Rowe
• Hunt
• Watkins
• Baker
• Paterson
• Diedhiou
• Adelakun
• Eliasson
• Moore
• Smith
• O'Leary
• Cundy
• Wollacott
• Vyner?
• Pring
• Walsh
• Holden
• Hinds
• Nurse

Could be a big rebuild needed one way or another but perhaps some better headroom than I feared.

Yep.  Forget football and competitiveness of the squad for the moment, this is purely about finances and FFP, and basically we’d be reporting a reduced amortisation bill of £5m(ish) and a wage bill significantly reduced.  There is no commitment to extend / exercise any 1yr option, unless it’s based on criteria such as appearances...but then we could just not play them!!

[Mr Popodopolous]

Building on this, I wonder if- as we expect- we are taking a chance on Holden just keeping things ticking over and then with the high number out of contract and the good age profile of those not in mind, going for our A-Lister in summer 2021- when hopefully Covid will be resolved to a great extent.

[downendcity]

In the post covid world it will be interesting to see how new contract negotiations go.

No one would have wished the pandemic on the world, but perhaps one of the positive consequences will be bringing a sense of reality to players wages. This is not about a wage cap, but clubs paying what their reduced budgets, allied to ffp, will enable them to afford.

Prior to the pandemic, the argument would always have been that if a club dug it’s heels in over pay, the player , more likely his agent, would have taken the player to a club willing to pay what he wanted. Now all but those receiving parachute payments will be financially hamstrung so most will be looking to keep was in check.

As for ffp, I think it has to be enforced, otherwise if relaxed it will give clubs that have been sailing close to the wind financially a get out of jail free card. That would be a kick in the teeth to clubs like ours, that have made substantially changed to their financial operation in order to comply.

If it weren’t for the likes of Derby, Wednesday and Reading then there might have been scope for a relaxation, as everyone would be coming from the same relative position.

 

 

[Chappers]

I get the feeling that it was a combination of finances and continuity. Can see Nic and Fam moving, maybe COD, but suspect the rest will stay for one last year of high pay, as they are unlikely to be offered anywhere near as much elsewhere. Bad time to have a large squad on high wages, and will certainly limit signings.

News today seems edging more towards lockdowns, and no further easing of restrictions, not good news at all. I wonder if football outside the Premiership will be viable with no fans.  You even wonder whether, with a looming global recession, plus possible U.K. pub closures, will Sky take a financial hit too?

[Bob Thompson]

I presume we are still in the red, with very limited funds coming in. Anybody got any thoughts as to how we can improve the squad, without selling our best players. Or has Delano been given an impossible task?

[Davefevs]

The only hope is that we can use some of the contingency we have built up in the 3 year FFP cycle.

[Riaz]

Cant imagine for a second, those making the rules are going to expect clubs to meet the pre-covid regualations.

Most clubs have taken a massive hit - they will either have to do away with FFP or change the the allowed losses.

[ashton_fan]

I would have thought the rules would have to be modified for this season as all clubs are going to make a massive loss, it would make sense to increase the limit for this season or not count it at all

[Mr Popodopolous]

I'm sure there would be some kind of modification for Covid but I say again, what will clubs intend to vote for?

John Percy posted a piece (pre-Covid) about civil war basically in the Championship with respect to FFP just after the January window closed- will 16 clubs minimum- because that is what you need- put aside differences to vote for something? If insufficient numbers of clubs to affect change don't agree, can it just be imposed? I don't know!

Ideally you would say Accounting Losses inclusive of the usual allowable costs=£39m + Covid related losses=New and revised FFP. That's how I would go anyway!

https://www.telegraph.co.uk/football/2020/02/05/championship-war-fear-feuds-lost-points/

Sadly it appears to be behind a paywall! Found an interesting snippet online though.

Quote

Yet there are many other clubs who operate differently to Stoke, who have a wage bill of around £40 million. Middlesbrough, Bristol City and Millwall have been particularly vocal in demanding that any clubs who break the regulations, or find alleged “loopholes” such as the sales of stadiums, should be punished.

Sounds like we are/have been 'all in' with it.

[Bob Thompson]

Expectations have been sky high in the last 5weeks. The club needs the fans more than ever now. We’re now in recession ,there will be calls for refunds.Charm offensive needed urgently to boost morale.it could take years to get season tkt holders back.

[Davefevs]

I’ve mentioned this above, but in post-covid times, relaxing the FFP rules would be worse.  We’ve no idea how long covid will last, but to allow clubs to rack up more losses would seem the wrong treatment.

I think there are 2 options on the table:

• make the current 3 year cycle (17/18, 18/19 and 19/20) a 4 year cycle.  Basically you’ve got this season to sort your houses out and get used to running on reduced revenue streams.  That will mean selling players for many clubs
• introduce the salary cap proposal - supposedly being voted on this week (tbc).

or something else:

• use the 19/20 projected accounts, submitted in March (pre-covid), along with previous two years actual accounts for this cycle.  This still does resolve what you do going forward though
• do nothing, carry on under current rules

If Stoke have too high a wage bill, sell some players at a price that you can sell them at.

In some respects we are being punished by being compliant.

[Kibs]

Derby getting a large cash injection to help them meet FFP apparently 
 

https://www.bristolpost.co.uk/sport/football/football-news/bristol-citys-championship-rivals-derby-4418826

[Mr Popodopolous]

Ah yeah was going to post about this on the FFP thread.

Unsure how much it helps- it takes the form of borrowing against the assets, seems to be a charge of some description! Wonder what's going on over there...

[Davefevs]

5 minutes ago, Kibs said:

Derby getting a large cash injection to help them meet FFP apparently 
 

https://www.bristolpost.co.uk/sport/football/football-news/bristol-citys-championship-rivals-derby-4418826

1 minute ago, Mr Popodopolous said:

Ah yeah was going to post about this on the FFP thread.

Unsure how much it helps- it takes the form of borrowing against the assets, seems to be a charge of some description! Wonder what's going on over there...

Beat me to it....it won’t help FFP imho, just cash flow.  Wouldn’t surprise me if they had a lost of pre-committed costs to shell out that are due, e.g. staged payments on transfer fees etc.

[Mr Popodopolous]

5 minutes ago, Davefevs said:

Beat me to it....it won’t help FFP imho, just cash flow.  Wouldn’t surprise me if they had a lost of pre-committed costs to shell out that are due, e.g. staged payments on transfer fees etc.

The only FFP benefit I can see is in order to maintain the relevant equity limits- and not fall beyond so they can still keep losing e.g. £39m in a 3 year period and not have to cut back further. Beyond that, seems to be all cash flow as you say.

Another scoop for Matt Hughes- he actually posted about this all the way back in, dunno if it was Mach, April or May- and said it would take the form of a loan not just money poured in.

[WarksRobin]

How can you secure a loan against an asset you no longer own?

Might venture into Barclays tomorrow and see if they will loan me £30m secured against Buckingham Palace.

[Davefevs]

37 minutes ago, WarksRobin said:

How can you secure a loan against an asset you no longer own?

Might venture into Barclays tomorrow and see if they will loan me £30m secured against Buckingham Palace.

Yes, wonder what asset....the players?

[Hxj]

The charge is in place against all assets and all companies in the wider 'group' which includes the companies outside the FFP group which now own Pride Park, which of course raises questions ....

No sign yet of the charges registered by the fraudster Swiss Banker's company being removed, so this might be additional or replacement funds.

[Fontaineofallknowledge]

Would love derby to be hit with a points deduction-Morris so dodgy re stadium sell and accounting treatment!

[Mr Popodopolous]

Just reading the Sheffield Wednesday verdict and this paragraph would seem to have some relevance to us and indeed the bulk of clubs.

May or may not be decisive but something to bear in mind if we are critiquing appointments, spending etc. I've alluded to it but this puts it in more legal and detailed terms!

Quote

(c) clubs with an Adjusted Earnings Before Tax which results in a loss exceeding the Lower Loss Threshold (£15m) but not exceeding the Upper Loss Threshold (£39m) in aggregate across the Monitoring Period will be required to not only submit a business plan for future Trading to the EFL for a period of 2 years, but provide evidence that the club's 'Cash Losses' will be covered by new equity injections over that same period. The EFL reserves the right to have future funding promises secured; and

This bit feels pertinent for us (and a lot of clubs btw).

The Cash Losses, not so much- believe we're fine on that score. However @Phileas Fogg have you any thoughts on the bit in bold especially? Business Plan next two years ie to keep below £39m- combine that with Covid and I can see why we may have to defer things by a year- or why it's not impossible anyway.

IMO our 3 year losses to 2020 will fall into that category. To me, if Hughton wanted a big overhaul then a mix of Covid and this requirement would have caused us problems in this- not necessarily next- but this particular summer. Business Plan for future Trading ie keeping below the all important £39m looming large- all clubs who lose between £15-39m adjusted seem to have to submit this.