Some time ago I was asked by one of our readers to take a look into the new Financial Fair Play (FFP) regulations and just how Newcastle United fit into them.
Most people are now familiar with what the aim of FFP is, but just in case you aren’t the aim is essentially to get football clubs running in a self-sufficient manner which will, hopefully, lead to other aspects, like the transfer market and player wages, being brought under control naturally.
The penalty for failure to adhere to these rules is as yet unspecified. There have been rumours that clubs who break the rules will be banned from UEFA run European competitions such as the Champions League although I personally feel that will be a last resort kind of punishment. We’ll have to wait and see of course as the list of punishments is set to be unveiled by the end of this month ahead of being ratified in March.
Anyway, back to Newcastle United. How do we fit into it?
Well the first thing to understand are the rules themselves. Some of them are pretty clear cut while others are very hazy. Let’s just say that when it comes to FFP, not everything is as black and white as it seems.
As Platini’s puppy leaps into action we are now at the stage where accounts are being looked at. From now until the end of the 2013-2014 season clubs can amass losses of £39.5m (just over £13m each season) but only if these losses are subsidised by an owner who is taking shares in return or is underwriting an infrastructure project, such as a new stadium or training ground upgrades. If this isn’t the case then losses are limited to just £4.4m.
From 2014-2017 losses are limited once again and will be capped at £8.4m a season but only in the same instance as above – if the owner is taking shares or underwriting infrastructure projects.
At the moment we are well within these limits although it feels like a hollow success when you see other clubs posting such significant losses. With the first penalties set to be imposed at the end of the first reporting period surely we could start to see some vindication of our owners approach?
There are many loopholes that are yet to be fully exposed, but one of them which has been exposed is advertising revenue. I’m talking about Manchester City here in this instance. It’s well documented that they’ve signed a deal worth in the region of £340m with Etihad for the naming rights to what is now the Etihad Stadium.
Now under the FFP ruling each sponsorship deal is to be looked at by a dedicated panel to see if it is comparable to what can be achieved in the open market – particularly pertinent considering the Mansour family owns Etihad raising accusations of foul play to try and get round fair play.
However when questioned Manchester City got all ambiguous and said that the sponsorship was for the entire 210 acre site surrounding the stadium which will eventually house an academy, a second stadium for reserve fixtures, sports science centre along with retail and office space. That makes it an infrastructure project which means that none of the costs involved will be counted towards the FFP calculations.
What does that mean for us? Not a lot really, but it does show that there are loopholes in the rules. Another one is transfer fees. An accounting term called ‘player amortisation’ comes into play here. Basically, say we sign a player for £5m on a five year contract and pay him £1m a year – a total cost over the five years of £10m. Not all of that comes off the accounts at once. Instead it will show as £2m per season (fee ÷ length of contract + annual wage). Using a more extreme example, £50m Fernando Torres would only show as a £17m hit on Chelsea’s accounts (£50m ÷ 5.5 years + £8m a year in wages).
It’s hard to quantify just what our income is. The last official accounts available are relevant for our Championship season which means that the next set will feature last season and so on. They are generally released late so I expect we’ll get them around March time again which makes them outdated before they are even released. This is the problem which trying to guess the finances of NUFC – people guesstimate based on out of date information. However if you wish to look at the last set of accounts you can do so by clicking here.
Using rough estimates we are well within the guidelines of the FFP regulations and should, in theory, be well placed to capitalise should the rules be followed through. I mean we have resources that outweigh all but a few clubs so if the rules are followed then we should naturally float back towards the top, even with the Ashley approach which is basically following the FFP guidelines.
Debt is not an issue under FFP. A club can be saddled with it in truth but as long as it can afford the repayments from it’s own revenue then it is not seen as being a problem. Of course the knock on effect is that if a club is spending all it’s money on debt then how can it afford to pay for transfers and stuff like that. We are in debt ourselves but we don;t owe any of it to the back so there are no structured repayments which effectively means that this doesn’t really affect us.
The problem is that there are a lot of “if’s” in there. If this, if that. It’s a huge problem. For these rules to work UEFA need to stick to their word and be strict with clubs who are found to be breaking the rules. Failure to do that will render Platini’s puppy useless because if one club finds a way around things or escapes punishment then the rest have a precedent set that they can follow, and with all this talk of court cases and claims for restriction of trade you have to wonder if UEFA have the bottle to go through with it all.
The concept is great but I fear the execution may be lousy which is a shame, because if it wasn’t and they did work out it would be very good for Newcastle United as we already have a head start on the majority of clubs when it comes to FFP. Time will tell all I guess, but some huge names have a reputation hinging on the proper introduction of FFP.
Don’t you Michel Platini and Karl-Heinz Rummenigge!