By Sean Hamil, Director, Birkbeck Sport Business Centre
The Football League’s (FL) “Financial Fair Play” regulations were introduced on a phased basis across its three divisions between 2010 and 2012. They are designed to force the 72 member clubs to operate on a financially sustainable basis. The regulations confer considerable sanctioning powers on the League to materially influence the financial decisions of its member clubs. Are such powers justified?
Amongst the sanctions the League can apply are transfer embargoes; Swindon Town FC had just such an embargo imposed in October 2012 for having expenditure on wages and related fees in excess of 65% of turnover. Given that Swindon Town narrowly avoiding entering financial administration in January 2013 before being taken over by new owners prepared to take on its considerable debts, there were clearly good reasons to question the club’s ability to sustainably fund transfers at that time.
The introduction of “Financial Fair Play” regulations followed a strategic review by the Football League Board. They drew their inspiration from the “Financial Fair Play” initiative first approved by the governing body of European football, UEFA, in September 2009, whereby over a phased period (2012-2015) clubs wishing to participate in UEFA competitions would have to meet robust financial sustainability criteria. In an interview with BBC Sport in April 2012 Football League CEO Greg Clarke (a former CEO of telecoms company Cable & Wireless) commented that the FL had been heading for a “financial train wreck” with total debt forecast to balloon to between £1.5 and £2bn unless controls were introduced, with the likelihood that 5-7 clubs per season would collapse into financial administration each season going forward leaving much of this debt unpaid. Something had to be done and that “something” was “Financial Fair Play”.
There has never been a season since the foundation of the Premier League in 1992 when either its combined clubs, or those in the Football League, have not collectively made substantial losses. For example, figures from the Deloitte (2012) Annual Review of Football Finance indicate that in the 2010/2011 season the 20 clubs in the Premier League lost (pre-tax) £380m and the 72 clubs in the Football League lost £249m. Between 1992 and 2012 there have been 56 occasions when clubs in the top four divisions of English football have fallen into financial administration. On every occasion creditors, from Her Majesty’s Revenue & Customs to small business suppliers, have gone unpaid, a point that I, and my colleague Dr Geoff Walters, made in our evidence to the House of Commons Culture, Media & Sport Committee enquiry into Football Governance in January 2011 This in fact amounts to an indirect public and private subsidy to the football industry.
From the beginning of the economic recession in 2008 HMRC has become increasingly impatient with football clubs’ non-payment of tax. But the collapse of Portsmouth FC in 2010 with multi-million pound losses in retrospect was a key turning point. The debate initiated by the 2011 House of Commons enquiry also served to concentrate minds in the industry, and demonstrates how such parliamentary oversight can act as an effective catalyst for progressive change.
In February 2013 a majority of Premier League clubs voted for the league to introduce its own “Financial Fair Play” regulations. West Ham United co-owner David Gold told BBC Sport: “…What's driving the whole thing is we've got to avoid another Portsmouth".
In reality the application of “Financial Fair Play” regulations in European football is simply the extension of the kind of financial regulatory regime that has long been the norm in North American professional sports. The North Americans understood that there was always a tendency for club owners to prioritise sporting success over profit, and thus to engage in a reckless financial “arms race” for playing talent in which any financial surplus was transferred to the players leaving virtually all clubs loss-making and leagues financially unstable. American sport leagues adopted aggressive financial regulation/”Financial Fair Play” to address this problem, and in order to equalise the spending power of clubs in order to maintain uncertainty of outcome in a closed league.
It has long been the view of the Birkbeck Sport Business Centre that football cannot defy economic gravity indefinitely. We are in the middle of the worst economic recession since the 1930’s and neither government agencies, private creditors or investors are any more prepared to accept the losses passed on to them by the old football model. The “Financial Fair Play” concept, having been thoroughly “road-tested” in North American sports, is, in fact, the only game in town as far as addressing the structural root of football’s loss-making is concerned. It is fully justified, and is going to be implemented; the only questions are how effectively, and by whom?
Global Sports: the world’s leading specialist careers platform for the international sports industry