Max Hallmark explores the often controversial financial framework controlling football clubs.
Nearly 30 years ago, Mohammed Al Fayed bought Fulham Football Club with the ambition of taking us to the top light within five years. He achieved it in four. With the financial regulations now in place, would this be possible in today’s current football climate?
Al Fayed invested around £250mil in his 16 years in charge, which is quite the sum for the time. With the introduction of Financial Fair Play rules (FFP) in 2013, his accomplishments would be nearly impossible to achieve today. So, have these rules improved the beautiful game?
Financial sustainability or sporting integrity?
FFP has sparked significant controversy in recent times. The rules state that Premier League clubs are not allowed to make a loss of more £105m in a rolling three-year period.
FFP is also known as Profitability and Sustainability Rules (PSR). For the sake of continuity, this article will refer to the rules as the more commonly known FFP. The wording is important, however. The name PSR inherently suggests that the purpose of these rules is not to create an even playing field upholding sporting integrity as FFP implies, but rather to prevent clubs from becoming financially unsustainable. In theory, this is logical. Premier League teams made aggregated pre-tax losses of more than £607m in the 2021/22 season, many modern owners are predominantly focused on appreciation and the resale value of clubs to make their investments worthwhile. Fulham accounted for £57m of this.
However, if the financial restrictions are in place to promote sustainability, why have so many clubs fallen through the cracks? Reading, Derby, Wigan, Scunthorpe, Bury and more have all experienced financial difficulties due to mismanagement despite FFP rules being in place. To compound matters, the punishment for breaking the rules is a points deduction increasing a club’s chances of relegation and hence a decrease in revenue. Bury even faced expulsion from the Football League. It appears there is too much focus on FFP punishment than fit and proper owner checks.
Widening the gap
Most recently, Everton have been handed a 10-point deduction, albeit this has been a result of overspending rather than financial difficulty. This has been followed up by Forest being charged as well as another for Everton following Monday’s FFP announcement. Everton’s loss of £370m over three years was nearly four times the threshold of £105m. Fortunately for Everton fans, their team seem to be galvanised by this, but concern of relegation still lingers, particularly with this new charge being brought against them.
Should they be relegated, the club may struggle with the £13m three-year loss allowance in the Championship, which pales in comparison to the Premier League’s £105mil. Losing out on their share of the top division’s bumper £1.7m annual TV rights deal would only exacerbate this.
The controversial parachute payment scheme exists to soften this blow, granting relegated teams £50m over three years. Championship clubs generally find parachute payments to be unjust, but with such a large disparity in TV revenue, it seems necessary to ease the financial transition between divisions (the Premier League receives nearly 10 times the TV revenue than the entire EFL). Fulham fans may remember being imposed with a transfer embargo in 2016 after falling foul to FFP rules accounting for the first years in the second division despite receiving these payments.
Removing parachute payments will not resolve the issue while the gulf in fortunes between the two leagues still exists. If the goal of FFP is to promote sporting integrity, then it is failing between divisions. Clubs are forced into greater financial instability and are left balancing between investing enough to stay in the top division and cautious spending to avoid sanctions should they be relegated. Fulham have only just shaken off the tag of a ‘yo-yo’ team bouncing between divisions, but with such a large gap between the Premier League and Championship, it’s clear to see why it is so many teams have struggled to establish themselves in the top-flight.
Of the 30 teams promoted from the Championship between 2006/07 and 2016/17, 14 have gone straight back down. On the flip side, nine were promoted instantly. This figure was much smaller lower down the football pyramid where the financial gap between leagues is smaller.
It goes without saying that the more a club invests financially, the greater a team competes on the pitch; studies have statistically proven that investment in wages is the biggest factor to the success of a team. So, this gap in investment naturally leads to gap in sporting competitiveness.
But this difference does not solely apply only across divisions. The issue with basing the rules by losses is the disparity in revenues in the Premier League. According to Deloitte, two thirds of the league’s total revenue is claimed by six clubs, of course these are the so-called ‘Big six’. FFP allows these teams gain a much greater advantage by being able to spend significantly more than the rest of league.
The emergence of the investment in Saudi Arabian football has only widened this gap. With Saudi clubs not being subject to the same financial restrictions, they are able entice players with astronomical salaries with which English clubs are unable to match. Fulham fans don’t need to be told how this can negatively impact a club. However, while teams of Fulham’s stature and revenue income have been unsettled by Saudi clubs, teams with higher wage bills have relished the opportunity to offload high-salary fringe players at inflated prices.
This is not the first time FFP has been shown to be fallible. A certain club near Fulham have infamously spent more than a billion pounds since new ownership took control in May 2022 (not that it has shown any effect on the pitch). Many of the players that make up that figure were signed on contracts reported to be eight years long. The reason these obscenely long contacts is because the cost of a transfer is spread equally between each year of a player’s contract in accounting terms. Since this, a five-year cap to the period in which a transfer fee can be spread across has been imposed. Nevertheless, this loophole still allowed them to spend extortionate amounts of money and remain FFP compliant. Although, they are currently under investigation for breach of the rules for offences allegedly taken place under previous ownership.
The most high-profile investigation is that of Manchester City. City face 115 charges from UEFA and accusations of an inflated sponsorship deal with Etihad. There’s no denying that the club has been dominant in the last decade – there’s also no doubt they havebeen aided by the financial backing of a deep-pocketed owner. Whether this money has been spent fairly is up to the Premier League to decide. The loopholes that have been exploited by all these clubs highlight FFP’s flaws.
There have been plenty of concerns around the way football clubs are being managed in recent times. These concerns are why FFP rules are in place. However, the Government has started to take notice of football’s deficiencies. After the infamous attempt to launch a ‘European Super League’, a white paper report led by Tracey Crouch was commissioned.
The review describes the existing approach as “clearly inadequately constraining reckless financial spending”. In place of FFP, Crouch proposes three potential forms of a salary cap. One of these methods is to impose a cap based on revenue. While this makes clubs more sustainable, the larger clubs would retain more spending power and players at clubs with smaller revenues would be even more enticed by their riches. However, a fixed salary cap would lead to English football being put at a disadvantage if not made universal.
No solution will be perfect, but the most effective balance appears to be a fixed salary cap with a luxury tax. A luxury tax would mean that wages greater than a certain threshold will invoke a premium to be paid to opposition teams. This way, English clubs are not put at a disadvantage, but the competitiveness within the league also isn’t compromised. To maintain this competitiveness, Crouch naturally goes on to also recommend that more money be filtered down the leagues to reduce the financial gap between leagues.
However, even with these regulations in place, Crouch warns of the “dire consequences” that financial misgovernment can have on fans. She recommends a more rigorous fit and proper owner check that would prevent scenes like the ones witnessed at Reading recently (where fans stormed the pitch in protest of Dai Yongge’s mismanagement). It must be ensured that those in charge of football clubs are well-equipped to do so and have the best interests of the fans at heart. As we are all aware, football is nothing without fans.
Luton rising from non-league to Premier League, Leicester winning the Premier League against all odds and our very own history: from 91st in the Football League to a Europa League final less than 15 years later. Stories like these are what grips the nation to the game we love. Part of the joy in supporting Fulham is the dream of replicating stories like these. But if nothing changes, the big six will become more impenetrable with time, and the hope of recreating these stories will remain a dream.