As some of you will be aware, Financial Fair Play (FFP) has been a favourite topic of mine this year and now even the big boys are getting interested about its impact on the beautiful game. The accountants BDO have produced their annual survey of football club finance directors called "A New Dawn for Fair Play?", with the emphasis this year very much on FFP.
You can read the report on the following link:-
fcbusiness.co.uk/cms/thesite/public/uploads/uploadsbank/1376383081_229.pdf
One of the firm's partners involved in the survey is Trevor Birch who readers may recognise as being currently involved in the Hearts administration and formerly that of Portsmouth so he has a pretty good idea of the real issues affecting clubs. Much of the previous comment on FFP's impact has been from outside observers making informed guesses based on public information and hearsay. The importance of this survey is that it comes from the people that actually hold the purse strings inside the football clubs themselves and so the results, while pooled and anonymous can be taken as fact.
First the good news, its pleasing to see that some 85% of clubs are expecting to comply with FFP rules this season within their current business models. While others expect to as a result of radical changes to their finances only 5% expect not being able to comply.
However, to me the results of the survey show there is a lot more pressure on Championship clubs than those in other divisions. The results of the survey show that they are more reliant on their principle shareholders to fund losses and expect to be less likely to make a profit before player trading and amortisations than clubs in other leagues. The outlook for revenue streams in the Championship also looks less optimistic when compared to other divisions.
The impact of FFP is seen most clearly in the answers on payroll costs which are the main outlay of any football club. The increase in payroll budget in the Premier League by 42% of clubs largely reflects the funding from the huge increase from the new television deal. The Championship and SPL are particularly affected with 78% and 80% respectively expecting to reduce payroll costs. I suspect that the small number of clubs expecting to increase payroll in the other leagues is a reflection on the higher revenue received by newly promoted clubs or those that have recently been taken over.
However, the survey then goes on to show that the decision to reduce payroll has not been driven by FFP in the two lower English and the Scottish Leagues, showing the financial pressures and general lack of available investment means that clubs are having to balance the books in order to just survive anyway.
It is interesting to note that contrary to what many of us thought, the ability to reduce player's wages following relegation is pretty much a standard contract clause with 94% of clubs in the Championship and League Two using them and 75% of clubs in the Premier League. League One stands out as a slight anomaly with only 71%. Scotland is slowly catching up with 60% but I suspect that this may be a result of revenues being pretty flat across the lower leagues.
Even the tax man is getting in on the act. 25% of clubs are concerned about larger PAYE bills as a result of HMRC's aggressive stance on tax mitigation schemes. However, in the long run FFP must be a positive for tax revenues to the economy if clubs have to break even under its rules.
While not directly related to FFP, the survey highlights the use of paid independent non-executive directors. For those not familiar with the role they are not involved in the day to day running of the club but are appointed to the board to give an independent and therefore objective criticism and advice on the running of the company. Given the high level of public scrutiny of any football club in England and Scotland one might be surprised at the relatively low numbers of non-executives but the question comes in two parts (i) independent, and (ii) paid. I believe that this reflects in part the family run nature of many clubs by local business men or the fact that many non-executives do it for the love rather than the money. For example I'm sure Charlton's own Michael Grade provides valuable experience to the running of the club as well as social and media, and is paid little if anything for the role. The relatively high figure of 25% in the EPL is down to the publicly
traded nature of a number of the top clubs that have to abide with
corporate rules and codes of conduct on governance to satisfy their institutional
shareholders.
So with a third of Championship and League One owners considering selling up it may look like gloomy outlook for football clubs but the fact is that they are dealing with reality head on. As fans, we may be disappointed in the lack of transfers or the ability to strengthen our team but reality is settling in with both football boards and fans. In the long run it means, hopefully, we're unlikely to see Mr Birch take over at our clubs in his unenviable role any time soon.
