Thursday 27 September 2012

Debunking the FFP myth being peddled by Evans & Clegg

It is really frustrating to see FFP being used as an excuse every time we elect to not spend money and as to why our cloth is being cut so quickly, where divisional rivals are not electing to do this.

Now, I totally understand why ME is no longer willing to fund ITFC at the levels he previously has, but if you look at the actual guidelines which make up FFP, it's clear that the reason is because he doesn't want to - not that the isn't allowed to.

Again that's his prerogative, so I'm not judging and saying it is not the correct approach to be taking. Only that I think it is a little disingenuous, if being generous, or just outright lying to the fans, if being harsh, to blame it all on FFP.

What is FFP?

Financial Fair Play is a way to try and ensure that football clubs don't run at huge losses while chasing the Premiership dream, and get themselves into financial positions they can't cope with long term. Leagues 1 and 2 have approached this differently with a maximum salary cap which is a percentage of turnover - this is managed proactively by the Football League who can reject new registrations if they think it will mean that they will go above their set limits.

The Championship have elected to follow the lead of UEFA and not link it to salary but to revenue.
The basics of it, are that with exceptions, a club isn't able to run at a loss. This seems fairly sensible, and it isn't until you look at the details of it that you realise there are big loopholes that competing clubs will take advantage of.

What are the exceptions?

  • Investment in Youth Development (Through the Elite Player Performance Plan) - this means that when Clegg would talk about Category 1 and Category 2 being a financial decision linked in with FFP, he was talking rubbish. These costs do not fall into the Financial Fair Play calculation.
  • Stadium costs, more accurately the sale and depreciation of fixed assets.
  • Community schemes and spending - ITFC are generally good at this and invest in the community, again these costs do not go towards the calculation.
  • Promotion Related Bonus Schemes.
  • Costs around career ending injuries.
  • A major sponsor defaulting.
  • Bad debts from other clubs.
So the top 3 exceptions to this are so that the infrastructure of the club can remain in place and be strong, and that all the money isn't just directed at the first team. Worryingly Clegg spoke about stripping back costs in his interview with Ipswich Player to spend the money on the first team

Acceptable deviations and Shareholder Equity
An acceptable deviation is another word for a pre-defined limit on loss. It means that if a club makes a loss within this there are no sanctions.

Shareholder equity is money that is pumped into the club, generally by an owner. This is money that is just passed over as basically a gift to help with the running costs with no recourse for being paid back - similar to what Abramovich has done at Chelsea….by writing of money he was 'owed'. I'm unsure how Evans' loan to the club is affected by this, but I'd guess he'd have to write off the money for it to count as shareholder equity.

What this means is that we can make a loss each year to a defined limit, and Evans can put money into the club on top of this with no penalty or stepping outside the FFP regulations. The acceptable deviations and shareholder equities are stated below:
2012-132013-142014-152015-16 onwards
Acceptable deviation£4m£3m£3m£2m
Shareholder equity£6m£5m£3m£3m
Total allowances£10m£8m£6m£5m



So this season we can make effectively a £10m loss with Evans writing of £6m of this loss as a gift to the club.

What are the sanctions for falling outside of the limits?
Firstly, there are no sanctions for overspending this season. We could spend £100 million on wages and run up a bigger debt and it does not matter at all. The first season that can be sanctioned is 2013-14, and this will be when the accounts are filed on or before 1st December 2014, over 2 years away.
The sanctions after this are split into 3 categories, and remember the sanctions are only applicable if losses are greater than the Total Allowances mentioned above:

If you have been relegated to League 1…
No real sanctions, you just have to begin to comply with the League 1 FFP rules which means salary must be a percentage of turnover. This will however inevitably lead to a transfer ban as your salary will be too high and registrations will be rejected. You will also receive no share of the 'Fair Play Tax' - see below.

If still in the Championship…
A transfer ban will be placed on the club from the following transfer window, will always be January as accounts filed in December, and will only be removed once proof can be made to the Football League that you now comply with FFP. You will also receive no share of the 'Fair Play Tax' - see below.

If promoted to the Premier League…If you are promoted to the Premier League you are then liable to pay a 'Fair Play Tax', which is divided equally among all teams that have complied with FFP in the Championship the previous season.

The Fair Play Tax is a ratcheted tax with set tiers that is a penalty, the tiers are stated below….and I've also added some columns which show the effect of over spending (i.e. being over the total allowances) by £1m, £3m, £5m, £10m and £20m:

Over spendingTaxFine at £1mFine at £3mFine at £5mFine at £10mFine at £20m
£1to£100k1%£1k£1k£1k£1k£1k
£100kto£500k20%£80k£80k£80k£80k£80k
£500kto£1m40%£200k£200k£200k£200k£200k
£1mto£5m60%n/a£1.2m£2.4m£2.4m£2.4m
£5mto£10m80%n/an/an/a£4m£4m
£10m+100%n/an/an/an/a£10m
Total Fine£281k£1.481m£2.681m£6.681m£16.681m



So while at the top end this could be seen as quite draconian, when you actually look at the Premiership TV deals, even overspending by £10m, on top of the £10m allowances this season (e.g. run at £20m loss - excluding academy spending, etc.) would generate a fine of less than £7m - only payable if we were to be promoted.

Some financial stats re ITFC
In the years where accounts have been published for (2009-10 and 2010-11) the ITFC wage bill is £17m and £17.6m. If Jewells claims are to be believed and our wage bill has been cut to £6m then it means that £11m has been cut.
For 2010-11 the 3 lowest wage bills in the Championship were Scunthorpe (£5.5m), Doncaster (£7.6m) and Barnsley (£8.3m). If we are running at a wage bill this low I think it says all we need to know about ME's ambitions for the club….but I'd guess PJ has been economical with the truth.

Conclusion
While Clegg blames everything on FFP, looking at the legislation behind what actually makes up FFP, it is clear that there is huge room for manoeuvre if the owner wishes to back ITFC financially. As an example we could have a Category 1 academy, make huge losses every year and not be in breach of FFP. And if we really wanted to go for it we could make even bigger losses and chase promotion knowing that all that'll happen if we make it is a fine which pales into insignificance against the rewards on offer.

What is clear to me is that ME no longer wishes to invest as heavily as he had and he is using FFP as an excuse to the fans. I have no problems with the first part of that, but the second part really grates on me. Fans already seem brainwashed as to what FFP is, and you only have to look on Twitter or the TWTD message board for people to throw FFP as a reason for not competing financially.

Hopefully this will begin to explain what it is and people can begin to see through the party line currently being towed by Clegg and undoubtedly set by Evans. Evans is free to do what he wants with his money, and we cannot be angry at him for no longer funding Ipswich to previous levels - however when a message is being passed to the fans which can easily be disproved by documents in the public sphere we really need to worry about the owner of
the club.

All we want is clarity and the truth…..Clegg's interview on Ipswich Player contained neither. He stated the plan was to get promoted as soon as possible, while slashing the wage bill. He also stated that Evans will 'invest to ensure success' but framed it around FFP, the way he has invested in previous years is not hugely effected by FFP and this is just an example of the wool being pulled over our eyes as fans.

My conclusion is that Evans no longer wants to pump money into ITFC and is using FFP as a convenient excuse.