I had the pleasure of a recent intellectual discussion on Twitter with someone who challenged my preconception that FFP makes football fairer by capping the top 6 Premier League clubs' rich owners overspending to protect their position, thus creating a more level 'playing field'. Their counterposition put to me was this actually stops a club from the large spending seen as required to successfully break into the Premier League and then the top 6.
This was an interesting take on the flagship mission statement from UEFA and the FA focussing on protecting the sport we love from more clubs going into administration, spending beyond their means trying to break into the Premier League (the 'promised land'), or into the top 6 in this top tier. The two positions are not really the same topic, and both can actually be true: i.e. less clubs are now going into administration but it has become more difficult to become a top 6 club or break into the Premier League.
There is a third consideration that has crystalised as this transfer window has progressed: what impact has the Saudi Pro League had over the Premier League and its world-leading brand, now they are scooping up emerging or peaking talent, not just talent 'in the twilight' of their careers? Is FFP now starting to act like a ball-and-chain for Premier League clubs trying to compete in the transfer market?
So let's start with whether FFP is doing what it set out to do.
Quickly taking a step back and thinking about this, the primary worry would be those clubs trying to get to the Premier League, rather than those in the Premier League. Why?
For a start, the extra revenue, over the staple types of revenue for every club, is the £120m+ via broadcasting rights each Premier League club receives each year. This allows Premier League clubs' accounts to be rebalanced where required more easily, in some cases with just 1 season of austerity to 'right the ship'. It seems Wolves are embarking on that season of 'self-righting' now. Overspending in the lower leagues can take far longer to reverse without these far larger revenue streams.
Secondly, in each league outside of the Premiership, each season a host of clubs are eyeing promotion and will be tempted to overspend (club owners are wealthy and tend to be an ambitious bunch, a quality that made them wealthy in the first place!).
Thirdly, increasingly most owners of the Premier League clubs have relatively bottomless cash reserves. This is an accounting point, but profit (which FFP deals with) is different to cash flow. Any business can be profitable but may go bust if they have poor cash flow management (you have seen the stories of players not being paid wages on time for example, with authorities stepping in). This is even more critical for loss-making companies when cash received/owed decreases. Any business can keep going if the owner keeps pumping cash into the business and doesn't mind it not being profitable. Many Premier League owners can loan money to the club (even convert some to equity so there are not even interest payments, much like Marinakis did with Forest last season) to keep it running, whereas those in the lower leagues do not have this flexibility to be constantly loss-making and injecting cashflow into the club.
So tackling the first topic, has FFP helped slow the rate of football clubs going into administration?
Since the Premier League came into play back in 1992, this has been the pattern of clubs going into administration across the top 4 domestic league tiers (the naming of leagues has changed over time):
| Tier 1 | Tier 2 | Tier 3 | Tier 4 | Total |
1992-2002 | 0 | 3 | 8 | 10 | 21 |
2003-2012 | 1 | 5 | 8 | 5 | 19 |
2013-2022 | 0 | 3 | 2 | 1 | 6 |
Looking at the above, we can see there was a huge improvement in clubs avoiding administration in the past decade. Given FFP was put into place for the 2011/12 season, there appears to be a strong correlation between the improvement and the introduction of FFP. However, given the Premier League started sharing some of their own allocation of broadcasting revenue with the EFL from the 2016/17 season, this could also factor in the reduction of administration. But all things being equal, clubs in the main were being run with the revenue available, so just adding in more revenue should not really change behaviours (i.e. those risking spending more than revenue, and those who do not), so I would conclude that FFP has had the desired effect. But interestingly it has not hugely impacted the top two tiers of English competition, it has been more impactful at the 3rd and 4th tiers.
Many would point to the increasing trend of debt in the Premier League (not the case in the Championship) but not all debt is bad. Much of this debt, from a responsible spending perspective, is put into infrastructure (stadiums etc). The aim of FFP is for clubs not to overspend on players and their wages, which is why certain expenses are exempt from the FFP calculations (like spending on infrastructure). Much of this spending on stadiums and infrastructure is likely to be capitalised. This is the same approach with players, where the value spent is not a cost, it is put on the balance sheet as an asset, and released as a cost slowly over a number of years (amortisation). But with stadia, some things might not even be annually amortised in this way as buildings and land tend to hold value over time and there is an equal-sized asset to the debt used to build it. So this type of large debt would not even be relevant to FFP as only the amortisation costs of assets (players, buildings etc) hit a business' profit/loss calculation.
So on FFP, I would tend to ignore debt levels in clubs for this discussion.
Given the insight around FFP protecting clubs from administration but predominantly in the lower leagues, we naturally should move on to consider if FFP may be inadvertently making the 'top6' Premier League clubs more protected in that elevated position.
With FFP coming into effect for the 2011/2 season, we have 12 years of data around the top 6 clubs under FFP:
| 1st | 2nd | 3rd | 4th | 5th | 6th |
2011/12 | ManC | ManU | Arsenal | Spurs | Newcastle | Chelsea |
2012/13 | ManU | ManC | Chelsea | Arsenal | Spurs | Everton |
2013/14 | ManC | Liverpool | Chelsea | Arsenal | Everton | Spurs |
2014/15 | Chelsea | ManC | Arsenal | ManU | Spurs | Liverpool |
2015/16 | Leicester | Arsenal | Spurs | ManC | ManU | South'ton |
2016/17 | Chelsea | Spurs | ManC | Liverpool | Arsenal | ManU |
2017/18 | ManC | ManU | Spurs | Liverpool | Chelsea | Arsenal |
2018/19 | ManC | Liverpool | Chelsea | Spurs | Arsenal | ManU |
2019/20 | Liverpool | ManC | ManU | Chelsea | Leicester | Spurs |
2020/21 | ManC | ManU | Liverpool | Chelsea | Leicester | WestHam |
2021/22 | ManC | Liverpool | Chelsea | Spurs | Arsenal | ManU |
2022/23 | ManC | Arsenal | ManU | Newcastle | Liverpool | Brighton |
The top 6 places over 12 years were held by the dominant 6 teams (ManC-12, ManU-11, Chelsea-10, Arsenal-10, Spurs-10 and Liverpool-9) 86% of the time. This is not an absolute oligarchy of the top 6, but it is not far off it. If a team can break into it, they seem not to be able to stay in it for very long. Leicester are a classic example of this, but more on them in a bit.
If we compare this to all-time records in the Premier League for the top 6, it is still the same top 6 clubs over those 3 decades of seasons. But if we look at the same domination of the top 6 spots, the statistic drops to 73%. So things look to have become more entrenched around the top 6 in the last decade.
But does FFP go some way to explaining this?
Being in the top 6 Premier League positions come the end of the season provides an extra revenue source for the following season, which comes from European competition. So at a simple level, this allows them to spend more in the following season than others not in Europe before they start making losses. In addition, consistent success gives free marketing overseas, which will boost merchandising revenues without any effort.
How much extra revenue are these teams getting each year?
Since 2019, each of the top 4 clubs qualifying for the Champions League automatically qualify for the group stages. Last year that provided £13m each for that automatic qualification.
Each of the qualifying 32 teams is also given a participation payment that ranges from £32m down to £1m, depending on the 10-year average ranking ('coefficient') of those qualifying teams (currently for the top 6 teams, ManC are 4th, Chelsea 6th, Liverpool 8th, Manu 11th, Arsenal 14th and Spurs 19th).
Each of the participating nations then also gets a cut of the broadcasting revenues to give to their teams in the competition. The pool of £258m is allocated based on the 'value of the nation's TV market', given to each nation's football association which they then allocate to their participating teams based on a UEFA formula. The English clubs will get a good whack of this money, as would the Spanish, Italian and German teams, but they each have more teams involved to split their allocation out between (the formula is based on qualifying domestic league position). It seems very difficult to find the actual ratios for 'nation's TV value' but I would assume the English teams are pocketing at least £10m each.
So the English teams are each picking up around £45m each year without kicking a ball!
Once into the main competition, the group stages payout £2.5m for each win. It then ratchets up for winning each progressive knockout stage, £8.4m for winning the round of 16, rising to £17.1m for winning the final (these amounts are added to each other as the team progresses). So English teams receive between roughly £45m for qualifying and losing all their group games, up to roughly £118m for winning the competition.
For the teams in the Europa League, the total prize pot is less than 1/4 of that for the Champions League. English teams would hope to make it deep into the competition and if so could expect to pick up about £30m.
But for all this extra cash, there are balances to this.
Firstly, the most successful clubs will likely have bonus costs higher than the other clubs, but the extra revenue from European competition should exceed the cost of bonuses if correctly managed.
Secondly, the extra fixtures that come along with European football (and probably going deeper in the domestic cups) require deeper quality in their squads. The Premier League and UEFA (for European competitions) limit a squad to 25 players over 21 years old, but the quality of the players outside of the starting XI needs to be better as the starting XI will not all be able to play the extra 10+ games per season they face through this success. The quality will cost more to buy in and will attract higher wages (if we take £15m extra in the cost of a player on a 4-year contract and £50,000 extra per week wages, this costs the club £6.35m extra per year in FFP terms). As such, unless the latter stages of European competitions are reached, this extra revenue is likely significantly diminished with more costly squads. As such the top 6 need to perform in Europe to maximise this advantage. But where it costs more to have a deeper squad, it also provides better cover for injuries to starting XI players over the season. So once again, the top 6 gain a benefit over others.
However, if the squads have quality U21 players, they can rely on the required depth through this more cost-effective source, enabling them to keep their sizable revenue advantage, as well as having less pressure on making the 25-person squad limit.
This brings us nicely to the discussion around Academies.
First of all, I will quickly cover the FFP rules for Academies, as they are fundamental to this wider discussion. FFP was also designed to promote grassroots football, especially the Premier League's and EFL's adaptation of FFP (Profitability & Sustainability rules). As such it is deemed that any cost associated with the Academy (players up to the age of 18), which includes paying for a youth player, their wages, staff wages, the costs of buildings, pitches and maintaining the Academy as well as the running costs of the whole enterprise, are all exempt from FFP cost calculations. But more importantly for this discussion, if the player is sold, that revenue is fully counted towards FFP (so no costs are, but revenue from sales of players are). The incentive is there to take the Academy seriously, but given no costs count, and revenues from player sales do, many clubs have seen the loophole of turning the Academy into a profit factory (and in many cases hardly any of the youth players make it to the first team). For example, the book of Chelsea youth players recently (before the Boehly and Co era) was huge, with youth being bought in and then loaned out until being sold, but very rarely played for the Chelsea first team.
Although every club has the opportunity to work the Academy FFP loophole, those that are at the higher ends of the Premier League (especially those consistently in European competition) have an advantage simply by the fact they generally are more attractive to young talent (the smarter families will spot the clubs that have a better track record of Academy players progressing to play for the first team, but most would simply go on success and stature of the club), especially when attracting talent from outside their catchment areas, and even from the far corners of the world. More often than not, the higher the prospect of a player, the better the talent they turn out to be and the larger profit is made on the player. So the top teams are likely to make more revenue from their Academies, and as all the input costs and the Academy itself is FFP exempt, the revenue is pure bottom-line accounting profit. This gives the top 6 a further advantage to enhance their first team under FFP over other teams outside the top 6. There are notable exceptions to this, like Southampton and Brighton. More on them later.
So even if a club has the same ticket income, advertising income, merchandise income etc, they are going to be at a disadvantage every season to those in the top 6 on how much they can spend on players unless they can run a tighter ship in terms of their costs, primarily in terms of their wage bill. The other option is to raise revenues but this takes us away from a like-for-like comparison. The clubs outside of the top 6 then need some edge just to try and keep up, or the gap will just widen.
The above explains the inequality in the Premier League where FFP protects the top 6 clubs, but does this extend to the EFL?
These clubs do not have the inequality of European football, and all the linked revenues, as mentioned above. So other than the historic lack of symmetry between clubs via reputation, stadium size, fan base sizes etc. there should be a pretty level playing field. However, the Premier League Parachute Payments to those who are relegated from the Premier League does fuel an inequality, creating a protective layer around the Premier League to new entrants.
If a club is relegated from the Premier League, it gains a temporary financial advantage over its new Championship rivals. The relegated club received 55% of what they would have from the share of broadcasting rights (roughly £69m) in the first year, 45% (roughly £56m) in the second year and 20% (£25m) in the third year (if their last stay in the Premier League was for more than one season before their relegation). This pure revenue advantage is slightly offset by what the other sides receive from the Premier League broadcasting rights via Solidarity Payments, which amounts to 6% to Championship clubs, 0.9% to League 1 clubs and 0.6% to League 2 clubs. But as you can see, this does not really bridge the financial gap.
The idea of the Parachute Payments is, like FFP, to stop clubs going into administration when they get relegated, as the wage bills of a Premier League club cannot be sustained on Championship broadcasting rights and these Solidarity Payments alone. So it gives them time to adjust their squad, rather than having their best players picked off for less than market prices over the summer of relegation. But in reality, the goal is to get right back up to the Premier League, so clubs fight to keep their prized players and take the Parachute Payments. FFP will mean that they will need to make some cuts to stick within the allowable cumulative losses over a 3-year period. But overall, these relegated clubs try to maintain the bulk of their Premier League squads and so have an unfair advantage over their Championship rivals. Given the size of the FFP losses allowed in the Championship is only £13m per year, the size of the Parachute Payment (less the Solidarity Payment) is sizeable in comparison.
What makes life even worse for Championship clubs that have not recently been in the Premier League is that it is not the same 2 sets of 3 clubs that bounce up and down with each other each year. As such, there are nearly always more than 3 clubs receiving Parachute Payments in the Championship at any one time. For the 2023/4 Championship season, Leicester, Leeds and Southampton will be getting 55%, Watford and Norwich will be getting 45% and Sheffield United will be getting 20%. There are 7 out of a maximum possible 9 that have a financial advantage this year over the rest of the Championship teams. FFP does not allow the other clubs to make up the difference with extra spending to bridge the gap.
The only way clubs can bridge the gap is to at least break even over the last two years and then use all 3 years' maximum losses (£13m x 3 = £39m plus any profit from the last two years) in the third year to have an overspending tilt at getting promoted. But even £39m of losses is not enough to bridge the Parachute Payment gap so unless the club has been about £10m profitable in each of the last two seasons (giving roughly £60m of losses in the war chest), they are still at a financial disadvantage. So clubs can 'take a shot' in a single year, but if it doesn't work, they have to drastically cut costs in the next year to get back to the old profitable position so as not to breach the 3-year FFP parameters (probably having to fire-sale their best players, and thus ending up in a weaker position than before the 'push year' as other teams will know they need to make sales.
FFP is clearly protecting the Premier League from new entrants in an extreme manner, and in some regards making clubs not recently in the Premier League more susceptible to erratic financial behaviours year-on-year to try and break into the Premier League.
So clubs in the Premier League (non-top 6) and in the Championship (non-parachute payments) need to find this extra edge if they want to compete.
A tried and tested way is to shop for players in markets outside of the UK, or in the lower UK leagues, to find less expensive players that provide great value to the first team, or promote youth players up from the Academy. This helps with lower wage bills and also less money spent on transfer fees.
Another way is to increase consistent revenue, which then allows having a larger allowable spend each year. This could be done via:
- Increasing the capacity of the stadium (if the fan base is large enough)
- Increasing ticket prices
- Improving advertising deals
- Improving merchandising and extra platform rights, especially overseas
- Having a successful Academy and selling developed youth players (Southampton's model)
- Finding undervalued players to buy, training them up with Premier League exposure and selling 1 or two each year (Brighton and Brentford's 'Moneyball' recruitment strategy)
If teams do break into the top 6 Premier League teams or get promoted up to the Premier League, they need to raise their consistent revenue to help keep their new station, otherwise, they need to constantly over-achieve for their financial clout. A prime example is Leicester miraculously winning the Premier League, but then sliding out of even the top 6 the next season, never getting back into it and being relegated 7 years after winning the league.
It should be said that slowly building up the revenue base of the club is the financially sensible and sustainable way of building success, so FFP is helping in this regard, but it does not allow a quick change of fortunes for a club, even with a rich new owner.
Gone are the days of Leeds burning money with success to fly up the leagues and getting to the Champions League semi-final before it all came crashing down. Nor will we see the likes of Brian Clough's Forest team getting promoted into the top tier, winning it in the first season and then winning back-to-back European Cups (the old Champions League) in the following two seasons. And more recently, which was the cause of FFP rules being brought in, Roman Abramovich taking a side usually around 6th in the Premier League and turning them into consistently Premier League and Champions League challengers.
Newcastle are probably the best current success story having been a consistently midtable side but last season suddenly made the top 4 in the Premier League. They do have new Saudi owners and access to bottomless cash reserves (their PIF owners are behind the Saudi Pro League purchases where there are no FFP restrictions) and do now have the Champions League extra revenue, but the owners can't just 'do an Abromovich', which has been seen in this close season where they have admitted they don't have huge budgets to spend on players, especially at a time when they need that deeper squad for the extra European games (currently they have a lower net spend on player transfers than Arsenal, Chelsea and ManU in this transfer window).
So that brings us nicely to the final topic, that of the impact of the Saudi Pro League on the Premier League.
All the headlines are of some very generous wage offers for some of the world's leading players, the latest being allegedly Mo Salah being offered over £1m per week to join one of the clubs. Under FFP restrictions, the Premier League simply cannot compete with those types of wage offers. This also demonstrates that the Saudis are not just looking at players in the twilight of their careers and are after players who are wanted in the Premier League. This does need to be tempered with the fact that there is still a huge value to players to be playing in arguably the best league in the world, giving them a non-financial bargaining chip.
It is too early to see if players will be able to handle the cultural and climate differences and if the Saudi Pro League continues to draw the best players in the world.
But there is another consideration here. Many of the top 6 clubs have players on large wages (compared to the rest of the English clubs) but may be surplus to requirements now. The other European leagues do not have the consistent financial clout anymore to buy players for eye-watering fees and offer these huge wages. The Saudis seem more than willing to pay market, or over-market, prices for players. As such, the Saudi market provides a new vital market to offload surplus players at better prices than they would have ordinarily received.
Also, the Saudis want household names, ones that would command large prices even back home. The success of the Premier League recently has been finding players not at the peak of their skills (or just not household names) and getting great value from the players. So although there might be some players that both leagues will be fighting over, it is not exactly the same pool of players. This is important as FFP materially restricts the English teams' ability to compete with Saudi bids.
If the time players are willing to be over in Saudi is very short (bank the money then come back) and the Saudi Pro League is a success (the number of teams that have PIF or other backers will likely increase), then there will still be a sustainable market for years to come for offloading these surplus players. This helps the selling Premier League clubs with their FFP adherence.
But, as we have seen throughout this article, the deck seems to be stacked in favour of the big 6. This is absolutely no different. The clubs that have benefited from this tactical selling have been Chelsea, ManC and Liverpool. In contrast, Fulham and Wolves lost arguably their best player against their wishes.
So, overall the Saudi Pro League broadly benefits the top 6 Premier League teams, but this advantage is generally not extended to those outside of the top 6, and as such increases the protection of the top 6 Premier League clubs, once again.
Conclusion:
What we can see overall is that FFP has helped reduce administrations, but the impact is not really at the Premier League or Championship levels.
But it has had a by-product of making it much harder to get promoted to the Premier League for the first time, and once there to break into the top 6.
FFP keeps clubs from overspending to try to compete with the Saudi Pro League. The Saudi Pro League, coupled with FFP, further protects the top 6 Premier League clubs by providing a route for offloading players at high prices.
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