Since the introduction of the English Premier League in 1992 the business of football has changed a lot. The vast amount of money involved has exponentially rocketed attracting billionaires, corporate conglomerates and even state backed funds to invest in and seek to control football clubs. The positive and negative side of this investment can be seen no more clearly than in the case of Manchester City. One of the original Premier League teams, as recently as 2002 they were playing in English football’s second tier. Now, following the investment of a foreign billionaire they have won 7 Premier League titles in the last 12 years, culminating in the 2023 treble win, which saw them lift the Champions League for the first time in club history. While this must be thrilling for those City fans who loyally followed the team through the Championship years at a decrepit Main Road Stadium, the other side of the coin is all the other clubs that have been thwarted in their attempts at glory because Man City can simply out spend them.
While money has always been a driver of success in football, there is a sustainability element that needs to be addressed. Both for clubs thriving only on investment and not on generated revenue and those clubs risking their entire future by overextending financially in an attempt to chase them. The answer is Financial Fair Play (FFP), this complex hodge podge of rules will take a while to fully embed and have the desired effect on football as a whole. Not least because each national FA and UEFA itself have their own FFP rules and their own agendas, but also because the richest clubs can simply spend money on lawyers to tie any negative ruling up in court for years, making it redundant. Below we explore the rules that specifically apply to English Premier League clubs.
What is FFP in the Premier League? All Clubs competing in the Premier League have an obligation to submit their financial accounts to the Premier League Board. These will be analyzed for fair market value, up to date payment of all creditors and overall profit and loss. The headline figure is that Clubs must not lose more than £105 million in a rolling 3 year period. The Premier League board has the power to deduct up to 9 points and suspend a club from registering new player contracts, including those for players already registered with the club, if a club breaches the Premier Leagues FFP rules. It is important to note that any Premier League wishing to compete in UEFA competitions, such as the Champions League (UCL) will have to also abide by UEFA’s FFP guidelines as well.
We have tried to summarize the things a fan might want to know about FFP in the Premier League above. However, these rules are complex and often dependant on other clauses being triggered. In the rest of the article we dive into the Premier League Handbook, extract the good stuff and turn it into language that is easier to digest. (or at least we’ve tried!)
First of all we will link to the source material. The Premier League Handbook, specifically we have focused on Sections E, H & I that deal with club finance and governance.
The Premier League defines Financial play as the following;
“The Premier League has a number of financial rules in place, including requirements for clubs to pay transfer fees, salaries and tax bills on time. They must also submit accounts annually, and disclose payments made to agents. Outside of these obligations it is up to individual clubs, who all have their own directors and senior executives, to make decisions over how they spend their income.”
- PremierLeague.com
Power to Inspect
In order for the Premier League Board to have any chance of enforcing financial fair play (FFP) rules they need to have direct access to any club’s accounts. They gain this access through the following passage in the Premier League Handbook, found in section E.1, the first paragraph in the Finance and Governance section.
The board either by itself or by any person appointed by it shall be empowered to inspect the financial records of any Club which it reasonably suspects has acted in breach of these Rules.
Teams agree to this by taking part in the competition. It bypasses any legal right for financial privacy that businesses may otherwise enjoy. If they do not wish for this right to inspect to be held over them, they could withdraw from the Premier League.
Submission of Club Accounts
The Premier League handbook goes on to detail when these accounts should be submitted and what they should include. We have filtered out the key information.
By the 1st of March each Season clubs must submit to the Premier League Board a copy of its Annual Accounts for the most recent financial year. If the Club considers it appropriate or the board requests then the accounts of any Group of which it is a member. The submission of group accounts is important here. More and more Clubs aren’t owned outright as a single entity but often as part of a larger financial group or investment portfolio. The Premier League needs visibility that the finances declared are those directly generated by the club, without it relying on the support of a larger entity for sustainability.
The goal of the financial submission is for the Premier League to have visibility of the total sums payable and receivable, a clubs profit and loss. It goes on to specifically state;
- Compensation Fees
- Contingent Sums
- Loan Fees
- Gate receipts
- Sponsorship and advertising
- Broadcasting rights
- Commercial income
- Other income
The Handbook goes on to reserve the right to request further submission if they believe there is more to the accounts than they have been shown. It also covers off newly promoted clubs, who must catch up with submitting accounts the Premier League needs visibility of to ascertain their rolling 3 year financial situation. Setting this date as the 30th June in the year the club was promoted.
Overdue Payments rule
FFP isn’t just about ensuring the rich clubs play fairly, it is also about ensuring the integrity of the league from a reputation and financial point of view. Rules are in place to ensure all creditors are paid timely and frequent submissions are required to the board to ensure this is the case. It states thateach Club must by 7 April have no Compensation Fee, Loan Fee or Contingent Sum payable for a Transfer Agreement, no sum payable to an employee that was due before the preceding 31 December.
There are exceptions and it states that an amount shall not be treated as overdue on 31 March if the date for payment has been extended by means of a written agreement with the creditor or it is the subject of current litigation or arbitration proceedings or has been submitted to a dispute resolution procedure of the League, The Football Association, UEFA or FIFA.
These rules are to stop clubs mounting up debt that eventually becomes un payable and they have to close operations disrupting the Premier League season.
If Clubs don’t satisfy the board they have submitted full and legitimate accounts or the league believes the club may not be able to;
- Pay its creditors
- Pay its employees
- Fulfill its obligation to play two League Matches against each other Club
- Fulfill its obligations to provide such rights, facilities and services as are required to enable the League to fulfill its Commercial Contracts, UK Broadcast Contracts, International Broadcast Contracts and Radio Contracts.
Then the board may enact Rule E.15.1 which allows them to to refuse any application by that Club to register any Player or any new contract of an existing Player of that Club if the Board reasonably deems that this is necessary in order to ensure that the Club complies with its obligations.
This would massively dent a clubs ability to be competitive in that Premier League season, being unable to sign new players, promote academy players or extend existing players contracts.
If Premier League clubs have overdue creditors
If the Board is reasonably satisfied that a Club or Relegated Club (“the debtor Club”) has failed to make any payment due to any creditor they can deduct the amount of any such payment from the clubs share of UK Broadcast Revenue, International Broadcast Revenue, Commercial Contract Revenue or Radio Contract Revenue, which it defines as “Central Funds”. This will be used to directly pay the creditor to which it is due.
While the Premier League can’t directly control the Clubs that form it’s ownership group, they can control the money which is paid to them. In diverting the vast amounts of money clubs earn from competing in the Premier League to creditors, the Premier League can assert some financial control on how a club behaves.
Sporting Sanctions imposed for FFP breaches
Outside of diverting central Premier League funds and blocking player registration the Premier League holds a final trump card they can play. This comes in the form of sporting sanctions.
The hand book states;
Upon a Club or its Parent Company suffering an Event of Insolvency the Board shall have the power to impose upon the Club a deduction of nine points in the League competition.
Of course an appeal process is in place, the make up of which is described below;
The appeal tribunal shall be appointed by the Chair of the Judicial Panel and shall comprise three members of the Judicial Panel including: an authorized insolvency practitioner and a legally qualified member who shall sit as chairman of the tribunal.
It goes on to say that;
The Club shall have the burden of proving the matters set out in the appeal. The standard of proof shall be the balance of probabilities.
We will touch back on sporting sanctions later, but these are the powers the Premier League reserves. The only time a points deduction has been implemented for financial reasons was in the 2009/10 season when Portsmouth entered administration. The points deduction made no difference to the outcome of the season for Portsmouth as they finished rock bottom and 16 points from safety (7 without the points deduction). The club would eventually spiral down to the 4th tier of English football (League 2) before stabilizing, currently looking to win promotion back to the Championship from League 1.
How does the Premier League assess Financial Fair Play (FFP)?
The most important thing fans want to know about FFP is if it is going to stop rival teams simply outspending them to win the few top level trophies available. Especially fans of Premier League teams like Spurs, Arsenal, Liverpool and Manchester Utd, who largely survive on the money the club generates, rather than having an angel investor who can simply buy a new squad if the old one isn’t working out.
The Premier League Handbook states;
E.46. If the aggregation of a Club’s Earnings Before Tax for T-1, T-2 and T-3 results in a loss then the Club must submit to the Board the calculation of its Adjusted Earnings Before Tax for each of T, T-1, T-2 and T-3.
In real terms what this means is that the Premier League Board will take into account the 3 previous years of finances when looking at overall FFP. “T” being the current financial year and T minus 1, T minus 2 and T minus 3 being the 3 years that precede it. This is known as a “PSR calculation”.
It goes on to state;
E.47. If the PSR Calculation results in a loss of up to £15m, then the Board shall determine whether the Club will, until the end of T+1, be able to pay its liabilities described in Rule E.14.7.1 and fulfill the obligations set out in Rules E.14.7.2 and E.14.7.3.
This means that if the rolling 3 year period shows a loss of less than £15 million, the board will look at club projections a year ahead to make sure the club will be able to fulfill its obligations to its creditors and the Premier League itself.
The next band of financial loss is defined as;
E.48. If the PSR Calculation results in a loss of in excess of £15m then the following shall apply:
- E.48.1. the Club shall provide, by 31 March in the relevant Season, Future Financial Information to cover the period commencing from its last accounting reference date (as defined in section 391 of the Act) until the end of T+2 and a calculation of estimated aggregated Adjusted Earnings Before Tax until the end of T+2 based on that Future Financial Information;
- E.48.2. the Club shall provide such evidence of Secure Funding as the Board considers sufficient; and
- E.48.3. if the Club is unable to provide evidence of Secure Funding as set out in Rule E.48.2, the Board may exercise its powers set out in Rule E.15.
This means that if a club loses more than £15 million in the rolling 3 year period then Premier League will ask them to show projections out to 2 years in the future and evidence of secure financial funding that will get them back on track financially. At this point the Premier League Board reserves the right to enact Rule E.15 which allows them to prevent the club from registering new contracts.
The final, and most important part of the Premier League’s FFP assessment reads as below;
E.49. If the PSR Calculation results in losses of in excess of £105m:
- E.49.1. the Board may exercise its powers set out in Rule E.15; and
- E.49.2. the Club shall be treated as being in breach of these Rules and accordingly the Board shall refer the breach to a Commission constituted pursuant to Section W of these Rules (Disciplinary).
E.50. The sum set out in Rule E.49 shall be reduced by £22m for each Season covered by T-1, T-2 and T-3 in which the Club was in membership of The Football League.
This section lays out the absolute cap for a 3 year loss at £105 million. At this point the board is highly likely to impose sanctions on registering new players and the club will be referred to a disciplinary where they could face a sporting sanction, which could equate to a 9 point deduction or the withholding payment of central funds from the Premier League. There is no discussion of asking the club to provide evidence of how they intend to pay it down in future seasons or financial years. It also includes information about how they would treat clubs that have not competed in the Premier League for all the seasons being discussed. Stating that the figure of £105 million would be reduced by £22 million for each season spent outside of the Premier League.
This £105 million loss over a 3 year figure is one that Premier League teams are starting to take a lot more seriously. While it won’t limit spending in any one year, teams are well aware of the need to balance the books over a 3 year spell. This has created the effect of a 3rd transfer window, which we explore below.
When is the Premier League Financial Year and why is June 30th so important?
As we alluded to above, there has in recent seasons been a 3rd unofficial transfer window in the Premier League, and more widely across Europe. The Premier League has 2 official transfer windows, the famous “Winter Transfer Window” which is known as the January transfer window and the summer window, which usually runs from mid June to the 1st September.
Increasingly there has been a focus from clubs of getting business done ahead of June 30th. Well before the closure of the transfer window on 1st September. June 30th signifies the end of football’s traditional financial year. So any business conducted between the opening of the official window in mid June and the end of day on June 30th would fall into the previous financial year. For teams that are over the £105 million loss figure, it could be vital for them to sell on players before the financial year ends to ensure they get below that figure. The repercussions of having their rolling 3 year loss over £105 million could be huge.
This has been evidenced in the summer of 2023 by Chelsea. The London club made headlines during the January transfer window by signing almost £300 million of new talent. They have followed that up by selling almost £200 million of players ahead of the June 30th “deadline”. The take away would be that if they hadn’t they would have fallen foul of the FFP rules and potentially lost the ability to register new players and faced a Premier League Board disciplinary process.
It is important to press at this point that the FFP rules don’t just take into account what teams spend on transfers of players in and out. It is about how profitable a club is.
So if a club was generating £1 billion in profit each year from ticket and merchandising sales (for example), they would be more than in their rights to spend that money on player talent and wages. Whereas a team who doesn’t generate much in the way of income wouldn’t be able to simply take a cash injection or loan from a billionaire owner and spend it on upgrading the club’s talent or infrastructure.
The key goal of FFP is to make all clubs’ finances sustainable. It is not intended to create a level playing field.
Fair Market Value: Associated Party Transactions & Threshold Transactions
An obvious way for a wealthy owner to inject cash into their club and make it look like it was revenue generated by the club itself would be to get one of their other businesses to sponsor it. In theory a sponsor could pay any value to have their name on the club’s shirt. So why couldn’t a billionaire owner sponsor their own team to the tune of £1 billion a year?
This is where the term Fair Market Value comes in. The Premier League Board reserves the right to assess all transactions a club makes for fair market value. This is everything from the sponsorship deals used in the example above to player sales and purchases.
The Premier League split club transactions into three types, Associated Party, Threshold and Material. We have defined the terms below;
“Associated Party Transaction” any Club transaction that is with an associated Party, a player registered to the Club or a Manager or Senior Official of the Club. A limit is set per associated party of £500,000 over the rolling 3 year period. Any transaction above this value will be assessed for Fair Market Value. It is expected that any transactions that are classified as being with Associated Parties be submitted to the board prior to them being completed. The Premier League Board reserves the right to ask for the reversal of any transactions it later deems to not be of fair market value if they were not presented ahead of completion.
“Threshold Transaction” is any transaction between a club and a third party that is not an Associated Party of the Club, the Averaged Annual Value of which exceeds either £1 million or 5% of the Club’s annual turnover, excluding Central Funds (money paid to the club from the Premier League).
“Material Transactions” are defined as any payment or financial obligation made or undertaken by a Club which relates to any of the following;
- Compensation Fees
- Contingent Sums
- Loan Fees
- Remuneration of Players (including any benefits they are entitled to receive)
- Payments to Intermediaries
- Third Party Payments
- Payments to players or their Intermediaries
In all cases the Premier League Board can order the cancellation, reversal or reduction of any “transaction” that they feel is inconsistent with fair market value as determined by the board.
These rules are in place to allow the Premier League to prevent the injection of cash into clubs via means that would otherwise be unsustainable.
Dual Ownership and the Premier League
Another way of attempting to circumvent the FFP rules imposed by football federations is dual ownership. This is where a single owner, or company may own multiple teams and allow favorable transactions between them to the disadvantage of other teams competing in the same League structure. The Premier League handbook seeks to combat it as below;
Associations between Clubs: A Club shall not apply to hold a financial stake in another Premier or Football League club. A club must also not issue any of its shares or grant any financial stake to another Premier or Football League club. They must not lend money to or guarantee the debts of another Premier or Football League club or borrow money from another Premier or Football League club or permit another Club or Football League club to guarantee its debts. A club must not have any power to influence the management or administration of another Premier or Football League club or permit any other Premier or Football League club to influence its management or administration.
This prevents any risk of a Premier League club setting up a “feeder” club within the English Football league. However it does not prevent a club from doing so with a team competing in another league structure. There has been a growing trend of owners acquiring multiple clubs in different European Leagues. The policing of this falls strictly under the purview of UEFA itself.
While financial fair play is far from perfect, it is moving quickly to attempt to protect football. This article has focused only on the challenges and solutions faced by the English Premier League. Unlike North American Leagues like the NBA or NFL, European Soccer isn’t a single entity that can be governed by 1 set of rules. Every restriction placed upon a club by a National FA or League body, potentially hands an advantage to a club from a different FA it may compete against on the field in a UEFA competition. Ultimately Financial Fair Play rules will only ever be as strong as those that UEFA create and importantly, enforce.