The Premier League FFP fallacy – Losses allowed, £315m instead of £105m?
Now that the summer transfer window has closed, I think it is a good point to review the Premier League’s FFP (Financial Fair Play) rules.
The Premier League FFP rules were adopted for the 2013/14 season. Premier League clubs cannot make a loss in excess of £105m across a three season period.
That figure is still applicable today, 10 years later.
If we look at the impact UK inflation in the 10 years since the adoption of the FFP regulations, £105m would now be circa £150m today. Therefore what you could buy for £105m in 2014 would cost £150m today.
Now we all know that football inflation, especially in England, is on another level.
Let us look at the transfer fees paid in 2013/14 season. All figures are in Euros as the source is transfermarkt.
English clubs spent €924.4m for the whole of the 2013/14 season, with a net spend of €518.1m.
The highest transfer that season was paid by Arsenal, €47m for Mezut Ozil.
The highest transfer fee received was €101m by Spurs for Gareth Bale.
Newcastle United’s contribution to the overall expenditure that season was €3.8m, for two loan signings, Loic Remy and Luke De Jong.
We managed to recoup €25.8m, largely through the sale of Dreamboat (Yohan Cabaye). Halcyon days.
Now let us review this summer’s business.
English clubs have spent the thick end of €2.9b. Yes billion.
Net spend is almost €1.3b.
The highest fee paid is once again Arsenal shelling out €116.6m for Declan Rice, closely followed by Chelsea paying €116m for Caicedo.
Newcastle have been active, with a net spend of €108.60m.
The 2013/14 figures are for the whole season. Obviously this season’s deals are the summer window only.
Now you don’t have to be an economist to realise that the expenditure levels are far higher today than 10 years ago.
Is it safe to assume the FFP parameters should have increased by a similar amount?
Should the amount of acceptable losses over a three year period now be £315m?
Seems reasonable to me.
Let’s look at net spend.
Club net spend this summer is already 2.47 times the total spend for the whole of the 2013/14 season.
Should the FFP parameters be £260m?
We should have a look at income.
Outside of the septic 6 the biggest revenue stream for clubs is TV revenue.
The total of revenue received from the Premier League’s coffers in 2013/14 was £1.56b.
Liverpool “earning” the most £97.5m.
We were robbed, receiving only £77.4m for our supreme efforts.
Last season, the payout was a total of £2.73b with Man City earning the most, £182m.
Our share was £135m.
TV revenue increased by 1.75 times 2013/14’s outlay.
So if this increase was applied to the FFP constraints, the amount a club could lose over a three year period would be around £184m.
Perhaps clubs tightened their money belts in 2013/14 while the impact of the new rules was assessed.
Given that we don’t know how the EPL came to apply the £105m limit, who knows what the 2023/4 figure really should be.
There has to be a consideration made for transfer fee inflation and increased revenue.
I don’t have the will to examine each club’s income streams to determine if the £105m figure is appropriate.
I haven’t even considered the inevitable increase of players salaries that each club has had to manage to remain competitive. The limits for salary expenditure has to decrease as a percentage of revenue as applied by FFP legislation.
In summary, it is clear to me that the FFP rules in the EPL, or anywhere else, are not fit for purpose.
We all knew that already, nevertheless there is absolutely no transparency on how the original figure was conceived. It was probably pulled out of thin air.
There has to be transparency and some logic applied to account for the spiralling costs clubs have to manage.
Financial growth for each club is the only way of dealing with ever increasing costs.
The EPL are now applying legislation to control clubs’ revenue with new sponsors having to meet a fair market value when it comes to related transactions.
This summer has shown that FFP isn’t having any impact on creating a level playing field, which was clearly not the original objective.
It needs a full review but the clubs at the top table do not want to relinquish their grip of the EPL magic money tree.