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Sunday, 27 January 2013

Financial Fair Play – is it a level playing field?

I'm delighted to welcome back Stu Radnedge to the pages of The Exiled Robin to analyse the potential impact of the forthcoming Financial Fair Play regulations in light of City's latest jaw-droppingly large annual loss and the redirection clearly signalled from the top.

Over to Stu... 

The £14.4m loss recorded by Bristol City, in the financial year ending May 31st 2012, was described by our Chairman as reflecting “a disappointing and difficult year for the club” and he went onto explain that it “illustrates how much work is required… to comply with the new Financial Fair Play (FFP) regulations”.

So what is FFP? Basically my interpretation is it will ensure football clubs are run more like a business – a good, solid business.  A business that can make a loss, but only up to a specified amount.

It applies to all three leagues (Championship, League One and Two), although the first will adopt a “breakeven approach” according to the football league’s website, which is more based on the UEFA approach. Leagues One and Two will implement a Salary Cost Management Protocol which “broadly limits spending on total player wages to a proportion of each club's turnover.”

Concentrating on the Championship and what it will mean for Bristol City, the rules state in order to comply with FFP the finances must balance, make a profit, or incur a loss less than the permitted level.  The permitted level for the 2015/16 season will be a £2m operating loss, plus an allowance for a £3m shareholder investment.  £14.4m to £5m – that’s a lot of cost reductions to be made between now and 2016.  It’s not going to result in the lighting in the stadium not coming on when it gets dark, but it is going to lead to our beloved club sailing on uncharted waters.

The pros and cons of the situation are confusing.

It will mean every club will only be permitted to invest the same amounts - £3m. So the foreign-owned clubs will not have an advantage, but a loop-hole in this ruling is the sponsoring of stadiums.  Clubs like Man City, Newcastle, Arsenal etc all have lucrative deals which contribute to the clubs turnover.  The proposed sale of Ashton Gate and move to Ashton Vale is looking even more vital to the future dealings of our club (ER – does this make the naming of the new stadium a necessity?).

But, aside from the stadium situation, FFP will separate the haves from the have-nots.  Those that have been in the Premier League and those who have not.  Only a handful of clubs in the Championship have never reached the top flight since the TV money created such reward.  With parachute payments spread over three years, and the revenues earned by clubs in the Premier League about to hit stratospheric levels from next season, what hope is there for teams that have never been in the top tier?

Some maybe, but maybe not.

I would love to be more definitive about it all.  With every club being only allowed to invest the same amount, you would think it would result in everyone starting the marathon on the start line.  But think again.

I have a fear it will divide the leagues into England… and the South West.

Teams that have been in the Premier League understandably have a financial advantage already. And clubs will only be sanctioned to spend what they earn.  That’s fair.

But what if we can afford, or require, a loan signing. We have to be able to afford their wage and the player has to be attracted enough to come to the club.  Look at it the other way, what if we can’t afford another wage?

There are special conditions for this circumstance in the FFP rules, but how much will they allow a club to overspend.

If you get an injury, you need a player, can you get someone in on a bigger wage, or only the same wage?  If the latter is the case we are instantly at a disadvantage if our wage bill is lesser when compared to other clubs…

My fear is that all clubs will be tightening their belts and the astronomical figures earned by players will have to reduce during these frugal times. If a player is seeing their wage drop by thousands of pounds a week, would they want to go out on loan to a club nearly 100 miles away or more? City’s nearest club at this level or higher is Cardiff, but aside from the red Bluebirds, the nearest is in the Midlands.

And that’s exactly my point – which I’ve stated before on these pages, the clustering of clubs.  Will it become the case that the top two tiers are filled with clubs from the clusters of the North East, North West, Midlands and London?

Middlesborough were recently linked with signing of Stewart Downing on loan. We’d be linked with….who?

Could it be that we would have to endure seasons of being a yo-yo club that bounces between League 1 and the Championship – all while the clubs above us get richer? It will then be harder to entice fans to the Gate if we all know the Promised Land is always going to be too far away.  But then again, will it? Some of the clubs above us may not even have cost cuttings to make. Millwall’s wage bill is (apparently) £8m less than ours.  The investment section of FFP will stop the foreign owned clubs having an unfair advantage – but will that be enough?

Will we all have to rely on youth academies for new players?

FFP allows clubs to spend on youth team and set-up under the rules. And this is something which recently was vocalised by the board when it spoke of the investment in the Academy at the same time it announced our recruitment policy was going to be geared more at players in their youth more than high wage demanding players of late 20s, early 30s who have experience.  This may not be a bad thing. Recently, in Derek McInnes’ last game in charge, the only thing to write home about came at the end of the match when young Wes Burns and Bobby Reid entered the field of play.  Maybe here we have an advantage over other clubs who are not as advanced in their youth set-up?

When City announced the record financial losses in December, Chairman Keith Dawe spoke frankly about the situation our club finds itself in and painted the future situation in a dark light.

Dawe said: “This will be hard, it will be tough. I don’t see an easy route, so I’ll prepare you for that.”

But he was clear with regards to the area which City need to improve on more than any other, especially with the introduction of Financial Fair Play regulations – according to the club's website.

He said: “In terms of my inspiration, something I have always been interested in is recruitment.  The recruitment and development is what I believe in; either the players we’ve been able to develop from our Academy or those we have been able to recruit and develop.  Something I’ve felt has been weak throughout my time here has been the scouting and acquisition of players.

We’re in the process of overhauling that. A lot of it you won’t see, but will hopefully benefit us in the long term.  The only way going forwards will be to develop our own players, or alternatively find potential in others’ players and develop them by giving them opportunity.

“There’s also the potential for ROI (return on investment) by bringing them in, hopefully playing for Bristol City and at some point selling them on and making a profit.

“If you look at last season, I thought we were a little bit fortunate not to be relegated. We were one of the worst teams in the division.  It was always going to be a struggle this season and I was really pleased with how we started. I’m disappointed (about) where we are now but we’re in it together and we’ve got to see it through.”

The enigmatic David Lloyd also wrote about FFP on his blog surrounding the fears being aired by many at the account balance of the club. You can read it here - http://www.bcfc.co.uk/news/article/051212-dlblog-527304.aspx?pageView=full#anchored

There are so many questions that we won’t get answers to until the rules come in, but one thing is for sure.  We need to shave £11m from our annual losses before the rules come into force to just stand a chance of competing.

But with a change in management comes a 'breath of fresh air' and a new hope.

The board, aware of the effect of relegation, has set a target of 30 points from a possible 60 left to achieve in order to stave off the threat of the drop. Another honest response in my eyes.

The reduction in debt will be slow and probably painful, but if we want our club to remain, now and for future generations, we have to get our house in order – on and off the field.

For facts about FFP go to http://www.financialfairplay.co.uk/financial-fair-play-explained.php

A big thank you to Stu for that insight and his own personal view of how FFP might affect City.  One thing for sure is that times are changing and there's no way the current level of spending can continue.  That was probably the case anyway, FFP has perhaps just forced the hand.

The Exiled Robin

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