Championship clubs have today voted in favour of the Financial Fair Play model. The system will come into force from the 2014/15 season.
21 out of 24 championship clubs voted in favour of the new regulations to limit investment from owners and to curb total spending.
The system, pioneered by UEFA in order to tackle the ever-increasing debt in football, will allow owners to invest a maximum of £6m next season with this reducing to £5m the season after and then £3m in the 2014/15 season.
The penalty, should any club(s) break the rules will be liable to face a fine from the Football League that could run into millions or a transfer embargo.
Clubs promoted to the Premier League who fail to adhere to the amendments must pay a fair-play tax on their losses, ranging from one per cent on the first £100,000 to 100 per cent on anything over £10m.
Non-promoted clubs will not be punished financially for failing to adhere to the new rules, but instead placed under a transfer embargo.
For example, QPR, who made a loss of £25.4m in their promotion season, would have been fined around £15m if the new regulations had been in place last year.
Football League chairman Greg Clarke told BBC Sport: ‘They will begin to lay the foundations for a league of financially self-sustaining football clubs.
‘On the pitch we have three exciting, competitive divisions with crowds at their highest levels for 50 years.
‘But that success isn’t necessarily being reflected on our clubs’ balance sheets and we have to remedy that situation or face an uncertain future.’ Clarke continued.
‘I’d like to commend the Championship clubs for the courageous decision they have taken today.
‘It means that for the first time, all 72 Football League clubs have agreed to take concerted action towards controlling their financial destiny.’
Money invested in infrastructure will not be counted in the club’s losses, for example money spent on stadium or youth development.
League One and Two clubs will not adopt the model as they will continue restricting the amount spent on wages based upon their turnover.
Peterborough United chairman Darragh MacAnthony is a big believer of FFP as he said in a recent Q&A on www.londonroad.net: ‘I am a big believer in the new financial fair play rules and think within 3 years if we keep improving as a championship club and our policies keep producing desired results, it will give us a massive chance on and off the field.
‘I also think the authorities will have no choice but to enforce it heavily due to the state of far too many clubs in trouble currently.’.
Financial Fair Play in the Championship:
Financial Fair Play (FFP) in the Championship will require clubs to stay within defined limits on losses and shareholder equity investment that will reduce significantly across a five season period.
Permitted losses will reduce from an acceptable deviation of £4m for 2011/12 to £2m by 2015/16, with additional investment in certain areas of club infrastructure being excluded (e.g. youth development and community programmes).
The permitted level of shareholder equity investment will reduce from £8m for the 2011/12 season to £3m by 2015/16.
Clubs will be required to provide annual accounts to The Football League by December 1, covering the previous playing season.
Failure to stay within the defined limits will lead to the imposition of sanctions. The sanctions will vary depending on whether the club was ultimately promoted to the Premier League, remained in the Championship or was relegated to League 1.
Clubs promoted to the Premier League will have to pay a ‘Fair Play Tax’ on the excess by which they failed to fulfil the Fair Play requirement ranging from 1% on the first £100,000 to 100% on anything over £10m. Any proceeds will be distributed equally amongst those clubs that complied with the FFP regulations for the season in question.
Clubs remaining in the Championship will be subject to a transfer embargo until they are able to lodge financial information to demonstrate they comply with the FFP regulations (either for the previous reporting period or a future reporting period).
Clubs relegated to League 1 will not be entitled to any payout derived from the Fair Play Tax and will be required to comply with the FFP rules in operation in that division.
Clubs relegated from the Premier League will not be subject to sanctions in their first season in the Championship, as long as they have met their financial obligations under Premier League regulations. They would, however, be subject to the potential of a Fair Play Tax if they achieved promotion in the first season in the Championship whilst not complying with the FFP regulations.
The first reporting period will be for the current playing season (2011/12), however sanctions will not be applied until the 2013/14 reporting period in order to give clubs a sensible period of transition.
Financial Fair Play in League 1 and League 2:
League 1 and League 2, clubs have chosen to implement the Salary Cost Management Protocol (SCMP) first used in League 2 in 2004/05, although it will operate at different thresholds in each division.
The SCMP broadly limits spending on total player wages to a proportion of each club’s turnover, with clubs providing budgetary information to The League at the beginning of the season that is updated as the campaign progresses.
Any club that is deemed to have breached the permitted spending threshold will be subject to a transfer embargo. Wherever possible, The League will seek to tackle the issue ‘at source’ by refusing player registrations that take clubs beyond the threshold.
At the beginning of the current season, League 2 clubs reduced the permitted spending threshold to 55% from 60% and this figure will continue to be operated next season.
League 1 clubs are currently operating a ‘pilot’ of the SCMP with clubs complying with a 75% threshold but with no sanctions being applicable this season. This threshold will reduce to 65% in 2012/13 and 60% in 2013/14 with sanctions (transfer embargoes) being applicable in both seasons.
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