mackem watch – sunderland and financial fair play

by • May 30, 2017 • UncategorizedComments (3)2400

A few years ago, a true faith colleague wrote an article about a ticking time bomb that he reckoned would explode under Sunderland sending them tumbling out of the Premier.  That time-bomb was called Financial Fair Play (FFP).

At the time, little was known about these FFP rules that UEFA were considering introducing but the theory was pretty simple.

Dozens of clubs, especially in England, had gone into administration as a result of making huge financial losses. UEFA would attempt to stop that and protect clubs from themselves. They’d penalise those financially irresponsible clubs through FFP regulations.

Following UEFA’s lead, the main English domestic football ruling bodies, the Premier League and the FA, followed suit and introduced their own versions of FFP.

The rules were written for clubs exactly like Sunderland. Clubs that make huge financial losses every season by spending money they don’t have. Clubs that rely on generous sugar daddies to subsidise them and gain an unfair advantage over more financially responsible clubs.

We’ll see in this article how the Premier League FFP rules contributed to Sunderland’s relegation as predicted by our TF colleague. We’ll also see how the FA’s Championship FFP rules will continue to plague SAFC in the future?

Ok, let’s start with Sunderland ‘s relegation. What are the FFP rules governing the Premier League?

FFP dictates that clubs are not permitted to make excessive losses over a three season period. Those  that do are subject to penalties. We’ll explore those rules later.

However it was some lesser known Premier League FFP rules governing players’ wages that contributed to SAFC’s relegation.

Magic. What were these rules then?

The rules are complicated and best represented in a table.

That might as well be a diagram for splitting the atom. Can you explain simply how that ruling contributed to SAFC’s relegation last season?

Sunderland basically maxed out on their permitted wages under FFP after the summer transfer window. This meant that they had virtually no flexibility to sign players in January 17.

How so?

Sunderland’s wage bill for 15/16 was directly in line with the maximum permitted in the rules illustrated in the diagram above.  They were permitted to spend a further £7m on wages in 16/17. Additionally, another 15 players left the club (including the likes of Fletcher and Johnson) freeing up more wages to spend on new players.

No problem then?

Not quite.

Despite the whining from SAFC fans about their lack of transfer activity, 10 players came into the club during the summer (including three loan signings).

To attract players to a club like Sunderland, they have to pay big wages otherwise why would anybody consider moving there.

Additionally, Van Aanholt, Defoe, Koné, Mannone and Pickford were all awarded new bumper deals.

And that restricted their permitted purchases in the January transfer window?

Indeed. They were at the limits of their permitted wage bill under FFP.

These were the “financial parameters” that SAFC’s CEO, Martin Bain, referred to when telling their irate supporters that there would be “no significant business done in the January window”.

To free up some of the wage bill, SAFC were forced to sell one of their best players, Patrick Van Aanholt. This allowed the purchase of Darron Gibson and Bryan Oviedo.

We now know how well that went! FFP prevented them from buying players as they had done in January 16 to avoid relegation.

Lovely. So Premier League FFP rules helped relegate Sunderland. How will SAFC fare under Championship FFP rules?

They’re going to struggle under the Championship’s FFP permitted losses rule.

Good. So what are the permitted losses?

The permitted losses are assessed over the last three seasons and highlighted in the table below. For seasons in the Premier League, the permitted losses are £35m per season. In the Championship they are only £13m per season.

Next season, Sunderland will be permitted a total loss of £83m (£13m + £39m + £39m). Failure to gain promotion will mean those permitted losses reducing to £61m (£13m + £13m + £39m) and then £39m (£13m + £13m + £13m) in subsequent seasons.

 

Why is the permitted loss so much higher if “equity” is injected?

Some clubs like Man City, Chelsea and Sunderland make huge losses but are unlikely to go into administration. This is because their owners cover the losses by injecting equity (basically sticking in their own personal wealth).

However UEFA and the domestic ruling bodies felt this was unfair as “proper” self-financing clubs were at a disadvantage when competing against “plastic” clubs with mega rich owners.

So despite it being unlikely that these clubs would go into administration, there were still limits on permitted losses (albeit higher than those without owners stumping up equity).

So has Short injected any equity?

Yes.  Short has put in an eye watering additional £101m in equity to cover SAFC’s losses since purchasing the club. However his willingness to inject more equity may be running short (pardon the pun). He’s unlikely ever to get this equity back even in the event that he manages to sell the club.

If Short starts to pull the plug on his own personal funding, the permitted losses for SAFC will then become a whole lot smaller. They would be permitted a total loss over three seasons in the Championship of only £15m. Bear in mind that’s less than half the loss they incurred in one single season in 15/16!

So will Sunderland breach the permitted losses next season?

Probably not.

The three years for which they will be assessed next season will be 15/16, 16/17 and 17/18. The permitted loss for those 3 years will be £83m (if Short continues to inject equity).

We know the loss for 15/16 was £33m. That means that they can afford a total loss of £50m for seasons 16/17 and 17/18.

The financial results for 16/17 will not be released until April 18. However with the new TV deal, it’s unlikely that even SAFC could make another loss of £33m! I predict they’ll still make a loss (they always do) but it’ll be a small(ish) one of less than £10m.

However the third season in the assessment, season 17/18 in the Championship, will be very challenging for Sunderland. They will lose about £60m in broadcasting income. To avoid breaching the 3 year permitted loss rule, they’ll have to make some stark decisions.

Sounds suitably doom laden. What decisions would they be?

They’ll basically be forced to reverse the club’s entire strategy over the last ten years.

From being one of the highest net transfer spenders in Europe, they will be forced to become a net seller. From having one of the highest wage : income ratios in the Premier, they’ll have to massively cut their wage bill.

So it’s going to be tricky for the next manager?

Tricky isn’t the word. He’s going to inherit an awful side and will be forced to sell their best players. And then he’ll have very little money to bring in, or pay the wages, of new signings.

And what happens if they don’t come straight back up?

The nightmare gets a whole lot worse. They face a double whammy of massively cut parachute payments reducing their income combined with progressively smaller permitted losses.

Promotion at the first attempt is imperative for them.

And if they don’t?

If they don’t, Sunderland will face a huge battle to live within the constraints of the Championship FFP rules. Bear in mind that they’re going to have players on big wages who they can’t sell and they’ll still be paying for the awful signings made in the Premier for several years to come.

 

And what punishments will they face if they breach the rules?

A wide range of punishments are now available. Nothing is off the table; the Football League are now able to impose a points deduction during the current season, or demote a club from an automatic promotion position into the play-offs (or out of the play-offs altogether). Transfer embargoes are also available.

 

At the start of this article, I mentioned that FFP rules were written for clubs like Sunderland. Plastic clubs that were wholly reliant on generous owners to finance their teams.

To be fair, Sunderland are not alone here. Clubs like Man City and Chelsea do exactly the same. The difference of course is that those teams are successful.

Sunderland on the other hand have had huge amounts of money chucked at them by their gullible owner to achieve absolutely nothing. It was a once in a lifetime opportunity for them to compete in the top flight and they blew it.

In contrast, Newcastle have attempted to live within their own means (“wipe their own nose” – or something like that – as Ashley succinctly put it). It’s not been without some pain but in the long run it was always likely to be more sustainable than SAFC’s approach.

I can’t see SAFC ever returning to those halcyon days when they were amongst the highest net spenders in the Premier League.

The marvellous FFP rules have ensured that.

Tom McMenemy

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3 Responses to mackem watch – sunderland and financial fair play

  1. steve hutchins says:

    It’s a failure to win games that put you down

  2. “We’re doomed lady. We’re al doomed”.

  3. Paul says:

    So all of these anti Ashley fans are wrong and hes been doing it right all along?
    Also Sunderlands wage bill will drop by 40% because of clauses and thats without losing players on loan and Defoe.