Football Finance: Short-term cost controls, profitability, and sustainability

Football Finance: Short-term cost controls, profitability, and sustainability

Andy Turner, audit and business advisory partner (media and sports), provides an update on Football Finance

The Premier League Financial Fair Play regulations (now known as Profit and Sustainability regulations) were established to prevent football clubs from getting into financial difficulty.

Although they have been amended several times, there continues to be requirements to provide information by certain deadlines, and significant sanctions for clubs that breach the rules.

It has become an important factor for all football clubs and their finance teams to model the impact of these regulations when preparing forecasts and making financial and commercial decisions.

The Basic Rules

There are some basic rules to follow around 1. Short-term cost controls, (effectively the total of the players service costs) the limits of which are set out below; and 2. Profitability and sustainability (the maximum allowed amount of accounting loss), which is allowed to be made over a three-year period. All of which are discussed below:

  1. Short-term cost control

Players’ service and image contract cost payments (£m):

  • 2016-17: 67
  • 2017-18: 74
  • 2018-19: 81

If the above costs are exceeded, the club has the option to be assessed either on (i) the prior year basis or (ii) the 2012-13 base year basis.

Prior year basis

If a football club is assessed on the prior year basis, it needs to demonstrate that the total of the club’s players’ service and image contract payments has:

  • not increased by more than £7m when compared to the previous contract period; or,
  • any excess over and above the £7m arises as a result of contracts entered into before 31 January 2013; or,
  • has been funded by club own revenue uplift as compared to the previous contract period, and or average three-year player trading profit.

Base year basis

If the football club elects for the base year basis the club must satisfy any of the following:

  • The sum of the club’s players’ service costs and image contact payments has not increased more than the following levels compared to 2012-13 (£m):
    • 2016-17: 19
    • 2017-18: 26
    • 2018-19: 33
  • The excess increase over the above figures arises as a result of contractual commitments entered on or before 31 January 2013, and/or have been funded by club revenue uplift as compared with the like figures in contract year 2012-13 and/or averaged three-year trading profit.


There are also various rules around the payment of debts—the main one being that clubs must ensure that HMRC liabilities in respect of PAYE and NIC are no more than 28 days in arrears.

  1. Profitability and Sustainability

If the aggregation of a club’s earnings in either of the two prior years results in a loss the club must submit a calculation of its earnings before tax for the current year and the two prior years.

If this aggregation results in a loss of up to £15m, the board will need to be comfortable that, for the following year, the club will be able to pay its liabilities and fulfill its obligations.

If this aggregation results in a loss of more than £15m, the club will need to provide future financial information to cover the period from the last accounting reference date until the next two years (ending 31 March) in the relevant season.

The calculation of estimated aggregate earnings before tax until the end of the second year, based on this information, is needed and, where funding is required, evidence of secure funding.

If the aggregation of the three years results in a loss – in excess of £105m (reduced by £22m for each season in the prior years, if that club was in the football league) – this is treated as a breach of the rules.

Impact on finance teams

Finance teams will need to be involved more than ever before in commercial decisions to ensure that the impact is fully understood. This will help decision-makers determine what is ‘affordable’ under the regulations.

They will need to help with the structuring of certain transactions to ensure regulation compliance, and that enough headroom around the regulations is maintained.

Financial information, both historical and projected, will need to be produced on a timely basis, in order to comply with the requirements to supply certain financial information by the relevant deadlines.

Care will need to be taken where football clubs have sponsorship or other arrangements with related parties to ensure that it can be demonstrated that such transactions are at fair value. This can be a very complex and difficult area.

All the above requires the finance teams to have more input to safeguard compliance with the regulations.

These regulations have often been criticised. Some say they protect the status quo of the larger clubs, and do not allow the smaller growing clubs with wealthy owners to compete on an even platform. Additionally, the fair value rules around related party transactions are difficult to determine.

Whilst this is a debate for football, one thing is clear; the rules are here to stay, and finance teams need to be ahead of the game.

Resources & Whitepapers

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