Financial Fair Play: Are Football Authorities Waking Up and Should they Look to Rugby Union for Inspiration?

Football authorities have finally been making some headlines by showing some teeth in their application of financial fair play rules.

One of the biggest sporting stories of this year so far is that Manchester City have been banned from European competition for two years starting from next season. There is speculation that this could be closely followed by Premier League sanctions.

In addition, the EFL having been making some headlines recently in relation to the finances of clubs and for once I would say that this is in a positive way. Derby County are the club who seem to be set to suffer the most at their hands.

This comes at the same time that Premiership Rugby took the unprecedented step of relegating Saracens for their breaches of the salary cap put in place to stop clubs from operating beyond their means and to create a level playing field.

I will begin by setting out the rugby rules and Saracens’ situation before taking a look at what the football authorities have believed is sufficient action. I will then take a look at this shifting trend towards harsher action.

The Rugby Premiership Salary Cap

Every club participating in the top flight of English rugby has to operate within a salary cap of £7 million for their squad. There are various other allowances for a couple of star players and home grown talent but the basic principle is your wages fall within that limit. The rules state that any payment made to a player by virtue of their employment by the club falls within the cap.

Well there are always those who look to get around the rules. For example, a common way of getting around the rules used to be to employ the wives and girlfriends of players for no particular reason other than you are going out with him. This opportunity would not be available if it were not for the players employment, so such payments would be within the cap, unless properly justified of course.

It seems simple right? Well not for one team in north London

Saracens’ Story

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Saracens have dominated English club rugby during the last decade, and contributed a large proportion of England’s World Cup squad last summer. They have won five of the last six Premiership titles, decided by a play off system, and three of the last four Champions Cups, essentially the Champions League. They built a dynasty based on their principles of honesty and humility, but was it too good to be true?

As is so often the case in life it was. They had been breaching the salary cap for (at least) three years in a row. Figures for the size of the breach range from £500,000 to £1 million a season. So not small change.

The scheme was simple, the club’s rich owner entered into joint venture businesses or co-investments with certain players, who all happened to be star players, a sort of platinum club you might think it appears. These were not declared to the league within the club’s annual returns and the Premiership was not aware of these payments being made. As set out above, any payment made by virtue of their employment by the club falls within the cap, and Saracens’ owner was not entering such agreements for any other reason, whatever the motive behind them may have been (as Saracens do for the record deny deliberate wrongdoing and state that these were simply investments in the players’ futures, not salary).

They of course had to be punished. They were deducted a massive 35 points and fined over £5 million. Not bad by way of punishment you would think.

The problem was, they were still breaking the rules this season, with some estimations saying they are now a staggering £2 million over the salary cap. There was no chance they could end the season within the cap and they were on course to stay in the top flight at the expense of another rule abiding citizen.

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The rule abiding citizens at risk, along with others who were bitter about the whole saga, took a look at this and decided it could not stand. The next thing you know it is announced that Saracens will be relegated from the Premiership at the end of the season, a sanction they chose over giving back the titles won while over the cap and opening their financial records for a forensic audit. I will leave you to decide whether you think Saracens have anything else to hide given they do not want to release the books.

Football’s Attitude Towards Financial Fair Play

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So how does football’s response to breaches of the rules differ to that set out above? Well some might argue that football authorities haven’t really bothered responding to breaches in the rules. I would certainly be amongst them.

I am sure we can all think of a handful of clubs who have fallen foul of the rules or who have been reported to have sailed close to the wind. Manchester City and Paris Saint Germain were both punished by UEFA previously. That punishment though was a fine and a smaller Champions League squad which is hardly that inspiring. Particularly the fines which their super rich owners would have simply reached down the back of their golden sofas to pay. AC Milan are currently serving a ban from European competition, which would seem to be a hardening of UEFA’s stance, which is trend we have seen continue with Manchester City’s latest punishment.

It is interesting to note the hardening in stance. A ban from European competition has a very real impact on a club’s finances and does constitute a real deterrent. Given that the rules are based in revenue vs expenditure, all of that lost revenue has a serious implications, particularly in a league as competitive as the Premier League. The other sanctions, well they seem less imposing. Time will tell whether this acts as a real deterrent going forward.

Speaking of the Premier League, reports indicate that due to the similarities between UEFA’s regime and the Premier League’s that more bad news may await Manchester City before too long. If they were say to get a points deduction then that could lose them millions in positional television money.

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Dropping down to the financial looney-bin they call the Championship, the EFL may just be starting to find their teeth too. Having failed to adequately deal with Queens Park Rangers, Leicester City and Wolverhampton Wanderers (albeit the latter two remain beyond the EFL’s effective reach in the Premier League), Birmingham City were the first team to feel the real potential impact of financial fair play. The amount of their points deduction though was not enough to really alter their season but it did finally send a message which club owners may wake up and take notice of. If you brake the rules, we will deduct you points, and potentially derail your season.

But what about those clubs who have already escaped the EFL for greener pastures in the Premier League? Well reports state that both Leicester City and Queens Park Rangers were faced with rather small fines in the grander scheme of things. Maybe we will see if something more interesting is done with Wolverhampton Wanderers, and I will get onto my thoughts on this.

The EFL are now conducting a number of further investigations. Sheffield Wednesday are under the microscope for the bizarre circumstances surrounding the sale of Hillsborough to their owners where it is reported that the paperwork presented simply does not add up. Elsewhere, Derby County seem to be finally attracting the real attention of the regulators after years of lavish spending and their own stadium sale to an owner. With Derby County's stadium sale it is worth nothing this was valued at something like double what West Ham United sold Upton Park for. Now I am no real estate expert, and with no disrespect to Derby surely property in London is worth more?

The Future of Financial Fair Play

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Football has to learn from the recent experiences of Bolton Wanderers and Bury along with the ongoing situations at Macclesfield Town and Southend United. With Bury as the example people forget that it was Steve Day who, with good intentions, inflated the wage bill at the club seeking on the pitch success. When his other business interests which funded this started to fail he was no longer able to bank roll these wages and had to sell the club. The rest as they say is history.

The finger can be pointed at all sorts of other people, institutes and regulatory mechanisms when it comes to Bury’s demise but had Mr Day not decided to run the club beyond their means we likely would not have seen the club fold. Bolton were also being run massively beyond their means for years before the bitting financial issues kicked in.

Financial fair play has its critics, quite rightly, on the basis it entrenches the status of the haves and the have nots, but I firmly believe it has an important part to play in preserving the football clubs which are so important to local communities up and down the country and around the world. The rules may not be perfect and the way they are enforced still leaves much to desired but I am hopeful that regulators are moving in the right direction as they look to protect clubs for generations to come, while supporting more sustainable investment to move clubs forward, for example in infrastructure which falls outside of the rules.

We need these rules to continue to be properly and consistently enforced in order to ensure the stability and the future of the game as a whole.

Authorities need to look at what will really hurt the clubs owners, like with the Saracens situation. Their owner won’t have cared about the £5 million fine and that wouldn’t put off others like him, but relegation, that is huge. Likewise, I looked above at how much Manchester City’s owners are likely to care about a fine. But not being in the Champions League for two years, that is painful. It is the same with points deductions in the EFL, as these owners will not in the most part be put off by a fine.

And what should the EFL do with those who win promotion, well why don’t they say when you are next in the EFL you will start the season on negative points and be under an incoming transfer embargo? Why hand them a small fine because it is all you can do right now? These clubs bring in £100 million minimum from being in the Premier League before you even add commercial deals and the like, they do not care. I mean seriously, West Ham United were 20th on last years football rich list, and you will find the remainder of the Premier League sides not far behind them.

If the authorities are serious about these rules they need to hit clubs where it hurts. We live in a world where if your club is run into the ground by a rouge owner then they are docked points and given other punishments which last for years after their tenure ends. But if clubs break the other financial rules little to nothing happens. Should this be the case?