Championship clubs have voted in favour of introducing a groundbreaking new financial fair play model, the Football League announced today.
All but three of the npower Championship's 24 clubs voted in favour of introducing the model, which is based on UEFA's financial fair play regulations, and plans to curb Football League debt by limiting investment from owners and total spending.
Football League research has revealed that the 72 clubs that form the Championship, League One and League Two are on course to rack up a combined £2billion of debt unless spending and investment from 'sugar daddy' owners is curbed.
The regulations will be introduced next season on a gradual basis, but sanctions for non-compliance will not be put in place until the 2014-15 season.
Under the regulations, from the 2014-15 season, clubs who record total losses of over £6million will be hit with either a transfer embargo or a fine that could run in to the millions.
The club in question will be fined if they are promoted to the Barclays Premier League and will be hit with a transfer embargo if they remain in the Championship.
Owners will be allowed to invest £6million next season, £5million the following and £3million the following season.
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From the beginning of next season, clubs in the Championship, League One and League Two will adopt a fresh financial fair play model based on Uefa guidelines.
Under the rules, clubs will be required to provide accounts to the Football League by 1 December each year highlighting whether they have stayed within limits on loss-making and shareholder equity investment.
Championship clubs will see permitted losses drop from an acceptable deviation of £4m in 2011-12 to £2m by 2015-16. The permitted level of shareholder equity investment will reduce from £8m for 2011-12 to £3m by 2015-16.
Sanctions for failure to meet these guidelines depend on whether the club was promoted, remained in the Championship or was relegated.
In the case of promotion, the club would 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 among those clubs who complied with the regulations for the season in question. Clubs failing to meet the criteria but who remain in the Championship will be subject to a transfer embargo. Any side 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.
The Football League has stressed, though, that clubs will not be subject to sanctions until the reporting period of season 2013-14 in order to give them a spell of "transition".
Greg Clarke, the chairman of the Football League, said: "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.
"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.
"Whilst we cannot promise that these rules will deliver results overnight, they will begin to lay the foundations for a league of financially self-sustaining football clubs."
Andy, but it's not just loans that are limited. "The permitted level of shareholder equity investment will reduce from £8m for 2011-12 to £3m by 2015-16."
So even if you don't loan but put the money into the Club as equity ie shares you are limited.
Although maybe Coventry and Portsmouth too
And there are always ways around it, there is nothing in these rules to stop owners arranging for suppliers to under-quote, sponsors to over-pay, etc.
I'm sure that there will be ways around it such as Man City getting a huge sponsorship of their stadium by a company owned by, oh, the people who own Man City.
But at least accounts will have to be submitted (never doing this was one of Simon Jordan's tricks) so can be looked at and see if tax etc has been paid.
My gut feeling is that it has come at the wrong time for us. We are potentially/maybe/could be cash rich. So we can break even this but extra investment could be the difference between mid or top table finish.
In the long run it might be good for football and well run clubs (which we are) but if the business model to spend to get in the prem and then sell it makes that harder perhaps.
Hard one to call as not really enough info from the Club on business model and finances to say.
Maybe if a fans message board auction off some memorabilia the mysterons could bid £10m for a signed shirt and then the supporters group
could all skip the countrydonate it to the club: - )
Just since those 2 have rich owners that want to invest?
I have a friend who is a senior figure in the world of wealth management and is supposedly an associate of TJ's (he was at the game on Saturday as a guest of a director) and he's telling me we're cash rich next year and the money's to be used for team rebuilding and ground improvements. When I asked him if the money was from Dubai his response was more like an hour and a half's flying time but that's all he'd say.
Tally's with a few third hand rumours I've heard to re:cash rich
What's 90 mins flying time from Dubai? India/israel/Iran?
Would this be the same person I met when he was with you and working for a midlands footie club?
If an owner puts money in that he can't take back then it is ok for it to be spent. The issue is that many owners use their money to leverage massive debt that is 'unfriendly'. Southampton didn't build St Mary's with directors money it was built with a loan. That loan was as good as written off when they ran out of money.
Bolton have, I read somewhere, close to £100m of debt. That can never expect to be repaid, so it will have to be serviced from TV money until the club fall out of the Premier League, then I suspect that they will have to use Administration to reduce it. Just 7% on an interest only basis would require £7m a year to service the debt. Ultimately this can't be afforded out of the Premier League.
Clearly something has got to change, the Championship is a dangerous league financially, as it's easy to get carried away, trying to buy promotion, as the financial benefit of promotion to the PL is so great. I'd be interested to see the size of West Ham's wage bill this season!
These are excellent rules. If they have any sense they'l be written in a way that's been pushed in the financial world for the last ten years - no that any government isn't successfully lobbied by Goldman Sachs not to do it: Namely a financial law is written not to cover every possible outcome, but it is for every organisation to keep within the spirit of that rule and for them to prove that they did not act against the spirit of the rule.
Wage caps, operational loss control can both be got round. In America clubs choose to go outside them sometimes, sometimes they are found post event to have avoided them and are punished. Howeve it happens, it is an excellent move in modern football. The next move is that the Premier League agree that the football league has first rights on any payments if clubs like Pompey neglect to follow any financial fair play rules.
Just a shame that their is no wage structure for players under 24, to encourage home grown players and put pressure against the ridiculous upward pressure on wages. If clubs want to sign average mature players on wages that are astronomical fine, but some controls on wages is needed for the above rules to consistently work.