King Richard the Wicked

Premier League seeks to create permanent underclass with new financial restraints

The Premier League announced new spending rules yesterday which aim to cap player salaries without implementing a salary cap and which seek to limit club losses by demanding that rich owners promise to back those losses for three whole years.

Reading the bold print, because there will not be any fine print until April when the actual rules are voted on, the most stringent rule is the £4m per annum limit on wage increases for teams who have a wage bill already in excess of £52m. At first glance this seems like a very tight inflation cap on player salaries. But the actual statement reveals that the restriction on salary inflation only applies to the increased revenue from the League’s bumper new television rights deal.

In layman’s terms, the League is saying, “here’s £20m extra per year, you can only use £4m of that on increased salary”. This is not a cap on salary, this is a cap on how much of the extra television money can be spent on salary. Increases in wage bills are unlimited as long as the money comes from matchday revenue, commercial operations, or some wealthy person just putting money into the club.

The other rule which Premier League chief Scudamore is trumpeting is the “£105m loss” rule. Again, reading the bold print, the rule simply states that any owner who wishes to make more than £105m in losses over a three year period must provide a further three years of financial backing for those losses. From the PL’s very own press release:

Any club that makes a loss up to that limit [£105m over three years] will be subject to a tighter regulatory regime that includes:

- Secure owner funding for three years ahead
- Increased future financial information over the next three seasons.

This is, of course, not what’s being reported by the big papers. There are quotes about points deductions for teams who run afoul of the losses rule and of how the rule would be implemented (for example, that certain types of spending - infrastructure, etc. – doesn’t count) but you have to understand how corporate communications work to get why that’s being reported but is not included in the actual press release.

Every word of that press release was picked over by several editors, including a corporate communications director, and then approved by the Premier League’s team of solicitors. If the press release doesn’t mention points deductions or details of how they plan to audit clubs then that was left off intentionally because it is not actually agreed upon. The only things that have been agreed upon are that teams can only use £4m per year of the new television rights and that any owner who incurs more than £105m in losses in the next three year period (up to 2016) will need to provide secured funding for that club for the next three years (up to 2019). That’s what’s been agreed to, nothing else.

What we are hearing in the press is, most likely, Scudamore’s dream scenario. Whether that dream will become reality may hinge on one abstaining vote, Reading.

Normally it takes 14 current Premier League teams to vote to change the rules. This vote squeaked by with 13 because Reading abstained. The important thing to remember is that teams could change their mind between now and the actual implementation vote in April. It’s also interesting to note that Chelsea voted in favor of the rule change and are the only owner-financed team to do so. The same Chelsea team which turned a £1.4m profit last year after £166m in debt was converted into equity.

And the press are already hinting that this regulation has fewer teeth than a family in Stoke.* The first hint is that reporters are admitting that UEFA’s Financial Fair Play accounting rules are more strict than the proposed Premier League rules. And, of course, the biggest hint is that Sir Alex Ferguson has stated today that all these rules (both UEFA and the Premier League) are toothless.   

But what if these rules were toothsome? What if the League set a cap on salary growth and a real cap on losses and anyone who ran afoul of that cap were deducted points? It would only ensure the hegemony of the teams who are currently at the top of the spending table.

Capping growth and losses is not the answer to inequality in football. If you want to have a level playing field you have to implement a ceiling for teams like Man City and Chelsea. Manchester City already have a £200m per annum wage bill. Arsenal have a £143m per annum wage bill. That’s a difference of £57m a year. In today’s conversion that’s €67m per year. Just to understand the massive difference in those two wage bills I present to you the estimated salaries of the world’s top players:

That’s just the difference between Arsenal’s current wage bill and City’s current wage bill. Imagine the players one could afford with the difference between Reading and Chelsea?

And worse, if the debt cap is introduced in a meaningful way then that means someone like Usmanov or Kroenke couldn’t put any money into players and bring a club like Arsenal level on spending and squad value through debt financing as Chelsea and City have done. The same applies to any future buyer for a club like Everton.

If you believe that spending, and especially wages, largely correlates with success on the pitch (and most people do) then if they are successful and their rules have teeth, what we are looking at is the Premier League attempting to create a permanent class of haves and have-nots.

Under these rules clubs like City, Chelsea, and United will be perennially challenging for the title; teams like Arsenal, Liverpool, and Tottenham will be left fighting for European football; and the rest of the League will be left permanently trying to stave off relegation. You wonder why Swansea, Villa, West Brom, Southampton, and Fulham voted with Man City against these rules? Because they don’t want to be a permanent underclass.

I, for one, hope that this rule is shot down in flames. If you want to level the playing field you have to implement real spending limits, the same for all teams, and real salary caps, again the same for all teams. Anything else is just rewarding the clubs who gained an unfair advantage through financial doping in the past.

Qq

*The average family of four in Stoke has one tooth, which they share. Like they say, a family that masticates together stays together!

27 thoughts on “Premier League seeks to create permanent underclass with new financial restraints

  1. Vote -1 Vote +1Max Kuznetsov (@maxk515)

    Great post 7am. My thoughts upon first seeing the rules were much the same. It appears that the Premier League is unwilling or unable to upset the balance in place. It is worth noting that the League is acting to protect the perennial “yo-yo” teams from overstretching their PL windfalls, such as TV rights income, in order to avoid insolvencies among these “smaller” clubs. However, it appears that the League is negating it’s own profit sharing model, a model I might add that many clubs in La Liga, for example, would like their league to emulate. The Premier League seems content with relative stability and is willing to pay the price with the continuous degeneration of competitive football.

  2. Vote -1 Vote +1Phil

    Yes, an owner can just put money into the club, but they can’t loan it, they have to take equity, according to UEFA’s rule. It’s brilliant that Abramovich converted the debt to equity, but there’s only so many times you can actually do that, because you can’t actually take more equity when you already have 100%.

    These are restrictions. Are they ironclad salary caps? No, but they can reduce the amount that Chelsea and City, for example, can outspend Arsenal.

    This is a rule that helps Arsenal probably more than any other team, as it has the most room to improve in monetizing its brand.

    Does it solve everything? No, because the Premier League probably doesn’t see itself in the business of making Arsenal champions every year. Does it improve Arsenal’s competitive position? Absolutely.

    1. Vote -1 Vote +1Tim Post author

      It might help Arsenal if it’s implemented and depending on how it’s implemented. I just don’t see clubs like Chelsea and City, who both fully believe in using money to win the League, allowing their dominance to be stripped away and I see nothing in the rules as written that would give Arsenal any leg up.

      1. Vote -1 Vote +1Nick

        The rules(if implemented) benefit United, Chelsea, and Arsenal the most, those are the team with the most revenue, and they would be the team that would be able to spend the most. City’s spending far outpaces it’s revenue, they would have to dial back, as we saw this year in their transfers.

      2. Vote -1 Vote +1Phil

        City’s wage bill alone exceeds its revenues from all sources. This rule, if implemented, is not very good for City at all.

      3. Vote -1 Vote +1Phil

        In fact, there really seems to be only one place City could draw substantial new revenues. Oh will the City support grumble when it happens.

    2. Vote -1 Vote +1Tim Post author

      I’d also point to the size difference in the Etihad sponsorship and the Emirates sponsorship. I’m sorry, but I can’t see any way that Arsenal will ever catch up.

      1. Vote -1 Vote +1Nick

        It’s only a 5m difference per year. They are locked into that for 10 years (they can renegotiate I am sure) while Arsenal will have a higher amount in 5 when the new deal expires.

      2. +1 Vote -1 Vote +1Tee Song

        Isn’t the Etihad somehow linked with the ManShitty ownership group? It seems this “commercial” deal represents nothing but a not so clever but still legal way to circumvent the financial restrictions. It would be interesting to see if that deal was open to actual third party companies what the bids would be. I suspect that it might be less.

      3. Vote -1 Vote +1Nick

        It is related to the ownership group, but City could easily argue that it is “fair market value” considering they just won the league, the deal is less than United and only about 5m a year more then ours.
        PSG’s deal on the other hand is a joke.

      4. Vote -1 Vote +1Tee Song

        It could be fair market value I suppose. But, if it does represent “fair market value” that would imply that another deal with an outside company could be struck for a similar amount of money. And if that is the case, why wouldn’t the owners strike that deal rather than spend their own money to sponsor their own team? The implication to me is that the only reason they can generate that revenue from their kit sponsorship is to pump it in themselves.

      5. Vote -1 Vote +1Joe

        Hasn’t UEFA not warned PSG and man city this week that they will be looking at there sponsorship deals for the naming rights on there stadiums. Because even UEFA can work out these deals are more to do with hiding loses by the owners of these clubs and makes no economic sense or bares any comparison to naming rights payed to other football clubs.

  3. +1 Vote -1 Vote +1Shard

    Wow. This is the second time in recent weeks that I’ve been suckered in by media reporting on an issue. So the rules are rubbish, as is the ‘fact’ that these have been already voted in.

    I really don’t know what to make of this. If this indeed is such a poor rule, why would most clubs vote in favour? Is it simply so that they can keep some of the tv money within the club, to do with as they please instead of paying players and agents? What then?

    I guess I’m going to have to get used to viewing football legislation through a similar lens as international law. Might is right. I’m suddenly downbeat about this. Not because of what it means for Arsenal per se. But about the sport in general. And here I was feeling happy that some form of financial control is going to come in.

    The only thing Tim. I know hard wage caps and limits to spending is what is required. But is there any way this could be seen as a first step towards that? There is no way any club will vote in absolute limits to spending immediately. Maybe this is their way of seeing how financial regulation could work before agreeing to more sweeping changes? Dammit. That’s me trying to fight the despair.

  4. +3 Vote -1 Vote +1Tim Post author

    Unlike the Champions League, The Premier League is in direct competition with the Bundesliga and other leagues to create a product that will capture the largest global audience. When clubs like City buy players like Neymar and Ronaldo and clubs like Chelsea win the Champions League, it increases the profile of the League, increasing the world television audience, and increasing the profits that the League makes.

    Thus the League has a huge financial incentive to maintain or even exacerbate the imbalance currently in the League. That’s why this regulation is so attractive, it’s not about creating balance, it’s about maintaining imbalance. The last thing that Scudamore wants is to see all the big names heading to Spain or Germany. And returning the Manchester derby to the dross it was 6 years ago? Forget it.

    And from some perspectives this regulation hurts Arsenal. What happens if Arsenal lose the 7amkickoff 4th Place Trophy this year and the £50m in revenue that generates? Worse, by my estimates earlier this season Arsenal are at least £100m short of the player value needed to seriously compete for the League title. But if the rules are implemented the way that some people dream they will be even if Usmanov and Kroenke wanted to pump hundreds of millions in to get back into the top they are not allowed to. We won’t even have the ability to waste money like Liverpool have done. That means every Squillaci will hurt more.

    And as for reigning Man City in I can’t see any way that City can let that happen. Rich people are allowed to spend their money to build their business in any way that they want. I honestly can’t see UEFA and the PL having a case if City took them to court and claimed that the rules were an unfair business constraint. Which, frankly, they are.

    This is nothing more than the Premier League making a bunch of noise to placate fans who are pissed off about ticket prices and the fact that an underclass already exists in the game. Meet the new rule, same as the old rule.

    1. Vote -1 Vote +1Phil

      Both Usmanov and Kroenke could waste plenty. They both have room take more equity. Of course, they’d have to stop fighting each other.

    2. Vote -1 Vote +1900ftGooner (@900ftGooner)

      You’ve debunked all the claims comprehensively. For more support, just try to identify a stated objective of all this supposed effort. The best the league can do is to say the regulations “will further improve the sustainability of clubs.”

      The only meaning I can find in that statement is that the league doesn’t want a Rangers on its hands. To guard against that, it’s making clubs keep most of the funds from the new TV deal (ignoring of course the basic concept that money is fungible) and support losses with equity. Weak stuff.

      But, as you say, better weak than strong enough to solidify the current inequity.

    3. Vote -1 Vote +1Shard

      I don’t agree about the City taking them to court bit. Much of the league regulations are unenforceable in law. Why a 25 man squad? Why the homegrown rules? Why bans or fines for commenting on the performance of a referee? If anyone challenges them in court, the whole edifice falls apart. Not even City would want that. If they really are opposed to the conditions imposed by Uefa, they are free to not do business with them and start their own league. Which might very well happen in a few years I guess. But it depends on how other clubs view this. A league without the traditional powerhouse clubs like Bayern, Milan, Real. Barca, ManU, Liverpool, Arsenal etc. will be nowhere near as attractive a proposition for spectators. So if these clubs want to limit City, and stand together, to some extent at least, I don’t think City will have much choice but to go along.

      But that going along will only extend so far. They’ll still push the rules to breaking point, and keep daring the authorities to punish them, until the rules will exist only in name. Such as the rule against tapping up, which not even the public takes seriously anymore.

      As to the league having an incentive to exacerbate the imbalances. Fully agreed. But how far does that extend to individual clubs. I suppose more money coming into the league, means more money for the clubs so they might be happy to go along. What would be the cutoff point beyond which they feel they will actually lose more than they gain? Well obviously that point isn’t reached with these initiatives.

      Anyway. I think we have no choice but to just wait and see how this works out in practice. I never felt any FFP would be a panacea to the problems posed by the sugar daddy clubs. I did hope it would control some of the spending. I guess it’s not to be.

      Oh. One thing confuses me in your statement. If the sugar daddies can actually keep spending their money, why wouldn’t Usmanov or Kroenke be able to pour money into Arsenal?

      1. Vote -1 Vote +1Phil

        It would depend on ownership structure. I don’t know how much more equity Abramovich and Mansour can take. But yes, Usmanov and Kroenke could both absolutely do it. They’d just have to ge the other to agree to a dilution of their shares.

        BTw, isn’t this what @timpayton ‘s rights issue idea was about?

      2. Vote -1 Vote +1Tim Post author

        There are a multitude of “realities” happening with this article. The reality that it won’t have teeth and the reality that it will have teeth are just two. If it doesn’t have teeth then sure, the Arsenal ownership group can spend what they like just like City etc. Though the chances of the Arsenal group using the rule as justification for high ticket prices and not spending money are pretty good.

        If the rule has teeth then it very much depends on how the rule is written whether Arsenal’s owners could spend money. For example, how does one buy equity for three years?

        Often I jump between the two realities without telling you.

        But let’s pretend that Scudamore’s reality that he’s selling to the press comes true. This is the one where teams who make more than £105m in losses over three years will have points deducted.

        In that case Arsenal would be able to sell (lease?) Usmanov or Kroenke some property or something like that and then, sure, he (or they) could put money into the club. If you think that will ever happen, well, that’s it’s own reality.

        Of course, even in Scudamore’s reality there’s a sub-reality which says that somehow the Premier League will go against their own best interest (having several highly expensive teams buying the world’s best players and competing for the Champions League is in their best interest) and will enact a spending limit which will force those clubs to scale back.

        For me, the simplest reality is the one most likely to win out: that this is a big bag of lip service. Just like with FFP, the little clubs are going to be the first ones hit and the big clubs, like Chelsea, will keep turning “profits” from accounting gimmicks.

      3. Vote -1 Vote +1Shard

        Thanks for the reply Tim, and the explanation. I don’t disagree at all. That was my first instinct when FFP (Uefa’s) was announced a few years ago. I guess I was hoping it would turn out different. But that would be too good to be true. So it seems the law will have teeth, but these will be bared only at the less fortunate. Kind of how law tends to work anyway. Why should ‘sport’ be any different? Sigh….

        The only hope I have is that the league’s self interest leads them to having a stale and unpopular product eventually. But then again, marketing, hype, fans’ loyalties, and good ol’ monopolisation will ensure that the consumer won’t have choice of anything too different. Hurrah for football. The people’s game. Where everyone gets played.. Fuck this shit.. Time for bed.

        P.S. Thanks again for laying it out so plainly Tim (despite the shifting realities) No escaping the inevitable, much as I’d like you to be wrong.

  5. Vote -1 Vote +1Tee Song

    FIFA and its subservient governing bodies, including UEFA and the FA, have turned a blind eye to illegal gambling and the ever increasing influence it seems to have gained. These governing bodies are at best, incompetent and were unaware of or, at worst, are co-conspirators in the match fixing scandal which has recently surfaced. A scandal which I’m sure we’ve seen just the tip of the iceberg. To believe that these same governing bodies could formulate and enforce truly meaningful financial reform seems hopelessly naive.

  6. Vote -1 Vote +1C james

    Arn’t the pl rules irrelevant to clubs in the cl like Arsenal, Man utd, etc because they will be subject to the eufa rules that are tougher than the pl rules.

  7. Vote -1 Vote +1Graham W.

    leagues with salary caps have parity. If your arguments were valid why are the weaker clubs the ones pushing for them and the likes of Man City and Chelsea voting against? Answer. it takes away the ability to simply buy a winner rather than create one. Weaker clubs feel their management is strong enough if only they could have a fair shake at bringing in talent. If there are any real “losers” in this system it will be the players who will simply see their wage demands not continue to escalate at the same rate they have over the past 20 odd years. As such, this is not an action against weaker clubs by the perenial big boys it is a labor action against all players to make sure we don’t see anymore Rangers, Portsmouths and Leeds.

    1. Vote -1 Vote +1Tim Post author

      Good point, Chelsea voted for the regulations, West Brom, Fulham, Swansea, Southampton, Villa, and City voted against it. Reading abstained. I guess that proves me right.

  8. +1 Vote -1 Vote +1caribkid

    I basically said the same thing at least 1 year ago, that FFP is aimed at maintaining the status quo of the big clubs, and unlike Tim, I place Arsenal, Tottenham and Liverpool in that pool along with the Mancs and Chelsea.

    What this will mean is that the likes of Swansea and other clubs of that ilk will never be able to attain global success like the current top six. The face of the BPL will be changed forever and the move to a “Super League” and “franchising’ comes one step closer to dismal reality.

    Arsenal should definitely not be affected if an owner want’s to pump money into the club because they can easily have a share issue with an internal agreement for the owner/owners to purchase most of the shares so there is little dilution. Don’t visualize Kroenke even giving this a thought based on his modus operandi and in fact, this will be a perfect excuse for him not to put any more money into the club.

    On the other hand, based on what I have read so far, there would be nothing to prevent a billionaire from purchasing a club and injecting millions into it through share equity, building a new stadium and amenities or having one of their loosely held Corporations pump capital into it via the sponsorship vehicle as done by PSG and City. What this in turn means, is that the notion of meaningful “FAN” participation in governing a club is effectively thrown out the door while leaving loopholes for the “RICH” to become even richer and turning fans into commodities.

    It is the way of the world. Always has been and always will be. The haves will rule and the have nots will be given enough hope they are part of the equation to support their financial masters. The only difference today is that it’s now global. One only has to look on the makeup of ownership at the top six BPL clubs to reinforce the concept of globalization with only Tottenham still having British ownership and Americans leading the foreign contingent with 3.

    It should also come as no surprise that 11 of the current BPL teams are majority owned by non British persons.

    Unfortunately for the football purist and traditionalists, a sign of things to come. Then again, maybe it’s already here.

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