This is all the references for my essay about the myth of equity and FFP
For anyone wanting to follow the new FFP regulations that form the backbone of my essay, these four regulations are the most important.
Losses Exceeding the Lower Threshold
We start with the regulation that says we must aggregate three year’s worth of profits or losses. The profits or losses are called “Earnings” by the EFL and we use them after having been “Adjusted” by removing costs of “Allowable Expenses”.
“Regulation 2.8 If the aggregation of a Club’s Adjusted Earnings Before Tax for T, T-1 and T-2 results in a loss that exceeds the Lower Loss Threshold, then the following shall apply:
2.8.2 the Club shall provide such evidence of Secure Funding as the Executive considers sufficient”
The lower loss threshold is currently £5m per year for every year in the Championship or League One or Two and also £5m for each year spent in the Premier League, so the total for the three years is always £15m Lower Loss Threshold, irrespective of what divisions a club has been in.
Secure Funding
You will notice that regulation 2.8 above says a club whose 3-year-losses exceed £15m must provide “Secure Funding”. That is part of the punishment and part of what is colloquially called “soft sanctions”.
What is “Secure Funding”?
Regulation 1.1.11 comes to our aid with a handy definition of just what the EFL consider Secure Funding:
“Regulation 1.1.11 Secure Funding means funds which have been or will be made available to the Club in an amount equal to or in excess of any Cash Losses which the Club has made in respect of the period from T-2 or is forecast to make up to the end of T+2. Secure Funding may not be a loan and shall consist of:
(a) contributions that an equity participant has made by way of payments for shares through the Club’s share capital account or share premium reserve account”
This defines Secure Funding as “Cash Losses” made over the period T-2 up to and including T+2 – where T means the current season, T-2 means two seasons ago and T+2 means the season after next.
Part (a) says that once “Cash Losses” are calculated club owners must buy equity shares up to the same monetary value. The EFL will decide just how much of the Cash Losses are to be covered by equity share purchase.
Cash Losses
Ok, what are “Cash Losses”?
This is a term that could have many meanings but the EFL have avoided any doubt and again provided a handy definition in regulation 1.1.4.
“Regulation 1.1.4 Cash Losses means aggregate Adjusted Earnings Before Tax after:
(a) write back of:
(i) amortisation and/or impairment of Players’ registrations; and
(ii) profit or loss on the transfer of Players’ registrations; and
(b) inclusion of net cash flow in respect of transfers of Players’ registrations.”
Summary
The new rules keep the principle of being able to lose £5m per year without sanction but extend it to a three year period.
There is no longer a requirement for annual equity purchases.
The old requirement of mandatory purchases of equity shares to a value equal to FFP losses above this limit has been scrapped.
Three-year-FFP-losses above £15m trigger a mandatory share purchase up to a value of the estimated, actual and forecast total cash losses of a five year period, starting from the season before last up to the season after next.
The EFL decide by some unspecified method just how much of these cash losses they will demand are covered by equity.
Mike Thornton – 8th August 2019