Friday, 29 April 2016

Financial Fair Play – All change as Charlton are relegated to League One

As well as the obvious drop in income that the club will suffer as a result of being relegated to League One it also has to contend with a different set of rules for Financial Fair Play (FPP).

Unhelpfully the link to the Football League regulations has disappeared from its website and they have not responded to my request for the regulations or to restore the link so the following is my interpretation of the rules from various other sources.

This season in the Championship, under FPP, clubs were permitted a maximum loss of £13m (or £5m if the owner did not inject more equity) over one season.

However, in League One, clubs are subject to a Salary Cost Management Protocol (SCMP) where player salaries are capped at 60% of Turnover plus 100% of Football Fortune Income.

Fan Anger will reduce Turnover
Only wages of players are including non contracted and loan players.  Management, youth players (under 20 and who have come through the club's youth programme)  and other non playing staff are not included.  The salaries of players loaned out to other clubs are not included for the duration of the loan.

As a newly relegated club Charlton can also exclude some players from the wage bill if they were signed pre-September on a contract longer than three seasons.  I believe that this exemption covers Bauer, Sarr and Bergdich but not Ba, Cellobas or Kashi who only signed three year contracts.

The definition of Turnover includes match day income, commercial/sponsorship income as well as revenue from TV rights.  As a newly demoted club this figure rises to 75% for Charlton for the first season.  If the club is demoted to League two then the turnover figure drops to 55%.

Football Fortune Income is variable or one off income which includes financial donations and equity from the owner, transfer income (on a cash basis) and cup match income.

The overall effect it to ensure that clubs have enough money in the bank after covering players’ salaries to ensure that they should be able to break even while still allowing them to spend windfall monies on player salaries.

The sanctions for breaking the rules is a player transfer embargo.

How does this impact on Charlton we might ask?  Using the annual accounts to June 2015 staff turnover was 96%.  This figure includes all training and football management as well as 45 administration, commercial and stadium staff so is on the high side for SCMP but is a good proxy and clearly will need to come down.  If turnover and wages were to remain as they stand then the owner would have to inject approximately a further £3.3m as equity or a donation in order to meet the criteria above.  

Clearly turnover will be heavily down across the board.  Broadcasting income will be virtually non existent and I suspect ticket income will also be down heavily.  I for one will not be renewing my season ticket under the current owner's regime.  So as things currently stand it would be a good estimate to assume that for the 2016/17 season player salaries are higher than turnover.  In practice I believe that the losses at the club will be larger than this year and greater than the amount required to meet the Turnover rule above.

The good news for Charlton fans is that loans and other debt are specifically excluded from Turnover and Football Fortune Income calculations as it would defeat the object and just mean that the club gets further and further into debt.  Roland Duch√Ętelet will therefore have to fund the club properly through equity injections or a gift instead of a series of loans from his holding company Staprix NV.

Or he could just sell up and go..........


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