Business of Football: Another Leicester loophole and is Wrexham’s European dream over (for now)?
It could have been because it spanned a long weekend, or maybe it was the blur of Fantasy Football deadlines, but the period between Christmas and New Year’s Eve was particularly confusing this time around.Psychiatrists call this temporal disintegration and it can happen to all of us, as the Premier League may be about to discover.AdvertisementDo you remember last year’s thought experiment about what division Leicester City played in during the 2022-23 season? That was when they appeared to get relegated from the Premier League, only for it to emerge that they were actually operating in a twilight zone between the top flight and the Championship.Leicester’s limbo-like existence was not confirmed until last September, when a panel ruled the Premier League could not sanction them for breaching its Profitability and Sustainability Rules (PSR) because they were no longer under its jurisdiction when the financial year ended. However, this did not mean Leicester were completely under the English Football League’s jurisdiction, as a different panel had already told the EFL it did not have the right to prosecute, either.The Premier League’s case against Leicester hinged on the importance of words. If the rules say Leicester were no longer a Premier League club at the crucial moment, it does not matter if everyone knows what the rule-maker meant.Now, having suffered an episode of temporal disintegration that embarrassing, you might think the Premier League would have a plan to keep better track of these things.Well, we should find out early next week if Leicester are going to be charged with breaching PSR for the 2023-24 season, the campaign that saw them return to the Premier League at the earliest opportunity.
Leicester are battling adversity on and off the field (Jan Kruger/Getty Images)Leicester have said nothing about their financial situation, a position they reiterated when contacted by The Athletic earlier this week. But the consensus view in the industry is that once you strip out all the “good” expenditure clubs are allowed to make on community programmes, youth development and so on, they lost about £95million for the rolling three-year period that ended on June 30, 2024.According to the league’s understanding of its rulebook, clubs are assessed annually on the basis of their audited accounts, with the most recent season referred to as “T”, the season before “T-1” and the one before that “T-2”.AdvertisementAfter the delayed-justice controversy surrounding Everton’s breach of the rules in 2021-22, the league has been determined to apply sanctions in the season immediately after the confirmed breach.So, it requests clubs to provide forecasts of their accounts in March and then asks for the audited accounts by the end of the year in order to make final decisions on whether the clubs have spent too much or not. Therefore, T, for this set of assessments, is 2023-24.Premier League clubs are allowed to lose £35m a year, after the usual add-backs, but the EFL has a lower limit of £13m. The maximum three-year loss a club can make, then, is £105m but this is reduced by £22m for each season spent in the EFL. For example, when Nottingham Forest were docked four points for breaching PSR last year, their upper limit was only £61m, as two of their three seasons were in the EFL.Still with me? Good, because we are about to re-enter the festive fog and get confused again.If you actually look at rule E.54, it says the loss threshold “shall be reduced by £22m for each season covered by T-1 and T-2 in which the club was in membership of the (English) Football League”. It does not say anything about a reduction for season T, which is when Leicester were in the EFL.We do not need to imagine what Leicester lawyer Nick De Marco KC — whose radar for loopholes is legendary — might do with legalese as loose as this. If there is no EFL discount for T, it could be argued that Leicester’s threshold is the full £105million. Over to you, my learned friend.And if that does not work, he could try A.1.247 in the “definitions and interpretation” section that says T means the club’s accounting period ending in the year in which the league’s assessment “takes place”, which sounds like T should be 2024-25 for Leicester.
Richard Masters, Premier League chief executive, could have more financial issues on his agenda next week (Tom Dulat/Getty Images for Premier League)That would knock the club’s loss threshold back to £83m — as T-1 would be last season’s Championship-winning campaign — but it would mean a return to the Upside Down world of 2022-23 when Leicester were being assessed on incomplete numbers. It would also mean that Nottingham Forest and Everton, twice, were prosecuted for the wrong seasons.AdvertisementYou are probably thinking it is obvious the rules intend for T to be 2023-24 and that the league is basing its decisions on final, audited accounts, retrospectively, and not the March estimates. But the use of T in financial fair play rules started with UEFA a decade ago and it says it is the set of audited accounts for the calendar year in which the current season starts. So, an assessment in 2024-25, would look at the 2023-24 accounts. Simple and clear.And this confusion in the Premier League rulebook was picked up by the panel in the first Leicester case when it noted it “would be odd” if clubs were prosecuted for “an estimate that could be falsified by actual audited accounts”.Odd, indeed. I wonder if De Marco spotted it?I suspect some of you will read the above and think that maybe the leagues could use some help with their regulatory responsibilities. The Premier League, however, disagrees.As regular readers will know, the current UK prime minister and his three predecessors have promised to introduce a Football Governance Bill that will create an independent regulator for men’s professional football in England.The last government started talking about it in 2021, spent nearly three years gathering views on the matter, but then ran out of time before it could get its bill through Parliament. The new government tweaked it slightly and is now moving it through the legislative process.The Premier League, egged on by some of its clubs, has lobbied against it from the beginning. Last week, in The Times, three Premier League club executives — West Ham vice-chair Baroness Karren Brady, Brighton chief executive Paul Barber and Arsenal vice-chair Tim Lewis — listed the reasons they hate the bill and the idea of independent regulation.Everyone is entitled to their opinion but Barber and Brady both made claims about a lack of consultation that have caused raised eyebrows in Westminster and beyond.
Karren Brady is an opponent of the independent football regulator (Glyn Kirk/AFP via Getty Images)Brady made the same claim last month in the House of Lords, prompting this response from the bill’s sponsor Baroness Twycross.“This Football Governance Bill is the culmination of years of work, including a huge amount of consultation,” said Twycross, before going on to list the fan-led review that kickstarted the debate in 2021, the government White Paper that followed, the hundreds of meetings with clubs, leagues, fan groups and other stakeholders from the game and the invites for further meetings that have been declined by Premier League clubs.AdvertisementShe could also have mentioned the fact that the previous government got halfway through the legislative process last year, with numerous opportunities for comment, or the blitz of unofficial lobbying in Premier League executive boxes that took place when the new government assumed office. There has been more consultation on the football regulator than there was for Brexit.In fact, all that consultation in the House of Lords has caused the government’s timetable for the bill to slip a little, as it had hoped to wrap up the committee work before Christmas. A two-week pause is required between that and the report stage and final reading in the Lords.This means the bill will not get to the House of Commons, the UK’s lower chamber, until next month, when the whole process must be repeated — two readings in Parliament, a committee stage, a report and then a final reading — before one last consideration of any amendments and, finally, royal assent.For the bill’s many supporters, these delays are frustrating, particularly as convention prevents the government from announcing who will be the regulator’s chair and chief executive until the bill has had its second reading in the House of Commons.So, we are still months away from having anyone with a job title and track record who is able to politely but publicly correct the record when Premier League executives confuse not getting their way with a lack of consultation.Speaking of supporters of the bill, the EFL has been busy trying to get its house in order before the regulator arrives.Under the league’s rules, each division can set its own financial fair play regime. Since 2011, Leagues One and Two have been using a system called the Salary Cost Management Protocol (SCMP) that is similar to the Squad Cost Rules (SCR) that UEFA introduced for its competitions in 2022 and the Premier League will adopt next season.AdvertisementIn simple terms, SCMP and SCR tie how much each club can spend on its playing squad to a percentage of total revenue. UEFA has been gradually phasing in a move towards a 70 per cent cap, while League One is at 60 per cent and League Two at 50 per cent.Big clubs love soft salary-cap regimes like this, as it bakes in their historic advantages and keeps ambitious disruptor-clubs at bay. So, the Premier League’s SCR number is going to be 85 per cent, which means those clubs not playing in Europe will be able to spend/lose more money than those under UEFA’s limit.Last month, Leagues One and Two actually voted to tighten their SCMP rules by staggering the amount of money owners can just inject into their clubs each season and applying the same 60/50 per cent treatment to one-off windfalls such as prize money and TV cash for cup runs. Which is all very sensible and sustainable.As explained in the Leicester section of this column, the Championship, the enfant terrible of football finance, has used the same PSR approach as the Premier League, which is a hard cap on pre-tax losses over rolling three-year periods, with the only difference being the amount clubs can lose: £105m in the Premier League, £39m in the Championship.Unfortunately, this cap has become more of a floor than a ceiling in the Championship, where clubs routinely lose £1m a month and think they are doing OK, a situation not helped by the fact that in any one season half a dozen clubs will have a £40m-plus head start on the rest thanks to parachute payments from the Premier League.The EFL, however, is determined to bring these losses down, as it knows it must demonstrate some fiscal responsibility if it is to get the regulator to encourage the Premier League to send more of the top flight’s broadcast billions down the pipe.There are not many other industries where companies are forced to share money with potential rivals, particularly when some of those rivals are owned by billionaires, too, and they have been so profligate with the money they have already been given.AdvertisementSo, the Championship clubs have held three meetings over the last month about what financial fair play regime it is going to use next season and it now looks very likely that it will not simply follow the Premier League’s lead again and move to SCR at 85 per cent. Instead, it will do what the Premier League is doing this season, and stick with PSR but run SCR in the background to see how it works.Most Championship clubs are fully on board as they are sick of losing money and know they will not get any more money from the Premier League if they carry on spending 110 per cent of their income on player wages. Some disagree. Stoke City, for example, would love to keep spending as much of the Coates family fortune as possible on avoiding relegation to League One.
John Coates, Stoke’s joint-chairman, could make the club one of the Championship’s most free-spending, if rules changed (Alex Burstow/Getty Images)As a potential compromise, some research has been commissioned on a SCR plus luxury tax idea, which would allow the laissez-faire brigade to spend more than 85 per cent providing they match their over-spending by putting the same amount in a central pot that would be shared with the other teams.While some like the logic of this idea, it seems unlikely that Premier League chiefs — or the regulator, for that matter — will be in favour of sharing more cash with guys who can pay a 100 per cent luxury tax to lose more money.The EFL has been grappling with another proposal this week: a request from the EFL’s four Welsh-based clubs — Cardiff City, Newport County, Swansea City and Wrexham — to enter the Wales League Cup, a competition currently contested by teams from the top two tiers in the Welsh league.That quartet likes the idea as the prize for winning the cup would be a place in UEFA’s Conference League. Supporters of the idea in Wales say it would increase attendances and raise interest in the domestic game, while also boosting the country’s UEFA co-efficient, making it easier for Wales to qualify for international tournaments.On Wednesday, Newport County chairman Huw Jenkins told BBC Radio Wales that “everybody could be a winner” but admitted it needed backing from the EFL and the English FA, as the quartet also plays in the English FA Cup.AdvertisementThe same day, Cardiff City chair Mehmet Dalman told the Championship club’s website that Cardiff were “confident that any participation in this trial would not affect our EFL status”, adding that only “relegation, promotion or going out of business” could see a club lose its Championship stakeholder status.He did not say that relegation looks the most likely of those outcomes, (Cardiff are 23rd in the table) but he did point out that Millwall and Wigan have both competed in the Championship and Europe in the same season in the not too distant past, so fixture congestion should not be a big concern. He also said that any extra money earned by the four clubs would be “shared with all clubs”, which might placate those worried that this is just another scheme to fuel Wrexham’s rise to the Premier League.The EFL, however, is not convinced. When asked for feedback by the FA, the EFL board advised the English governing body to withhold approval, citing concerns about the integrity of its competition, the congested calendar and commercial impact.So, if Ryan Reynolds and Rob McElhenney want to take Welcome to Wrexham to the continent, they are going to have to do it via an English competition.(Top photos: Getty Images)
