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QPR take FFP medicine, so when will things get better? Column
Friday, 27th Jul 2018 11:12 by Clive Whittingham

Years of legal wrangling between the Football League and Queens Park Rangers over the club’s breach of Financial Fair Play (FFP) drew to a close today with a settlement amounting to £20m and a transfer embargo.

- QPR to pay a fine of £17m plus the league’s costs (£3m)
- Club will face a transfer embargo for the forthcoming January window
- Shareholders required to capitalise £21m in outstanding loans

History

When you’ve spent four years staring down the barrel of a £42m fine, ending up paying £17m (plus £3m costs) must feel like a bit of a relief. Particularly – and this is key from a QPR point of view – as the club will make the payments in instalments over ten years. A transfer embargo for the January 2019 window, again, doesn’t feel too bad, as QPR have pretty much stopped signing players anyway.

But just because you’ve successfully escaped the threat of being eaten by a crocodile doesn’t mean you’ll happily be mauled by a lion, and this is still a record fine levied by the football authorities in this country and it’s against a Championship club with just 7,800 season ticket holders.

Recap, in case you’ve been on the moon. The settlement announced today relates to the 2013/14 season in which QPR were promoted to the Premier League via the play-off final at Wembley. The Financial Fair Play (FFP) rules at the time said clubs couldn’t lose more than £8m in a season and QPR posted financial losses of £9.8m that year – down from £65m the year before. They were able to do so only because the board agreed to write off/pay £60m worth of losses as an “exceptional item” on the accounts. So, in actual fact, the club lost just shy of £70m that season and with the Football League not having the ‘exceptional item’ work around that’s the number the club was judged by. Clubs were fined for losses between £8m and £18m, and then pound for pound on top of that. That left QPR facing a bill of £41.965m - the biggest fine levied in the history of sport, topping the £32m the McLaren F1 team was fined in the 2007 Spygate scandal.

QPR felt, and still feel, that they had a strong case to argue against this.

Firstly, on the grounds of proportionality. There are rules and regulations when it comes to fining companies punitive amounts. You could fine BP £1bn but you couldn’t fine The Crown and Sceptre the same amount for the same offence, because £1bn is proportionate to BP’s turnover but would immediately bankrupt the Crown. The fine the Football League was attempting to impose was well over 100% of the club’s turnover. Had QPR not been promoted, they’d simply have been subjected to a transfer embargo of ‘one in one out’ – a fate that had already befallen Blackburn and Nottingham Forest by this point. In no way could it be deemed proportionate.

Secondly, the rules Rangers were being punished by only came into force in 2012 and some of the extortionate contracts which saw QPR breach them had been agreed to and signed before that. The club couldn’t simply tear up contracts, it argued.

And thirdly, the league itself had since admitted the rules were unworkable. Judged over just one year, with a low loss threshold, and an arbitrary fine, the QPR case was a prime example of all these flaws – it’s perverse to try an enforce financial prudence on a club by taking £42m from it. The rules were changed after that season to the ones we’re currently grappling with where clubs are allowed to lose £39m over any three-year period.

The club took extensive, and expensive, legal advice and took what it believed to be a strong case into a binding arbitration with a Disciplinary Commission (DC) early in 2017. When the decision came back, it had sided almost entirely with the Football League, choosing to protect its status as rulemaker for its own competition. In a judgement of almost 100 pages, QPR’s arguments were given barely a cursory mention over a couple of sheets. The DC did not consider the issue of proportionality at all. It also spoke about QPR ‘gambling on promotion’ in seasons when it was already in the Premier League, and accused it of not releasing certain players that it actually had released. The club showed it to two legal firms pitching for business on the appeal, and a further five just to canvass opinions – “the more I read this judgement, the less I understand how it’s been reached” was one comment that came back.

It is also worth saying that the league themselves didn’t particularly want to fine QPR £42m, potentially sending one of its long-standing members and a club of great standing and value in its West London community to the wall. The original, unworkable, rules, and the frankly perverse verdict of the DC, had backed all parties into a corner from which they’re able to emerge today in some sort of state and with pride and status still just about intact.

The fine will effectively be paid by QPR’s board members, who have been told (and already have done) to capitalise £21m of outstanding loans so as not to burden the club with debt. Tony Fernandes and Ruben Gnanalingam have been financing QPR using loans on which interest is charged for sometime but repayments on the loans and the interest have come in the form of shares rather than cash, diluting Fernandes’ interest in the club and making the silent Gnanalingam the club’s majority shareholder by quite a considerable distance. If that continues, the burden will be born by the shareholders and not the club.

But don’t cry a river for QPR. As we’ve said before, the rules were badly written and the proportionality argument over the fine was valid, but this was an obvious breach of the rules by Rangers designed to force their way back to the Premier League at the first possible opportunity. Scores of players were signed between the rules coming in in 2012 and the club being relegated into their jurisdiction in 2013, including the likes of Loic Remy, Chris Samba, Jermaine Jenas and Andros Townsend in January 2013 to try and avoid what already looked like an inevitable relegation. Once down, with everybody’s favourite bastion of financial frugality ‘Arry Redknapp still in charge, QPR added a further 16 players to their squad, including experienced Premier League players like Richard Dunne, Yossi Benayoun and Niko Kranjcar, expensive signings like Matt Phillips and Charlie Austin, and players of many dozens of international caps standing like Oguchi Onyewu and Javier Chavanton just to sit on the bench as cover.

Redknapp gave first team appearances to 39 players that season. He presided over a squad with a wage bill of £77.3m, the highest amount ever paid by a second tier club in the history of football in this country at that time. A wage bill just south of £80m paid on turnover of £38.6m - one can only imagine Tony Fernandes' reaction if his airline was being run by like that, and yet he happily let it happen at QPR. For comparison, the Derby County team QPR were fortunate to beat in the play-off final had a wage bill of £13m for the season. When Carlie Austin dislocated his shoulder in January, Redknapp was allowed to add Kevin Doyle and Mobido Maiga and Will Keane and Yossi Benayoun to his squad to cover the injury.

The DC’s judgement seemed largely based on throwing the book at QPR because they’d overspent by quite so much and deserved everything that was coming to them. On that, it’s hard to argue. It was a flagrant and deliberate breach of the rules. QPR simply ignored them.

Where to now?

There are two schools of thought prevailing among the online QPR support base about what happens now, and they’re both wrong.

The first is that this fine, albeit reduced, dips the club further into the financial mire, increases losses, necessitates a fire sale of players and so on. It doesn’t. It will be paid by the board members, possibly in the form of loans to the club but, as said, that’s how they’re financing the club anyway and currently they’re converting all the debt it accrues and interest owed into equity rather than taking money out. It will be paid over ten years rather than immediately and although the sums will appear on the accounts the £1.7m a season won’t count towards the current FFP judgement. We were knee deep in the shit before, and we’re still there.

The second is that now we’re freed from the uncertainty that has hung over us for four years, and as the fine is £25m less than it was going to be, we can goooooo shooooooooooopping again. Rangers need at least one more centre back and have been deficient up front since Austin left, and with a transfer embargo* in place for January we need to do big business in the next two weeks. Again, sorry, but no.

The FFP rules have been changed and relaxed from what they were in 2013/14. Clubs can now lose £39m over three seasons and so far since relegation QPR have reported losses of around £11m for 2015/16 and around £7m for 2016/17 leaving some room to play with – in theory. However, those losses were recorded in the first year despite the maximum parachute payment being received, despite £4m coming in for Charlie Austin, and despite Raheem Sterling’s sell-on fee bringing in nearly £10m. There have been big savings, big cuts to the wage bill, and the accounts look a lot healthier, but the 2016/17 loss still had a sizeable parachute payment to help negate it. The next set of accounts, which will be released in the New Year and cover the 2017/18 season, are expected to show a bigger loss than either of the two sets that went before and push QPR very close to that £39m barrier.

With parachute payments ending altogether after this season, every set of accounts from here on in gets more difficult. Unless we start selling players for James Maddison money, there is nothing to spend on players, and further cuts to the wage bill will have to be made. Faced with a desperate need for two centre backs after the departures of Jack Robinson and Nedum Onuoha this summer QPR felt compelled to sell their best player, Alex Smithies, for just £3m to Cardiff as it was the only offer they’d had bar some vague interest from Bournemouth that was never followed up with a bid.

There is, of course, the option to gamble again, as Wolves did last season, and ignore the rules afresh to try and get back to the Prem. So far the board, which can afford it, have resisted this urge so we procede with this new normal for QPR . As Huddersfield, Preston, Bristol City, Burnley and others have shown, it doesn’t have to mean we’re uncompetitive, or not part of the promotion picture, but it’s a fundamental change from the way the club has operated previously and it’s taking some getting used to.

(* - It’s maybe worth saying that the January embargo isn’t a total ban on registering players. Were QPR to sell a player in January they would be allowed to replace him with a free transfer on 75% of the departing player's salary. They can also sign U23 players who don't play for the first team that season.)

What is it good for?

What hasn’t been settled today, is what Financial Fair Play is actually there for and whether it’s working. I said all this in March but it’s worth repeating now… What are we trying to achieve here?

Is FFP designed to make the competitions fairer? Well, clearly, no it’s not. Is it Chelsea - with their laundered Russian oil money, and their 40 players out on loan, and their trophy-laden youth team that never has a hope of playing any first team football at all and exists purely so other clubs can’t have them - that breach FFP? Is it Manchester City, and their construction of football’s equivalent of the Death Star in a derelict bit of East Manchester, sucking in players from all over the world with no intention of ever playing them just so other teams can’t have them, financed by a repressive Arab regime? Is it PSG, another front for a politically abhorrent Middle Eastern gazillionaire, buying players for £198m a time? No it’s not.

The teams that breach FFP and get rinsed for it are QPR, Blackburn, Nottingham Forest, Leicester, Bournemouth. Middle of the road clubs, trying to better themselves. It doesn’t make the competition fairer it makes it more unequal. The teams with the Champions League football, the shirt sales, the Johnny Come Lately supporters and the oil money are rewarded and become more powerful, to the detriment of the national team and everybody else. Anybody who even attempts to compete a little bit, or even to get up and play in the same league as them, is hammered.

QPR were disgusting in 2013/14, ignoring rules that others were complying by, but the fine levied against them, the changing of the rules, the rules existing at all, hasn’t deterred others doing the same. Bournemouth, Wolves last season, Nottingham Forest this season, are all also ignoring the FFP rules and gambling on winning promotion. The Championship remains horribly distorted by money, it’s just that previously any club could get a rich owner and spend big to try and get promoted, whereas now some clubs decide to while the rest are forbidden by the league’s rules. It is the farthest thing from fair.

So, is it to protect the clubs from themselves? Stopping some rich idiot coming in, splashing cash on players, failing, leaving the club to collapse into administration? Officially, yes. The Football League are jolly pleased that a spate of clubs going into administration, of which the league’s own head Shaun Harvey was CEO at two, has abated and point to that as success. But Villa have been close to financial collapse this summer, and once Sheff Wed release their next set of accounts they’re going to be hammered by FFP and the league even though the owner there is happy to keep putting money in.

And what’s a bigger threat to a club anyway - doing what Tony Fernandes has done at QPR, or doing what the Oystons have done with Blackpool, or the Venky’s at Blackburn, or Sisu at Coventry or the Allams at Hull? If you’re genuinely interested in safeguarding clubs, in protecting them from themselves, how can you sit idly by while that stuff is going on?

Have a functional Fit and Proper Person Test, and have a rule that says owners are not allowed to leverage debt against the club if their spending spree all goes to shit, and that’s a safeguard. FFP is not.

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BazzaInTheLoft added 11:18 - Jul 27
Nice words Clive.

Cannot agree more with the Fit and Proper person test.

Encourage fan ownership too. AFC Wimbledon seem to be doing fine.

Clubs for people not profit.
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Toast_R added 11:48 - Jul 27
Thanks Clive, a thought provoking read.
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ozexile added 12:06 - Jul 27
What a catch 22. You can't spend money to get into the premiership. Which naturally means you develop homegrown talent. Yet you can't afford to do that anymore as rich clubs can just take your best young players for peanuts.
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ElHoop added 12:13 - Jul 27
Very good piece. I agree about fit and proper too. By the time that the damage is done and FFP has been breached and the accounts filed, it could be several years before the rules are applied and a dodgy owner could have flown by then, presumably leaving what is left to pay a fine which it can't afford. What's the point of that? It would be better to monitor FFP on a quarterly basis, effectively in real time. As soon as the situation started to look dodgy the League would have to go in and maybe do something. That would be far better for both clubs and fans.

Also I see that the EFL made the fine and legal costs plus the loan conversion add up to exactly the same amount as our original fine. Almost as meaningless in its aithmetic as our attempt to write off £60m against our FFP losses in the first place.
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R_from_afar added 12:58 - Jul 27
Great article summarising and clarifying a long and complicated saga, thank you Clive.

"Is FFP designed to make the competitions fairer? Well, clearly, no it’s not". This is so true. FFP is fatally flawed as of today because it is based on revenues and that cannot be fair. Clubs like Bournemouth are at an instant disadvantage compared with Man U because they get one quarter of the number of fans through the turnstiles, and that's just for starters. If they are to compete on a level playing field, metaphorically speaking LOL, those smaller clubs are reliant on things like tier 2 or new coaches coming in and doing an amazing job or developing fabulous players in-house or unearthing them in the lower or unfashionable leagues.

The system needs to be based on a salary cap.

RFA
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isawqpratwcity added 13:07 - Jul 27
I'm sure the ECJ would describe a salary cap as a 'restraint of trade', but does Brexit open a door to institute such a measure? Crikey, that could change the Leave/Remain arguments around here.
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isawqpratwcity added 13:25 - Jul 27
Clearly the spending in 13/14 was wildly in breach of FFP, but it was a gamble on getting back to the rivers of gold in the Premier. Ok, we fluked regaining it, but it was still a gamble that worked. You can't make the same 'double or quits' bet in the airline industry. That we couldn't hold that Premier status is testament only to the 'throw money at a problem' incompetence of Redknapp's management.
But I'm not arguing with Clive about the fundamental need for some form of financial restraint in football. What we did was both an abuse of the system and, also, fundamentally wrong, in that it was a practice that could lead to clubs extending themselves past the point of survival. It's just a shame that the current system still allows the big clubs to dominate so overwhelmingly.
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extratimeR added 15:09 - Jul 27
Thanks for explaining judgement Clive

Very good piece, I still cannot get my head around how law? is being applied,( in some parts of judgement) retroactively .

I agree club has extracted us from nightmare scenario, and at last we can move forward.

As always one law for the big clubs and another for the likes of us.
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1JD added 15:30 - Jul 27
Clive, nice summary of the facts.

One small but major fact is that we won’t sail close to 39m in cumulative losses - that would equate to 13m per season - the maximum annual loss allowance. As you wrote, season 1 = 11m loss, season 2 = 7m loss, season three can only be 13m max, otherwise we have breached.

So the maximum cumulative loss we will post, to be inside of 3-year rules, is 11 + 7 + 13 (max) = 33m. The next set of accounts that everywhere is so worried about, is inside of 13m, even allowing for the drop off in parachute payments.
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SimonJames added 17:11 - Jul 27
Excellent report Clive.
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Phil_i_P_Daddy added 18:05 - Jul 27
Another good report Clive.
I’ve long believed football will get worse before (if?) it gets better. The gap between the ‘haves’ and ‘have nots’ widens by the year and is virtually unbridgeable. You can’t blame the players, but they have too much power and have been paid far too much for far too long.

I wish I’d played more football as a kid...
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jonno added 06:24 - Jul 28
So if you are a billionaire that wants to support your Club, get involved with it and pump in your own money to improve its fortunes, entirely at your own risk, you can't.
FFP looks like it is just a protectionist racket to keep big clubs big and small clubs in their place.
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timcocking added 12:41 - Jul 28
It's a disgusting debacle from start to finish and QPR have been shafted the whole time. Disgraceful, and exactly what we've all come to expect.
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HastingsRanger added 12:11 - Jul 29
Excellent read - thanks for clarifying (again!).

Also, great comments above. Protectionist of big clubs, disproportionate fines on small clubs, not addressing issues that are flagrantly not in the interest of football (players bought and put in store). And not least, the Fit and Proper Person Test (including being rich but with corrupt money - ok I will never get that agreed).

Part of the problem is the double standards of PL and EFL rules not being aligned Had we stayed up (as Bournemouth did) we would be protected from our breaching of FFP. Clearly wrong.

Financial Fair Play can only work if it is thought out properly (punitive to administration is crazy), applied to all (and that probably includes teams outside of the country). It is a long way off sadly.

The sores left by Millionaire Hughes and Harry Redcrap are still open for me.
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kernowhoop added 13:31 - Jul 29
Excellent report, thank you. Lots of reasons to be grumpy. But, how can a club like QPR (and the other small guys) get the rules changed? Are league rules subject to 'one member, one vote' decisions?
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RonisRs added 19:01 - Jul 31
financial prudence is good, but unfortunately, the get between the EFL & EPL will only get bigger. get promoted, ship in expensive players, then get relegated, get fined......
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Peterjessop added 16:42 - Aug 1
Thanks Clive for the up to date report. It's the first time I have fully understood the gravity of the situation. I have been a supporter of QPR for about 60 (since I was about 12 and getting in for free as my dad was a steward) I would be very upset to say the least if QPR follows the same path as the likes of Portsmouth and Coventry.
How you can expect to take such a financial risk by spending £80m on salaries with a turnover of £38m and get away with it, beggers belief.
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