Tough battle ahead in ongoing war with FFP - Column
Wednesday, 19th Jun 2019 16:28 by Simon Dorset
Following the release of a clutch of first team players, and with new signings starting to dribble in, LFW's resident grown up Simon Dorset took us through the club's ongoing attempts to comply with the league's spending rules in 2019/20.
The recent announcement regarding the release of Joel Lynch, Jake Bidwell, Pawel Wszolek, Jordan Cousins and Alex Baptiste came as no surprise.
With our parachute payments coming to their end, further cuts have to be made and the players’ wages are the obvious target. However, the club exercising their option to extend Grant Hall’s contract by another season despite any on-going injury concerns, having already done so with Mide Shodipo and also offering Angel Rangel a new contract has prompted me to revisit an article I wrote for AKUTR’s earlier this season to see if I could make any sense of it.
Analysing the breakdown of the club’s income shows how desperately important broadcast rights, of which parachute payments were the major contributor, have been to the financial wellbeing of the club.
While QPR’s parachute payment remained at £16.6m for this season, this was, unfortunately, the last one. Next season it will be replaced by a solidarity payment. This is paid by the Premier League to all Championship teams not receiving a parachute payment supposedly to ensure that the “gulf between the Premier League and Championship doesn’t grow any larger”, but in reality it is paid to ensure that the Championship clubs continue to toe the line with regard to the hideous Elite Players Performance Plan. This season’s solidarity payments were worth £4.5m. QPR will also continue to receive the Basic Award (worth £2.3m this season) from Sky for the rights to broadcast their matches, along with bonuses if and when any are televised and some modest overseas rights.
For the rest of the estimated income for the 2019/20 season, I’ve simply used the 2017/18 amounts with the exception of the gate receipts which I’ve assumed will continue on their slight downward trend. However, to see the full picture these need to be viewed in relation to the club’s perpetual battle to remain within their FFP limits.
The FFP Profitability and Sustainability rules, introduced for the 2016/17 season bringing the Championship into alignment with the Premier League, assess every Championship club’s finances based on a rolling three-year period rather than treating each season individually as had been the case until that point. All Championship clubs are required to submit their Future Financial Information (FFI), their projections for the current season, to the Football League (EFL) by March 1. These are then evaluated in conjunction with their previous two year’s audited accounts to ensure that the FFP rules are being adhered to. Any clubs breaching FFP are referred to an independent disciplinary commission who have a wide range of sanctions available to them. It is the EFL’s intention that any punishments are meted out before the end of that season.
Using the club’s audited accounts, it is possible to get an idea of where we sit in regard to our FFP permissible limit although a couple of assumptions need to be made to do so. Firstly, there is the total of our disallowable costs. These cover items such as investment in the club’s academy and youth development, expenditure on the women’s football team and donations to the QPR in the Community Trust. For the purposes of this, I’ve adopted the £4m per season estimated by the excellent Swiss Ramble (who provides detailed analysis of QPR’s accounts every year as they are released via Twitter). Secondly, that with the exception of 2017/18 that there are no other extraordinary items to be excluded. Last season’s loss has been adjusted to remove the cost of the FFP fine levied against the club and the payment of the initial instalment of it along with the payment of the EFL’s costs.
* QPR were in the Premier League in the 2014/15 season. The Championship’s FFP regulations allows for a contribution of £35 million per season spent in the Premier League to the club’s rolling 3-year permissible loss as opposed to the £13 million per season in the Championship.
From this chart it is quite simple to calculate the maximum loss that QPR can make this season without breaching the FFP regulations. Due to the rolling nature of the FFP calculations, the 2015/16 loss of approximately £11m is dropping out of the equation. By adding this amount to the 2017/18 headroom of approximately £11m from last year’s accounts, the amount by which the club is beneath their FFP limit, confirms that QPR can incur a loss of up to approximately £22m this season. While QPR would only have needed to make minimal savings from the 2017/18 season to achieve this, that would have been turning a blind eye to the future.
The departures of Caulker, Onuoha, Robinson, Smithies, Perch, Washington, Mackie, Ngbakoto, Borysiuk and Emmanuel-Thomas over the course of last season would have resulted in a considerable saving, but the crucial question is how much of that was then subsequently paid to Leistner and Rangel, invested in improved contracts for the likes of Furlong, Lumley and Eze and spent on the loan signings of Wells, Hemed and Cameron? I wouldn’t claim to know the answer to that question and neither do I hold any great store in the wide-ranging figures bandied around, but the following table shows the effect across a series of possibilities.
Option A is based on this season’s financial loss being exactly the same as last season’s; this won’t be the case, but it does give a useful reference point. Options B, C and D are based on a weekly salary saving increasing by £25,000 a time. For those options I’ve also included a transfer profit (mainly based on the profit from Alex Smithies transfer to Cardiff last summer, believed to be in the region of £1.5m) and a reduction in the player amortisation (mainly based on Caulker’s £8m transfer fee finally being written off at the end of the previous season). While this is quite a broad brush approach and ignores many other variables, such as agents’ fees, I feel it gives a rough indication of the general position.
The term perfect storm may well have been coined for QPR’s 2019/20 season. It is a season we will enter with reduced headroom in our battle with FFP, the smallest loss we’ve made since its inception rolling out of the equation to be replaced by a significantly larger one at the time when our parachute payments stop. To illustrate the effects of this, lets assume that option C from the above table is about right for last season. Using the logic from before, by adding the loss dropping out of the equation (£6.4m) to the remaining headroom (£5.6m) shows that to ensure we are within our FFP limits we cannot lose more than £12 million. In other words, we need to reduce our loss by around £4.4m, but must do so on £12 million less income, meaning that we need to find a total of £16.4m whether from cutting costs or additional revenue – and that is before we can contemplate signing any replacement players. Just to reiterate, these figures are dependent on a number of assumptions such as Swiss Ramble’s estimate for disallowable costs and that there have been no other extraordinary items and do not take into account any other cost saving.
Perhaps £5m of this has already been saved by returning the loan players to their parent clubs and releasing those players listed in the first paragraph but, with little hope for increased sponsorship revenue or additional revenue from non-football activities, it is hard to look beyond player sales to make up the shortfall. Lee Hoos and Les Ferdinand have some very difficult decisions ahead of them as they endeavour to weigh the financial restrictions placed on the club against the needs of the squad. One thing in their favour is that this situation has been on the horizon for some time and so they’ve had plenty of opportunity to plan for its arrival.
This will not be a summer for the faint hearted and next season could be harrowing, but I do see two glimmers of hope. Firstly, resigning Hall after his recent catalogue of injuries suggests that greater savings have already been made elsewhere and secondly, that the following season will provide more than a semblance of relief when the £22.5m loss from last season rolls out of the FFP equation.
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