As the 2015 European football season comes to a close, teams will be judged on how they performed on the pitch.
Their body of work will have financial implications. On that subject, an often overlooked factor stems from the Financial Fair Play rules. These rules were meant to increase spending on players’ wages and ensure financial stability for the various clubs.
Rather than cap the entire salary structure of a team, the rules were set up to limit the spending allowed on salaries by capping the increases paid out in wages based upon new revenues. The new revenues are largely based upon television rights, with contracts already agreed upon for 2013-2016 and 2016-2019. With steady increases already set for each of those two periods, the FFP rules mandate that only a portion of the increased revenue may be spent on player wages. Teams that fail to adhere to the rules will have penalties ranging from not being able to purchase new players through the transfer window to actual docking of points in the standings.
The financial effects of these rules have been released by (CPA firm) Deloitte Touche and they are stunning. For the first time in 16 years all EPL teams have earned a collective profit, bucking a trend that has plagued its teams and the league as an entity. While 12 of 20 teams lost money in 2013, 15 of 20 teams earned a profit in 2014 under the new rules. Players’ wages increased on average by 5.5 percent in 2013, but the overall income by EPL teams increased by 22 percent the following year. This represents a reversal of fortune for these clubs, who were spending almost their entire revenue stream on player salaries in order to stay competitive with other EPL teams.
The new rules also had the consequence of “leveling the playing field” or increasing parity between the powerhouses and bottom-feeders by establishing a salary cap. Teams must adhere to these caps or face penalties the following season. While these penalties will not be announced until the end of the season, we could see Manchester City suffer a freezing of transfer window buying as their salaries have likely exceeded the rules. This will have an impact upon their 2015-16 campaign, as they will be unable to replace some of their aging veterans with the quality needed to propel them back to the top of the table.
The FFP rules were put in place in hopes of creating a more financially stable league. Teams are under no obligation to spend all of the increased revenue on player salaries, and there are teams that will likely elect to save their profits in order to reinvest the money at a more opportune time. But they should do so at their own peril, as numerous clubs that have been hesitant to spend have shown a decline in on-field performance and a drop in the table.
Numbers never lie: The four clubs that have garnered the most revenue without increasing player salaries from 2013 to 2014 include Everton, Aston Villa, Crystal Palace and Newcastle, all teams in the bottom half of the table with a couple of these teams flirting with relegation.
Judging by how other European leagues such as those in Italy, Portugal and Spain fared, the English Football Federation and its respective teams are to be congratulated for taking steps to ensure financial success for the league in the future. The financial rules instituted by the EPL should help ensure its clubs continue to thrive in future seasons down the road.