FFP + Parachute Payments

[markwwfc1992]

Copy + Pasting an interview from our owner Jeff Shi regarding FFP

FFP has been a hot topic since Fosun bought the club and began spending tens of millions on players, with this summer's pending purchasing of Diogo Jota to take their outlay to £67m. Shi told the Express & Star that the EFL rules on profitability – which dictate that clubs cannot make a loss of more than £39m over three seasons – were misguided.

"There's a contradiction behind the rule," he said.

"It's about how you can't have a huge loss in three years but what's the intention?

"If it's to make a club more stable so you don't go into administration and have enough money to cover costs, then from a financial view profitability is a not a good judgement of that. The better judgement is equity and debt.

"For example, if I want to protect every club going into administration I'd ensure the club has lots of equity and not much debt.

"The loss/profit is not so important because it's not related to the long term stability of the club.

"If an owner wants to put money into the club, of course they'll have a loss in that year.

"But if you put money into equity the club has enough money to do everything."

Wolves' latest accounts, which cover Fosun's first season, showed the club made a loss of £23.2m, following on from a £5.8m profit the season before. With FFP judged on a rolling three-year basis they should be fine for the end of this season, but the picture becomes less clear if they fail to win promotion.

Shi added: "The rule is there and we will try to follow...so far so good, we are complying.

"But from an investment view it's strange.

"You're protecting some big clubs and not encouraging the small clubs to catch them.

"The big clubs have a big fanbase and more money from the commercial side.

"So how can a small club do something to chase them?

"I have every right to invest more into the club.

"If you really want to build a truly even field why do the three clubs relegated from the Premier League have so much money from parachute payments?

"If you want a truly even league they should cut that.

"We are competing with some big clubs who have parachute payments, six or seven in this league. So if we don't put money in, how can we compete? It's restrictive to clubs with ambition.

"Of course people should be careful with their finances but the rules should changed a bit.

"I just hope the league have more positive messages to encourage some innovation.

"In every industry in the world improvement and progress comes from new things...or the industry will be stale."

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I know the general feeling is that Wolves have bought the league this season, I'm not disputing that (to an extent) as without him I'm sure we wouldn't be top. However I think Shi has a point regarding FFP. If FFP restrictions increase it will be harder for 'smaller clubs' to ever compete on a level playing field with 'bigger clubs'. The main reasoning for this is due to the parachute payments for teams coming down from the Prem, who are always going to be at a huge advantage. It seems if you're going to have FFP restrictions you should scrap the parachute payments to make things fairer to other clubs. It shows how well teams like Sheff Utd/Preston/Cardiff (before Jan) etc who work on a relatively small budget have done that they can more than compete in this league. What are other people's thoughts on this?

 

[AFCB_Mark]

Wolves are one of the bigger clubs in the Championship. If anything, FFP at Championship level would be protecting a club like Wolves from snotty little upstarts. As I remember it, Wolves fans were rather vociferous in complaint regarding our promotion, but it's not like you're us failing the previous much tighter FFP with half the income of most other clubs in the division. You are one of the bigger boys already, and you've got far more scope to spend under these latest rules, which you're taking advantage of as is your right. But of course people will moan due to the way you've done it, Watford had the same.

I totally get the point about parachute payments putting others at disadvantage. The point of them isn't to allow relegated Prem clubs big spending power necessarily, more to ease the transition and prevent a collapse (not that it's even managed that in a few cases). Perhaps more could be done regarding how relegated clubs can spend their parachute money? Although how you could accurately audit that I've no idea.

 

[MagpieBee]

The equity / debt argument isn't neccessarily a bad one, just horrible to execute. Essentially all it would do is create a limit on the wages a club could offer, as that's the key difference (a transfer fee on a player is just equity, so you could spend as much as you like, but wages aren't).

However, it would be difficult to measure equity accurately, players lose value as they approach the end of their contracts, but how does everyone agree on the value of every player every year?

If you keep players out of it, then the rest of the spend to boost equity that he's suggesting you allow would be facilities based, which as I understand it is pretty much exempt from the FFP calculations anyway?

FFP is fine by me, it's meant to keep clubs like us down, we can't spend to catch up, we have to be smart and do it differently. It becomes much more of a problem if all the clubs are trading smartly, then it'll just come down to money and luck. Thankfully, we'll continue to have a bunch of owners who just go off gut feel for a long time I hope, which allows small clubs like us to overperform.

 

[Muzzle]

Look, QPR have got away with it and so I wouldn't worry too much. I personally think the way Wolves have gone about their business is against the spirit of the rules, but this game lost its soul years ago and the spirit of the game and rules apply and mean less and less.

 

[Cornish Piskie]

Mark makes a good point above. This:

The point of them isn't to allow relegated Prem clubs big spending power necessarily, more to ease the transition and prevent a collapse (not that it's even managed that in a few cases).

The problem seems to me that the rules on how parachute payments are spent...... or even allocated... could be tightened up and applied in such a way that nobody took advantage of them.

Tell me if I'm off beam here..... I don't pretend to have any in depth knowledge of this...... but rather than giving a set amount to a relegated team and leaving them to spend it as they will, the FA could make payments to clubs in order to bridge the gap between Premier League and Championship income, to ensure the wages of those players who were already at the club at the time of relegation, are covered.

Any player bought in AFTER the club is relegated shouldn't form a part of the parachute payment equation, nor should they be allowed to use it on transfer fees / agents fees, etc for new players.

I'm sure I've made too simplistic a case so I'll sit back now and expect to have all sorts of holes picked in this. Fire away guys.

 

[MagpieBee]

Mark makes a good point above. This:

The point of them isn't to allow relegated Prem clubs big spending power necessarily, more to ease the transition and prevent a collapse (not that it's even managed that in a few cases).

The problem seems to me that the rules on how parachute payments are spent...... or even allocated... could be tightened up and applied in such a way that nobody took advantage of them.

Tell me if I'm off beam here..... I don't pretend to have any in depth knowledge of this...... but rather than giving a set amount to a relegated team and leaving them to spend it as they will, the FA could make payments to clubs in order to bridge the gap between Premier League and Championship income, to ensure the wages of those players who were already at the club at the time of relegation, are covered.

Any player bought in AFTER the club is relegated shouldn't form a part of the parachute payment equation, nor should they be allowed to use it on transfer fees / agents fees, etc for new players.

I'm sure I've made too simplistic a case so I'll sit back now and expect to have all sorts of holes picked in this. Fire away guys.

Think it’s a fair enough suggestion, but would be difficult to make it fair on everyone (how do you account for a team coming down on massive wages vs tiny wages?)

 

[Cornish Piskie]

Think it’s a fair enough suggestion, but would be difficult to make it fair on everyone (how do you account for a team coming down on massive wages vs tiny wages?)

That's the point.... the payment would be calculated on the basis of the players who were at the club at the time of relegation. A range of factors such as season ticket sales could be used to calculate how much revenue has been lost by relegation. This is then applied proportionately and a payment made to the club for the express purpose of ensuring that the wages of those players already under contract could be met despite loss of revenue.

This calculation would be flexible so that if a player who was included in the calculation leaves the club - say, in the January transfer window - the parachute payment is downgraded as his wages would no longer be a factor.

Regardless of whether one team has more high earners than another one, players wages are assured which must surely be the overriding principle. I would also suggest that the duration of parachute payments is based on the life span of those players contracts. For instance, if the contract of player X is at Premier League level on relegation, but expires during that season, no parachute payment will be made for a subsequent contract AFTER relegation. The scheme shouldn't be intended to artificially keep players wages high when they're playing at a lower level. The player would have to take championship wages or leave for another premier league club if his agent can get him one.

In time, players will leave and contracts will expire and the parachute payments will come to a halt by process of attrition.

Waddya think..?

 

[markwwfc1992]

Wolves are one of the bigger clubs in the Championship. If anything, FFP at Championship level would be protecting a club like Wolves from snotty little upstarts. As I remember it, Wolves fans were rather vociferous in complaint regarding our promotion, but it's not like you're us failing the previous much tighter FFP with half the income of most other clubs in the division. You are one of the bigger boys already, and you've got far more scope to spend under these latest rules, which you're taking advantage of as is your right. But of course people will moan due to the way you've done it, Watford had the same.

I totally get the point about parachute payments putting others at disadvantage. The point of them isn't to allow relegated Prem clubs big spending power necessarily, more to ease the transition and prevent a collapse (not that it's even managed that in a few cases). Perhaps more could be done regarding how relegated clubs can spend their parachute money? Although how you could accurately audit that I've no idea.

I agree, the current FFP rules are in Wolves favour (as 2 years ago before Fosun we always ran a profit). I was thinking more as a neutral fan though. It's rare to see a team get promoted nowadays without racking up a hefty debt on the way, so bending FFP rules seems to be the way to go to success, as sad as that sounds. Having a team like Preston, Brentford and a few others spend peanuts in comparisson yet more than competing with big spenders is refreshing to see though.

Parachute payments does need to be scrapped however. It feels like being rewarded for being relegated, and gives them a huge handicap to teams who dont have it. Not sure if parachute payments exist in other leagues around Europe, although I very much doubt it.

 

[Ciderup]

I think we're all very aware that relegated clubs have a huge financial advantage. As a supporter of a club that have never been in the EPL ( the old first division, certainly), I kind of get where Shi is coming from and his honesty is refreshing. My issue is would he say the same once you're there?
The likes of ourselves, the Bees, PNE, Millwall etc cannot hope to compete with the relegated teams on pure finance, rich owners or not. This makes the chances of a 'smaller' club ever joining the gravy train ever tougher IMHO but our attitude would change if we did.
Yes, the Wolves are one of the bigger clubs at this level and 'parachute' apart, we all have a go at competing but it becomes ever harder to do that.
It gradually WILL, unfortunately, become a closed shop and the opportunities for clubs outside of that become less and less every year because of the issues raised. We're a fine example of the issue in that we have a £Billionaire owner who (if he wanted to) couldn't invest more because of the current constraints.
I understand both sides TBH, financial risk v financial prudence.
Nice post Mark, great for debate!

 

[Veggie Legs]

That's the point.... the payment would be calculated on the basis of the players who were at the club at the time of relegation. A range of factors such as season ticket sales could be used to calculate how much revenue has been lost by relegation. This is then applied proportionately and a payment made to the club for the express purpose of ensuring that the wages of those players already under contract could be met despite loss of revenue.

This calculation would be flexible so that if a player who was included in the calculation leaves the club - say, in the January transfer window - the parachute payment is downgraded as his wages would no longer be a factor.

Regardless of whether one team has more high earners than another one, players wages are assured which must surely be the overriding principle. I would also suggest that the duration of parachute payments is based on the life span of those players contracts. For instance, if the contract of player X is at Premier League level on relegation, but expires during that season, no parachute payment will be made for a subsequent contract AFTER relegation. The scheme shouldn't be intended to artificially keep players wages high when they're playing at a lower level. The player would have to take championship wages or leave for another premier league club if his agent can get him one.

In time, players will leave and contracts will expire and the parachute payments will come to a halt by process of attrition.

Waddya think..?

Nice idea, but wouldn't it just encourage clubs to spend more recklessly when they're in the Premier League in order to try and stay up, safe in the knowledge that they don't need to worry about money if they get relegated? At least under the current system clubs know how much they'll lose and have to cut their cloth accordingly.

 

[TomPNE94]

I think we're all very aware that relegated clubs have a huge financial advantage. As a supporter of a club that have never been in the EPL ( the old first division, certainly), I kind of get where Shi is coming from and his honesty is refreshing. My issue is would he say the same once you're there?
The likes of ourselves, the Bees, PNE, Millwall etc cannot hope to compete with the relegated teams on pure finance, rich owners or not. This makes the chances of a 'smaller' club ever joining the gravy train ever tougher IMHO but our attitude would change if we did.
Yes, the Wolves are one of the bigger clubs at this level and 'parachute' apart, we all have a go at competing but it becomes ever harder to do that.
It gradually WILL, unfortunately, become a closed shop and the opportunities for clubs outside of that become less and less every year because of the issues raised. We're a fine example of the issue in that we have a £Billionaire owner who (if he wanted to) couldn't invest more because of the current constraints.
I understand both sides TBH, financial risk v financial prudence.
Nice post Mark, great for debate!

lol at you lumping yourselves in with us, Brentford and Millwall. You spent £5m on a striker this summer, our whole squad was assembled for less than £2m. You’re on a whole other level to us.

 

[MagpieBee]

Nice idea, but wouldn't it just encourage clubs to spend more recklessly when they're in the Premier League in order to try and stay up, safe in the knowledge that they don't need to worry about money if they get relegated? At least under the current system clubs know how much they'll lose and have to cut their cloth accordingly.

Yeah. You’d also be able to keep all your players once back down in the Championship, it’s not costing you anymore, someone else is paying. And if you let them go, you’ll have a fraction of the wages to spend on replacing them.

I don’t mind the idea behind parachute payments, if they didn’t exist clubs that get promoted would face an even bigger gulf in finances than they do now. But they shouldn’t be so big, or last for so long. 2 seasons maximum, and IMO it should be just one.

 

[Ciderup]

lol at you lumping yourselves in with us, Brentford and Millwall. You spent £5m on a striker this summer, our whole squad was assembled for less than £2m. You’re on a whole other level to us.

The issue remains though Tom, we still can't compete financially. I take your point though.

 

[Luke_1884]

I think we're all very aware that relegated clubs have a huge financial advantage.

Whilst that is true would taking away parachute payments put our promoted teams at an even bigger disadvantage when going up to the PL?

If teams didn't have the security of parachute payments they wouldn't be able to sign half the players which they do. Good players want good money and good contracts, I don't see a way around PP just yet.

Unfortunately it creates a bit of a cycle with the same sort of teams bouncing up and down now and again. I just think they're needed for when my team, your team or anyones team in this division get promoted.

 

[Ciderup]

Whilst that is true would taking away parachute payments put our promoted teams at an even bigger disadvantage when going up to the PL?

If teams didn't have the security of parachute payments they wouldn't be able to sign half the players which they do. Good players want good money and good contracts, I don't see a way around PP just yet.

Unfortunately it creates a bit of a cycle with the same sort of teams bouncing up and down now and again. I just think they're needed for when my team, your team or anyones team in this division get promoted.

I don't disagree Luke. The answer to making it fair is out there somewhere but the removal of PP's would only mean the occasional new face upstairs as the existing PL clubs buy everything in sight in order to survive. The relegated clubs would have even more of a fire sale than they have now too. Removing PP's isn't the answer IMHO.
I don't have those answers but I think there is a point to be debated and fair play to Shi for bringing it up.

 

[SoutheySWFC]

Our chairman has stated time and again he would love to stick more money in but FFP is an issue.

Yet clubs coming down have so much money and leeway it makes it hard to compete

 

[SF_]

People act like clubs spending millions is new.

The likes of Fulham, Pompey and Wigan were spending beyond their means years ago to get to the Prem, more recently you've had Leicester and Bournemouth, even further back you had Blackburn.

Luckily you will always get clubs who completely fuck it up like Derby, Wednesday, Leeds and Forest.

 

[SoutheySWFC]

People act like clubs spending millions is new.

The likes of Fulham, Pompey and Wigan were spending beyond their means years ago to get to the Prem, more recently you've had Leicester and Bournemouth, even further back you had Blackburn.

Luckily you will always get clubs who completely fuck it up like Derby, Wednesday, Leeds and Forest.

We've finally got a pot to piss in after 15 years on the scrounge... hopefully we bounce back next season but i will settle for sticking the boot in to your play off attempts this season.

 

[SF_]

We've finally got a pot to piss in after 15 years on the scrounge... hopefully we bounce back next season but i will settle for sticking the boot in to your play off attempts this season.

Feel free to play like you did at Deepdale.

 

[SoutheySWFC]

Feel free to play like you did at Deepdale.

Did we even play at Deepdale?

 

[SF_]

Fair point.

 

[SoutheySWFC]

Fair point.

Can't see us winning it as you're bang in form but with Lees, Hutchinson, Bannan, Westwood and Forestieri back we may have a chance.

 

[SF_]

Aye, international break has come at a bad time for us.

 

[Indian Dan]

All this makes the demise of Sunderland even more comical -not in an amusing way - more the sheer incompetence of those running the club.

Reading have yo-yo ed a couple of times and they look a spent force.

Now matter how much money pours into some clubs, there’s no defence against shitty owners.