Fulham and their FFP position – a summary

This post contains an overview of the Financial Fair Play (FFP) rules applicable to Fulham. These are rules that have been put in place to constrain football club expenditure and prevent owners gambling football club’s solvency on short term / high risk investment strategies.

This post also includes an estimate of Fulham’s position against the FFP rules and therefore of the spending capacity available to Fulham as they go into the premier league.

It is an abridged version of a much more detailed piece on the workings of football accounting and the processes and assumptions by which I have approached the estimation of Fulham’s FFP position. You can still read that piece here, but this new article is designed to give the key findings of that work, without dragging the reader through all the notes of Fulham Football Leisure Ltd’s financial statements!

I should note that I am not an FFP expert, I spent about a week of research putting this and the more in-depth article together, so I am particularly keen for anyone to correct something that does not look right (or help me with some of my guesstimates on Fulham’s FFP position).

What FFP Rules Apply to Fulham?

This is not as simple as it could be because UEFA, the Premier League and indeed the EFL Championship all have their own set of slightly differing rules for FFP. 

For Fulham, at present, the relevant rules are those for the Premier League and the Championship. The UEFA rules don’t apply unless (until?) Fulham qualifies for a European competition.

The UEFA, Premier League and Championship rules all have the same basic structure though, in that they place a limit on the volume of ‘adjusted’ losses a football club can take over a rolling 3-year period. I will come on to ‘adjusted’ and its meaning shortly.

For UEFA, the limit on adjusted losses is EUR30mn over the last 3 years (not applicable to Fulham at present as they are not in European competition).

For the Premier League and the Championship, these losses must not exceed a total, over a rolling 3-year period, of £35mn for each year spent in the Premier League and £13mn for each year spent in the Championship.

Therefore, for Fulham, the FFP limit on losses, as at the end of the 19/20 season, is based on a rolling 3 year assessment period which includes 2 seasons in the championship (£13mn allowable adjusted losses a year) and one season in the premier league (£35mn allowable adjusted losses a year). This means that, in total, Fulham’s adjusted loss limit is £61mn (13+13+35).

What are adjusted losses anyway?

The losses on which FFP limits apply are the profit/loss before tax, adjusted to remove the following expense items:

  • depreciation / impairment of tangible fixed assets (such as on buildings / stadia)
  • Amortisation of goodwill and other intangibles (but not amortisation of player contracts)
  • Youth development expenditure
  • Women’s football expenditure
  • community development expenditure

This measure can be referred to as ‘Adjusted Earnings Before Tax’ or ‘AEBT’.

How are Fulham doing against FFP limits?

The simple answer is that we don’t know for certain, but we can have a go at estimating the answer!

FFP binds on Fulham at the level of the entity Fulham Football Leisure Ltd (FFLL) and this entity’s financial statements can be found on the companies house website here.

At the current point in time we only know the financial results as at the end of the 17/18 and the 18/19 seasons because the 19/20 numbers will not be out until next March. So we can only see, in detail, information on 2 of the 3 years in our FFP assessment period.

Looking at the 17/18 and 19/20 numbers we might, initially, be concerned. This is because FFLL reported £86.5mn in pre tax losses for the first 2 seasons in our rolling 3 year period (as mentioned above the limit for the whole 3 year period is £61mn).

But then we come to the allowable adjustments. Some of these adjustments we can see directly in the accounts, For example, Fulham report impairment and depreciation of fixed assets (mostly related to the decommissioning of the Riverside stand) of £25mn across the two seasons, so this can be deducted from our loss figure as an allowable adjustment for FFP.

The next part of our analysis requires some guesstimates! We need to state the amount of expenditure Fulham makes on the youth academy, women’s football and community development.

This is not easy to do but, through a combination of trawling the Fulham website and benchmarking to some German teams, I estimated this expenditure at £5mn a year. I could be well out on this and if anyone has any specific knowledge on this number, I would be open to other suggestions in the comments.

This annual £5mn expenditure is adjustable from our total AEBT figure. So based on the numbers above, I estimated Fulham’s AEBT at about £51mn after the first 2 of 3cseasons in the current FFP assessment period. This leaves Fulham with about £10m in FFP loss capacity for the most recent season (19/20).

In the longer article, I set out in detail my attempts to guess the financial result for the most recent season, which is probably not possible, but for what it’s worth, after reflecting on:

  • elevated sticky wages after premier league relegation,
  • purchase of new players,
  • the on-going amortisation of the transfer fees of the players signed in the premier league
  • the pay out of squad-wide promotion bonuses
  • the size of parachute payments and,
  • the value of the Ryan Sessegnon sale,

I concluded that Fulham probably did have an adjusted loss of about £10mn and should, therefore, be OK for FFP purposes as at the end of the season just concluded (albeit barely).

I have had a go at completing a copy of the premier league’s FFP disclosure form based on the above estimates. This is set out below and shows Fulham meeting FFP limits with around £100k to spare (noting again that the error bars on this estimate are likely wide).

So How Much Headroom Do Fulham have now?

Again, this is not possible to answer with any certainty, but based on the analysis in the main FFP article, I think the FFP outlook is very positive.

The main reason for this is that the 17/18 season was particularly horrendous for FFP purposes with Fulham making an adjusted loss about of about £38mn (by my estimates) in the Championship (about £25mn over the £13mnn limit for that individual season).

This large excess loss was mainly fueled by promotion bonuses and my guess is that this year has been quite a constraint on Fulham ever since.

But the important thing is that going forward, the 17/18 season will fall out of our 3-year assessment period!

Further, our adjusted loss limit at the end of next season will be based on 2 premier league seasons (the first of which we were well under our FFP limits) and one Championship season. This will mean our new 3 year rolling limit goes up from £61mn to £83mn.

And, looking at the AEBT figures for the 18/19 and 19/20 seasons in the disclosure table above, my estimate is that we go into this season with adjusted losses of only around £23mn for the last two seasons, so that would give us about £60mn in FFP loss capacity for the coming season—and that is in a season where we can expect revenue to be around £100mn higher than it was in 19/20!

So I’m not saying Fulham should go bananas on transfers here (that spending capacity should be spread over more than one season), and it is likely that my estimates have mistakes in them, but if they are even within the right ballpark, then it should be the case that the main constraint on Fulham’s spending for the next couple of seasons is the Khan’s wallet and appetite for investment rather than the FFP rules!

I hope this post was useful to you in understanding Fulham’s FFP position. To reiterate, I have no expertise in FFP other than about a week of research and all the figures in this article are in the public domain or have been estimated. I would be grateful for any feedback on whether the approach in the article makes sense and whether the estimates made are plausible.

If you would like to dive deeper into the numbers, please do have a look at the longer FFP article I wrote last week, which you can find here.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: