Fulham and Financial Fair Play

This is the first of a series of posts about the financial position at Fulham. It is prompted by the recent publication of the accounts for Fulham Football Leisure Ltd which cover the period up to the end of the successful 19/20 Championship promotion campaign.

This post is focused on whether Fulham were compliant with Financial Fair Play requirements in the rolling 3 season assessment period leading up to the end of that season. The seasons covered were

• The 2017/18 promotion season
• The 2018/19 relegation season
• The 2019/20 promotion season

A detailed primer on the workings of FFP is set out here, but for the purposes of this post the key rules to be aware of are these:

• In the seasons covered above, Fulham are permitted to have total Adjusted Earnings Before Tax (AEBT) losses of no more than £61mn pounds.
• According to the EFL FFP rules, AEBT refers to the sum of earnings before tax net of the following adjustments
  1. Depreciation and/or impairment of tangible fixed assets
  2. Amortisation / Impairment of goodwill/Intangible assets (not including player contracts)
  3. Women’s Football Expenditure
  4. Youth Development Expenditure
  5. Community Development Expenditure
  6. For season 2019/20: Covid 19 Costs

Items 1 & 2 in the list above can be determined directly from the financial statements, the other items cannot but as with my review of last year’s accounts, I will make a best-endeavours attempt to estimate them, which I think is reasonably possible in most cases.

A discussion of Promotion Bonuses

I need to put in an important caveat here: there is a potential 7^th adjustment to this list and that this relates to promotion bonuses. In the assessment period above, Fulham have been promoted twice, and therefore paid out two sets of promotion bonuses to the players.

It is widely reported by people who are close to these FFP assessments that the bonuses paid to players on achieving promotion is exempt from the FFP calculation. However, I cannot not find any reference in the FFP rules and regs, at Championship or Premier League level stating that promotion bonuses are exempt from the FFP assessment.

It makes sense that they would be exempt, otherwise you would frequently find teams in the ridiculous situation of not being able to afford to get promoted for fear of breaching FFP. Teams would be forced to intentionally lose the Championship play-off final knowing a win would trigger the bonuses and a breach of the rules.

Fulham themselves told the supporters trust at a meeting in April 2019 (Notes from April Meeting with FFC | Fulham Supporters’ Trust (fulhamsupporterstrust.com) that promotion bonuses were exempt.

One possibility is that rather than being exempt from FFP assessments, the bonus payments are deferred one year, and considered in the following seasons assessment. This is logical because it means they can be offset against the increased income that they have earned.

However, in this analysis I will assume that they are exempt, but for the record, I can not find any justification in this in the league regulations!

Results Position versus FFP

The table above sets out my assessment of Fulham’s position versus FFP. The column on the right shows the 3 year sum for each item in the assessment and the key point is that I estimate Fulham’s 3 year Adjusted Earnings Before Tax (AEBT) to be a £51.2mn loss. This is above the £61mn loss limit, so based on this I would conclude it is likely that Fulham were FFP compliant across these 3 seasons.

Clearly these a lot of these numbers are estimated, but the headroom of £10mn suggests that quite a bit of downside can be factored into these estimates before breach becomes a problem.

I am slightly anxious about the promotion bonuses here, if my assumption that the estimated payouts of £35,000 are exempt is wrong, then it is hard to see how Fulham could have avoided an FFP breach. If they are not exempt but are deferred as I suggested above, then the FFP position becomes rather dicey, the £7.2mn headroom turns into a £14mn deficit.

More details on the estimates and sources of information to compile the table above can be found in the notes below

What does this mean for Fulham?

Assuming the exemption of promotion bonuses, Fulham seem to be ok for FFP.

One of the pandemic concessions was that, in the 20/21 season, teams were asked to look at an FFP assessment period covering 4 years, allowing themselves to look average out losses across the 19/20 and 20/21 seasons. For Fulham, ironically, this could be quite unhelpful, because it means the 17/18 season, which was pretty horrendous from an FFP point of view (£10.3mn overspend of that seasons limit by my calculations) stays in the assessment period instead of dropping out and releasing the associated headroom.

Fulham’s position against FFP is likely to remain tight because they are still digesting the now infamous £120mn spend on players from the failed 18/19 premier league campaign. That expenditure still amortises through the P&L at around £25mn-30mn a year as all the players bought remain on the clubs books at the time of writing.

I am planning further analysis on this Fulham’s player value amortisation in the near future, but its interesting to note that the FFP rules mean that the 18/19 spending spree will likely still be a drag on Fulham’s FFP position as far in the future as 2025, because much the costs were spread over 5 years (see my primer on FFP player amortisation), and then they will still hang in the clubs rolling FFP assessment period for another 2 seasons beyond the final piece of amortisation! Good business.

Notes

1. Unadjusted Profit Before Tax. The accumulated 3 year loss of £113.5mn is taken directly from the accounts of Fulham Football Leisure Ltd.

2. Depreciation/Amortisation of Tangible Assets. This is set out in table 10a in the accounts of Fulham Football Leisure Ltd and runs fairly consistently at £1.7mn pa.

3. Youth Development Expenditure. This is an estimated figure and the annual charge of £5mn is based on some published analysis of German football academies and a paper by the Football Supporters Trust looking a category 1 academies in the UK. See this post Fulham FC and Financial Fair Play – Cottage Analytica for further detail.

4. Women’s football and Community Development expenditure were both assessed in last years post on FFP as likely being about £100k pa. This is based in part on information in the accounts on Fulham’s charitable donations.

5. Promotion Bonuses. This is a difficult item to estimate, but was based largely on the observation that in the 2017/18 promotion season, staff costs were £54mn whereas the previous season they had been £37mn (a £17mn increase) and that other clubs such as Wolves had experienced a similar uplift. I think it likely that most of the uplift came from the promotion bonuses, so I assessed it at £15mn for the 17/18 season. For the 19/20 season staff costs were higher still, a shocking £72.6mn albeit on a more bloated playing squad. If we assume the same bonus uplift as the 17/18 season we can assume that the bonus was about £20mn.

6. Covid 19 costs are very hard to estimate but clubs are permitted an exemption for FFP for lost revenue associated with the pandemic and additional costs incurred. I have noted that the pandemic cause Fulham to reschedule 9 Championship games (5 of which were at home), plus two playoff games and the Wembley final into the 20/21 financial year. Assuming that, as winners, Fulham would have donated their share of the Wembley gate to Brentford, I estimate lost gate receipts at £1.8mn. I have allowed another £2.2mn for lost sponsorship revenue and added costs associated with covid compliance, but this is mostly an estimate. It looks like, unlike Cardiff City, Fulham did not defer any parachute payments into the next financial year.