This post is a follow-up to the one last week which set out my assessment of Fulham’s position against Financial Fair Play (FFP limits) as at the end of the 2019/20 season. This was based on the financial statements which were published early last month.
This post will also go hand in hand with a detailed financial analysis I am doing on the costs of Fulham’s current playing squad which includes analysis of any players which may need to be sold to meet FFP at the end of the coming campaign. In order to make that assessment, I need to first set out how much money Fulham can afford to lose in the upcoming 21/22 season.
This is particularly tricky because there is some uncertainty over the FFP rules for the coming season, and also there is no financial data yet published for Fulham’s 2020/21 season. Despite this, if we make the assumption that previous estimates I have made for Fulham’s FFP are correct (and they seem reasonably consistent with predictions of other observers) and we also assume that Fulham did not breach FFP last season, then we can reverse engineer a worst case scenario for Fulham’s FFP limits for the coming season.
The detailed analysis follows, but subject to a couple of caveats (see conclusions below) this analysis concludes that Fulham can lose up to £27m in the coming season, and the limit may be even higher still.
This is much higher than the (adjusted) loss recorded in Fulham’s last Championship promotion and is also greater than the single season loss limit for the Championship of £13m.
More detailed analysis follows but simply put, the main driver of this high loss limit is that Fulham’s 2017/18 promotion season has now fallen out of the rolling FFP assessment period. That was a particular bad year from a financial point of view (although it was a good season on the pitch) which has been consuming a lot of Fulham’s FFP headroom for a while. The loss of that financial year means Fulham are free, if they wish, to replicate those losses for the upcoming season!
Important Update (13:00-2/8/21): I have seen a number of commentators online say that the additional headroom identified here means Fulham have a lot of capacity to bring in new players. This is not what I am saying in this post: although I believe that Fulham have the capacity to lose £27m (AEBT basis) or maybe more in the coming season, I also think that, as things stand, Fulham will lose much more than this (maybe more than £40m) in the upcoming season if they don’t take action to cut loses in this transfer window.
In other words, I strongly think Fulham need to sell and/or loan out players to meet FFP in the coming season. However, the point I would make is that they may be only 1 or 2 player sales away from getting back to FFP compliance, rather than needing to undertake a player fire sale to get there. Perhaps one big name sale (Anguissa, Cairney, Robinson or Tosin for example) and a couple of loans (say Hector and Mawson) would do the trick. Exactly how much Fulham need to do to meet FFP will be the focus of my next article which I am still working on.
The Loss Limits
This article does not need to go into the details of how I have made estimates of Fulham’s FFP position in the past but you can read about that by following the link at the top of this post.
But to follow the arguments, you do need to know the following about FFP loss limits:
1) Normally, football clubs must maintain something called their Adjusted Earnings Before Tax (AEBT) within a certain limit over a rolling 3 year assessment period. The term AEBT is, as the name suggests, the accounting earnings before tax with some adjustments. You can read about the adjustments in my other FFP articles, but we don’t need to know about them here.
2) Typically. the FFP limit applied over the rolling 3 year assessment period is £13m for each season in the Championship and £35m for each season in the premier league.
3) Because of covid, both the Premier League and the EFL updated their FFP rules in a number of ways. The main update relevant to this discussion is that they said the 2019/20 and 2020/21 seasons would be treated, essentially, as a single year for FFP purposes and that clubs should take look at the average limit for these seasons and compare it to their average AEBT. The reason for this was that the suspension of play at the end of the 2019/20 season caused a lot of costs and income to be deferred into the following financial year, meaning that it was only meaningful to look at both the 19/20 and the 20/21 season together in the round.
The consequence of 3) is that the FFP Assessment period for the season just finished was based the average limits and AEBT of the 2019/20 season and the 2020/21 season, plus the limits and AEBT of the 2018/19 season and the 2017/18 season (this is confusing when written down, but I will work through it below and I hope it will make sense).
The premier league has just published its rules for the 2021/22 season and this continues treating the 2019/20 and 2020/21 seasons as a single year for FFP purposes.
The new rules say that the next FFP assessment will be based on season 2018/19, the average of seasons 2019/20 and 2020/21, and also season 21/22. This is consistent with the approach taken to covid in the previous year.
However, at the time of writing, the EFL has not updated its profitability and sustainability rules to match the Premier League. This article will be written on the assumption that they will match the rules, and that therefore, Fulham, at the end of the upcoming season, must meet an FFP loss limit which is:
- The limit from the 2018/19 season (£35m as Fulham were in the Premier League) plus,
- The average of the 2019/20 season (£13m Fulham as Fulham were in the Championship) and the 2020/21 season (£35m as Fulham were in the Premier League) which is (35m+13m)/2 = £24m plus,
- The limit from the 2021/22 season (£13m as Fulham will be in the Championship)
Therefore I am assuming that Fulham’s loss limit for this period of time is 35m+24m+13m = £72m.
Fulham’s Performance Against Limits
My recent post on Fulham’s FFP position based on released financial statements can be described with the table below:
It shows, highlighted in blue, the seasons covered by the FFP assessment at the end of the 2019/20 season. At that point, my estimate after making, what I believe to be reasonable adjustments and assumptions, was that Fulham had a total AEBT of £-53.8m which was £7.2m below their loss limit of £61m (based on two years in the Championship and one in the Premier League). These numbers are based on published accounts for Fulham Football Club but using my own estimates for allowable adjustments.
However, If we want to think about Fulham’s headroom for FFP in the upcoming 2021/22 season we also need to have a view on what happened in the 2020/21 season.
This is difficult to assess directly because there are no published accounts for this period. But I think its reasonable to make a prudent assumption that Fulham finished the season within, but close to, their FFP limits.
The basis for thinking this was their activity in the January transfer window when Fulham made a loan signing (Josh Maja) but did not invest heavily in trying to achieve survival. A number of comments at the time suggested FFP was a factor in this.
Based on this, I am going to guesstimate that Fulham made a loss of £45m for the season, this would exceed the loss limit by £10m and leave them just over £4m inside their loss limit which (as a reminder) covered the 2017/18 seasons, the 2018/19 season and the average of the 2019/20 & 2020/21 seasons.
In a similar table to the above, this would look as follows:
The blue columns represent those used for the assessment. The limit for this period is £72m and the total AEBT of £-67.7m is, in my view, a reasonable ‘ball-park’ assumption for Fulham’s final position.
The brings us on to the upcoming season and this is where something important happens…
The 2017/18 season (the Slavisa promotion ) falls out of the FFP assessment period. This was a really bad year for Fulham’s FFP because, to my estimates, the club exceeded their FFP season limit by £10.3m (see table above). If that season falls out of the assessment period, then this £10.3m headroom becomes available to use again!
In the table below I have set out the FFP calculation that will take place at the end of the coming season. As a further reminder, I have assumed this will be based on the 2018/19 season, the average of the 2019/20 & 2020/21 seasons and the 2021/22 season (although the EFL rules do not yet state this):
I have reversed engineered (in red) the figure which I think represents the maximum loss Fulham can withstand in the upcoming season and still be compliant with FFP at the end.
This is a loss which is about £10m greater than the already eye-watering losses the club recently reported for the 2019/2020 promotion season (also shown in the table above).
This figure may explain the clubs apparently cavalier attitude to keepings its star and expensive players for the coming season while they continue to explore eye-catching new signings such as Harry Wilson.
Conclusions and Caveats
This best endevours estimate of Fulham’s FFP loss capacity for the coming season shows a very high capacity for losing money.
Fulham, with parachute payments, should generate revenue of around £65m this season, The implication of this analysis is that costs net of allowable adjustments (which in a football club are almost entirely due to player expenditure) could reach over £90m with FFP compliance being maintained.
There are some assumptions going on in this article that are worth highlighting as caveats.
- This all assumes that Fulham’s management are content to continue to lose up to the FFP limit, this is the Khan’s personal wealth that is being used and their appetite for financial loss cannot be endless
- It assumes that the EFL adopts the same structure for 2021/22 FFP loss limits as the Premier League
- It assumes previous estimates of FFP adjustments which I have made are reasonably accurate. In particular I have previously highlighted some uncertainty over the assumption made here and by others, that promotion bonuses are exempt from FFP. As noted in other posts, I think they probably are exempt, as everyone seems to say they are, but cannot find the rule which says they are exempt.