Fulham’s FFP Position – A February 2022 Update

This is an article to update my assessment of Fulham’s position against FFP limits. The focus is to speculate as to whether Fulham will breach the FFP rules at the end of the 2021/22 season.

This is a best endeavours exercise, relevant published accounts data are out of date and do not contain all the financial data points for the FFP assessment.

Further there are aspects of the FFP rules applicable to Fulham which are unclear to me relating to treatment of promotion bonuses.

I have made extensive use of estimates in this work but I have made reasonable attempts to support these estimates by looking at other clubs and consulting subject matter experts. I have included discussion of margins of error around major assumptions.

This article is not an introduction to FFP, but I have written one of those before, and you can find that here. This article assumes some knowledge of accounting. A simplified article will follow.

But to be clear, this work is an estimate by a fan, and should not be assumed to be an accurate assessment of the financial or FFP position of Fulham Football Club.

Overview

I have written a number of articles about the FFP rules, how they work in detail, and how they relate to Fulham. Feel free to dig into those, but for this article I will give a high level overview of what you need to know.

Firstly, by the end of the current season Fulham’s adjusted earning before taxes (AEBT) losses can not exceed £72m for the period covered by seasons:

• 2021/22,
• the average of season 2020/21 & 2019/20 and
• Season 2018/19

(The reason why 20/21 & 19/20 are combined in this way is due to the pandemic forcing the 19/20 season to overrun)

What are AEBT losses? Well these are the losses reported by the club but with a number of revenue/cost items excluded, these items are:

• Youth Development expenditure
• Women’s football expenditure
• Community development expenditure
• Covid costs incurred during the 2019/20 & 2020/21 season
• Depreciation/amortisation of goodwill, intangibles (excluding player contracts) & tangible fixed assets and
• New for the 2020/21 season, profit/loss on disposal of tangible fixed assets (this is, I assume, to stop teams selling their stadiums to get around FFP rules)

Fulham publish their accounts to the end of June each year, and the most recent accounts covered the period up to June 2020. This means that we know exactly Fulham’s losses for the 2018/19 & 2019/20 seasons, but can only take an educated guess for the 2021/22 season (which is still in progress) & the 2020/21 season for which accounts are not yet published.

I have previously estimated the AEBT loss for the 2020/21 season at £45m. The reason for this is that this is close to the maximum they could lose at the end of the season without breaching FFP. Fulham’s conduct in the 2021 January transfer window (recall they wanted to buy a striker and loaned Josh Maja) was consistent with a club operating close to FFP limits. However, this is a total assumption as I have no data beyond observations of the clubs conduct. Later on I will show the impact of changing this assumption.

For the 2021/22 season, we also have no financial data and indeed the season is still in progress. However, I am making an assumption that the 2019/20 season, also in the Championship, is a reasonable proxy for the 2021/22 season because:

• The squad is similar in terms of personnel and therefore wage structure
• This similar squad also means that the amortisation of player contracts (see FFP primer for an explanation) should be similar to 2019/20 as well.

I actually think the club will be operating at a slightly higher cost base to the proxy 2019/20 season, because Aleksandar Mitrovic has signed a new (and likely very lucrative) contract and we have kept Jean Michel Seri as part of the playing squad.

Findings

As I have highlighted previously, I have concerns about Fulham’s FFP position for the 2021/22 season. Our last visit to the Championship saw Fulham record losses of around £73m, which they managed to reduce to about £48m by selling Ryan Sessegnon.

As mentioned above, I expect 2021/22 to be slightly worse in terms of underlying financials, and at the time of writing there have been no material player sales.

There table below summarises my estimate of Fulham’s FFP position at the end of the season. To highlight the uncertainty in this exercise, I have coloured figures extracted directly from Fulham’s financial statements, or other reliable sources, in green. Estimates are in orange, so you can see there is a lot of room for error here.

The key conclusion is that, as things stand and based on the estimates I have made, I project that Fulham would make a total AEBT loss for the assessment period of £115.5m which would be a breach of the £72m limit for the period.

The margin of this breach is £43.5m.

There are a number of factors which could make this position more favourable to Fulham than this projection suggests and it should therefore be considered an upper limit.

For example, as mentioned above, I have completely guessed the loss for the 2020/21 Premier League campaign based on the assumption that the club appeared to be operating close to the FFP limit that it faced at the time (see here for how I worked that out).

This assumption could be entirely wrong, it could be that Fulham’s hesitancy in the transfer market was for a different reason or that they were prudently projecting the FFP position that they would be in, if the club was relegated, the following season.

If I replace the assumption that Fulham were close to their FFP limit in 2020/21, to an assumption that their losses were similar to the previous premier league campaign (in 2018/19). The loss for the assessment period falls to £100.5mn, a breach of just £28.5m.

The following table would summarise that position:

Another factor that could improve Fulham’s position relates to promotion bonuses. Most commenters on FFP rules say that promotion bonuses are exempt from FFP. Fulham said this themselves in a meeting with the Supporters Trust in April 2019. However, I can find no reference to this exemption in either the Championship or Premier League FFP rules. I have assumed that, what they meant, is that promotion bonuses are considered the following season rather than being entirely exempt (which would seem bizarre to me).

I estimate that Fulham paid player promotion bonuses of around £20m following the 2019/20 promotion. If these were entirely exempt from FFP rules, then the this would reduce the projected breach to £18.5m. This projection is included in the table below:

So to summarise, my analysis suggests that Fulham are currently on course to breach FFP limits by between £18.5m and £43.5m at the end of the 2021/22 season.

Can Fulham just get promoted and get away with a breach?

Many people will say the easiest solution is just get promoted and escape EFL sanction that way, however the EFL FFP rules make clear that this is not viable, stating:

“If a Club is promoted or relegated out of the Championship Division that Club shall, notwithstanding promotion or relegation, remain bound by these as if it were still a Championship Club, until such time as it has complied with all of its obligations relating to its last Season as a Championship Club.“

Further, the club is required to submit FFP projections on 1^st March to the EFL, with the EFL able to take action against clubs for projected breaches. This will happen in the next couple of weeks for Fulham.

I am unclear what action the EFL might take against Fulham if a material FFP breach was projected in that submission. A fine? Or worse: a points penalty?

What else can Fulham do?

So before now, the answer to the FFP problem was to sell players, but with the Summer Transfer window opening, to my understanding, on 1^st of July 2022, there is now no further opportunity for player sales before Fulham’s financial year end.

There is speculation that player sales may be possible, Fabio Carvalho and Andre Frank Anguissa being the most likely. But this could not now, to my understanding, happen before the end of the latest financial year and therefore FFP assessment period

It is possible, and this is speculation, that if Fulham have concrete agreements in place for player sales in the summer transfer window, they can revalue the players contracts on their balance sheet to the agreed price, thus recognising a profit during the 2021/22 season, but before the sale concludes. Or perhaps some sort of pre-agreement can be signed and recognised for FFP purposes during the current season.

Fulham’s internal policy for player valuation does seem to permit this (see extract below):

This suggests to me that the club can revalue players contracts based on the expectation of future transfer fees, if the directors conclude this is very likely to happen. Such a valuation adjustment may be appropriate in the cases of Cavalho and or Anguissa if pre-agreements were in place.

I have written about this in detail before (here) but selling players is not necessarily straight-forward in terms of the impact on the clubs FFP position. The profit booked on a player sale is net of the existing carrying value of the players contract.

So, for example, Andre Frank Anguissa may be sold to Napoli or another team this summer. If he is sold, any transfer fee received would be reported net of his current carrying value of about £5m. So if sold for £20m, Fulham would only recognise about £15m of profit.

Fulham do not have many players currently on the books who could be expected to be sold for significantly more than their balance sheet carrying value. Based on Transfermarkt player valuations, Fulham’s most sellable players are the following (number in brackets is how much a sale at market value would contribute to the clubs FFP position – based on my analysis here)

• Anguissa (£15m)
• Tosin (£10m)
• Mitrovic (£10m)
• Carvalho, Robinson, Onomah, Reed (£5m each – no idea really how much value can be extracted from Carvalho at this point)

So assuming its even possible for Fulham to sell players to close the FFP gap at this point (and it probably is not), quite a large number of the clubs prized assets would need to be sold in order to close the FFP gap.

Final Comment

Having spent quite a lot of time over the last couple of years looking at Fulham’s accounts in the context of the FFP rules, I am finding it quite hard to understand how Fulham will not find themselves in a breach of FFP rules when the current financial year projections are sent to the EFL in March 2022. It seems to me that some accounting revaluation of assets being sold in the summer may be required.

Of course, I am operating with very much incomplete information, I think it quite possible I have mis-interpreted something or missed something big in this assessment.

The main factors that could make Fulham’s position significantly better than I have described are:

• Fulham actually had a highly profitable 2020/21 premier league season (which we will find out about in July when accounts for that season are due to be published) and thus the financial position is much healthier than shown here.

• Fulham’s allowable exemptions are much higher than my estimates, for example, if the academy costs £10m pa to run rather than my estimated £5m, then this would improve the FFP position by £15m. Alternatively if it cost £15m a year to run, then it would improve the position by £30m.

I welcome comments from anyone who understands these FFP accounting issues, particularly if you can identify an error in this work (I will update if so).

Obviously I hope I am wrong about all of this, and the position is much stronger than I have assessed here!

Notes

Some more detailed notes supporting the tables above are set out here:

1. Unadjusted profit (loss) before tax and player sales is taken directly from the Fulham Football Leisure Ltd accounts, except for the 2021/22 season which I have estimated to be slightly worse due to the non-loan of Seri and the improved contract for Mitrovic.
2. Player sales are taken directly from the accounts, except for the 2021/22 season. I have estimated a small gain based on: i) the sale of Kamara to Aris for £3m ii) the sale of Denis Odoi to Club Brugge for £0.6m iii) the sale of Stefan Johansen for £0.6m iv) compensation from Bournemouth for Scott Parker all offsetting the free transfer of Le Marchand for whom Fulham would have had to write off carrying value of about £3m
3. Depreciation and amortisation of fixed assets tends to be around £1.7m annually for Fulham and I have assumed this continues in 2022.
4. Spending on Youth Development is estimated at £5m per annum. Fulham have a ‘category 1’ academy and I have estimated its running costs based on other similar academies. However, if the costs were significantly higher, the offset of these could materially impact Fulham’s FFP position (for the better).
5. Women’s Football Expenditure is an estimate, and the community development spending is based on charitable contributions set out in the financial accounts. It is possible that with the Fulham womens team now training and playing at Motspur Park and being more integrated into the performance areas of the club, that actually they could be much higher than my estimate. For example, if the women’s team uses 25% of the pitch and coaching time at the club, perhaps 25% of the Motspur Park running costs can be allocated to this exempt category?
6. Covid costs are assumed to be at the allowable limit, £5m for seasons 2019/20 & 2020/21 and £2.5m for season 2021/22.