OK, because I'm something of a sad bastard, I've been taking a detailed look at the new UEFA FFP rules. I'm not sure they're that well understood so here's a quick overview to begin with.
Firstly, there are two tests - a profit test and a football spending ratio.
The profit test is not a million miles away from what we have now, a basic €5m loss over three years is allowed, but the definition of profit excludes a fair few bits and pieces. But this limit can be extended to €60m if covered by owner contributions, and by a further €10m for each of the three years under review in which certain ratios are met - so in theory, you could lose up to €90m over three years and still be OK.
The football spending ratio is calculating by dividing the player / manager costs, by an adjusted revenue figure. The costs broadly include wages / benefits, amortisation and profit / (loss) on sale of players
The revenue figures are basically all revenues that are bona fide football club revenues, less some costs of sale (so for retail, for example, you'd only include revenue less cost of goods sold). The target ratio is 90% for 2023, dropping to 80% for 2024, and then to 70% after that (NB the costs are calculated baed on calendar years, not financial ones, which will present all kinds of complications and means clubs won't be able to use the January transfer window to get themselves out of jail).
However, the calculation for profits on sale of players are based on the average of the last three years, not the actual for the previous 12 months. This means that, as under the current rules, one big sale every three years can potentially keep your neck above water for that year and the next two.
The consequences of failing are penalties based on a percentage of the overspend, with a sliding scale for severity and repeated failure. More severe sanctions would kick in for more serious / persistent failures.
There are some fair value provisions in their to pay lip service to the piss-taking by the oil clubs, but we all know they won't be enforced properly.
I think there's a good chance that some clubs will look at the penalties as worth incurring, rather than making a serious effort to comply.
So I looked at LFC in recent years and made some fairly sweeping assumptions on the adjustments as a lot of the finer detail isn't apparent from the accounts (i.e. there is a fair margin of error). So for example, wages in the accounts included all staff, but in the UEFA ratio it's just players and manager (interesting it doesn't include assistants / coaches etc).
Summary results are that the profits test wouldn't be an issue, even without the need to increase the acceptable amount of losses we could incur.
On the squad cost ratio, I reckon we're in the 70s for the last 3 FINANCIAL years (but fuck knows what calendar years look like), and if the 70% limit were in play we'd be looking at penalties of up to £10m in each of those years, but likely a fair bit lower than the top of the range. Obviously with the much higher limit for the current year, and the transition downward, all would be OK for now.
BUT....
We need to consider the make-up of our future squad costs. In the last few years, our amortisation charges have been fairly steady (in a range of £102m - £112m p.a.). Our wages, on the other hand, have been hiking upwards, and our player sale profits have been in the £27m to £45m range. So to meet the rules long term (and avoid financial penalty), we need to:
- Get wages under control (should be down this year due to lower bonuses, but we also have Mo's new deal)
- Grow revenues (probably down this year due to performance)
- Keep amortisation under control (which means lower transfer spend) - NB Chelsea's 8-year contract trick won't work after this season
- Generate profits by selling players (who would you sell that would raise a profit?)
All of which makes a squad rebuild an interesting proposition. And in an ideal world, what this would point towards probably looks something like:
- Make hay while The Lying Rag shines by buying players now while it's possible to get a bit of extra expense under the radar without penalty (increases amortisation and wages) - player purchases will need to be funded by pushing the limits of our debt facilities / negotiating good payment terms with selling clubs
- Sell players when we get close to the limits (reduces amortisation and wages, plus generates a profit on sale) - NB this would mean that some players might have to be sold at the end of year one and that the squad might be thin, or else you need to sell a big star and replace with a lesser name
- Move on the players who are over-paid to reduce the wage bill, even if that doesn't generate huge profits. This may mean paying off some players to leave, in knowledge that this means the costs of those pay-offs can go through now while the limit is 80-90%
On that final point, to illustrate what I mean, if we have a player who is on £5m a year, but is worth £3m a year, and has three years left to run on his deal, you sell him now (probably no material profit) to a club who will pay him £3m a year, and we pay him 3 x £2m = £6m to do one. That means we incur £6m cost now, but save £2m per annum over the next 3 years when the ratio may be tight. We replace him with a new guy using the transfer proceeds and paying £3m a year (the broad assumption being for that price you'll get the same performance level as what you're selling). You could even build in some incentives for the new guy based on performance which would hopefully pay for themselves (but they need to deliver 1.42 (1 / 70%) times as much in revenue to keep the ratio in check).