New Premier League season: new financial rules for clubs

Earlier this week the Premier League set out is new 'Handbook', the document containing the list of regulations that clubs operating in England's top division have to adhere to. Included in the Handbook were new rules on short term cost controls.

Under the short term cost control measures clubs will generally be prohibited from increasing their player wage bills by more than £4 million during the forthcoming 2013/14 season if their wage bill exceeds £52m in total.

If an increase beyond these thresholds is down to contractual commitments made prior to 31 January this year, and/or is counterbalanced by an increase in the clubs' revenues, excluding from money distributed centrally by the Premier League, and/or profits from player transfers, will such an increase be within the rules.

For seasons 2014/15 and 2015/16 the same exemptions apply, but the general rule will prevent clubs increasing their player wage bills by £8m or £12m respectively beyond 2012/13 levels when the wage bills in total exceed threshold figures of £56m for 2014/15 and £60m for the following season.

Clubs will have to submit figures for their wage bills from the 2012/13 season by March next year, with the first assessment of clubs' compliance with the new rules due to take place in February 2015.

The Premier League Board will be able to ask clubs to demonstrate that their player wage bill calculations are made on a "like-for-like basis" and ask for evidence to show that clubs' revenues have not been "artificially inflated".

The Board will be able to refer cases of suspected non-compliance with the rules to a new independent Financial Regulatory Panel for a ruling on the compliance. In the event of a non-compliance finding, a disciplinary commission will have the power to administer penalties such as the serving of a fine or imposing of a points deduction on a club, or could even expel that club from the league.

In addition to the short term cost control measures, the new Premier League Handbook contains new rules on profit and sustainability. Under those rules clubs could be forced to adhere to a budget set by the Premier League Board if they run up pre-tax losses aggregating at over £15m over a three year accounting period beginning from season 2015/16 without demonstrating that they have sufficient "secure funding" in place. Loans cannot be used as evidence of 'secure funding', according to the rules.

If clubs run up pre-tax losses accumulating at more £105m over the three years then they could face disciplinary commission penalties in addition the Premier League Board setting a budget for it them adhere to.

Sports law expert Trevor Watkins of Pinsent Masons, the law firm behind Out-Law.com, said that the rules were "not only good but vital for the game".

"Football has been wracked by financial imprudence and staggering wage demands that have crippled various clubs," Watkins said. "The new system offers hope." He added that clubs that best develop their commercial revenues will stand to gain most from the new regime.

‪"The new rules are all about sustainability," Watkins said. "The rules allow clubs to be flexible over the way they operate as long as they can have the ability to counterbalance significant increases in player wages or losses by generating profitability and sustainability. They demand that clubs focus on how they can grow their revenues if they are to maximise the potential for recruiting key players. If the rules are adhered to it will also make insolvency events, such as the recent administration at Portsmouth, far less likely to occur."

Revenue generation is critical in Watkins' view. "There is a growing acceptance that the ordinary fan in the UK can only be expected to pay so much for tickets, so clubs need to look at exploiting their intellectual property and boosting the value of their commercial rights on a global basis," he said. "There is huge potential within the US, Far East and South America markets, for example, for clubs to tap into and grow their revenues."

"Those that are successful in understanding, creating and delivering their brand within those territories will be the clubs most likely to succeed under the new regulatory regime," he added.

‪Watkins said that a probable consequence of the new rules will be a "softening" of wage demands by players. Whilst the top players will still command huge salary packages, he expects wages for other players in the Premier League to stop growing at as fast a rate as they have in recent seasons.

‪UEFA, European football's governing body, has separately established a range of 'financial fair play' (FFP) rules different to those now introduced by the Premier League. Watkins said that the affect of the new Premier League rules, in the context of the FFP framework established by UEFA, could be "pan-European" and impact on player contract negotiations at the major clubs in rival leagues, such as those in Spain and Germany and cascade down to the benefit of lower domestic leagues.

‪"There has already been a recognition within football that there needs to be a modification to the legitimate expectations of players around their wage packets," Watkins said. "We are seeing that in transfers; similarly, an increasing appetite for funders to be involved in the market and a determination by buyers to seek opportunities to acquire clubs suggests there is a growing faith that football is finally addressing the financial woes that has plagued it in an effective manner".