1 May ~ Last week it was announced that 21 of the 24 Championship clubs have opted to introduce Financial Fair Play (FFP) measures. Under the new rules, clubs will be required to provide accounts to the Football League by 1 December each year highlighting their revenues and costs. The new regulations are based on UEFA's break-even model and come after the Football League revealed the 72 clubs of the Championship, League One and League Two are on course to accumulate debts of £2 billion. Clubs that make excessive losses will be punished with fines and transfer embargoes.
The clubs will be eased into the new rules, with some leeway allowed over the next few years in the form of a "financial funnel", which permits diminishing losses over the coming seasons. Owners can also put money into the clubs through "equity investments", cash from an owner or benefactor that comes in the form of shares rather than debt. This model prevents owners from burdening clubs with loans they will struggle to repay.
Next season clubs will be able to make losses of £4 million and receive equity investments of £6m. From 2015-16, these figures will be reduced, with clubs permitted a £2m loss and £3m investment from an owner. From then, clubs that make losses will be placed under a transfer embargo.
Teams promoted to the Premier League that break the regulations in their promotion season will have to pay a "tax" to Football League clubs. Those relegated to League One and found to have been in breach of the rules while in the Championship will not receive their slice of the tax pie.
As well as deterring big spending on bringing in players, the measures encourage investment in youth development and community schemes by not including them in the spending limits. In layman's terms, clubs should be deterred from splurging money on "buying promotion" and will instead be encouraged to build solid foundations.
Football League chairman Greg Clarke says the measures, two years in the making, were put together to prevent a train wreck: "They will begin to lay the foundations for a league of financially self-sustaining football clubs."
Portsmouth and Port Vale have both entered administration this season, with former Football League club Darlington following suit. Conference outfit Rushden & Diamonds, who were in the third tier just eight years ago, were liquidated before the season began. It is great that people with money want to bring success to a club but too often they spend beyond their means, leaving the club to suffer long after the owner has tired of their plaything and walked away.
Hopefully the new rules will stop clubs getting into the kind of sorry state Portsmouth are in. After spending big, Pompey went from Championship mediocrity to a top-half Premier League finish in just five years, with an FA Cup win leading to a UEFA Cup campaign and a famous 2-2 draw with AC Milan.
When the money dried up, the club went into freefall. They have just slipped into the third tier for the first time since the 1982-83 season. There is still a chance they might not kick a ball come August, with administrators laying off staff and a series of creditor meetings taking place.
Portsmouth are left with nothing but memories of the good times. Under the new rules they might have had a fruitful academy producing the young players they need to lead them to the League One title. Instead they have a line of angry creditors wondering if they will ever be paid the money they are owed.
Sensibly, the financial calculations do not include the sale of fixed assets (excluding players). So clubs will not be able to sell their ground in order to avoid penalties. Stadiums such as Fratton Park will be more protected from quick-fire sales than they were before.
Sceptics propose that owners will be able to find loopholes in the rules. Could a Championship club, for example, spend heavily during the summer transfer window in order to virtually guarantee promotion and then not need to spend any money in the January window and not particularly mind throwing Fair Play tax crumbs back into the Football League pond they just have climbed from?
There may well be ways for clubs to get around the rules, but the League should be able to react and seal off those paths. Do not say it too loudly, but one of football's governing bodies may have made a hugely positive impact on the game. Andy Lloyd-Williams