The rule that arrived after the money

The question left open

Bought time asked whether a club should be allowed to spend money it had not itself earned.

For a long time that question had a human form, and it was simpler than a rule book. Would anyone come? And if someone did, what would it cost the people who were already there?

Walker came to Blackburn. Abramovich came to Chelsea in the summer of 2003. Mansour came to Manchester City in September 2008. In each case ownership changed what could be committed before the club’s own activity had generated it. The revenue already on the page did not set the limit of the commitment. Capital changed what was possible. It did not settle the table.

Supporters lived the change as time. A ground rebuilt before the seasons that might have paid for it. A squad assembled before the revenue that, on the old path, would have had to come first. The wait, which had been measured in years, could be compressed into a summer. That was the gift. It was also the danger.

There were two serious ways to be afraid of it.

One fear was an owner without a limit the club could survive. The money lifts the team. It can leave the club dependent on the person who brought it. It can pull the wages of the competition up behind it. And it can stop. The creditors do not stop with it. Neither do the supporters.

The other fear ran the other way. If the remedy is to tie what a club may spend to what it has already earned, the club that earned more is handed more room, and the club trying to catch it is told to catch it at that pace. Money accumulated before the rule is not wiped away. It is counted, and then it is allowed to matter again.

Neither fear is foolish. Neither is dishonest. And neither requires a verdict that the rule was good, or that it was a device for keeping the strong where they were.

The obvious name for the second fear is a freeze. A revenue-based allowance would lock the positions already reached, and lock them for good. The fear is intelligible. It is not what these records establish.

What they establish comes before that verdict.

Before these limits, revenue described what the football business had generated. It did not necessarily define what an owner could commit. After them, revenue acquired a second job. It became part of the room in which the next spending had to sit.

Time then mattered twice. It mattered because some clubs had already built the revenue a rule would see. And it mattered because money from outside, spent earlier, could help build the position the rule eventually met. The spending did not have to wait for the revenue. The rule, when it came, met the revenue anyway.

The rule did not make the field uneven. It inherited an uneven field, and made where a club already stood part of the calculation governing where it could go next.

That is not a claim about motive. Bought time left the question of design open. It stays open. A rule can answer a genuine danger and still have unequal consequences. The claim here is the consequence. It does not cancel the danger.

The danger was real

The limit did not arrive as weather. It arrived because the danger was already in the game.

A club that holds its spending can watch a rival, funded from outside, go past it. Matching that spending can be how a board keeps its place, and can also be how a club stops being able to pay the people it owes. Who Gets to Spend has already put the two pictures side by side. Abramovich’s Chelsea showed what outside wealth could do to time. Portsmouth, in February 2010, showed the other face of the same instrument: a Premier League club in administration. A place in the division was not the same thing as the ability to meet what the club owed. Investment can widen a club’s chance. Dependence can leave it exposed when the money ends. Controls can protect creditors, and the clubs themselves, from that pressure. What those controls do to the competition is a separate question, and it is the one this essay is asking.

European football had to keep clubs able to pay their way, and still leave them a credible chance to improve their place. Those two aims do not sit quietly together. Any revenue-based rule had to operate inside that tension. It restrains commitments. It also gives the club that earns more greater room to spend. Financial protection and the preservation of existing advantage are not the same sentence. They can come out of the same rule.

UEFA wrote the aim down. The Club Licensing and Financial Fair Play Regulations, Edition 2010, were adopted by the UEFA Executive Committee at its meeting on 27 May 2010, and signed for the committee at Nyon by Michel Platini, President, and Gianni Infantino, General Secretary. They aim, among other things, to encourage clubs to operate on the basis of their own revenues, and to protect creditors by having clubs settle on time what they owe to players, to the social and tax authorities, and to other clubs. They aim at the long-term viability of European club football. That is the regulation’s own account of the problem. It is not a verdict on whether the remedy was fair.

The instrument was break-even, and it did not bind every club in England. It bound clubs that had qualified for a UEFA competition. The regulations came into force on 1 June 2010, but the break-even articles came into force for the financial statements of the reporting period ending in 2012. The first assessment, in the licence season 2013/14, covers two reporting periods, those ending in 2012 and 2013. The Premier League clubs adopted tighter controls of their own in February 2013. Profitability and sustainability came later. The squad-cost ratio came later still. That is a sequence. It is not one instrument under four names.

Break-even sets relevant expenses against relevant income over those reporting periods. The same hundred per cent of relevant income was allowed to every club. Expenses could match that income, and could go beyond it only by a deviation. A club whose relevant income was already larger already had the larger room.

The percentage could be equal. The permission would not be.

The deviation was the part that did not work as a percentage. It was the same sum, in euros, for every club covered by the rule: €5 million, or up to €45 million for the assessments in 2013/14 and 2014/15, and up to €30 million for 2015/16, 2016/17 and 2017/18, but only if the whole of the excess was covered by contributions from equity participants or related parties. A fixed sum is worth more, proportionally, to a smaller club. It was the part of the allowance that did not grow with income, and owner money was what opened the larger of the two.

The test also left a second door open. Spending on youth development and community development, and the depreciation of tangible fixed assets, a ground among them, could be left outside that test, whoever paid for them. Neither shows that a challenger rose. Together they are why this record does not show that a challenger had no route up.

A promise was not enough. The money had to have been paid, and without conditions. A gift was not income. Money received from a related party as a donation, and a related party’s settlement of the club’s liabilities, are left out of relevant income. They can count only toward covering that permitted deficit. Income from a related party above fair value is written down to fair value, and it cannot be written up. The regulation had already had to define which receipts counted.

What break-even was not, was the later squad-cost rule. It did not tell a club it might spend 85 per cent of revenue and no further. The regulations do contain a figure of 70 per cent. The Club Financial Control Panel could ask a club for more information at any time, in particular if employee benefits exceeded 70 per cent of total revenue, or if net debt exceeded total revenue. The 70 per cent was an example, not a precondition, and not a ceiling. Reading the later 85 per cent back into 2010 would give the word “freeze” a meaning it had not yet been given. The later rule makes the same shape easy to count. It is not the first time the shape appears.

The spending came first

Long before either limit, the order at three clubs had already run ahead of their revenue.

Abramovich bought Chelsea in July 2003. The club was not a blank page. It had just finished fourth and qualified for the Champions League. It was also a business whose own accounts could not fund what happened next.

In the year to 30 June 2003 the football company turned over £75.1 million. The group accounts added £1.2 million to the cost of players’ registrations that year. In the months after that date they record new registrations costing £117.1 million. The capacity to commit had changed before the next season’s football revenue could have been the thing that paid for it.

Chelsea did not earn more and then spend the increase. The order ran the other way. Capital arrived. The commitments followed. The sporting and commercial consequences, whatever they were, came after.

Those seasons sit years before break-even, and years before a squad-cost percentage. By the time a limit existed on how far an owner could stand behind a loss, that Chelsea summer was already years behind it. That is chronology. It is not an accusation. It is not a claim that anyone was exempted, and it is not a claim that the rules were written with Chelsea in mind.

Walker is the reason 2003 cannot be treated as the start. He had been funding Blackburn long before any of these limits. The club were champions in 1995 and relegated in 1999. He died in August 2000, before the promotion the following spring. No revenue rule built that rise. No revenue rule caused that fall. The previous essay has the case. The rule arrived too late to be the author of either.

City is the same order, at a different distance. On 1 September 2008 the ownership changed while the club’s own football income was still far behind the largest earners in England. The same day, City signed Robinho for a fee Bought time records as £32.5 million, then a British record. Again the commitment did not wait for the revenue.

The first accounts under the new ownership are the year to 31 May 2009. That year includes the change of 1 September 2008. It does not show a revenue rule at work. Turnover rose from £82.3 million to £87.0 million. The loss was larger than the year’s whole turnover.

Someone has to say what revenue is

None of this is a permission until someone decides what the word “revenue” means.

In the year to 30 June 2008, United’s football company turned over £180.3 million. The group figure Deloitte printed, the total that includes a joint venture, was £257.1 million. City, at the club and at the parent, were on £82.3 million. Bought time set those two Deloitte totals side by side. Because they come from the same publication, period and definition, it called the comparison unusually clean: United generated a little over three times City’s revenue. That multiple is the one in that publication. It is not the multiple between the two football companies. £180.3 million is not three times £82.3 million.

Deloitte was making a comparison the filings do not make by themselves. It took revenue from the financial statements or from other direct sources. In some cases it adjusted or reclassified the figures, so that football businesses could be set side by side. It left transfer fees out. It did not audit the statements. United were second on that list, and City’s page is headed 20. Those are Deloitte’s places, not league places.

The decimals are not the point. The point is that the revenue a rule recognises requires a definition. The club’s own trade, the group, and a published reclassification are different widths. A rule that allowed spending as a share of “revenue” would have been allowing different amounts according to which of those lines it agreed to see. Choosing the line comes first. The percentage comes after, and it cannot mend a line that was the wrong one.

The width you start from

The later rule is where that choice becomes a sum of money.

Squad cost divided by football revenue is the ratio, and the green threshold is 85 per cent of that revenue. The series has already put two denominators under the percentage. Neither is a club. Income of £600 million permits £510 million. Income of £150 million permits £127.5 million. Equal revenues make equal lines. Different revenues make proportional lines. Break-even had already done that with the whole of relevant income, plus a fixed deviation. This later rule does it at 85 per cent of a defined football revenue. It is not a table, and it is not a result. It was not the rule in 2008, and the 85 per cent was not the break-even test of 2010.

Nothing in the percentage requires the table to stand still. Revenue can rise, and the permission rises with it. Revenue can fall, and the permission shrinks. Profit on a sale can enter the revenue, averaged across three seasons, and widen the room that follows. That is movement inside the arithmetic. It is not a named player moving a named club, and these accounts do not tie a footballer to a place.

The lock, if there is one, is not a ban on movement. It is the width you start from. Two clubs can live under the same percentage and still be miles apart, because the percentage is not a pile of money. It is a share of unequal money.

At the moment it was applied, an equal percentage of unequal revenues would produce unequal spending room. The club that had already reached the larger revenue, or that was allowed to count the larger of its lines, would not need anyone to be banned from rising. Counted evenly, the rule would hand it the wider room then. It would not, by itself, hold that difference in place afterwards. Revenue can still move, and the room moves with it.

That is a shape at the moment of application. It is not a motive. It does not say the rule was built to produce the inequality. It says the inequality was already in the revenues the rule was shown, and an even percentage would turn that difference into a difference of permission.

What this establishes

The revenue a club has already generated does not, by itself, determine what an owner can commit. Bought time established that, for Blackburn, for Chelsea in 2003, and for City in 2008.

This essay adds one distinction.

Once a limit is related to revenue, the revenue already reached becomes part of the permission. It is no longer only the record of what the club earned. Clubs with different revenues are not given the same room by being given the same percentage. Which revenue is counted, the club’s, the group’s, or a figure adjusted so that clubs can be compared, is itself a decision about how wide that room will be.

Movement remains possible. Revenue can change, and a sale can count. Possibility is not a climb. The years in this essay do not show the rules operating on a league table. They show the unequal revenue positions that later financial controls encountered, and why rules tied more closely to those revenues could produce unequal room.

The supporter who feared an owner without a limit was naming a danger the game had already produced. The supporter who feared a rule that measured the future by money already earned was naming what the remedy does to clubs that start behind. Both can be kept in view. Only the second is established here, and only as a shape.

What this does not establish

It does not establish that a revenue-based allowance froze the positions already reached.

It does not establish that a challenger had no route up.

It does not establish that the rules were designed to protect the clubs that were already large.

And it says nothing about whether Manchester City’s later revenue was what the club stated it to be. The distance in 2008 does not answer that. Later proceedings are not read backwards into that year.

The next question

A percentage can make revenue the measure of permission and still leave the revenue figure itself untested. The rule can say “this share of revenue” without deciding whether the revenue was the club’s own trade. That second question is not about the shape of the allowance. It is about what was stated, and about what a commission later did with what was stated.

That is where Essay Five, What was stated, begins. It is not this essay.