Financial Fair Play: Friend or Foe

This is not an analysis of the merits of the Financial Fair Play (FFP) rules.  I am not attempting to prove that they are good or bad for football in general or for English football in particular.  Instead, I only intend to address the purely selfish question of whether the Financial Fair Play rules are good or bad for Southampton FC.

The consensus seems to be that the rules hurt Southampton because they limit our ability to spend the money necessary to compete with the big boys who are allowed to spend a lot more money that we are because they already have so much more money than we do.  As a results, we can never catch up.  The financial results for the 2012-2013 season (the last season for which all teams have reported their results) seem to back this up.  See here. 

On the surface it is a depressing list.  Consider the turnover in millions of pounds listed by last season’s order of finish:

Manchester City                £271

Liverpool                            £206

Chelsea                               £260

Arsenal                               £283

Everton                              £86

Tottenham                        £147

Manchester United         £363

Southampton                   £72

Stoke                                 £67

Newcastle                        £96

Crystal Palace                  £14.5*

Swansea                           £67

West Ham                        £91

Sunderland                      £76

Aston Villa                        £84

Hull                                    £17*

West Brom                       £70

Norwich                            £85

Fulham                              £73

Cardiff                               £17.3*

*In Championship during prior season.  See here. 

Of the top seven teams, only Everton stands out as a low revenue anomaly.  From eighth on down, the table position and the revenue do not seem that directly correlated—at least if you ignore the newly promoted teams—but it looks difficult to break into the top six without a lot more money than we have.

Some clubs have reported their financial results for 2013-2014. (I will be relying upon The Swiss Ramble and its analysis of this information found here.)   Based upon this information, it appears to be more of the same.  Every Premier League club has significantly increased revenue due to the new TV contracts but the richer teams have increased their revenue even beyond that, while the not-so-rich teams have relied entirely on the increase in TV revenue.  

Thus, Stoke’s turnover is up by nearly £32 million—due to its higher league position and the vastly increased value of the league TV contracts.  Chelsea’s turnover has increased by £64 million due to the TV deals, its Champions League performance, and £30 million in additional commercial revenue.  West Ham’s turnover is up £25 million entirely due to TV money mitigated by its lower table spot.  Manchester City’s turnover is £75 million higher due to the TV contract, better Champions League performance, and increases of £8 million and £23 million in match day and commercial revenue respectively.  Everton’s revenue is £24 million higher more than all of which is due to the increased TV money.  Finally, Manchester United’s revenue was up just over £70 million--£37 million commercial and £34 million TV revenue, including Champions League money.

Although Southampton’s financial results are not yet available it is certain that our turnover has increased significantly as well.  It certainly should have increased by more than Stoke’s £32 million.  The Deloitte Money League ranks Southampton as 25^th in world with turnover of £97.3 million.  See here.    This number seems low to me.  I would have guessed something like £108 million.  (The difference may be due to exchange rate timing issues since Deloitte issues its results in Euros.)

Since FFP limits our ability to spend very much beyond what we take in, on the surface these numbers seem to conclusively establish than FFP means we will never be allowed to catch up with the big boys.  However, the message is not quite so clear.

In Part Four of my Glass Ceiling blog post last fall (found here) I concluded that FFP was not the big limiting factor on Southampton’s ambitions unless Katharina Liebherr actually wanted to make capital contributions well in excess of £8 million a year—the effective limit if we were planning to compete in Europe on a regular basis (and there would be no point in kicking in that much money year after year if we were not).  From that perspective, FFP is actually a benefit to Southampton because we no longer have to compete with the owners of Chelsea or Manchester City who appear willing to contribute £100 million or more, year after year.  More importantly, we do not have to worry about another team, say Crystal Palace, being bought by a billionaire who wants to spend hundreds of millions of pounds improving their side.

In fact, this benefit of the FFP rules enhances our competitive position throughout Europe.  The biggest barrier to our continued progress is the risk that our good players will be lured away from us by the promise of much higher pay and/or European football.  Yet, any team with European ambitions has to comply with FFP and only 24 teams in the world have more money to spend than we do: three from Spain, three from Germany, two from France, five from Italy, one from Turkey, and ten from England.  (Moreover, despite their higher turnover, several of these clubs have significant financial problems that will limit their spending.)  That means that very few clubs can afford to outspend us to take our players (or compete with us for new signings).   This is particularly true going forward because it seems virtually certain that the Premier League TV contracts for 2016-2019 will be even more lucrative than the current contracts thereby increasing our advantage even more.

Consider, for example, the effect this financial strength had on this year’s transfer business.  (I am using the Football Manager (FM) 2014 and 2015 databases for this comparison.  I have listed Southampton’s weekly salaries here for reference.  )

Eljero Elia was Werder Bremen’s highest paid player at £45K.  We can afford that.  Pelle was Feyenoord's highest paid player at £21K.  We gave him a raise to £37K.  Mane was making £6K and now we are paying him £45K.  Tadic was making £16.5 and we are paying him £42K.  Long was making £30K and is now getting £50K. Forster was getting £23K and is now getting £40K. Bertrand was and is getting £35K.  Alderweireld is a weird case.  FM 2014 shows him as earning £14.5K but FM 2015 has us paying him nearly all of his £86K salary.  I do not know if he signed a new contract with Athletico Madrid at some point or if FM made a mistake, but it does not really matter because they are one of the few teams with a higher turnover than us so we will probably not be taking players from them based upon a willingness to out pay them.

In other words, our inherent strengths, which include the Premier League TV contracts, the quality of our management, and the limits imposed by FFP, mean that we can buy players away from virtually any team in the world, but very few teams can afford to buy players away from us.  Of course, it is a problem that we are in a league with ten of those teams—a problem Bayern Munich, PSG, Real Madrid, and Barcelona do not share—but that problem is not created by FFP.  Instead, FFP gives us a chance to live within our means and continue to improve—at least as long as we remain one of the better run clubs.  We will lose players to the richer English clubs and that will make things difficult at times, but we will turn a profit and replace the players relatively cheaply from other European clubs.  If we qualify for Europe, especially the Champions League, players from all over the world will be beating on our door begging to play for us.  So long as we exercise good judgment as to which ones we sign, FFP is our friend.