Teams scrambling to get into the Premier League say unfair rules will harm their chances of promotion by deterring investment
• Clubs make legal threat to Football League

The Football League Championship’s financial fair play rules, which have been threatened with a legal challenge by “several clubs” who have not identified themselves, were introduced in April 2012 to address the huge losses sustained by many clubs in a division most are desperate to escape. Gaining one of three precious promotion places, in a fierce competition of 24 clubs playing 46 league games, is customarily done by paying lucrative wages to attract the right players, which makes it difficult for allclubs to keep their spending under control.

The “parachute payments” made by the Premier League to cushion the financial blow of relegation for its clubs, now up to £59m over four years, hugely more than the other Championship clubs receive from their TV deal, further inflate wages.

Vincent Tan’s Cardiff City won the Championship last season at the cost of a £31m loss while at Hull City Assem Allam financed a loss of £26m so Steve Bruce could sign players good enough to finish second. In recent years overseas owners have bought larger Championship clubs, including Leicester City, Watford, Nottingham Forest and Leeds United, perceiving the division as a cost-effective route to world club football’s greatest riches, now up to a minimum £120m bonanza, including parachute payments, for a single season in the Premier League.

Some of those owners have been bankrolling huge losses to amass a squad capable of winning promotion, notably Leicester, top of the Championship, who are believed by Championship sources to have instructed the solicitors, Brabners, to make the legal threat to the financial fair play rules. The Manchester-based solicitors have written to the league’s chief executive, Shaun Harvey, objecting over six pages to the FFP rules, arguing they suffer from not being the same as those of the Premier League, will prevent clubs competing, restrict investment by owners and reduce players’ wages – which is in fact one of its principal aims.

“It is likely that, unless the FFP rules are modified, the Football League should expect a challenge from any number of clubs and/or players or agents suffering sanctions or the consequences of sanctions,” warns Brabners’ letter, which the Guardian has seen.

Other clubs believed to be involved in instructing Brabners are Queens Park Rangers, who lost £23m in 2011-2012, the year of their most recently published accounts, Blackburn Rovers, who lost £37m in 2012-2013, and Wolverhampton Wanderers, who made a £2m profit in 2011-12 in the Premier League but have since suffered consecutive relegations. None of those clubs responded to questions from the Guardian about whether they are in fact involved with the challenge to FFP. Harvey has responded by writing to all league clubs promising to “vigorously defend” the rules.

Since taking over Leicester in 2010, King Power, the Thai duty free company owned by Aiyawatt Raksriaksorn, has since spent around £120m on the club, including financing a £30m loss in 2011-12.

After Greg Clarke became the league’s chairman, succeeding Lord Mawhinney in 2010, he made it his priority to warn Championship clubs they could not keep making such deep losses and he hailed the clubs’ vote in favour of FFP as a “courageous decision”. Harvey says the rules, which will be enforced for the first time in December based on this season’s accounts, are already having the intended effect of dampening down spiralling wages.

“The existence of FFP has certainly helped achieve one of the principal objectives, to bring down the wages of players, particularly of squad players,” says Harvey.

That assessment is echoed by Lee Hoos, chief executive of second-placed Burnley, strong supporters of FFP, who says the limits are helping him to negotiate players down from wage demands of £12,000 per week and inflation which “kills clubs trying to keep to budgets”. Paul Barber, chief executive of Brighton, who lost £15m in 2012-13, said it is a struggle to explain to supporters how players’ wages cause such losses at a club that appears to be generally flourishing. The context for Leeds United’s turmoil and prospective takeover by the Cagliari owner Massimo Cellino is losses of about £1m per month, which the owners, Bahrain investment bankers GFH, have said they are no longer prepared to finance.

The Championship’s FFP rules, agreed by an overwhelming majority of clubs, 21 to three, after two years of detailed discussion, set limits for losses and real sanctions for overspending. Clubs which spend this season above the total permitted loss of £3m, plus a further £5m if paid in by an owner, and remain in the Championship, will be barred from signing players from January. The transfer embargo will be lifted only when a club shows that its spending has been brought within the limits, which reduce to £6m in total next season and £5m from 2015-16 onwards; a £2m loss, plus £3m invested by an owner. These limits are now to be reviewed after the huge increase in parachute payments after the Premier League’s £5.5bn TV deals from 2013-16, which mean relegated clubs are paid £23m in their first year in the Championship, £18m the following season and £9m in each of the two seasons after that.

Clubs which breach the allowed losses and are promoted to the Premier League will, under the Championship FFP rules, be fined on a sliding scale, with potentially massive payments at the top end. Clubs overspending the allowed limits, £8m, by more than £10m, a strong probability for some, will have to pay a fine of almost £7m plus a figure equal to their spending above £18m. If a club is promoted and has lost, for example, £30m, as Leicester did in 2012, it would have to pay £7m plus £12m, the level of overspending above £18m – a total fine of £19m.

This possible level of financial penalty for seriously overspending clubs has focused clubs’ minds as the rules come to be enforced and is believed to have been a substantial prompt to the threat of legal challenge. Brabners’ letter takes issue with the fact that the detail of the fines has changed. The Championship clubs originally agreed they would share fines equally among themselves but the Premier League, which pays £2.3m a year in “solidarity” to each Championship club, disapproved, and now any fines will be paid to charity. The Premier League is understood to favour clubs whose owners are investing, even to subsidise losses, and did not want to see money shared from fines among clubs which do not have wealthy owners backing them.

Harvey has promised the league will maintain the FFP rules, which aim to promote financial sanity in this most difficult of competitions, which suffers the enormous financial gap created by the top division after it broke away from sharing TV money in 1992 to form the Premier League.

“We are comfortable that the [financial fair play] rules were incorporated properly,” Harvey wrote to the league’s clubs, “and that this is an attempt by a few clubs to impose their views on the majority, who approved their implementation. A position we will vigorously defend if required.”

• Financial fair play
• Football League
• Championship
• Finances
• Business
• QPR
• Wolverhampton Wanderers
• Blackburn Rovers

David Conn

theguardian.com