Many Wolves fans were baffled when it emerged that Lopetegui was considering his future and there were issues with FFP and Summer transfer spending that needed to be ironed out. But Fosun are rich right? They can chuck some money in and solve all the problems. Well we take a look at whether it is that simple.
What is the purpose of FFP?
The basic premise of Financial Fair Play, FFP was to ensure that clubs were not spending more than they earned and, in doing so, prevent them from falling into financial trouble which could threaten their existence. It was established by UEFA and kicked in for the 2011/12 season.
Many argue that the rules just keep the rich clubs at the top and prevent others from challenging the status quo. The authorities say they want to protect fans from owners who overspent and then failed to support clubs financially putting the clubs at risk.
FFP Basics
The Premier League has a number of financial rules in place, including requirements for clubs to pay transfer fees, salaries and tax bills on time. They must also submit accounts annually, and disclose payments made to agents. You can read these regulations in full in the Premier League Handbook, primarily Section E: Club Finances.
Premier League Profitability and Sustainability rules allow a £5m loss a year, which can be boosted by £30m equity injection, giving allowable losses of £35m a year. This works out to £105m over the 3-year monitoring period.
UEFA’s rules are more stringent than the Premier League and should Wolves make Europe again they could risk being stung with another fine.
wolves financial situation
Wolves posted a loss of £46.1m in the last financial year followed by a net transfer spend of around £100m last season. Suggesting this is why Wolves need to reign in the spending.
In the last window signings totalled approximately £117m, £16m in 2021 and £74m in 2020.
How FFP works with buying players?
So for accounting purposes players are considered assets.
So if Wolves buys a player for £10m paying all upfront they get a £10m asset. So FFP impact is zero.
If Wolves pay say £2m cash, and the other £8m in annual instalments, you spend £2m, get a £10m asset (the player) and also an £8m liability (you still owe £8m). Again, FFP impact zero.
Where the FFP problem comes in is asset depreciation. Each year that ticks down on a players contract the value of that player decreases. Every year, a player loses value equal to 1/the length of their contract. So if you give them a five year contract they lose 20% each year, if you give them a 10 year contract they lose 10%. That is a loss that’s counted for FFP. So if you give longer contracts, you have a smaller loss each year.
Clubs can also record an FFP profit or loss when selling a player part way through a contract. If the player is sold for more than the depreciated value then this is recorded as profit in respect of FFP. For instance a player costs £10m on a five year contract, if he is sold after year 2 his depreciated value is £6m so if the player is sold above this value it is recorded as a profit and below this value it is recorded as a loss.
Can a wealthy owner just inject capital?
The answer is dependent on the purpose. Owners can invest for development of the ground, training facilities and other infrastructure freely. But for FFP income is key to how much can be spent on players.
We have recently seen Wolves take on Shede Spirits as their Baijiu partner, which many Wolves fans immediately googled ‘What is Baijiu?’ But things become clearer when you consider that Wolves owners Fosun, own 70% of the parent company of Shede Spirits. So owners can inject cash into a football club via sponsorship deals. However this is still assessed in terms of FFP as to whether the sponsorship deal is ‘Fair Market Value’
What are the penalties for breaching Financial Fair Play?
- Reprimand
- Fines
- Points deduction
- Withholding of revenue
- Prohibition to register new players
- Restrictions on how many players a club can register
- Disqualification from a competition in progress
- Exclusion from future competitions
The sanctions for breaching FFP aren’t as simple as just a fine meaning wealthy owners can’t just pay the fine there can be other consequences to.
What can we expect Wolves to spend this Summer?
All indications are that Wolves are going to need to be particularly savvy this Summer with their signings. We are already expecting sales as a number of players are closing in on the end of their contracts which should alleviate some of the issues and reduce the wage bill. It seems unlikely that we will see any big signings of £30m plus like we did in the last transfer windows.
COMPETITION IN THE PREMIER LEAGUE
There are fears of the financial gap growing between those clubs in the Champions League and new Club World Cup and the rest of England’s top flight. The Premier League recognise that their success hinges on the fact that even the bottom club could beat the top club on their day and that is what makes it interesting.
Clubs in the Premier League are thinking of enacting a wage expenditure cap that would be based on how much broadcast money is given to the team that finishes last.
The “anchoring” concept would limit the best teams to spending, for instance, four times as much as the bottom club receives in TV money, though the precise ratio has not yet been established.
The plan, according to insiders, is simply one of many cost control options, but it being “seriously considered.” On Tuesday and Wednesday at the Premier League’s annual conference, the concept is anticipated to be discussed. The idea would tie player salaries, which make up the majority of a team’s budget, to the compensation received by the bottom club. Some of the top clubs are vehemently opposed to it, though.
There are many concerns about what will happen when the new Champions League format debuts next season. It appears that the participating teams, as well as those in the new Club World Cup, will receive significantly more money.