The Blind Hammer Column
Blind Hammer looks at whether FFP will restrict Pellegrini’s Project.
The signings of Ryan Fredericks, Issa Diop and Fabianski indicate that West Ham are serious in at least starting a refresh of Pellegrini’s squad. It is likely that the most difficult and important business is still to come. As always the pot of money finally available will determine options. The spectre of Financial Fair Play is often invoked by PL club directors. The dark suspicion of many supporters is that FFP is rolled out to excuse a stingy reluctance to invest.
Yet FFP cannot be dismissed so easily. One of the few failure points of Pellegrini’s managerial CV was the financial meltdown during his latter days at Malaga. After hefty initial investment Malaga had to Fire sell their expensively acquired Stars. For a while the Malaga players, and indeed, Pellegrini himself, did not receive any wages. FFP was blame for this meltdown but in reality Malaga’s plight was probably just as much due to devolving their financial security to an Oil rich investor. This is a Case Study that those desperate for foreign investment would do well to ponder.
FFP is not a single set of rules but separate codes established at UEFA, Premier and Championship Level. The regulations attempt to restrict reckless spending of TV Money. Since FFP’s introduction the number of clubs entering Administration has diminished. This is all to the good. Administration has wider victims. The recovery of clubs like Leeds disguises those who never see any redress. It is the smaller fry rather than the Football Millionaires who suffer.
So what are FFP Rules? Surprisingly the Premier League Handbook makes no reference to Financial Fair Play anywhere. Despite this we can infer rules. Those who have, in recent weeks, quoted the available TV Monies as the “war chest” available to Pellegrini, are wide of the mark.
The Handbook lays out spending restrictions. The first is what is described as the Profitability and Sustainability Rules. Under these rules West Ham and other clubs are not allowed to make a loss of more than £105m over a three-year period. In theory the PL are cracking down on Real Madrid creative accounting ruses such as sponsoring the training ground for enormous sums to get around this.
Probably more relevantly is the Short Term Cost Control rules (STCC). These rules are designed to restrict the arms race on player salaries, often considered the biggest threat to clubs financial stability.
In Sections E18, E19 and E20 rules for spending on wages and transfers are laid out.
These Sections specify that from a starting point of £67 million in 2016-20177, a club is only allowed to increase spending on their squad by £7 million a year. So for 2017-2018 the limit is £74 million. The limit for next season is £81 million. This includes both wages and transfers costs, though the cost of a transfer is spread across the life of a player’s contract.
These rules highlight why Clubs are eager to remove players from their wage bill, as much as they are eager to sign new recruits.
Of course we all know that clubs spend much more than this. The get out clause in the Handbook is section E20 which allows extra payments which are “funded only by Club Own Revenue Uplift and/or Averaged Three Year Player Trading Profit.”
So transfer revenues are boosted massively by profitable transfer income. I wrote last year about the myth of “selling and buying” clubs. In reality it is also the top 6 clubs who take in most from incoming transfer payments. This is especially the case at Chelsea who gather massive funds from hoovering up the world’s young talent, loaning them out, earning lucrative loan fees and eventually selling these players on for significant profit.
West Ham has massively underperformed in the Transfer Arms Race over the last 5 years. They have to raise their game in talent recruitment. Over the 3 years of his contract Pellegrini’s transfer options will be most affected by the quality of his recruitment and the sell on value of players enlisted rather than any massive cash input from the Board.
So will Pellegrini face any immediate shackling of his squad building project? To an important extent this will depend on the extent to which West ham can release value external to Television revenues. In theory at least West Ham should have a competitive advantage against teams such as Tottenham. Tottenham have a marvellous new Stadium but the latest estimates for the building costs now exceed £1 Billion and there is already speculation that optimism on Stadium naming rights etc. will not sufficiently redress the heavy weight of funding this massive infrastructural investment over the next 10-20 years will place on their squad development. In contrast West Ham paid £15 million for use of the London Stadium usage with average overhead costs of about £3 million a year moving forward.
In theory the opportunities for Pellegrini and any competitive advantage for West ham will arise from the commercial growing of the club external to FFP controlled TV Revenues. There is a big caveat though. The effectiveness of any system of rules is in the end only determined by their enforcement. It seems that clubs are sailing very close to the wind with FFP compliance. However there seems little if any appetite from the PL to tackle these clubs and enforce sanctions. The game in the end for West Ham may involve pushing the envelope of FFP enough to make the difference for Pellegrini whilst not attracting any ire from the PL. Whatever the case it should be interesting to see how West Ham struggle for wriggle room against the shacckles of FFP in the weeks ahead.