Imagine someone stealing £170 million from you, and the culprit eventually is fined a
tenth of that sum having spent all the money elsewhere.
That’s how Derby County and their fans are probably feeling following the EFL Financial
Fair Play verdict against QPR.
On 24 May 2014, in the 90th minute of the Championship play off final against Derby
County, Bobby Zamora scored the only goal of the game to achieve promotion for Queens
Park Rangers.
Had QPR complied with FFP properly, it is highly unlikely that Zamora would have been
part of the QPR team, after the club was relegated the previous season from the Premier League,
along with the likes of Rob Green, Joey Barton, Nedum Onuoha on big wages from the higher
division.
That season QPR’s wage bill was £195 for every £100 of income the club generated,
even though the club earned over £28 million in parachute payments.
The wage bill of £75.4 million was only £3m less than that of the previous season in the
Premier League.
The average total wage bill that season for the other 23 clubs in the Championship was
£19 million, a quarter of QPR’s.
QPR’s accounts for Championship season 2013/14 revealed that QPR Holdings Ltd made an operating
loss of over £65 million, which works out at £178,000 a day.
So what about Financial Fair Play (FFP), the rules which were supposed to prevent clubs
from spending too much money on players and wages?
Under FFP rules for that season the maximum loss allowed by a Championship club was £3
million, or £8 million if the owners put made up the difference.
Clubs that broke the rules were either subject to a transfer embargo (which has impacted
the likes of Leeds United, Blackburn Rovers and Nottingham Forest in that division) or
if promoted to the Premier League an FFP Fine/Tax is payable, with the proceeds going to charity.
Under EFL rules the fine was based on a sliding scale until losses exceeded £10 million above
the FFP limit (which works out as a £6.7 million fine) and then 100% of the losses
above this amount Under these rules we estimate the QPR FFP
fine would have looked something like this: It works out to be about £46 million.
The QPR approach was initially one of creative accounting.
The owners wrote off £60 million of debt due to them by the club, and this was offset
against the losses in the profit and loss account, meaning that in the eyes of the club
the loss was only £9 million and that there was effectively no FFP tax to pay.
We’ve argued since day one of FFP that for most rules there are loopholes, accountants
and lawyers are well practiced at finding them, and this was phase one of QPR owners’
attempt to avoid any penalties.
This approach was presumably rejected by the EFL, as it makes a mockery of the rules, which
were aimed at preventing owners trying to buy promotion through their personal wealth.
QPR’s owners, including Tony Fernandes (estimated wealth $745 million), Ruben Gnagalingam ($800
million) and Lakshmi Mittal ($18.6 billion), then took a different approach.
There was no reference to FFP in the 2014 accounts, but a year later, hidden away in
the footnotes, was a reference to QPR challenging the legality of the FFP rules.
Since then, not a lot has happened, apart from time passing, and the advisors on both
sides clocking up huge sums in fees as they argued over the small print.
Dragging out a ruling is a classic ploy, raising petty objections and requesting further information
that they know will take time to produce, with the sole aim of delaying any potential
decision, and therefore payment, hoping the other side loses the will to keep on fighting
and will settle for a smaller sum.
I have a friend who is a tax accountant in Swansea.
If he knows a client is likely to have to pay more tax he writes an appeal letter in
Welsh, as he knows there are a relatively few people who speak the language at HMRC,
and so it will take a long time to reply, which will drag out the time until payment
is made.
However, if a rebate is due, he writes in English to elicit a speedier response.
Sources close to the events advised PriceOfFootball.com that a compromise deal was likely, with QPR
likely to pay a much reduced fine, with both sides claiming a victory.
Rumours were that at EFL board meetings where the matter was being discussed the members
became so nervous that no minutes were kept on the topic, for fear of this being used
by the opposition to further find minor points to quibble about.
An independent arbitration panel was created, with both parties seemingly committed to agreeing
to the final decision.
In October 2017 the arbitration panel published their decision, ruling against QPR and fining
them £40 million, who instantly appealed to further delay any cash being paid over.
We now have the final ruling, after a carefully worded press release from EFL, the main points
being: • QPR have dropped their objection to the
previous ruling • QPR fined £17 million as an FFP Tax but
it being paid in instalments over ten years.
• QPR have transfer embargo in the January 2019 window
• QPR pay EFL’s legal costs of £3 million (plus presumably their own costs too).
• QPR owners convert £21 million of debt into shares.
• The FFP fine will be excluded from QPR’s losses when calculating the 2018/19 figures.
Is this a fair settlement?
As a result of being promoted, QPR earned £148 million in broadcasting income and parachute
payments between 2014/15 and 2017/18.
Derby fans will no doubt take the view that this money could have ended up in the coffers
of their club had QPR not flouted the rules.
The debts of QPR to the owners were effectively worthless as the club has no means of paying
back the owners, so converting one piece of junk paper in the form of debt to another
in the form of shares is accounting sleight of hand, no more than that.
The aim here is simply to make the headline fine in the media reports appear far larger
than it is in reality.
If, as is rumoured, the £17 million fine is being paid over ten years, and using an
imputed interest rate of 7.4% per year, the cash cost of the fine to QPR is the equivalent
of £9.46 million being paid by the club in 2014 as a fine.
As for the transfer embargo, the club has sufficient notice to accelerate signings by
a few months.
The terms of the embargo are more on the lines of one player in and one player out rather
than an inability to sign anyone.
So this is a light tap on the wrists, along with the rest of the ruling.
So, for any other clubs thinking of showing two fingers to the FFP rules, the EFL has
shown as much backbone as a jellyfish.