QPR FFP Fine: Everything Counts in Large Amounts

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 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, (Sir) 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.

In 2013/14 QPR signed players of the calibre of Charlie Austin, Danny Simpson, Richard Dunne, Gary O’Neill and Matt Phillips, as well as Niko Krancjcar, Ravel Morrison, & Beoit Assou-Ekotto on loan, as Harry Redknapp did what Harry Redknapp does best with a large amount of someone else’s money.

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, having been relegated in 2012/13.

The wage bill of £75.4 million was only £3m less than that of the previous season in the Premier League. It works out as an average wage of £39,000 a week. The average total wage bill that season for the other 23 clubs in the Championship was £19 million, a quarter of that of QPR.

QPR’s accounts for 2013/14, published in November 2014, revealed that QPR Holdings Ltd made an operating loss (which is income less the day to day costs of running the club) of over £65 million, which works out at £178,000 a day, whilst in the Championship for 2013/14.

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 been something along the following

Operating loss (65.2)
Add back allowable expenses
Promotion bonuses (estimated) 10.0
Infrastructure costs 1.3
Academy/community (estimated) 4.0
FFP loss (49.9)

This works out as an estimated fine of 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 to preventing owners trying to buy promotion through their personal wealth.

QPR’s owners include Tony Fernandes (estimated wealth $745 million), Ruben Gnagalingam ($800 million)  and Lakshmi Mittal ($18.6 billion) then took a different approach, seemingly taking the view that rules applying to other clubs were beneath them.

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 (arguing over what constitutes allowable expenses for FFP purposes, or which of the Tellytubbies would win in a fight*) 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 mate 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. If a rebate a due, he writes in English at it elicit a speedier response.

Sources close to the events advised PriceOfFootball.com a couple of years agao that a compromise deal was likely, with QPR likely to pay a much reduced fine, and both sides would claim 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 (at £1,000 an hour in fees probs).

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 beng paid over (thus allowing their lawyers and accountants to upgrade from Range Rovers to Maserati brochures), dragging out the process again.

The ruling had consequences for Leicester and Bournemouth too, who had initially piggybacked on QPR’s claim that FFP was illegal. Both clubs settled with the EFL earlier this year and agreed to pay fines of £3.1 million and £4.7 million, less than had been initially forecast.

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 above table shows that prior to the ruling, assuming the club was worth £100 million (which is generous) then the loans due to the owners were last valued at £52 million, meaning their shares were worth £48 million. The total due to the owners if the club was sold would be £100 million.

By converting £22 million of loans into shares, the debt figure falls, and is offset by an increase in the value of the shares. The total value of the owners’ investment is still £100 million.

The aim here is simply to make the headline fine in the media reports appearfar larger than it is in reality. The press release is as best disingenuous , assumes that all football fans are financially illiterate and will swallow the headline figure of 

Charities that could have received £41 million in the FFP tax, (and there has been discussion from QPR fans, rightly, that Grenfell survivors should be top of this list) will now receive £17 million, which, as some will not be received until 2027, is far lower than even this amount 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 (which, according to HSBC, is their small business loan rate), then sticking the figures into a nerd calculator (see below) shows that 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.

The interest rate chosen is by the way far lower than the interest rate which is being charged by QPR owners themselves of 1% a MONTH on some loans , and 2% a MONTH on others.

The comments from Shaun Harvey that ‘the board was conscious that the financial burden placed on the Club was manageable so as not to put its future in doubt’ is best filed under ‘bollocks’.

Tony Fernandes has previously stated that he was committed to the club irrespective of the decision, and he and his partners certainly have the resources to pay the fine and could have put the cash into the club in the form of shares or a loan to do so if they wished.

If you look at QPR’s accounts for recent years, the club borrowed £222 million, mainly from the owners, between 2013-17.

So there would appear to be little reason, apart from sulkiness or a loss of interest in the club, why the owners could not have invested a further £41 million either in shares or interest free loans to allow the correct amount of the fine to be paid.  The claim that by spreading the fine over ten years will allow the club to avoid administraction is yet another smokescreen.

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.

Sadly, if you’re a Derby fan, as far as the EFL is concerned, grab your ankles.

For other clubs thinking of showing two fingers to the rules, the EFL has shown as much backbone as a jellyfish.

*Tinky-Winky, anyone who says different is clearly insane.

QPR: Boys Don’t Cry

Introduction: In Between Days

QPR announced their financial results recently for 2016/17, which revealed that they made a loss of over £6 million before tax. Overhanging this is a potential Financial Fair Play (FFP) of somewhere between £40-50 million, which relates to their promotion in 2013/14 in the Championship, which has kept lawyers for both the club and the Football League (EFL) in riches for the last few years.

QPR’s accounts are possibly the most WTF figures in football, as large sums seem to appear and disappear at the whim of owner Tony Fernandes (isn’t he a Steve Coogan creation? Ed) and his entourage of billionaire chums who also own shares in the club.

Income: Never Enough

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Not all clubs have announced their results for 2016/17 yet, but most clubs are showing higher income than in the previous season. The average income of the 16 clubs that have reported to date (which excludes some big hitters such as Newcastle and Leeds) is £32 million.

In 2015/16 the average for a Championship club was £22.9 million. The main reason for the increase is due to a combination of higher parachute payments, along with a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments.

Like all clubs QPR earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

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The table shows how much Rangers benefitted from being in the Premier League in 2012/13 and 2014/15, but also how much the club is reliant on parachute payments now that they are back in the Championship.

Matchday income was down 5%, which is reasonable considering that Rangers finished 18th, crowds averaged 14,616, up 600 on the previous season.

Broadcast income was up 19%. This was due to the new Premier League TV deal which started in 2017/18. Parachute payments are a fixed percentage of the Premier League equal share payments. Parachute payments will however halve in 2017/18 to about £17.6 million for two seasons. After that date the club will then only be entitled to solidarity payments and a share of the EFL TV deal, which works out about £7 million a year.

QPR presently get about ¾ of their total income from parachute payments, but this will fall, and it’s important that they control costs whilst this is occurring.

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QPR’s commercial income rose 10% to £7.5 million. This was mainly due to new kit manufacturers and shirt sponsors.

Costs: Accuracy

The main costs at a football club are player related, wages and transfer fee amortisation. QPR’s policy since relegation in 2015 is different to when the same thing happened in 2013.

In 2013/14 the approach was to take on the Football League and FFP and pay whatever it took to return to the Premier League.

This time it appears that the club has concentrated on removing some big earners from the wage bill, either by selling players or allowing their contracts to expire.

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Wages fell by a quarter but are still reasonably high by Championship standards, where the average for last season was about £27.3 million.

Amortisation is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Leroy Fer from Norwich for about £9 million on a three-year deal, this works out at about £3 million as an amortisation cost each year.

QPR have spent over £64 million on signings in the last three seasons, which helps explain why the amortisation charge is over £10 million a year. Even taking into consideration players subsequently sold who were with the club in the Premier League, this cost is sizeable, but should fall as player contracts expire.

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Putting these two costs together highlights how much QPR ‘went for it’ in 2013/14, as for every £100 of income generated, there was a £238 cost in terms of wages and amortisation.

Whilst the club was still spending nearly all its income out in wages in the first season relegated (2015/16), it does appear that there is now some sanity in controlling wages in 2016/17.

Losses: Grinding Halt

Losses are income less costs. The bad news for Rangers is that the club lost money last year for the fifth season in a row. The good news is that the losses were only a fraction of those of previous seasons, and the club nearly broke even.

Operating losses are the trading losses of a club, and they exclude interest costs.

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Under FFP rules, QPR can make a maximum FFP loss of £35 million for each season in the Premier League, and £13 million for each season in the Championship. This gives a total of £61 million, so the club, with operating losses in that period of £54 million, appears to be well within that limit. If interest costs are added in, things because a bit more squeaky bum time. QPR had bank/loan interest of £8.9 million over the period, which takes the total loss to £63 million, just over the limit.

The interest costs seem expensive, as the interest rates being charged are £12.6% on £30 million and a payday loan-like 26.8% on £4 million. This approach conflicts with the owners writing off over £240 million of loans elsewhere.

Fortunately, some costs, such as infrastructure, academy and community schemes, are excluded from the FFP calculations. QPR have a category 2 academy, which insiders estimate cost most clubs at least £1.5 million a year. Add in a million and a half depreciation costs a season for other allowable FFP expenses and QPR’s FFP losses are probably about £54-55 million over the last three years.

For the three years ending 2017/18, QPR can have FFP losses of £39 million. Their good performance in 2016/17 in almost breaking even suggests this should be achieved with relative ease.

Player trading: So What?

The accountants treat player trading in a weird way in the accounts. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit is shown immediately, and it based on the player’s accounting value, not the original transfer fee.

This creates erratic and volatile figures in the profit and loss account.

If we instead focus on the actual purchase and sales, the following arises

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The chart shows what most fans would expect to be the case. In the Premier League clubs spend more on players than they receive from sales, and in the Championship the reverse arises.

What might surprise Rangers fans is that the club has spent so much money (£25 million) in the last two seasons in the Championship on signings, when the general feel is that belts are being tightened.

Debt: Wrong Number

The treatment of debts due to QPR’s owners has been the issue on which the FFP conflict with the EFL has been based.

In 2014 the owners wrote off £60 million of borrowings owed by the club and treated the sum as income. This reduced the losses for 2013/14 from £69 million (which that year would have generated a FFP fine of £40-50 million) to £9 million (which meant no fine).

The owners have subsequently written off further loans of £180 million, but this time the loans were converted into shares, and this has no impact upon profits (or FFP losses).

QPR’s owners have argued that FFP is illegal, and therefore no FFP fine is payable. The EFL argue that FFP is part of their rules, and as such applies to all clubs who choose to play in the league.

The lawyers have grown rich on who is right and who is wrong (and let’s face it, you don’t see too many selling The Big Issue).

The case eventually went to arbitration, and the EFL was successful.


QPR are not finished though and are refusing to accept the judgement (cue more holiday homes in Barbados for the lawyers).

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If the Football League is successful, then the FFP fine will be paid to charities. Whilst the club would struggle to pay such a large sum, the owners are billionaires, and one would hope they would settle the bill, as it was there decision to ignore FFP initially that caused the dispute.


QPR have done well in 2016/17 to get their house in order. The final league position reflects the cost cutting at the club, which has continued this year. It looks as if the largesse of the past has been replaced with a more cautious approach to managing the club’s finances. Fans must hope that the owners don’t get bored of being mid table in the Championship and lose all interest in the club.

Until the FFP issue is resolved the club will not look an attractive investment proposition to new potential owners. Crystal Palace have shown that there is space for a small London club to survive and make money in the Premier League, so there will be potential new owners/investors perhaps thinking the same about QPR.

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