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
|Add back allowable expenses|
|Promotion bonuses (estimated)||10.0|
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.