Taking the positives: Financial Fair Play

Money money money... A young lad went to a mathematician and said I have two beans and I have been promised two more. What will I have?

The mathematician said: “Well it depends upon the beans; Are they all the same size and type?" So wandering off he passed Baldrick who said “A very small stew”. An Engineer suggested that four was the answer, but to check he called an accountant who said “What would you like the answer to be?”

Financial Fair Play is a bit like that, confusing with sub-plots and hidden agendas. First off lets be clear I'm no expert. It was Blaster Bates who described an expert as “Ex as in has-been and spurt as in a drip under pressure”. No on second thoughts maybe I am. Anyway FFP. There are two sets of FFP - UEFA and Premier League.

The European FFP regulations are there to ensure that clubs don't overspend and hence go bust. OR to make sure that rich owners don't threaten the status quo. Your choice. This basically says that clubs must break-even. However to give an idea of the complexity it is covered by Chapter 2 in the regulations which is articles 57-68 and several appendixes of which the five pages of Appendix X covers what to take into the Income and Expenditure equation and the five pages of Appendix XI defines the terms used in Appendix X. Even then for the first two years you are allowed to overspend (“notion of acceptable deviation,” article 61) by €45m. These regs have been known about for a few years and what they mean for a club like Newcastle is that we have to be a bit prudent.

The latest figures 2011-12 show that we had an income £93.3m of which £55.6m was media related. And an expenditure of £85.7m of which £64.1m was wages and £21.6m other. So a wages to turnover of 68.7% which is fine. Under normal circumstances that would be near as dammit perfect. We are in profit by £7.6m with an 8.86% return on expenditure. Better than sticking it in the bank. So as far as the UEFA regs are concerned full marks.

Of course if we wanted to be risky/ambitious we could have increased expenditure to £36.6m (€45m) over income - in other words £129.9m. If all this extra had been spent on wages we would have had a wage bill of £108.3m, which would have paid for a few more players (£850kpw extra. New team at £75kpw each) and still been within the regs. We would have a wages to income ratio of 116% but as a one off spend it was an option. It would have restricted us in the following years and so it would have been a gamble. Under the UEFA regs it is still an option. The cost of buying such a team is another matter and finding a way of doing that without it going through the books would be a challenge.

The English FFP regs ate there to ensure that the new TV money stays in the game and does not end up in the pockets of players and worse agents, by inflating wages. There is some interesting stuff on it all here.

Now then, what does it say and what does it mean? It says that clubs can overspend the UEFA break-even rule if the Owner guarantees it with equity. So only if it can't make the club go bust. This means that smaller clubs not trying for Europe immediately can play catch up.

The second aspect is that the TV money can't be spent on wages.

To put that money into perspective last season We earned £45.1m from TV, finishing where we did. This year we will receive somewhere between £60m and £100m depending on performance, If we do well we could easily receive say an extra £30m, but we can only spend £4m of it on wages.

So the regs have different impacts for big clubs like us and smaller clubs. In round figures here are the wages spent by each club last year. City £196m; Chelsea £173m; Man Utd £171m; Arsenal £143m; Liverpool £123m; Spurs £91m; Villa £68m; NUFC £68m; Sunderland £63m; Everton £63m; Fulham £63m; Stoke £55m. All of these clubs are affected by the rule. All of these clubs can only spend £4m (£77kpw) of the extra TV money on Wages. Any other increase has to come from elsewhere. So if Sports Direct were to sponsor something for £50m each year (an example before you all fall off your chairs!) that could all go on wages. If not then we are restricted to how much we can grow our wage bill.

All other clubs are exempt from the regulations regarding the wages in theory. Theoretically they could spend as much as they like, but then would be caught in the following years trap. So they are being encouraged to go big this season. Even if they decide to increase spending to “only” £56m then the spending could be :-

West Brom and West Ham both spent £50m last year on wages so that can go up with the TV money by £115kpw. Swansea, Norwich and Southampton all spent £40m last year, so they can increase their wage bill by £16m (£307kpw) this year and that's another five or more decent players. And guess what they have done this summer. They are being allowed to play catch up. If they truly are exempt from that aspect of the regs then they can spend even more provided they stay within the UEFA regs.

What this means is that historically there are a big three with wages over £170m which will basically be subject to a freeze. Then a gap to the next three which again are effectively frozen. Although Spurs will use the Bale money to increase their wage bill by probably £20-30m as it's nowt to do with TV money. This means that they have the tools to consolidate their position with Arsenal and Liverpool. There will then be a massive gap from those three above £125m to the rest below £75m. There will be 11 clubs between £75 and £52m with the three promoted clubs given the choice of spending to catch up or protecting their position in case they are relegated.

Last season the gap between West Brom on 49 points in 8th and Sunderland in 17th on 39 points was only 10 points. This season expect it to be closer.

So what options have Newcastle to show the ambition fans call for? Well the obvious option and the most likely one is already being used. Bring players in in January to inflate the wage bill so that the extra £4m has the greatest impact (we brought in five players remember). So that was not necessarily a knee jerk reaction to the fear of relegation but shrewd planning depending on how you look at it. Next we have to get rid of anybody who does not have the capacity for growth. Goodbye Perch, Simpson and Harper. Sell high if anybody wants a player or two and reinvest the capital in wages (Cabaye and Debuchy to PSG please). Otherwise only buy when the accounts permit, for example Remy and another striker.

The big problem is that we are now back in the pack financially. Top of it yes, but still in 7-17th place. We could try and increase our spending and still get relegated as QPR who last season spent £86m on wages showed. Good management is better than deep pockets.

The only way that we can increase our football income is by getting into the Champions League The Europa League does not pay. That means spending between £125m and £150m each year on wages to have a one in four chance of getting 4th place. Nobody in their right mind is going to take that gamble. So expect a well managed club aiming to be best of the rest. And expect a new commercial director to boost income off the field to consolidate our position.

Last question before I go. Would you be prepared to pay and extra £1000 per year for your season ticket if it was spent on player wages so that we could compete 4th to 7th on a level playing field?

Now then, clear as mud? This has been a great oversimplification, by someone who is both past it and under pressure. Any questions or comments please feel free to leave them below.