FFP explained: What limits clubs spending more this January?

FFP, or Financial Fair Play if we’re being formal, can be an enigma. A mystery. A good way of avoiding questions about your transfer plans.

The one thing we all know is there are some hefty spreadsheets involved, and in recent times more than a few run-ins with the authorities.

Everton were docked 10 points in November for falling foul of the Premier League’s financial regulations, while Manchester City have been under investigation by the league for nearly a year regarding more than 100 alleged breaches spanning almost a decade.

Transfer Centre LIVE! All the latest from the January Transfer WindowThe players to keep an eye on | What is each PL team planning?Transfers news and rumours: Arsenal | Chelsea | Liverpool | Man City | Man Utd | Newcastle | SpursDone deals: Premier League | Championship | Scottish PremiershipSo what is it in the rules stopping Arsenal putting down big money on a new striker in January, or Todd Boehly adding another £1bn onto his wishlist at Chelsea – and could Manchester United receive a surprise winter war chest if Sir Jim Ratcliffe’s investment is ratified in time?

Financial Fair Play cheat sheet

Premier League clubs can…

Make ‘allowable’ losses of up to £5m/season (averaged over three seasons)
Increase that figure to £35m/year with owner investment (averaged over three seasons)
Spread out any transfer costs over a maximum of five years

What are the Premier League’s Financial Fair Play (FFP) rules?In the simplest terms, when every Premier League team tots up their annual accounts, they can have made a loss no greater than £105m across the previous three seasons.

Sounds straightforward, but don’t worry – this would be a very short article if it were that easy. There are a fair few caveats and subclauses to get through before any club can find itself in the clear, or not…

For a start, not all losses are created equal.

Clubs can only lose £15m of their own money across those three years. So that’s no more than £15m extra on outgoings like transfer fees, player wages and, in a lot of clubs’ cases, paying off former managers compared to their income from TV payments, season tickets, selling players and so on.

The other £90m of any £105m must be guaranteed by their owners buying up shares, known as ‘secure funding’, and essentially means bankrolling the club.

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If any club owner isn’t feeling that flashy, or can’t find the best part of £100m down the back of the sofa, that doesn’t leave much wiggle room. And some Premier League clubs have expensive tastes.

Only Chelsea, Everton and Leicester utilised that full amount in the most recent published accounts (for the 2021/22 season) – with nine clubs, including Arsenal, Liverpool and Manchester United receiving no equity injection.

Oh, and for sides who have spent any of the last three seasons in the EFL, owners can only put in £8m of secure funding for those years, leaving an overall maximum annual loss of £13m for the campaigns in question.

What counts towards FFP and what doesn’t?

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Declan Rice signed a five-year deal at Arsenal in the summer, meaning his £105m transfer fee is only put down as a £21m ‘loss’ per year

Talking of expensive tastes, let’s start off with transfer fees. Premier League clubs spent almost £2.4bn in the 2023 summer transfer window, an average of £120m each. But those signings won’t all come out of their budgets at once.

Using a process called amortisation, clubs are able to treat players as ‘assets’ in a financial sense rather than one big outgoing – even if they do pay the whole cost up front.

If you sign a £50m player on a five-year contract, they are ‘worth’ £50m at the start and £0 at the end in your accounts, so can be put down as a £10m loss every year.

That’s exactly why we’ve seen Chelsea and other clubs signing players on contracts as long as eight years, and why Premier League clubs voted in December to limit spreading those transfer fees over a maximum of five years from now on.

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Beyond the creative accounting, there are a number of expenses which do not count towards FFP whatsoever, such as club infrastructure, any associated women’s teams and academy costs.

There was also some added leeway granted for the unforeseen income drop caused by Covid-19, but the three-year FFP cycle including 2020/21, the last without fans, ended in 2022/23 and will not have any bearing on this season.

How do UEFA’s own rules affect teams hoping to play in Europe?If you’re following so far I’m afraid UEFA’s own, somewhat different set of rules are about to complicate matters further.

For a start, since the start of this season they have dropped the ‘Financial Fair Play’ moniker as the heads of European football have said their new rules are not designed to create a level playing field, but rather force clubs to live within their means.

In the same style as the Premier League, clubs are permitted to make three-year losses of €60m (£51.8m), with €55m (£21.5m) of that through ‘secure funding’ from owners.

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Aleksander Ceferin has overseen a move to a more stringent financial framework for clubs competing in Europe, which came in at the start of 2023/24

But for anyone feeling the pinch from those lower numbers, there’s also the added cushion of an additional €30m (£25.9m) loss allowed for clubs who UEFA deems in good financial standing, for a total of €90m (£77.7m) over the previous three years.

That’s still lower than the Premier League – but it is an improvement on the €30m three-season loss UEFA would permit before this season.

There’s also a catch. Starting this season and tightening over the next two years, clubs will be increasingly bound by ‘squad cost’ limits – in essence, the amount they spend on wages, transfer fees (in amortisation form) and compensation as a proportion of their income.

That figure currently stands at 90 per cent, but will tighten to 70 per cent in 2025/26.

Football finance blog Swiss Ramble recently crunched the numbers on these figures, and found that out of the Premier League’s ‘big six’, Arsenal (79 per cent), Chelsea (90) and Manchester United (86) would be in breach of those requirements on their current spending when the rules become more stringent.

How is UEFA’s ‘squad cost’ ratio calculated?

The sum of…

First-team and manager wages
Player amortisation (transfer fees)
Agent and intermediary costs
Fees paid to pay off former players/managers

Divided by…

Day-to-day income
Incoming transfer player and manager fees
Any other transfer income

How have Chelsea been able to spend so much in the Boehly era?So with 800 words’ worth of measures across England and Europe to adhere to, how were Chelsea able to spend £1bn on transfer fees across the first 12 months of the Boehly era?

It’s worth noting they are currently being investigated by the Premier League and FA over payments received during the Roman Abramovich era – but let’s look at the current state of play.

In terms of the financial situation surrounding the new ownership, outgoings play a big part in balancing the books.

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Enzo Fernandez became – and remains – the Premier League’s most expensive player when he joined Chelsea for £105m from Benfica last January

The Blues have recouped almost £300m in player sales since the American’s takeover, and unlike the way amortisation works on new signings, they can bank all of the money they make on outgoings at once in their accounts.

Many of the sales came from players brought through the academy – the likes of Mason Mount, Billy Gilmour, Ruben Loftus-Cheek – and can be banked as ‘pure profit’.

For players like Kai Havertz, their sale price is offset against the amount their ‘value’ has already decreased – in his case 60 per cent of what Chelsea paid for him, the proportion of his contract he had already run down – and so the income from those players does not tally up quite as nicely.

Football finance expert Kieran Maguire has suggested Chelsea’s recent signings have also come in on lower wages than those who have departed Stamford Bridge, too, while the £40m Infinite Athlete shirt sponsorship they signed in October is another boost to the balance sheet.

There is no guarantee it will be enough, and the fact Chelsea are willing to countenance parting with Conor Gallagher in January – despite starting all but one league game this season – does raise eyebrows.

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Sky Sports News’ Dharmesh Sheth and Tim Thornton explain why Chelsea could be forced to sell Conor Gallagher due to concerns over breaching Financial Fair Play

Sky Sports News senior reporter Dharmesh Sheth explained all on The Transfer Show. He said: “What happened in the last transfer window, was they had this cut-off point of June 30 where there were a huge ranch of players sold who represented big, big profits for Chelsea to enable them in the next accounting year to go out and buy players again.

“We might see something similar happening this year as far as Chelsea are concerned. They will have that situation where they need to bring in more money if they want to go big again in the summer.”

Whatever the exact situation regarding their current finances, we will find out more about the first year of the Boehly era very soon. Chelsea’s accounts for 2022/23 are yet to be published, but the Premier League required their submission by December 31, and it has been reported any potential breaches will be made public by January 14.

Could Man Utd spend big in January after all?For any Manchester United fans who have made it this far, here’s some reward for your patience. Let’s go back to that £90m secure funding, which can balloon the losses allowed by Premier League sides.

Under the Glazers, there has perhaps unsurprisingly been no sign of that over the last three years, meaning the club could only lose an average of £5m per year.

However, new investor Sir Jim has already committed a decent little sum of £245m to be earmarked on improving the state of the club.

So long as his investment is ratified by the Premier League before the end of January, theoretically that could mean the opportunity to commit some of that money to do business in the transfer window, through secure funding.

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Football finance expert Kieran Maguire explains what benefits the Glazers will have from selling 25 per cent of Manchester United to Sir Jim Ratcliffe

There are more caveats here, in that unlike most clubs Manchester United publish their quarterly financial results every three months.

Those show that for the first nine months of 2022/23, the club lost £31m – which even with the maximum level of secure funding would make things very tight to stay within FFP boundaries.

How things are looking in 2023/24 though is something only Sir Jim and the club themselves know at this stage. And unless the Premier League approve his investment by the end of the month, it won’t have any effect their January business either way.

What’s stopping Arsenal signing a striker?Arsenal have been linked with a January move for a centre-forward some think could make or break their title hopes. More pressingly, it could also be make or break for their FFP budgets after handing Mikel Arteta a £200m war chest in the summer.

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Brentford head coach Thomas Frank expects Ivan Toney to stay at the club during the January transfer window

That left the Gunners’ financial situation so finely balanced they have already deferred payment for David Raya from Brentford, bringing in the goalkeeper on an initial loan which will become permanent this summer, taking his transfer fee into a different accounting period.

It was not so long ago Arsenal were renowned for selling their best assets and replacing them with cheaper outlays – but a spending tally of around £510m over the last five transfer windows, a net spend of around £400m, bucks that trend significantly.

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Paul Merson says Arsenal will not win the Premier League title if they do not sign a top class striker like Ivan Toney in January

They have slashed their wage budget in that time and can use everyone’s favourite accounting method to spread out the cost of their purchases – but having only returned to the Champions League for the first time in seven years this season, their revenues are still a way from catching up with their old lives as return customers at Europe’s top table.

That plays some part in the Gunners’ willingness to let a number of squad players depart the Emirates Stadium in January, with any potential income allowing the club to loosen the purse strings to some degree before the end of the month.