The Buy-To-Loan Market & Cultural Leonesa Ties
*** Note – since I wrote this essay I’ve spotted a regulation that excludes some expenses from FFP allowances – these are shown as stricken-through text.
There has been a lot of talk recently about Leeds United buying players and then loaning them straight out with many people asking why this is being done. Many players are going to Cultural Leonesa in Spain and there are rumours that the two clubs have formed a formal tie.
This short essay looks at why this happens and what the advantages are to Leeds United; it concludes that Financial Fair Play Rules are a large factor.
Financial Fair Play (FFP)
Besides a potential cash boost to the club’s bank account a great draw for Leeds United entering the Buy-To-Loan market is FFP Rules.
Under FFP Rules the club must ensure that any losses incurred by the club are less than an average of £13m per year calculated over a three year period.
However FFP Rules are not quite so simple – there are various expenses that can be omitted from the Profit and Loss Sheet that is submitted to the Football League for evaluation: any costs incurred in building or improving infrastructure (such as the stadium, pitch, academy buildings and grounds) can be ignored, as can any money spent on Ladies Football or for charitable purposes, such as the Leeds United Foundation.
In addition to these exclusions there is another major cost that can be omitted: any cost incurred solely on Youth Training, such as all Academy costs, staff costs running the Academy, heat and light costs for the Academy, kitchen and swimming pool Academy costs,
Academy costs at Leeds are not published but running costs including wages of direct staff and net of any grant could well be in the region of £500,000.
The total amount of costs likely to be able to be omitted by Leeds United may reach £1million per season allowing the club to lose up to £14m per year in total without breaking FFP Rules.
The costs shown above that can be omitted of around £1million is a large figure but in the overall scheme of club finances this is small beer, amounting to around 3% of turnover.
Whilst every little helps, the Buy-To-Loan scheme is a lot of effort for not a great return (especially when 1st team players are starting to cost £5m and a single player’s wages can be more than half this saving).
There is another FFP benefit though.
The biggest potential benefit from the Buy-To-Loan market is income from future player sales.
It must be recognised that not all Youth players will increase in value and be subsequently sold for a hefty transfer fee. Some Youth players will move on to a new club “on a free” but the rest will command either a Compensation Fee (whether by agreement or tribunal – see the issues over Charlie Taylor’s move to Burnley) or a Transfer Fee. Over a group of, say, 10 Youth Players, the fees they eventually command could range from zero to a few million pounds with sell-on fees bringing in more money. Over time, a group of 10 Youth Players may bring in £5m or more – Leeds have sold some Youth Players recently for figures reported to be in excess of £15m.
These sales bring welcome cash into the bank account but they do something else which is of great value to the club – any fees from transfers or compensation from Youth Players can be ADDED to the clubs income for FFP purposes; this will drastically reduce any losses or increase any profits.
Net FFP Effect
Just to make clear what FFP Rules allow regarding Youth Players:
- Any costs for Youth Players ARE NOT counted in FFP calculations
- All fees from the sale of Youth Players ARE counted as income for FFP calculations
This double boost to the club’s finances can dramatically reduce FFP losses and allow a club to spend much more money on 1st team players without breaking FFP Rules. What is even better is the Youth Player concerned does not even have to ever play for Leeds United for the club to benefit.
The Buy-To-Loan market therefore has huge benefits to the club:
- The expenses involved in Youth Training are a relatively small drain on the club’s bank account and can also be ignored for FFP purposes.
- The cash received from selling Youth Players can be large and goes straight into the club’s bank account to fund 1st team operations and has the added effect of dramatically reducing FFP losses.
Mike Thornton – 1st August 2017