FFP – Eat Humble Pie or My Hat?

FFP and Stadiums

Am I Guilty of False Claims by Virtue of Insanity? **
** EFL insanity, not my own!

EDIT: Since publishing this essay I have had a response from the EFL confirming that the P&S calculation does not preclude the profit generated from the sale of stadia.


Many readers will know that I have long since claimed that profit from stadium sales is not allowed under Financial Fair Play Profit and Sustainability Rules.
Many readers will also know that other commentators believe that it is. I’ve emailed the EFL for clarity on this five times but had no reply; I have, however, spoken to someone who has spoken to someone else who has had some feedback from the EFL and their belief is that the EFL does now allow profit from stadium sales to be included.
If this is so, then I admit that I’m wrong and will happily eat humble pie.
That dosen’t mean that I endorse the EFL’s decision.

Let me explain why I believe the EFL would be wrong to allow profit from stadium sales to be included. I have many reasons but I’ll limit this essay to merely three main points.

1/ Different treatment of Championship and League 1 and League 2 Clubs.

Prior to 2016 the FFP rules for Championship and Leagues 1 and 2 clubs were implemented differently but were underpinned by the same principles which, to quote the EFL, include:
“encouragement of clubs to operate on the basis of their own revenues, and protecting the long-term sustainability of club football”
This, to me, clearly means that revenues described here are revenues that repeat on a long-term and sustainable basis.
Clearly, a football club has revenues from football operations (matchday income, TV income, twice yearly income from player sales etc) and these repeat on a long-term and sustainable basis, as desired by the EFL.
Selling a stadium is very obviously not included in these revenues, since it is a one-off abnormal income that does not repeat and does not form a long-term sustainable income.
So stadium sale revenues are, to me, clearly excluded from the objectives of the EFL.

1a/ EFL Rules

Prior to 2016 the EFL FFP rules explicitly excluded stadium sales from inclusion for the Championship and it was written very clearly into the rules. The same is true for the EFL rules for Leagues 1 and 2 which clearly omit any such income from inclusion.
In 2016, the EFL introduced modified methods of calculating FFP for Championship clubs and called them Profit and Sustainability Rules (P&S).
Notice that word “sustainability” being used again? Just as in the FFP objectives!
Now the rules for Leagues 1 and 2 did not change and they still clearly exclude stadium income so logic dictates that the new P&S Rules will maintain parity across the leagues and maintain a ban on Championship clubs using stadium sales income for FFP.

2/ What Income can P&S Rules use?

The new rules do not spell out line by line what incomes can be included; this time they use a term called Earnings Before Tax, or EBT as accountants call it.
Readers may have come across the term EBITDA, which stands for Earnings Before Interest Tax Depreciation and Amortisation. This value is often used by accountants and analysts as showing the ability of a company to operate on its own revenues and its underlying sustainability.
EBITDA sounds very much like a value that measures what the EFL’s objectives for FFP are, doesn’t it?
In fact, the P&S Rules take the Earnings Before Tax and remove Depreciation and some Amortisation costs to come up with what they call Adjusted Earnings Before Tax, a sort of EBTDA.
The Adjusted Earnings Before Tax is very similar to EBITDA and so it also is a measure of the ability of a company to operate on its own revenues and its underlying sustainability.
Note well that the Earnings included in EBITDA does not make reference to one-off abnormal extraordinary incomes since such income is not repeatable or sustainable.

2a/ Is there any official definition of EBT?

Yes. The P&S Rules define EBT as “Profit or Loss Before Tax” in the Annual Accounts and go on to say that Annual Accounts should be prepared in accordance with Company Law.
In the UK, the current reporting standard for companies is FRS102 and we can use this to further understand “Profit or Loss Before Tax”.
The standard does offer some different options for reporting to ensure that Annual Accounts are a fair reflection of a company but they are all based around the same principles.
FRS102 instructs us to use a “Profit and Loss” format as defined in Schedule 1 of statutory instrument 2008/410. This legislation says we must report it in the following order (simplified by me):

  • Turnover
  • Less Costs
  • Plus other income
  • Less interest costs
  • Equals Profit or Loss Before Tax
  • Less Tax
  • Plus Extraordinary Income
  • Less Extraordinary Costs
  • Less Tax on Extraordinary items
  • Equals Profit or Loss for the Financial Year
  • So the Uk reporting for Company Accounts seems to me to clearly say that Profit or Loss Before Tax does not include Extraordinary Items.
    Remember that the EFL calculates FFP based on Profit or Loss Before Tax so I believe that this means that FFP does not include Extraordinary Items.

    2b/ Maybe I’ve misunderstood Extraordinary Items?

    Well, again FRS102 comes to my aid.
    Clause 5.10A says “Ordinary activities are any activities which are undertaken by a reporting entity as part of its business”
    Clause 5.10B says “Extraordinary items are material items possessing a high degree of abnormality”

    Clearly selling your stadium is not part of your football business and is a highly abnormal event!

    3/ Ok, but those arguments are pretty weak. Don’t you have anything else? What does UEFA say?

    Now it gets even more interesting.
    FFP originated through FIFA and has been sent down though all its Associations. Each Association has the ability of fine tuning the details of FFP to suit local reporting standards but the underlying principles should not be changed.
    UEFA is the organisation that the English Clubs belong to via the local Associations and so lets have a look at their FFP rules.

    3a/ UEFA FFP Rules

    Referring to the relevant UEFA Handbooks, 2018 edition and the earlier 2015 edition, we find the same rules in both. They are remarkably similar to the EFL FFP Rules, not surprisingly!

    And here we find the final proof I’ve been looking for.

    Under UEFA FFP rules we find
    “The profit on disposal of tangible fixed assets (including, but not limited to, a club’s stadium and training facilities) in a reporting period must be excluded from the break-even result”

    Now you couldn’t get clearer than that!

    3b/ Ah, but are there any exceptions to the rule?

    Yes, there are just two.
    1/ “If a tangible fixed asset other than a stadium or training facilities….” – note “other than a stadium” so this exception doesn’t apply to stadiums
    2/ “If a club demonstrates that it is replacing a sold fixed asset, then the profit on disposal recognised in the income statement can be taken into account as a relevant income”. In other words, if a club is selling a stadium and building a new one to replace it then the profit can be included. However neither Derby, Sheffield Wednesday nor Aston Villa are, to be best of my knowledge, moving out of the stadiums they have sold to replace them with new ones.

    So clearly neither exception applies and the UEFA rule is in force. I repeat:
    “The profit on disposal of tangible fixed assets (including, but not limited to, a club’s stadium and training facilities) in a reporting period must be excluded from the break-even result”


    I recognise that I’ve just wasted an hour writing this because it will matter not a jot to the EFL but I feel this vindicates my lay belief that principles of FFP from UEFA down to EFL are to encourage long-term sustainability and abnormal stadium sales do not fall into that description.
    I also feel it would be perverse and discriminatory for Championship clubs to be allowed to include stadium sale profit for FFP when League 1 and 2 clubs and clubs in Europe are not allowed to do so.

    Mike Thornton 11th July 2019


    – the above is written by a lay person and has not been reviewed by any professional or professional body. You should not rely on anything contained within as being correct without verifying this for yourself.