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Tough battle ahead in ongoing war with FFP - Column
Wednesday, 19th Jun 2019 16:28 by Simon Dorset

Following the release of a clutch of first team players, and with new signings starting to dribble in, LFW's resident grown up Simon Dorset took us through the club's ongoing attempts to comply with the league's spending rules in 2019/20.

The recent announcement regarding the release of Joel Lynch, Jake Bidwell, Pawel Wszolek, Jordan Cousins and Alex Baptiste came as no surprise.

With our parachute payments coming to their end, further cuts have to be made and the players’ wages are the obvious target. However, the club exercising their option to extend Grant Hall’s contract by another season despite any on-going injury concerns, having already done so with Mide Shodipo and also offering Angel Rangel a new contract has prompted me to revisit an article I wrote for AKUTR’s earlier this season to see if I could make any sense of it.

Analysing the breakdown of the club’s income shows how desperately important broadcast rights, of which parachute payments were the major contributor, have been to the financial wellbeing of the club.

Income/Seasons
Income £1,000s2015/162016/172017/182019/20 est
Gate Receipts5,4665,2004,9014,700
Broadcasting Rights29,57535,25820,1548,094
Sponsors and Advertising1,8911,3111,4011,401
Commercial Income3,3112,1482,2212,221
Sales of Inventories1,1191,2061,0381,038
Other Income4912,8411,6021,602
Total Income41,85347,96431,31719,056
Broadcast as % of total71%74%64%42%

While QPR’s parachute payment remained at £16.6m for this season, this was, unfortunately, the last one. Next season it will be replaced by a solidarity payment. This is paid by the Premier League to all Championship teams not receiving a parachute payment supposedly to ensure that the “gulf between the Premier League and Championship doesn’t grow any larger”, but in reality it is paid to ensure that the Championship clubs continue to toe the line with regard to the hideous Elite Players Performance Plan. This season’s solidarity payments were worth £4.5m. QPR will also continue to receive the Basic Award (worth £2.3m this season) from Sky for the rights to broadcast their matches, along with bonuses if and when any are televised and some modest overseas rights.

For the rest of the estimated income for the 2019/20 season, I’ve simply used the 2017/18 amounts with the exception of the gate receipts which I’ve assumed will continue on their slight downward trend. However, to see the full picture these need to be viewed in relation to the club’s perpetual battle to remain within their FFP limits.

The FFP Profitability and Sustainability rules, introduced for the 2016/17 season bringing the Championship into alignment with the Premier League, assess every Championship club’s finances based on a rolling three-year period rather than treating each season individually as had been the case until that point. All Championship clubs are required to submit their Future Financial Information (FFI), their projections for the current season, to the Football League (EFL) by March 1. These are then evaluated in conjunction with their previous two year’s audited accounts to ensure that the FFP rules are being adhered to. Any clubs breaching FFP are referred to an independent disciplinary commission who have a wide range of sanctions available to them. It is the EFL’s intention that any punishments are meted out before the end of that season.

Using the club’s audited accounts, it is possible to get an idea of where we sit in regard to our FFP permissible limit although a couple of assumptions need to be made to do so. Firstly, there is the total of our disallowable costs. These cover items such as investment in the club’s academy and youth development, expenditure on the women’s football team and donations to the QPR in the Community Trust. For the purposes of this, I’ve adopted the £4m per season estimated by the excellent Swiss Ramble (who provides detailed analysis of QPR’s accounts every year as they are released via Twitter). Secondly, that with the exception of 2017/18 that there are no other extraordinary items to be excluded. Last season’s loss has been adjusted to remove the cost of the FFP fine levied against the club and the payment of the initial instalment of it along with the payment of the EFL’s costs.


FFP
Season (figures in £1,000s)2014/152015/162016/172017/18
Financial Loss-45,675-10,964-6,443-22,535
Est disallowable costs4,0004,0004,0004,000
Rolling 3 yr FFP loss---51,082-27,942
Permissible season loss-35,000*-13,000-13,000-13,000
Rolling 3 yr permissible FFP loss---61,000-39,000
Headroom--9,91811,058

* QPR were in the Premier League in the 2014/15 season. The Championship’s FFP regulations allows for a contribution of £35 million per season spent in the Premier League to the club’s rolling 3-year permissible loss as opposed to the £13 million per season in the Championship.

From this chart it is quite simple to calculate the maximum loss that QPR can make this season without breaching the FFP regulations. Due to the rolling nature of the FFP calculations, the 2015/16 loss of approximately £11m is dropping out of the equation. By adding this amount to the 2017/18 headroom of approximately £11m from last year’s accounts, the amount by which the club is beneath their FFP limit, confirms that QPR can incur a loss of up to approximately £22m this season. While QPR would only have needed to make minimal savings from the 2017/18 season to achieve this, that would have been turning a blind eye to the future.

The departures of Caulker, Onuoha, Robinson, Smithies, Perch, Washington, Mackie, Ngbakoto, Borysiuk and Emmanuel-Thomas over the course of last season would have resulted in a considerable saving, but the crucial question is how much of that was then subsequently paid to Leistner and Rangel, invested in improved contracts for the likes of Furlong, Lumley and Eze and spent on the loan signings of Wells, Hemed and Cameron? I wouldn’t claim to know the answer to that question and neither do I hold any great store in the wide-ranging figures bandied around, but the following table shows the effect across a series of possibilities.

Scenarios
Figures in £1,000sABCD
Weekly saving0255075
Annual saving01,3002,6003,900
Reduction in player amortisation02,0002,0002,000
Transfer Profit01,5001,5001,500
Season’s financial loss-22,535-17,735-16,435-15,135
Est disallowable costs4,0004,0004,0004,000
Rolling 3 yr loss-39,513-34,713-33,413-32,113
Permissible loss-39,000-39,000-39,000-39,000
Headroom-5134,2875,5876,887

Option A is based on this season’s financial loss being exactly the same as last season’s; this won’t be the case, but it does give a useful reference point. Options B, C and D are based on a weekly salary saving increasing by £25,000 a time. For those options I’ve also included a transfer profit (mainly based on the profit from Alex Smithies transfer to Cardiff last summer, believed to be in the region of £1.5m) and a reduction in the player amortisation (mainly based on Caulker’s £8m transfer fee finally being written off at the end of the previous season). While this is quite a broad brush approach and ignores many other variables, such as agents’ fees, I feel it gives a rough indication of the general position.

The term perfect storm may well have been coined for QPR’s 2019/20 season. It is a season we will enter with reduced headroom in our battle with FFP, the smallest loss we’ve made since its inception rolling out of the equation to be replaced by a significantly larger one at the time when our parachute payments stop. To illustrate the effects of this, lets assume that option C from the above table is about right for last season. Using the logic from before, by adding the loss dropping out of the equation (£6.4m) to the remaining headroom (£5.6m) shows that to ensure we are within our FFP limits we cannot lose more than £12 million. In other words, we need to reduce our loss by around £4.4m, but must do so on £12 million less income, meaning that we need to find a total of £16.4m whether from cutting costs or additional revenue – and that is before we can contemplate signing any replacement players. Just to reiterate, these figures are dependent on a number of assumptions such as Swiss Ramble’s estimate for disallowable costs and that there have been no other extraordinary items and do not take into account any other cost saving.

Perhaps £5m of this has already been saved by returning the loan players to their parent clubs and releasing those players listed in the first paragraph but, with little hope for increased sponsorship revenue or additional revenue from non-football activities, it is hard to look beyond player sales to make up the shortfall. Lee Hoos and Les Ferdinand have some very difficult decisions ahead of them as they endeavour to weigh the financial restrictions placed on the club against the needs of the squad. One thing in their favour is that this situation has been on the horizon for some time and so they’ve had plenty of opportunity to plan for its arrival.

This will not be a summer for the faint hearted and next season could be harrowing, but I do see two glimmers of hope. Firstly, resigning Hall after his recent catalogue of injuries suggests that greater savings have already been made elsewhere and secondly, that the following season will provide more than a semblance of relief when the £22.5m loss from last season rolls out of the FFP equation.

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Antti_Heinola added 16:50 - Jun 19
great piece - but to counter your optimistic tone at the end i read somewhere it was Hall who triggered the extension, not the club? No idea if true.
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Hunterhoop added 21:45 - Jun 19
Yes, this 19/20 season is the tough one. Get through it and stay up and things get much easier....just as the sh*t will hit the fan for most other clubs.

I can’t see how we can possibly meet FFP next season without selling 2 good players, not replacing them and hoping there’s something on the balance sheet hidden away we can release. I wouldn’t expect to see many more signings unless Hoos really can pull a rabbit out of his hat.

Can’t see how we can possibly afford Wells or similar on loan again, unless they get decent transfer fees for a couple of other players.
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DavieQPR added 23:00 - Jun 19
FFP, or P&S Rules as they are now called, should take into account a clubs location. Costs are much higher for a club in London than they are in a place like Rotherham.
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Myke added 23:59 - Jun 19
Brilliant piece Simon, cheers. I don't have the mathematical/analytical brain to make sense of everything you said ( I thought head room was Matt Smith's specialty!)but enough to grasp the serious situation that we find ourselves in. Did you factor in the Bowler add -ons or is that to vague to include? It's interesting in the circumstances that we shell out even 50k of our tiny budget on a keeper when we already have two , but clearly the long term plan is to do a 'Smithies' and turn that into a tidy profit in a couple of years time when the belts will have to be tightened even more.
There are been dozens of mistakes of course which have got us into this mess. But if you were to take the missed opportunity to sell Austin for decent money instead of keeping him until the brink of his contract expiry and then compounding it with spending nearly all of the money on Washington before releasing him for a loss, seems to me is a microcosm of the total mis-management of finances in recent years.
If your figures are accurate (and I don't doubt it for a second), and we need to come up with another £11.4 m (at least) then we can expect the sale of more players than Freeman. The problem is who? If we get 3.5/4m for him which is the most we can realistically expect from another Championship club (and represents great business on a 500,00 investment) then we are still a good 8m short. Freeman is by far our most salable 'asset' (to quote Warburton), so it would seem impossible to generate sufficient revenues from other transfers. Luongo's stock has fallen in the past 12 months, between a non-event of a World Cup and an indifferent season so is probably worth no more than 1m. You might tempt Barnsley to spend something similar to bring Scowen back. Equally, you might squeeze half a mil out of Milwall for Smith, but after that...?
I don't expect us to sign any more players permanently, we will probably bring a couple of Premier kids in on loan if Warburton can use his contacts to good effect, but even so it looks pretty bleak in the short term at least. Sobering times
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ozexile added 00:34 - Jun 20
Let's hope we can a decent cup run in. More important than ever now. That will bring in TV money, gate receipts, merchandise sales. Come on UR's.
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timcocking added 01:09 - Jun 20
So, we should just have said 'fcuk your FFP fine, we're not paying it' and made them close us down. It would have been better to go out on the sword than this death by a million cuts they are inflicting on us at the moment. Besides i don't think they'd have called our bluff anyway when their rules are completely unjust and unenforceable. If it's unenforceable, doesn't that mean it's unenforceable?

As it is, to say we're doomed appears to be an understatement, unless there is a change in the top echelons of football. Seems a big waste of time.

If we ever do go up again, i imagine they'd try to use VAR to find a reason to disallow all of our goals anyway.
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connell10 added 08:35 - Jun 20
Great article , but call Mr Dorset a grown up was a bit much!
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loftus77 added 09:22 - Jun 20
Superb article, Simon - thank you.

Yes, it all confirms what many of us have been saying - the football season 2019/2020 is THE season for Rangers. We really have to master the alchemist's art with what we have and just try and get through and emerge the other end as a Championship club. This club has been well run since 2015 (IMHO) and if we can secure 21st place or above after West Brom away then all of the recent god work (IMHO) will start to bear fruit.
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QPRski added 18:01 - Jun 20
Simon, thanks for a very detailed analysis and great insight.

It very much helps to understand that we literally are “walking on a tightrope”.
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Roller added 19:37 - Jun 20
Antti - I tried so hard to build to a positive ending and you and Dave (on the forum thread) politely trash it. ;)

Myke - No, nothing for Bowler. The chances of us benefiting from whatever those add-ons were must be slim.
With regard to the new keeper, if we are shipping Ingram out and Kelly is on £1000 pw less then there is an immediate saving even after allowing for the transfer fee.
As for the accuracy of my number, there are a lot of assumptions in there, some with more foundation than others. I saw that Dave McIntyre mentioned a £4 million fee for Smithies recently, that would make a notable difference and if, say, our disallowable costs were closer to £5 million that would help enormously.

Whatever the accurate numbers are, this is going to be our toughest season.
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HastingsRanger added 16:11 - Jun 26
Not only is FFP going to bite but we appear to be limited to only 30 fixtures this season (and still including West Brom away)! Some points rate required!

Seems like we are having an enforced winter break, to really pile on the pressure, as there are no October/November/December fixtures here?!!!
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