Revised financial controls in the Championship and likely rights value increase will drive wave of new investment, says expert

Out-Law News | 07 Nov 2014 | 2:59 pm | 4 min. read

The changes made to the financial regulations that apply in the second-tier of English football should lead clubs operating in that division to become more attractive to new investors, an expert has said.

Former AFC Bournemouth chairman Trevor Watkins, now global head of sport at Pinsent Masons, the law firm behind Out-Law.com, said that it made sense for financial regulations in the Championship to be aligned with those that apply in the Premier League.

The "greater latitude" owners of Championship clubs will have under the new framework to fund ambitions of reaching and establishing those clubs in the Premier League will make those clubs more attractive to investors, Watkins said. The new regime should also help address "the gross distortion in available monies" between teams operating near the top of the Championship, particularly those without parachute payments, and those recently relegated from the Premier League, he said.

On Thursday, the Football League announced that new "profitability and sustainability regulations" had been agreed by Championship clubs at a meeting of clubs in Derby. The new regulations do not come into effect until the 2016/17 season.

Under the new regime, clubs will be able to run up losses of £15 million or greater and up to £39m maximum over a three season period provided that they comply with a number of financial regulations. "This will include providing evidence of secure owner funding and future financial information for the two seasons ahead," the Football League said in a statement.

Championship clubs that run up losses of less than £15m over a three season timeframe would not have to provide details to the Football League about how those losses will be funded.

To address the issue of promotion and relegation, clubs that fall out of the Premier League into the Championship will be subject to a maximum loss threshold for the three seasons determined in accordance with an "average allowance".

At the moment, Premier League financial regulations permit clubs to lose up to a maximum of £105m over three seasons, or £35m a season for the purpose of the average allowance calculations. A maximum £13m average allowance figure would apply for every season within the three year period that a club spends in the Championship.

Although the new rules do not take force until 2016/17, the Championship clubs have agreed to new transitional arrangements that will see clubs able to run up maximum losses of £13m in season 2015/16. The maximum loss that Championship clubs can make under the existing financial fair play (FFP) framework is £2m per season, not including investments in youth development and selected other matters.

"The gross distortion in income between Premier League clubs, even those that are relegated, and a good Championship team can now be redressed slightly under the new rules," Watkins said. "If the financial gap can be closed, as it can be under the new rules providing the spending is responsible, then the opportunity also presents itself to close the competitive gap on the pitch which has been stretched to breaking point in recent times."

"The new system enables Championship clubs and owners with ambitions of reaching and establishing themselves in the Premier League greater flexibility over the way they fund those ambitions. They also offer greater protections against sanctions that relegated Premier League clubs face under the current Championship FFP regime where those clubs suffer dramatic reductions in revenue post-relegation," he said.

In its announcement, the Football League also said that Championship clubs had given the Football League Board the authority to agree to a new "financial solidarity agreement with the Premier League" on their behalf.

"The alignment of the new financial regulations with those already in place with the Premier League suggests a determination to look at football overall and with input from the Premier League into the new rules," Watkins said. "With this in mind, and because there has been a general recognition that the financial and competitive gap between the Premier League and Championship has grown significantly, I expect a new long-term solidarity agreement will result in a greater redistribution of wealth from the Premier League to the Championship and wider Football League in years to come."

Watkins said that overseas interest in investing in English football has never been higher. He said that the exposure of the Premier League to international markets via lucrative TV rights deals has helped to drive up the values of other commercial contracts in the game.

"With the value or rights deals increasing and unlikely to ever fall back, investors in places such as the Middle East, Far East and the US in particular see the English game as an excellent investment opportunity and a further gateway to European football," Watkins said. "There is already significant potential for a large proportion of clubs in the Premier League and Championship to change ownership in the next twelve months. The increased flexibility on spending offered under the new Championship financial regulations serves to enhance the attractiveness of investing in those clubs."

"US investment in particular could see new owners arrive in the English game with pre-existing knowledge and best-practice which has helped make US sport so commercially successful. US investors that bring this expertise but who also understand the particular culture of football in England stand the best chance of being successful," he said.

"Of the sport, entertainment and media markets it is sports rights values that stand out. It is the one area where 'must watch' viewing when an event takes place is essential. It is also the one key area which acts as a differentiator for a broadcaster, in the widest sense, when trying to attract new customers. Those who own the content or acquire the rights are the king makers," Watkins said.