Sports Briefing. March 2013

Transcription

1 Sports Briefing March 2013 Contents Financial Fair Play (FFP) 01 Background to the Regulations 01 The Regulations explained 02 Domestic FFP Regulations 05 Common methods by which 06 football clubs raise finance Effect of the Regulations on 08 financing documents Effects for clubs 09 Conclusion and comment 10 Contacts 10 Financial Fair Play (FFP) With UEFA s Club Licensing and Financial Fair Play Regulations (the ʺRegulationsʺ) on the horizon, this Briefing discusses the potential impact of the Regulations on the ability of European football clubs to raise finance 1. Background to the Regulations Despite the increasing commercial interest and investment in the game (including increased broadcasting revenues), many European football clubs still find themselves in poor financial health. Battling to meet financial obligations, clubs are reporting repeated (and often extravagant) financial losses. As businesses that are struggling financially on a day to day basis, it is inevitable that some will turn to commercial financiers to provide an injection of much needed cash. Deloitte, in its Annual Review of Football Finance 2012, noted the following financial developments in relation to European football clubs as at the end of the 2010/11 season 2: 1 In this note, references to Articles and Annexes are to Articles and Annexes to the Regulations. 2 Deloitte Annual Review of Football Finance 2012 wfw.com Of the ʺbig fiveʺ leagues in Europe (i.e. the English Premier League, La Liga in Spain, the Bundesliga in Germany, Serie A in Italy and Ligue 1 in France), the Premier League and the Bundesliga were the only leagues to achieve operating profits in 2010/11; The ʺbig fiveʺ leagues wages increased by over 104m (2%) to exceed 5.6bn in 2010/11; Operating margins of Premier League clubs, which stood at 16% in the inaugural Premier League season (1992/93), narrowed to just 3% at the end of the 2010/11 season; Operating expenditure of the lesser UK Football League clubs stands 30% above revenues, delivering near record losses (with around a third of clubs in the Championship having wage bills greater than their revenues and hence heavy reliance on owner funding); In the five seasons to 2009/10, the surge in wage costs accounted for 87% of the increase in Premier League club revenue and, despite new broadcasting deals coming into effect from 2010/11 (leading to a 12% increase in clubs revenues), over 80% of this additional revenue was required to meet increased wage costs. The Premier League s

2 02 SPORTS BRIEFING wages/revenue ratio has now reached an all time high of 70%. Figures such as those noted above led Deloitte to conclude that: ʺcontrol of player wages, in order to deliver robust and sustainable businesses, continues to be football s greatest commercial challenge3ʺ. The Regulations were approved by UEFA s Executive Committee on 27 May 2010 with the aim of, amongst other things: In essence, the Regulations are aimed at protecting the long term viability and sustainability of European club football. improving the economic and financial capability of clubs; placing the necessary importance on the protection of creditors, by ensuring that clubs settle their liabilities with players, social/tax authorities (as a result of contractual or legal obligations towards employees) and other clubs punctually; introducing more discipline and rationality in club football finances; encouraging clubs to operate on the basis of their own revenues; and encouraging responsible spending. In essence, the Regulations are aimed at protecting the long term viability and sustainability of European club football. The Regulations explained Some of the key articles in the Regulations (as set out in UEFA s media information release dated 25 January 2012) are summarised below. Monitoring Period (Article 59) Clubs with annual income or expenses over 5m are required to break even over three reporting periods (i.e. over these three periods, they must not have spent more than they earned, subject to acceptable deviation in certain specified circumstances, as further set out below). The three reporting periods consist of: the reporting period ending in the calendar year that the UEFA club competitions commence (T), the reporting period ending in the calendar year before commencement of the UEFA club competitions (T 1) and the preceding reporting period (T 2). For example, the monitoring period assessed in the season 2015/16 will cover the reporting period ending in 2015 (T), 2014 (T 1) and 2013 (T 2). By way of exception, the very first monitoring period (assessed in the 2013/14 season) covers only two reporting periods (i.e. those ending in 2013 and 2012). Break Even/Acceptable Deviation (Article 60 and Annex X) All clubs with relevant annual income or expenses over 5m must prove that the aggregated break even result of the three reporting periods is positive. ʺRelevant incomeʺ is defined as including revenue from gate receipts, broadcasting rights, sponsorship and advertising, commercial activities and other operating income, as well as profit on player transfers (Article 58 and Annex X). ʺRelevant expensesʺ is defined as including either amortisation or costs of acquiring player registrations, as well as wages, finance costs, dividends and other operating expenses. Neither concept, however, includes any nonmonetary items or certain income/expenses from non football operations (a concept which is itself defined in paragraph C of Annex X of the Regulations). 3 Deloitte Annual Review of Football Finance 2012 Equity contributions (Article 61(2) and Annex X(D)) The maximum aggregate break even deficit for three reporting periods which is acceptable for a club is 5m. A club can exceed this level up to a maximum aggregate break even deficit (shown below), but only if such excess is entirely covered by

3 SPORTS BRIEFING 03 contributions from equity participants (including by means of payments for shares by shareholders) and/or related parties (including by means of waiver of inter company or related party debt). The maximum aggregate break even deficits (if covered by equity contributions) are as follows: 45m for the monitoring periods assessed in the seasons 2013/14 and 2014/15; 30m for the monitoring periods assessed in the seasons 2015/16, 2016/17 and 2017/18; and a lower amount as decided in due course by the UEFA Executive Committee for the monitoring periods assessed in the following years. Therefore, if the shareholders are not willing or able to inject equity, the club will only be able to make a maximum aggregate loss of 5m in each monitoring period. The table below summarises the operation of the Regulations 4: Monitoring Period Acceptable Deviation Levels Football seasons (to be taken into account) T 2 T 1 T If Covered by equity Acceptable Deviation ( m) If Not covered by equity 2013/14 N/A 2011/12* 2012/13* / / / / / / / / / / / / / / / / / / / /19 < if the shareholders are not willing or able to inject equity, the club will only be able to make a maximum aggregate loss of 5m in each monitoring period. Excluded expenditure (Article 58 and Annex X) Certain expenditure is excluded for the purpose of the break even calculations, for instance: stadium development; youth team programmes; amortisation/impairment of intangible fixed assets (other than player registrations); expenditure on community development activities. Such expenditure is considered to be beneficial to the long term sustainability and revenue generation abilities of the clubs and clubs are therefore to be encouraged to direct their expenditure to programmes of these types. Transitional period (Annex XI(2)) As an initial ʺloopholeʺ to the break even requirements, clubs that report an aggregate break even deficit that exceeds the acceptable deviation in the first two monitoring periods will not be sanctioned where: a. the club ʺreports a positive trend in the annual break even resultsʺ; and b. the aggregate break even deficit only arises because of a deficit in the reporting period ending in 2012 and then only because of player contracts undertaken prior to 1 June Table adapted from the following link: blogspot.com/2010 /05/uefa say fair play toarsenal.html). Watson, Farley & Williams March 2013

4 04 SPORTS BRIEFING In addition, the wages of any player signed before 1 June 2010 are not included in the break even calculations for 2011/2012. This exception does not, however, apply to the underlying cost of acquiring the player s contract, which will need to be amortised over the course of the contract. Amortisation (Annex VII(2)) An important part of the Regulations relates to how a club values its players in its accounts. In essence, the cost of purchasing a player s contract is capitalised on the club s balance sheet and amortised (written down), on a straight line basis, over the duration of the contract. For example, a player at the end of contract will have a book value of zero. The first sanctions for clubs not fulfilling the break even requirement will apply during the 2013/14 season and the first possible exclusions relating to breakeven breaches are likely to arise for UEFA competitions in season 2014/15. However, if a player is sold before the end of his contract, the Regulations require that the difference between his book value at that time and the sale price be accounted for immediately in the club s accounts. Where a club extends a player s contract, the book value at the time the contract was renewed/extended will need to be amortised over the duration of the new contract. Sanctions The first sanctions for clubs not fulfilling the break even requirement will apply during the 2013/14 season and the first possible exclusions relating to break even breaches are likely to arise for UEFA competitions in season 2014/15. Sanctions for breach of the Regulations include: reprimands or warnings; fines; deduction of points; withholding of revenue from UEFA sanctioned competitions (i.e. the Champions League and the Europa League); prohibitions/restrictions on the registration of new players for UEFA competitions; and disqualification from a competition in progress or exclusion from future competitions. Whilst clubs must apply for a UEFA Club Licence to compete in UEFA sanctioned competitions prior to the start of the preceding season (i.e. the season prior to the season in which a club may qualify to participate in UEFA sanctioned competitions), if a club exceeds the acceptable deviation threshold, it will not be granted this licence, as one of the conditions to being granted a licence is compliance with the Regulations. Domestic FFP Regulations It should be noted that the English Football League and its clubs have agreed a financial fair play framework that will operate in all three of its divisions from the beginning of the current (2012/2013) season, though each division has been given the flexibility to determine its own regulations. In the Championship, clubs have agreed to introduce a break even approach based on the UEFA Regulations, so a Fair Play Result will be determined for each club that equates to the club s profit or loss for the year, excluding investments in specific areas of club infrastructure or losses in certain extraordinary circumstances. The Championship regulations do contain the following nuances: the framework will be phased in between the 2011/12 and 2015/16 seasons, with the

5 SPORTS BRIEFING 05 permitted level of acceptable deviation from the Fair Play Result (i.e. nil or greater) and contributions from equity participants reducing over time from 4m and 8m respectively in 2011/12 to 2m and 3m by 2015/16; items excluded from the Fair Play Result calculations include investment in youth development, stadium development, a club s community scheme and promotionrelated bonus payments. In addition, a club can apply to the Football League s Financial Fair Play Panel to exclude exceptional items such as career ending injury costs, bad debts from other clubs and losses sustained from a major sponsor defaulting (e.g. ITV Digital); sanctions will differ depending on whether: the offending club remained in the Championship in which case a transfer embargo will be put in place until the club subsequently complies with the regulations; the offending club is promoted to the Premier League in which case a ʺFair Play Taxʺ will be charged to the offending club on the excess by which the club failed to fulfil the fair play requirement (ranging between 1% on the first 100,000 to 100% on anything over 10m) and distributed between the compliant clubs (although one could query whether or not the Premier League will actively help to enforce the Football League s regulations with respect to the promoted club); or the offending club is relegated to League 1 (in which case that club will not be entitled to any pay out from the Fair Play Tax). In League 1 and League 2, clubs will implement the Salary Cost Management Protocol (which broadly limits spending on total player wages to a proportion of each club s turnover) that has already been in use in the latter division for eight years. Any club that is deemed to have breached the permitted spending threshold (currently 55% of turnover for League 2 clubs and 75% of turnover for League 1 clubs) will be subject to a transfer embargo. Wherever possible, the Football League will seek to deal with the issue ʺat sourceʺ by refusing player registrations that take clubs beyond the threshold. The Premier League has recently announced that its clubs have agreed in principle to a set of spending constraints designed to further improve the sustainability of its member clubs (the ʺPL Regulationsʺ). The new PL Regulations include a ʺlong term sustainability regulationʺ that will require Premier League clubs to work towards becoming break even, while allowing a degree of owner equity investment. The PL Regulations also include a ʺshort term cost control measureʺ, to limit the ability for clubs to increase players wages as a result of the increased centrally distributed revenue (i.e. the broadcasting revenues known as ʺCentral Fundsʺ in the Premier League Rules) above an agreed floor. The severest punishment for breaking these new PL Regulations will be a points deduction though, at this stage, it is unclear what other sanctions would be applied by the Premier League for more minor breaches. The Premier League has recently announced that its clubs have agreed in principle to a set of spending constraints designed to further improve the sustainability of its member clubs. To summarise the key principles of the PL Regulations 5: From the 2013/14 season, Premier League clubs will not be able to make a total loss of more than 105m across a three year period (this limit is significantly higher than the 45m ( 38m) figure in the UEFA Regulations); In the same period, Premier League clubs will be restricted from using increased Central Fund revenues to increase current player salaries by an accumulative 4m per season (i.e. 4m in season 2013/14, 8m in season 2014/15 and 12m in season 5 en gb/news/news/ /feb/premier league newfinancial rules explained Watson, Farley & Williams March 2013

6 06 SPORTS BRIEFING 2015/16). This restriction will only apply to clubs with a total wage bill in excess of 52m in season 2013/14, 56m in season 2014/15 and 60m in season 2015/16. In addition, this restriction can be circumvented if a team is able to demonstrate that the increased salaries have been accounted for using commercial revenues other than Central Funds; and...whilst clubs have sought to utilise various mechanisms... to help fund increased expenditure, commercial reality, in the form of limited availability of such funding opportunities, may finally bring about a change in behaviour. 5 Any club making a loss of above 5m a year will have to guarantee those losses against the owner s assets. Therefore, clubs that are not competing in UEFA sanctioned competitions are likely to face the possibility of sanctions (including, possibly, the withholding of revenue) from the relevant domestic governing body. Common methods by which football clubs raise finance Deloitte has noted that, whilst clubs have sought to utilise various mechanisms (including stock market listings, securitisation, bank loans and benefactor support) to help fund increased expenditure, commercial reality, in the form of limited availability of such funding opportunities, may finally bring about a change in behaviour 6. That being said, UEFA has made clear that it is not ʺanti debtʺ, as long as the debt is being serviced (i.e. the club s profit is covering the debt interest payments) 7. If the effect of the Regulations (and any equivalent regulations adopted by the Premier League and the Football League) is to improve the credit and financial sustainability of football clubs, financiers may in fact become more willing to provide finance to those clubs in the future, and perhaps on better terms. The second part of this Briefing focuses on three mechanisms commonly used by football clubs to raise finance and examines the effect the Regulations may have on those financing mechanisms. There are three methods most commonly used by football clubs to raise finance: 1. obtaining a loan in exchange for the provision of security for example, by way of assignment of receivables, a debenture, or a guarantee; 2. selling or discounting receivables to a financier for example, a club s entitlement to prize money or broadcasting revenue (i.e. ʺCentral Fundsʺ, in the case of the Premier League), or a transfer fee owed to it; or 3. financing of transfer fees by means of the transfer (indorsement) of promissory notes to a financier. Loan and security In consideration of a financier providing a loan facility (the ʺFacilityʺ) to a club under a loan agreement (the ʺLoan Agreementʺ), a financier will usually require the club to grant security to it over certain of the club s assets. 6 Deloitte Annual Review of Football Finance mobile/business Typically, the Facility is secured by an assignment of the right to certain amounts due from the Premier League or the Football League in respect of match broadcasting fees (the ʺAssignmentʺ). Even though the Assignment is stated to be enforceable only following a default by the borrowing club, the Notice of Assignment may direct the Premier League or the Football League (as applicable) to pay the amounts due to the borrowing club (the ʺBorrowerʺ) in respect of the assigned receivables on or around each repayment date under the Loan Agreement to the financier. Those amounts may then be applied by the financier towards satisfaction of the relevant repayment amount under the Loan Agreement (or, in certain instances, the financier may hold such amounts on account).

7 SPORTS BRIEFING 07 The security granted by the borrowing club in favour of the financier, to secure its obligations under the Loan Agreement, may also take the form of: a. a debenture, including a floating charge over all of the assets and undertakings of the borrowing club, as well as a fixed charge over certain specific assets of the borrowing club; and/or b. a guarantee (usually from a director or parent company of the borrowing club), guaranteeing the obligations of the borrowing club under the Loan Agreement and any security documents; and/or c. security over the shares in the borrowing club. Sales of receivables Instead of taking security over a club s income, a financier may instead enter into an arrangement for the outright sale by a club of certain of its receivables to the financier by means of a receivables sale agreement (the ʺRSAʺ). In consideration of the financier paying a ʺpurchase priceʺ equivalent to the expected receivables discounted at an agreed amount to a club, the club assigns to the financier its rights, title and interest in and to a specific receivable (such as the right to certain distributions of UK broadcasting monies from the Premier League or the Football League or the right to transfer fee instalments). The main difference between an RSA and a security assignment is that, under the RSA, the financier becomes the legal owner of the receivables at the date of the initial assignment. Under a security assignment, it is merely entitled to exercise its rights as assignee of the receivables as one means of enforcing its security following a default by the Borrower. Financing of transfer fees by means of promissory notes It is typical for amounts due from one club to another under a transfer agreement to be paid in instalments, especially if the purchasing club is not particularly cash rich, as it will seek to spread the purchase price instalments over a longer period of time (and may also try to negotiate for a higher proportion of the transfer fee to be performance related). Cash rich clubs, on the other hand, may prefer to make up front payments, especially when purchasing from abroad, so as to minimise the risk of adverse exchange rate fluctuations. Instead of taking security over a club s income, a financier may instead enter into an arrangement for the outright sale by a club of certain of its receivables to the financier by means of a receivables sale agreement. Where the purchasing club has negotiated to spread the instalments of the purchase price over a period of time (typically two to three years), the selling club may wish to realise all of its expected income early and to sell the future receivables. This could be done by a sale of receivables (as outlined above). Alternatively the selling club (to whom the money is owed) may request that the buying club (who owes the money) issues promissory notes to it in respect of the remaining transfer instalments. This will allow the selling club to transfer such promissory notes (or certain of them) by way of ʺindorsementʺ, to a financier, in exchange for which the financier would pay a discounted amount representing the present value of the future cash flow (as well as the financier s margin or fee) to the selling club. In addition to the promissory notes, the parties to this type of financing arrangement would typically enter into a side agreement which sets out the terms and conditions on which the indorsee (the ʺpurchaserʺ of the promissory notes) has agreed to purchase the promissory notes from the selling club. The side agreement would typically include various representations and warranties from the buying club in favour of the financier relating to the promissory notes or the underlying transfer agreement, but would not Watson, Farley & Williams March 2013

8 08 SPORTS BRIEFING typically include the more general representations, warranties or undertakings provided for in a Loan Agreement or an RSA. Given the sanctions (financial or otherwise) that can be imposed on clubs falling foul of the Regulations... financiers to European football clubs will need to consider the effect of the FFP Regulations on their financing documents. Take, for example, a player who has been sold by a selling club (Club A) to a purchasing club (Club B) for 20m, with the instalments of the purchase price being payable in four equal instalments, 5m on signing and 5m on the anniversary of the date of signing for three years thereafter. Club A is owed 20m in four instalments. Club B s debt to Club A is 20m. One month after signing, a bank may agree to discount the remaining 15m instalments by ʺpurchasingʺ the right to receive those instalments (whether by means of a purchase of receivables or the indorsement of a promissory note) for a discounted amount which would take into account both the ʺtime value of moneyʺ and the ʺmarginʺ that the bank wishes to make from the transaction. The bank will pay the discounted amount to Club A and Club B will, in time, pay each of the relevant transfer fee instalments to the bank rather than Club A. Club B s debt remains the same (i.e. 20m). Club A may receive less but it benefits by receiving its money early and may transfer any credit risk (relating to Club B) to the financier. Effect of the Regulations on financing documents Given the sanctions (financial or otherwise) that can be imposed on clubs falling foul of the Regulations (or any equivalent domestic regulations (together, the ʺFFP Regulationsʺ)), financiers to European football clubs will need to consider the effect of the FFP Regulations on their financing documents. For example, a breach of the of the FFP Regulations may signify a more serious underlying financial problem for a club and the imposition of (potentially significant) fines or the withholding of revenue by the relevant authorities may place that club in greater financial difficulty. A number of aspects of the financing documents will require careful consideration with the FFP Regulations in mind. Undertakings regarding compliance with the FFP Regulations Financiers may seek to require clubs to whom they are providing finance to comply with the FFP Regulations, either by relying on existing provisions of their financing documents (which may impose an obligation to comply generally with all laws and regulations) or by seeking to capture the FFP Regulations expressly in the documents. In any case, should any of the FFP Regulations become applicable to a borrowing club, the financier should, at the very least, inform (or remind) the borrowing club that failure to comply with those FFP Regulations would, in addition to the punishments referred to above, be considered a default of the loan or finance documents. Financial covenants Some financiers, in addition to the security referred to above, may have also required the borrowing club to comply with specific financial covenants in the finance documents to which they are a party. These covenants may be more lenient that the requirements of any relevant FFP Regulations and financiers may, perhaps as part of any default or loan extension negotiations, seek to require the borrowing club to agree to stricter financial covenants that are more in line with the requirements of those FFP Regulations. A financier may also seek to ensure that the borrowing club is required to provide it with copies of all reports, accounts or documents required to be given to UEFA or any other governing body or organisation as part of the club s financial fair play obligations. MAC clauses Many financiers insist on a material adverse change clause (a ʺMACʺ clause) in their finance documents. A MAC clause is typically drafted so as to capture ʺany event or circumstance which occurs that, in the opinion of the financier, has or is reasonably likely to have a

9 SPORTS BRIEFING 09 Material Adverse Effect.ʺ ʺMaterial Adverse Effectʺ is typically defined to mean a material adverse effect on, amongst other things, the business, operations, property, condition (financial or otherwise) or prospects of the borrowing club or, amongst other things, the ability of the borrowing club to perform its obligations under the financing documents. To the extent such MAC clauses are included in the relevant documents, it is likely that a failure to comply with any of the FFP Regulations and any resulting sanctions would be considered (by the financier at least, based on a subjective MAC test which financiers typically insist upon) an event which has a material adverse effect on the business, operations, condition (financial or otherwise) or prospects of the borrowing club (or any member of the group of companies to which the borrowing club belongs) and which has a material negative impact on either (i) the ability of the borrowing club (or any guarantor or other obligor) to perform its obligations under the finance documents or (ii) the validity, enforceability, effectiveness or ranking of any transaction document. However, financiers are typically unwilling to rely solely on a MAC clause to call a default under a loan or finance document, absent any other more specific default. Shares security Financiers should also be wary of the ability of club owners to inject equity as a means by which clubs can ensure compliance with the FFP Regulations in circumstances where they exceed the maximum aggregate break even deficit. If a financier has taken security over the shares in the borrowing club, care will need to be taken to ensure that the shareholder complies with its obligations to ensure that the financier s security in the shareholding of the borrowing club is not diluted by any such equity injections. For example, a typical shares charge or shares security deed would include clauses restricting, without written consent of the financier, the issuance of further shares and the alteration of the existing capital by the chargor (i.e. the shareholder). As such, if a club is seeking to use an equity injection to comply with any relevant FFP Regulations as set out above, it may find that the consent of its financiers is required for the issue of further shares. Further, it is likely that the financier would require any new shares issued as part of any equity injection to be charged to it, to avoid the value of its security in the share capital of the club being diluted. Effects for clubs Clubs themselves will also need to determine the extent to which their ʺbreak evenʺ calculations are affected by their finance arrangements. For example: a. whether, for the purposes of calculating a club s ʺNet Debtʺ (as defined in the Regulations), where a club has sold future receivables, that club s ʺaccounts receivableʺ refers to the amount received from the financier or the amount which the club would have received from the purchasing club 8; b. whether Article 49 (which requires clubs to prove that they have no overdue debts towards other football clubs with respect to transfer activities) includes an obligation on the purchasing club to prove that it has no outstanding debt to a financier who has ʺboughtʺ a debt from the selling club with whom the purchasing club has transacted; c. whether a club receiving money from a financier under a receivables sale arrangement has to treat such money as ʺrelevant incomeʺ (for the purposes of, and as defined in, Article 58), given that the payments made by the financiers will If a financier has taken security over the shares in the borrowing club, care will need to be taken to ensure that the shareholder complies with its obligations to ensure that the financier s security in the shareholding of the borrowing club is not diluted by any equity injections designed to ensure compliance with the FFP Regulations. 8 Under IFRS principles, the answer to this question (and the de recognition of the ʺaccounts receivableʺ as a financial asset) is dependent on the extent to which the club retains the risks and rewards of the ownership of the financial asset. If the club transfers substantially all such risks and rewards, it can derecognise the amount it would have received from the purchasing club and, instead, its ʺaccounts receivableʺ could be deemed to be the amount received from the financier. However, if the club retains substantially all such risks and rewards (for example, if the financing is recourse to the club for any shortfall), then it is likely that the amount received from the purchasing club could not be derecognised. Watson, Farley & Williams March 2013

10 10 SPORTS BRIEFING Financiers, in turn, will need to determine whether their existing financing documents provided sufficient protection from any adverse impact the FFP Regulations may have on the clubs they have transacted with. effectively be in lieu of the revenue in respect of broadcasting rights or player transfers/disposals of player registrations, which revenue will have been assigned to the financier by the ʺborrowingʺ club under those structures; and d. whether income arising under a receivables purchase arrangement or promissory note falls within the ʺclasses of financial liabilityʺ which are required to be disclosed by Annex VI(E)(f) of the Regulations. This is only likely to be the case to the extent of any recourse to the ʺborrowingʺ club, in the event of a shortfall in the payments expected by the financier. Conclusion and comment Clubs, financiers and lawyers will need to examine the relevant regulations for their situation or transaction. Clubs may seek to ʺsoftenʺ the impact of the break even result and the interpretation of the concepts of ʺrelevant incomeʺ and ʺrelevant expensesʺ will be central to this. Financiers, in turn, will need to determine whether their existing financing documents provided sufficient protection from any adverse impact the FFP Regulations may have on the clubs they have transacted with. The FFP Regulations may also impose an additional risk which financiers will need to consider as part of any credit underwriting of new transactions with football clubs. Much will depend on how the FFP Regulations are implemented in practice, in particular as to the severity of any punishments for breaching the regulations, so this is something which both clubs and financiers will need to keep an active eye on over the coming months and years. Contacts Should you like to discuss any of the issues raised in this Briefing, please get in touch with a member of our team below, or your regular contact at Watson, Farley & Williams. Samantha Yardley Partner London syardley@wfw.com Michael Savva Solicitor London msavva@wfw.com All references to Watson, Farley & Williams and the firm in this briefing mean Watson, Farley & Williams LLP and/or its affiliated undertakings. Any reference to a partner means a member of Watson, Farley & Williams LLP, or a member of or partner in an affiliated undertaking of either of them, or an employee or consultant with equivalent standing and qualification. This briefing is produced by Watson, Farley & Williams. It provides a summary of the legal issues, but is not intended to give specific legal advice. The situation described may not apply to your circumstances. If you require advice or have questions or comments on its subject, please speak to your usual contact at Watson, Farley & Williams. This briefing constitutes attorney advertising. Watson, Farley & Williams LON AC KW 11/03/2013 wfw.com