The questions posed for this Q&A Session can be found here.
Interview with the FAI’s Internal Compliance Officer for 2009.
Q1 – Mr A: Did all clubs stay within the 65% wage cap for the year 2008? If not can you explain why there were no consequences via licensing?
During the season four clubs breached the Salary Cost Protocol (SCP) and they each had a transfer embargo imposed upon them. These clubs implemented the necessary changes and brought their percentage back below 65% before the end of the year. All clubs came in under the 65% SCP limit at year end.
Under Licensing, each club must submit monthly management accounts to the FAI. We then use these management accounts to calculate the club’s projected SCP % during the season. The final figures however are taken directly from the audited financial statements. Each club must submit an SCP reconciliation signed and stamped by their auditors.
Q2 – Longfordian: Were there any early warning signs of the crises that were to hit Cork, Drogheda and Cobh and if so why wasn’t there more done by the FAI to prevent those clubs getting themselves into serious trouble as there was with Galway for example?.
The fact that clubs are now required to submit monthly management accounts to the FAI ensures that we can monitor their financial health. We were aware that certain clubs were having difficulties, and transfer embargos were placed on any club found to be in breach of the SCP.
The FAI can advise clubs on how to resolve financial problems, but the responsibility to run a club in a professional manner rests solely with the directors and management committees of each club. These are the people who have been entrusted with the club, and these are the people who must run the club in a responsible manner.
While we can advise clubs the FAI cannot and should not run clubs or make decisions on their behalf. From a financial standpoint, football is a business and it would be inappropriate for the FAI to simply prop up clubs in financial difficulty. If the FAI bailed out clubs in financial trouble the same problems would continue to occur year on year. No lessons would be learnt and the clubs and the League as a whole would suffer as a result.
In the four cases you mentioned we met with each club to examine the full extent of the problem and helped the clubs evaluate what measures could be taken to improve their situation. Some, such as Galway United, choose to reduce their costs during the transfer window, while others failed to take the tough decisions which were necessary. Those clubs suffered the consequences. It must be hoped that all clubs learn the lessons from last season
Q3 – Seand: If Cork City had a legally binding agreement with Arkaga, which was to the satisfaction of the FAI’s licencing committee, why did Cork City not simply sue Arkaga for breach of contract? If no such legally binding agreement was in place how did Cork City get a Premier licence?
These letters are a common request during audits where the auditors are including a note or emphasis of matter with regards to Going Concern in the accounts of a company.
In Cork City’s case, the letter was signed off by the directors of the parent company and copied to the FAI. The decision on legal action is one for Cork City FC to take. We have made clear in public, our deep dissatisfaction with the actions of Arkaga in this case.
Q4 – Marco: Why did Fran Gavin state on MNS that Galway Utd had broken the 65% salery cap only to release players and then when under sign more players, why wasn’t Galway punished for this even though they were being promoted as a model club for marketing?
The point i’m trying to make is if the rules were broken then why no punishment… Was it the case that no legislation was in place to deal with this?…
Galway United did breach the Salary Cost Protocol and the club was punished for doing so. The club had a transfer embargo imposed upon them as soon as their projected SCP % went above 65%.
We discussed the issue with the club and they examined their financial position and determined that they needed to cut costs to come back under 65% before the end of the year. They agreed deals with players to cut salaries and they also allowed a number of players to leave the club. These moves saw the club significantly reduce their player salary costs. The reductions allowed them to bring in some new players at a lesser cost while remaining within the 65% limit.
The club has been extremely innovative in how they market themselves to the community, and that is a very positive step for the entire league however this has absolutely nothing to do with the SCP.
Q5 – Marco: Despite the rules set by participation, why wasn’t their any legislation governing the way clubs managed there business off the field. Because 2 clubs went into administration now are now sitting pretty Premier License, and ONLY now more stronger measures are in place when the damage is done.
There are rules in place governing how clubs run themselves off the field. Examinership is an option open to any business, regardless of which industry they are in. It is a legal corporate rescue mechanism used by companies in all industries to help them return to financial stability when their debts have become insurmountable. In the last few months Chartbusters, Sasha and the Thomas Read bar group for example have all sought the protection of the courts under examinership.
From a football perspective, 10 points is the standard deduction given to a club entering examinership (or administration – depending on National Legislation). Darlington have just gone into administration in England and they will be hit with a 10 deduction over the coming weeks. Sturm Graz, Leeds United and Boston United have all suffered the same fate over the past few years. The Club Licensing Committee issued this standard deduction to both Cork City and Drogheda United.
We cannot stop our clubs from doing something which the law of the land allows them to do. Despite this we are determined to stop clubs seeing examinerships as an easy option. That is why we have introduced the new sanctions, which will see far stiffer penalties for clubs who choose to go down the examinership route.
In addition to the standard 10 point deduction, from 2009 on a further sanctioned based on the % of debts covered by the club will be levied upon them exiting examinership. A sliding scale penalty will be applied as follows;
Code:
Aggregate % Debts Covered Additional Point Deduction
100
90-99
80-89
70-79
60-69
50-59
40-49
30-39
20-29
10-19
0-9 0
3
6
9
12
15
18
21
24
27
30
This will ensure that clubs who pay less face heavier sanctions. Where a club enters examinership within 70 days (period of protection granted by the court) of the end of the season the additional point deduction will apply to the next season.
Q6 – Akearins: How can clubs who went into examerniship now recieve a Premier division license for the 2009 season?
See answer to Q5
Q7 – forza rovers: why did clubs that went into examerniship cork and drogs receive a Premier division license for the 2009 season?
See answer to Q5
Q8 – Akearins: How can clubs with debts in excess of 1million be granted a premier divison license for 2009?
When discussing debt, it is important to ascertain the type of debt and the club’s ability to repay this debt. Not all debt is bad and debt is just one factor to consider when evaluating the financial viability of clubs.
If a club has a long term loan (debt) for capital investment, can afford the repayment schedule and the project will lead to tangible benefits to the club in the long term then there are no issues.
From a risk perspective a company with debts of €2m but assets valued at €20m is less risky than a company with debts of €400k but no assets. Similarly a company with debt of €500k to a single investor who has no desire to see the money repaid is less risky than a company with a €150k overdraft at its limit. A single set rule with regards to debt is not appropriate or wise.
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