EFL regulations: ‘Far from perfectly drafted’

Background

EFL Regulations allow the EFL, acting through its Club Financial Reporting Unit (“CPRU”), to require clubs to submit and adhere to a budget, including in respect of transfer frees, compensation fees and loan fees – what the CFRP referred to as a ‘business plan’.

In November 2023, the EFL gave Leicester City seven days’ notice of the need to produce a business plan as the EFL ‘was entitled at that time to form a reasonable opinion that Leicester City will likely breach the Upper Loss Threshold (“ULT”) … in the season 2023/24’.  Leicester City would then have been required to adhere to such business plan, presumably constraining the club in certain areas.  Leicester City contended that the drafting of the EFL Regulations did not permit this at that time and specifically that, under Rules 2.8 and 2.9 of the appendix 5 of the EFL Regulations (known as the “Financial Fair Play Rules”), the CPRU could not require the same prior to 31 March 2024.  Much hinged on how the EFL Regulations were to be interpreted with the EFL seeking to apply a contextual interpretation and to read into the EFL Regulations language not explicitly set out therein.

Decision

The CRPR found in favour of Leicester City: the natural reading of Rules 2.8 and 2.9 did not permit the EFL to act until after 31 March 2024.  The EFL had jumped the gun and thus Leicester City were not required in November 2023 to submit and adhere to a business plan.

Comment

The EFL is rightly concerned with ensuring its member clubs comply with profit and sustainability rules (“P&S Rules”) pursuant to their wider Financial Fair Play Rules.  Whilst stakeholders continue to debate whether financial fair play rules at all levels of football in England and Europe are fit for purpose, most commentators agree that they should exist in some form.  The aim of financial sustainability of clubs remains of paramount importance to all stakeholders, including those in the investment community.  At the recent FT Business of Football Summit, it was observed by several investors that financial sustainability, achieved by way of tighter regulation, encourages the long-term capital required to fund and sustain clubs.

One of the EFL’s issues relates to the fact that membership of its divisions changes annually.  Only 18 clubs remain in the Championship from year to year after promotions and relegations are factored in.  Leicester City, having played in the Premier League in 2022/23, were, and are still, subject to slightly different requirements this season than 18 other clubs in the Championship.  The EFL accepts that their regulations are ‘far from perfectly drafted’, which is a startling admission at a time when they and the Premier League will undoubtedly be relying on their regulations more than ever.  We expect to see the EFL proposing changes to the EFL Regulations to member clubs in the near future.  The EFL may also seek to move the EFL Regulations into closer alignment with the Premier League’s regulations.

Whilst this matter effectively considered whether the EFL could compel Leicester City to adhere to a business plan from November 2023 onwards, the wider point which most football fans will be interested is the CPRU’s admission that Leicester City ‘has not disputed that it is forecast to breach the ULT in the 2023/24 season and that this is a serious matter’.  It would appear from this that Leicester City have work to do in the coming weeks and months to ensure that they do not breach the ULT.  Football fans will be increasingly familiar with this theme.  Many clubs in the Premier League and EFL are rumoured to be at risk at breaching P&S Rules without increasing revenue prior to the end of the season.  Fire sales are expected at a number of Premier League clubs in June to book revenue into the 2023/24 season.  It is not unfeasible to think that players who might memorably secure certain clubs safety or a European spot in May could be marched out the door in June.  It feels an unsatisfactory and unsustainable state of play and one which a regulator might be minded to address in the near future (although it is noted Lucy Frazer MP, the Culture Secretary, has said that the Government does not wish to “over-regulate” football or to “interfere with football itself”).  We await the Football Governance Bill, which the Government has said will be published “very soon”.