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Hello everyone, and welcome back to Garabaldi Reds, a Nottingham Forest podcast brought to you by Nottingham Shalive. I'm Max Aiz, your host. And as Forest really did have a blue Monday in January, yesterday the club was charged by the Premier League for breaking financial rules and referred to an independent commission over the alleged breach of profitability and sustainability regulations, otherwise known as PSR and FFP. Today I'm joined by football finance expert and chief business football writer for Reach plc. Dave. Dave, thanks for joining me. I suppose this is a really kind of difficult subject, and I'll openly admit that I don't know a great deal about it. I suppose, first of all, just to kind of break it down to the Forest fans and our listeners, what does PSR and the whole financial regulations actually mean for football clubs?


Effectively, it was brought in the start of the 2013 14 season. It was effectively brought in following the issues which Portsmouth had whereby such heavy spend took them to Europe and an FA cup triumph. But ultimately, it was unsustainable in relations to the business model of the football club. So they were ushered in these new rules. They've kind of changed a little over time, but the headline is really, it's permitted 105,000,000 pounds over a three year reporting period. Now, that 105,000,000 is only permitted provided there is kind of a commitment from ownership to funding losses. So that could be through kind of increased capital put into the football club. But also the 105,000,000 only applies across three Premier League seasons. So Nottingham Forest issue, for instance, is two of the three seasons they're being assessed for, they spent in the Championship. So their overall permitted loss is 61 million, I think, as opposed to the 105. It's designed to try and put some element of some guardrails around spending in the Premier League. But those arguing against it would say that what it does is hobble the element of competition and being able for clubs outside of the so called big six to be able to spend, to bridge that gap, that revenue gap, through owner funding.


And it probably isn't fit for purpose at the moment, because that 105,000,000 permitted allowance for losses has been the same since it was introduced. So what you have is we have thing called inflation, which means that everything else goes up. Players wages have risen exponentially, transfer fees have risen exponentially, the cost of just keeping the lights on at football stadiums has risen exponentially. So there's lots and lots to consider in all that. And I imagine some of these would be mitigating circumstances for football clubs, which they'll argue against. But the long and the short of it in the Premier League position is if everyone signs up and agrees to these rules when they become a member of the Premier League and it's up to the clubs to comply with them. So that's the Premier League's position on it.


Yeah. It's very complex, isn't it? I suppose when we look at Forrest's case, and of course charged alongside Everton yesterday the Premier League announced both clubs released statements. Everton, slightly different to Forrest. Forrest basically accepted the charge as such and said that they would comply for a fair regulation and also hiring a top sports lawyer to try and have a defense and mitigation. Dave, can you just give us kind of an overview of forest charges you mentioned there about them being in the Championship and obviously differing because we've had those two seasons in the Championship and then one in the Premier League, what is it actually that Forest are alleged to have breached?


It will be breaching that 61 million, but largely pretty much in Forest case it comes down to player trade in. Whereas in Evan's case, their issue has been heavy losses sustained through the stadium build at Bramleymore Dock. And Evan's argument for a long time has been that the interest on that stadium, on the financing of the stadium, should be an allowable deduction. So every club's allowed a certain allowable deduction when they take away from their PSR position. So in Forest's case, that could be heavy investment in the academy where they went up to cat one, I think, didn't they? Which that's money which they can deduct from their losses. Investment in the women's team, investment into the infrastructure around, whether it's a city ground or training bases or retail units or anything like that. But in Forest case, it's pretty much going to be linked to that heavy transfer spend that they underwent in the summer of 2022 now, isn't it? When they first came up, returned back to the top flight, first time since 1999. So I'm for such a big club, I'm with such a wealthy owner. It's not an issue around funding.


I mean, evangelist marinackis has the money and the wherewithal to be able to fund these losses. It's not particularly huge, but in terms of the PSR position, they bought so many players. And while obviously the term amortization has kind of ingrained itself in the football loving psyche, I think over the past couple of years, basically the way you expense a transfer, isn't the money going out straight away. It's how much it costs per year when you kind of average that over the life of a contract. So I roughly totted up Forest amortized costs at around 35 million for that summer. That was working on the assumption of some of the details between the public domain around contract length, but it also only applies to guaranteed sums. So amortized costs wouldn't apply to Morgan Gibbs White's full amount of his transfer fee immediately. But yeah, it's related to transfer spend and the fact that during that period Forest weren't able to sell anything like the kind of players they needed to, to be able to offset that extra spend. Because while they reduced the outgoings in terms of the players who left, the players they brought in were probably on two, three, four times the wages.


So the wage bill has shot up enormously from the position it was in the championship. Adding to that, the amortized cost. And I think they were already paying around seven and a half million pounds in the last set of accounts in terms of amortization each year. So that's probably leapt up to. It could be close to 50 by the time we see it in the next set of published accounts. Basically for Forest, it's down to player trade in the fact that they've tried to spend to preserve the lucrative nature of being a member of the Premier League. And they, I think, were probably expecting to sell Brennan Johnson during that window or during that financial period. But the offers weren't particularly strong when they came in, certainly not at the level they were expecting to receive. Like the offer they got for Tottenham, which he ended up selling in September, I think it was. Which means that it doesn't account for this period we've just been assessed for. So there are mitigating factors in there. But in Forest case it comes down to spending to try and remain a Premier League club.


Yeah, as you mentioned there, that mad summer window that Forest had 30 sign ins pretty much over the course of the first season back in the top flight, 250,000,000 pounds spent on new sign ins. When people try and argue that, do you think Forest will be breached here, Dave, and do you think that you can completely see kind of why? And it's justified given that huge amount of money spent and potentially the lack of structure off the pitch in terms of the ownership for Forest, it's difficult.


I don't want to preempt what the decision of an independent commission might be, but I do think given the fact that Everton will land with a ten point deduction, which I do think will be reduced on appeal and my own personal view it's not one provided with any particular insight into the process at all in the independent commission is that the points deduction even with this current deduction they have factoring in the new charge I still think they'll have a point deduction which be less than what they are dealing with at present but that's just my own personal view I think Forest, I do think there has to be some kind of uniformity around it so I think unless they've got very strong case to make the breach I think the breach is almost accepted but it's the manner of how they got there which is a bone of contention so the position will probably be to try and work down to a punishment which is commensurate to the crime I suppose and that's what they'll be focusing on so Brennan Johnson will be a key feature I think theme in what they're going to try and present to the commission but ultimately Everton's punishment was largely through the stadium losses and they couldn't attribute those other costs but they did have a summer of spend under Frank Lampard at Everton and that was looked on quite dimly at a time when they were battling with PSR already now Forest haven't got previous PSR issues so it's not like they've been worn prior they've taken a bit of a flyer I think in terms of the summer transfer window at a time when they probably didn't think the Premier League was going to come down


so hard on breaching those rules I think Everton's punishment has been a surprise for a lot of clubs so I think that Forest will expect some kind of punishment whether it arrives in the terms of financial punishment or competitive punishment I suppose it depends on. I think it will depend on the severity of the way that Everton are able to appeal and whether they get success over that if they're able to prove a case I think that will then determine and have a knock on effect in terms of what happens with Forest in their own case because I think the view has been pretty wide held that it's been a severe punishment for Everton and to hand that down again especially when you've got the specter of Manchester City having 115 charges maybe the Premier League have painted themselves into a little bit of a corner over this Richard masters a while ago made the suggestion that it could be there's no guidelines for what punishment is with PSR as a thing there's no hard and fast rule there's been a suggestion made from Richard Masters, the Premier League CEO previously that perhaps it should be a six point penalty for the breach and then a million pound for every 5 million pound that a club is over the breach.


I don't know. I wouldn't like to guess what the size of the breach is for Forest because I've not had any kind know, been able to dig down into what their account's position is for last year and what it might look for this year and I don't want to kind of preempt that but I imagine given the evidence suffered punishment, Forest will suffer the same. Especially given the fact that signing those players effectively is seeking a competitive advantage over your rivals on the pitch and you can't really argue against that. But it's whether or not the severity of the Everton punishment is really warranted and whether that gets driven down and maybe Forest get. Maybe it is a couple of points and a slap on the wrist and a fine and I don't know, some kind of transfer embargo. I don't know. That's just that there is no guidelines though. So effectively I could be making up on the flyer the same as the Premier League do. But yeah, I think if Evan had been punished I think Forest can probably expect some punishment. Whether or not it's the same, I don't know. But I imagine that the Premier League won't look too favorably on such a heavy spend when they haven't really managed to get too many players out the door.


Even though the Brennan Johnson defense may play some part. I think Everton made the case that they didn't want to sell Richarleton in the year when the previous three year reporting period. At the time they did because they felt they could get more money for him by selling him outside of the financial year. But that was rejected at the time by the Premier League. So I don't know what kind of view they'll take on Brennan Johnson.


Yeah, you mentioned there Brennan of course the club arguing that if they sold him before the deadline to submit the accounts then it would have been obviously significantly lower and they wouldn't be in this situation now. Is that justifiable, Dave? Is that something that Forrest can just argue or is that not strong enough in terms of a defense? What kind of other things could we see from the legal team that Forrest will have in place?


There probably is a case we made there but ultimately the clubs know the rules when they start and it's up to them to conform with the rules inside that. That's. That's the Premier League's position on it. And that's kind of not really changed. But suppose the defense from Forest point of view could be that we would be risk selling a player for. I think the offers at the time were 25 30 million that they received, enjoying that initial, which would have taken them into the current financial year, they felt that was far lower and they were justified by, in terms of, from a financial point of view they got another say, 17 and a half million pounds. On top of that you're getting on to kind of double what they would have got. And from a financial point of view is that punishing Forest for trying to do the best for the football club just to conform with these rather arbitrary set of rules and regulations that are in place over this hunt, to comply with this 61 million pound figure. That is a position they'll take, I'm sure. And they probably do have more weight to their argument than Everton did with Charleston.


And that felt like a little bit of a Hail Mary throwing that in there. They thought they could get more outside the financial year. I think the uplift in what Forest got from what they were offered inside the financial year, which would have actually probably taken them within the threshold and avoided them, run the risk of breaching PSR. They've kicked it over into the next year, which means that they could face punishment for it. Yet it's a decision made in the best interests financially of the football club. So it's a difficult one. I imagine they've probably got a fairly decent case to make, certainly more than Everton had.


Do you think that Forest will have a similar point seduction to Everton? We're looking at ten points, probably.


No, I think that ten points. Again, this is personal opinion. I think it was seen as draconian and completely overzealous on the behalf of the independent commission. They've kind of taken a suggestion of six points and then a point for every 5 million over the PSR limit has kind of taken it and run with it really. It doesn't seem to fit the crime really. So I imagine on appeal, if Everton is successful in driving that down, which again just personal viewpoint, I think halving it would probably feel like a success for Everton in some respects and probably feel like maybe a reasonable punishment. Ten points. Given the fact that it's the biggest point deduction in Premier League history and the rules which were brought in and the rules which are brought in to stop another issue like Portsmouth happening. Portsmouth were only deducted nine points when they went into an administration back in 2000 and 910. So effectively Everton have been given a bigger points deduction than Portsmouth got. Portsmouth are the kind of ground zero test case for this whole thing. The reason why we have the rules in the first place. Punishment is needed for these type of things, otherwise no one will take heed of the rules.


But also there has to be reasonable punishment. So you are effectively with ten points and a possible additional points penalty, or Everton on top of that, you are condemning these clubs to possibly relegation from the Premier League, which means a huge drop in revenue, which means lost jobs for people that work at the football club, which means potential for even more chaos to be created in the EFL. And there's already issues around that. I mean, Richard Mass has appeared before a parliamentary select committee today to talk about, alongside Rick Parry, the chief executive of the AFL, to talk about the financial deal between the Premier League and the AFL and whether that's fair and how that needs to be revamped and more money needs to come down to the pyramid. Premier League are going to probably looked on a fairly dim view that they're sending clubs back down with heavy losses which otherwise would have been stemmed had they remained part of the Premier League. So there's one of the issues there also. The PSR rules are likely to change in the next year or so. Premier League will have a meeting over that in February.


They've already kicked proposals around to every member club. They're probably going to go into a model which is more akin to what UA produce. So a squad cost ratio rule, so whereby how much the costs and transfer costs and wages in line with the revenue of the club. So that way it's going to go. It will struggle to work in the Championship, I think, because the squad cost ratio is running at 95% to 120%. So that's very difficult. But that's not something which is imminent. It'll be discussed in February, then can we get kicked down the road again? And then we're probably looking at another couple of years before that's implemented. But there are a few things coming down the tracks, mitigating circumstances, et cetera, that might give Forest a leg up in any legal defense.


Is it unfair, I suppose, that clubs like Forest and Everton get punished for just trying to compete every year with the quality gap that gets bigger and bigger from the likes of City and United and teams in the top six.


Really? Yeah. And I come at this from a point of view, I'm a Chester fan, so I have very little skin in the game when it comes to the big six or anything. But yes, I do agree to a point around people. Everton certainly spent over a period of time to try and bridge the gap between themselves and the top six ahead of revenue. But the problem is eventually you have to find the revenue to fund the spend. Everton haven't been able to do that. And I think forest coming into the Premier League, they want to stay there. Look at the amount of time it took them of being away from the Premier League. What was it, 22 years? 23, 23 years away from the Premier league. This is a football club that won two european cups and is one of english football's most storied, most famous football clubs. And for people of a certain age, and I probably include myself in that, they are a club along with the likes of Leeds, who are in reality for me, kind of a bigger side than the likes of Chelsea, but know in terms of size, scale and what they kind of mean to their local communities and history as well.


And we're talking before kind of the Premier League days there. But oris feel like Everton, a club which dominated the 1980s, they have kind of effectively been shut out of the modern game and the ability to challenge and have those experiences again, or at least just challenge the elite and make it more of a level playing field. But problem is, revenues are already baked in. So it's very difficult when you've got Manchester City being able to post revenues of 700 od million and the likes of Everton and forest revenues in the 150 to 200 million per year. That's a big gap to try and close. And PSR doesn't help that in any way, shape or form, really. Maybe there should be a levy on what clubs can spend coming up from the premier, coming up from the Championship to try and establish themselves by way of. I don't know, maybe owners put some money in kind of an escrow account that kind of backs up a position of an extra 20 million or something they're allowed to spend for clubs coming up if owners wants to commit to that. But that's just spitballing ideas here.


But while the rules are the rules, yes, I understand that and everyone knows the rules at the start. There is a fact that there is a drawbridge and it's been pulled up quite some time ago for the rest of the clubs. And even Newcastle, owned by the richest sovereign wealth fund on the planet, cannot bridge that gap without raising revenues first. Now they'll be able to do it quicker than most because they'll be able to lean on sympathico relationships they have in the Middle east with firms in Saudi, et cetera. What they've done to for a start already. But ultimately a lot of it comes down to player trading. And investing in academies really is the best way for these clubs to improve their position. But the problem is even the big six are doing it. Chelsea, Manchester City Chelsea have been able to circumvent PSR rules this year despite spending the GDP of the small country on transfers. They've been able to get around it because of their player trading model and they've sold players who are academy products. Which means your money comes in immediately. It comes in immediately anyway. For a player sale, you can book that from an accounting perspective.


Any player sold that money can count into your account straight away. But when it's an academy player, it's just pure profits over and above any profit that you need to make first to pay down the previous book value that existed for players on the book. So Brennan Johnson for an example, academy player that's 47 and a half million pounds straight into Forest back pocket. Now finding more Brennan Johnson's would vastly improve their PSR position, but they don't come around all the time and it's very difficult to find. And moving to cat one status will help find a few more of those. But will they find enough to bridge that gap? No. So it's about, there needs to be a way forward to try and find a way that other clubs can compete in some way, shape or form. But the current model isn't it. And I think probably Everton and Forrest can probably feel aggrieved for having the temerity to have a dream forest set.


To find out kind of the points, deduction and actual punishment. If we have been alleged to have breached this, that will be middle of April, is it? April the twelveth?


Yeah, before the end of April I think is that when it's expected to be heard and settled, it will be done so that the appeals process has got to be heard. I think for Everton it's got to be heard next few weeks. That will then kick into gear everything else. Because the appeals process will set the tone for what happens with Everton and Forest. Because effectively it might rewrite the rules and guidelines to which they were working towards to put them on a more fairer sound of footing. So maybe that's beneficial for Forest, maybe not. But yeah, I mean there'll be a point deduction if it is coming this year, but whether or not it's a heavy one or whether it's the same as Everton have got right now remains to be seen. My hunch is that it will probably be less and Everton's will be less and they'll probably still end up with a point deduction less than what they have now, even with two charges. But that's just me purely working on a hunch really, but it will come to a head anyway before the end of the season.


As always, if you've enjoyed this podcast Garabadi Red, remember to drop us a like subscribe on YouTube, follow us across Spotify and Apple Podcasts and leave us a review. If you do enjoy it, it helps massively. And a reminder, our exclusive interview with Mark Wolverton was out yesterday, so be sure to check that out. That's across YouTube and all your normal audio problems. Big thanks to Mark for his time spent with us and a really good listen if you fancy taking your mind off Forest's financial fair play rules. We will see you next time. Fingers crossed Forest can get through to the FA cup fourth round after their replay against Blackpool tomorrow. And as always, thanks for tuning in. Have a great rest of your week. Whatever you're doing.