Disclaimer: The EFL has asked us to post these responses to questions asked by RamsTrust and other Derby supporters. These are not the exact way the questions were phrased, but do cover questions we asked as reported last week.
The EFL held a meeting with members of RamsTrust on Tuesday 28 September regarding the current situation at Derby County Football Club.
Understandably, this is a particularly concerning time for Derby County supporters and the EFL is keen to maintain ongoing dialogue with RamsTrust, while continuing to work with the administrators in an expedient manner to ensure a sustainable and long-term future for the Club.
Following the meeting, the EFL committed to respond to questions from RamsTrust and additional questions submitted by supporters of the football club.
Questions & Answers
- If the EFL applies its rules properly, how does a Club get itself into such financial difficulty?
Within the framework of the regulations, Clubs are able to operate as their own businesses, and decisions relating to player and wage expenditure, for example, are for owners and investors of Clubs. In relation to Club ownership, the so-called ‘benefactor model’, for example, is a key issue, and an approach to financing Clubs that collectively the League and its members are keen to move away from. The EFL’s aspiration is to work with its Clubs and the football authorities towards achieving a break-even, sustainable finance model. In the event there is a requirement for owner funding, then moving forward this must be secured which would go some way to ensuring that Clubs who do find themselves in financial trouble as a result of an owner’s actions do not suffer.
- Is it fair to a Club and its fans that it gets a 12-point penalty, when it is clearly struggling on and off the pitch?
Ultimately, as a member organisation, the EFL is required to uphold its rules for its member Clubs, in order to protect the integrity of its competition on behalf of all its participants. In respect of an insolvency event, the regulations determine that an automatic deduction of 12 points will be imposed. This regulation was agreed by Clubs back in 2003 (with 10 points) and in 2015 Clubs themselves voted to approve changes to increase the number of points to 12, and to also amend the League’s Insolvency Policy to introduce the minimum dividend requirement to unsecured creditors or face a potential further deduction of 15 points. Naturally, any deduction of points is an unwelcome consequence of Administration, not least for supporters; however, the sporting sanction is in place to act as a disincentive to any individuals running Clubs in such a way as to gain financial advantage over competitors and subsequently rely on insolvency legislation to compromise the unpaid debts incurred. Furthermore, it is to ensure fair and honest competition for all other member Clubs and all other supporters.
- Why does the EFL prevent the Club from strengthening its squad? This only serves to weaken the Club further.
In the event of insolvency, or Clubs defaulting on payments or failing to provide all necessary financial returns to the League, the League imposes a registrations embargo. One objective of this approach is to prevent a Club from adding to its playing staff costs/or strengthening its team, until such time as it can meet its existing financial obligations and/or has rectified the breach of the League’s rules.
- Can you confirm the penalties for Administration include an embargo for two years on signing players? How is this supposed to help find a new owner? This is totally counterproductive.
Clearly, seeking to ensure the long-term future of the Club is the primary objective for all parties, not least for the supporters, and as such, a number of difficult financial decisions must be made in order to assist the Club in reducing its debt and operating sustainably. As part of any insolvency event, the appointment of Administrators initiates a number of measures to seek to reduce debt and to mitigate ongoing losses in order to assist the Club find new investment. During this process the Club is under embargo to prevent any additional staff costs being incurred. However, the EFL will work with the Club in relation to such ongoing measures, and in the event of any future investment and exit from Administration, will agree a financial plan in accordance with its rules.
However, the fact remains that even with the requirement to meet the minimum dividend to unsecured creditors any Club taking insolvency action will be released from significant amounts of debt whilst all other clubs continue to honour their ongoing commitments. An ongoing embargo restriction as part of a monitored business plan seeks to balance the interests of all members of the League and the integrity of its competitions.
- Currently DCFC is under threat of an additional three-point penalty if wages are not paid on time (another penalty on the ‘victim’ rather than the perpetrator). Can you confirm whether this still applies if any player volunteers to defer wages to help the club?
Derby County did not pay wages due in December 2020 on time and the net overdue amount remained unpaid in full until 22 January 2021. The Club provided several points in mitigation and were offered a suspended three-point penalty to be activated in the event of another breach occurring before 30 June 2022. It is important to note that the Club agreed to this approach via an Agreed Decision process.
However, if staff agree to a wage deferral voluntarily then the Club would not be penalised.
- Points deductions are in grave danger of threatening the integrity of the competition. It already looks like relegation from the Championship this year will be based on points deductions and not performances on the pitch. This is wrong – and clearly shows that the penalties are not having the intended effect.
The EFL recognises the frustrations involved for supporters when Clubs incur points deductions for financial breaches. Everybody wants to see sporting competitions settled on the field of play rather than off it. However, the current regulations relating to sporting sanctions are clear, and for the benefit and integrity of the competition, as a whole, the points deductions are applied as determined by these rules.
Other than in the event of insolvency, any points deductions are either (a) agreed or (b) determined by an independent panel after hearing from both sides.
- The financial problems of all Championship Clubs are based on trying to compete to reach the riches of the Premier League. This will continue until the financial discrepancy between those leagues (and the current unfair parachute payments) is reduced significantly. Rick Parry himself highlighted this issue over the weekend. Is the EFL actively trying to address this vital issue?
The EFL has long raised the importance of developing a more sustainable financial model for the game as a whole. A range of measures have been undertaken over a period of years to encourage League Clubs to be financially prudent, and to operate within their means. Ultimately, however, to make the game sustainable further steps must be taken to move away from the ‘benefactor model’ and towards a secure funded approach with appropriate cost controls. Such changes, as part of an overall financial reset, will go a long way to providing balance within the game and for our Clubs. The EFL believes that the alternative to this concentration of wealth is to redistribute more money across the pyramid and to create a more stable financial ecosystem. Abolishing parachute payments and the existing system of solidarity payments would be part of such an approach.
- Currently the embargo rules mean that a number of young players at Derby are not allowed to get a chance in the first team due to the squad restrictions. How can this be in anyone’s interests? How is this good for the game?
The Club was aware of the circumstances of the embargo and chose to structure its squad in line with the restrictions which included signing players subject to a condition they were on non first team contracts as well as the ability to promote players from the Academy. If the Club wishes to upgrade those players and has space in the squad then it may do so, but if it chooses to bring in new players over those in the under 23 squad then that is the Club’s choice.
- Can you please confirm the requirement for a Business Plan for new owners? – we would like to work with the EFL to make sure the next owner is in the best long-term interests of the Club. The Trust is eager to work with the Administrators (who we have already spoken to) and the EFL in ensuring the next owner guarantees a successful, sustainable future for the club. On a similar basis, how long will the Owners’ & Directors’ Test take to avoid delaying the process of finding a new owner. Is it possible for the administrators to forward potential owners for vetting earlier?
There are two phases to the Owners’ & Directors’ Test and the EFL is happy to help the Administrators identify owners who would fail these tests quickly to avoid delays.
All prospective new owners are subject to the objective criteria set out within the EFL’s Owners’ and Directors’ Test. This test provides disqualifying conditions which seek to protect the image and integrity of The League and its competitions, the well-being of the Clubs, and the interests of all of the stakeholders in those Clubs, by preventing anyone who is subject to a ‘Disqualifying Condition’ being involved in or influencing the management or administration of a Club.
The second element of any proposed takeover process is the provision of the source and sufficiency of funding. Any new owner must submit a business plan to demonstrate the ability to fund the Club for a minimum of two years.
The EFL will seek to maintain communication with RamsTrust and all stakeholders throughout the Administration process, and in addition, any prospective new owners will be encouraged to make contact with the Trust in order to facilitate productive dialogue and foster a transparent approach.
- Currently Derby County is being threatened by Middlesbrough and Wycombe Wanderers for potential legal action over loss of revenue. These are currently fallacious as we cannot be sued whilst in Administration, but the principle is important. If these are allowed to continue then Derby (and every other Championship club) should sue QPR, Aston Villa, and every other club (virtually all of them) that has gained promotion through breaking Financial Fair Play or Profit & Sustainability Rules. The EFL needs to stop this happening between members.
It is an unfortunate reality that commercial disputes can and do arise, and football is no different. The EFL (in common with the FA and the Premier League) provides that any disputes between Member Clubs must be resolved by arbitration and the terms of the arbitration are as set out in our regulations. This does not mean the EFL is determining the outcome – all we provide is a framework. Arbitrations between Clubs are resolved by independent panels formed from specialist solicitors/barristers with experience in the relevant sector from a list maintained by Sports Resolutions. Each party can present their cases as they see fit and judgments will be issued. Any proceedings will remain private and confidential. It will be for the Administrators to conduct any defence of any claims brought against the Club. The EFL is not able to comment on any particular matter as we are not party to any such proceedings.
- The EFL – or the authority running the league – needs to be independent. It is grossly unfair for clubs to directly influence handling cases for their competition – this is a clear conflict of interest and has partially led to the current situation.
It is important to clarify that Member Clubs do not directly influence cases. As per the EFL’s rules and regulations cases are pursued before independent commissions who determine outcomes and impose subsequent sanctions if deemed appropriate.
In the recent case involving Derby County, the Club was found guilty. The independent panel determined that the Club’s policy was not in accordance with accounting standard FRS102 because it failed to accurately reflect the manner in which the Club takes the benefit of player registrations over the lifetime of a player’s contract.
Looking at the issue of independence, in the context of the current Fan Led Review, the League recognises that there are a number of important areas under discussion and will always welcome the opportunity to contribute to any wider debate that seeks to collectively protect our unique pyramid structure.
However, the introduction of an independent regulator will not provide the solution if you don’t address the fundamental problem that is football’s financial model. As the EFL has said on many occasions, the core issue that runs through all of the game’s problems is the distribution of funds. If the EFL makes the game more sustainable by resetting the finances, reduces the need for speculation and reckless spending, then many of the key issues that trouble fans, Clubs and authorities alike will begin to dissipate or wane, giving it more time to focus on other matters.
- Why did the various Disciplinary Commission hearings take as long as they did to resolve? This process has been harming the Club for years.
The charge against Derby County was made in January 2020, the hearing then took place in July of that year with the decision being announced the following month. When the decision was appealed a number of procedural issues meant that the outcome took some time; however, the whole process was somewhat expedient in comparison with other cases.
The EFL recognises that supporters, and all parties involved, are keen for commission hearings to be conducted swiftly; however, hearings are usually complex and multi-faceted, and the legal processes involve large amounts of evidence being gathered and submitted by each relevant party. It is therefore challenging to complete the necessary disciplinary commission hearing and any resulting appeal process within a set timeframe.
- Why hasn’t the EFL mentioned the money owed to Derby County from other Clubs?
The EFL has not been made aware of any outstanding monies owed to Derby County from other Clubs, and when situations of this nature occur we will always act in accordance with the regulations to ensure Clubs meet their obligations.
The EFL does not publicise Clubs’ ongoing specific financial information. However, any Clubs that may default on payments would be subject to a transfer embargo and this information is available and detailed within the League’s live embargo reporting service. The tool provides information relating to why a Club is under embargo but does not disclose any specifics relating to any other parties involved.
Based on a number of factors Clubs can regularly owe other Clubs money – and be embargoed for a very short period of time, with any embargo being immediately lifted at the point any debt is settled and/or a breach resolved.
As agreed by Clubs, any such embargoes are reported on our official website and can be viewed at any given time – https://www.efl.com/-more/governance/embargoes/
- Has the EFL denied Derby access to the Covid loans facility?
No. Derby County did not apply for the loan by the initial application date. Via the lending facility, there was an extended application period through until 31 July. They still did not apply and on 28 July it sought a further extension which the EFL couldn’t deliver as the external facility required the repayment of all remaining funds prior to 31 July 2021. In addition, the Club was still not a position to provide evidence as to its ability to repay the loan.
- When Clubs are fined by the EFL where does this money go and when is it spent?
As a Member Organisation any income that is received by the EFL is distributed to its Member Clubs once its operating costs have been taken out.