Save the children – how a simple change to Financial Fair Play could improve youth development

The Financial Fair Play (FFP) initiative was supposed to help make the game financially sustainable. But, in an effort to encourage clubs to invest in youth, Uefa and the Premier League have inadvertently turned academies in profit centres, creating incentives for them to scoop up ever more players, even ones with little prospect of making the first team. It’s time we stopped rewarding this damaging behaviour…

1 © Sum_of_Marc CC BY-NC-ND 2.0

Chelsea scouring the land for young talent.
©Sum_of_Marc (CC BY-NC-ND 2.0)

Perverse incentives

Improving youth development is a long, complex process. Especially for English football where, despite endless handwringing and promises of improvement, we seem to be perpetually ten years away from seeing the semi-finals of a tournament.

Right now, for all the investment in coaching and facilities, we are hamstrung by a lack of FA leadership, a willingness to allow Premier League clubs to dictate policy (in the form of EPPP), and the ever-growing TV riches that suck more and more talent in from abroad. Behind these big issues, partially obscured, like Nathan Dyer at a corner, is a lesser known contributing factor that, unlike the others, could actually be remedied quite straightforwardly. It is this: we should remove the perverse incentive that FFP gives clubs to accumulate as many young players as they can.

2 Micawber

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result: improved competitive balance and a sound foundation for sustainable growth.”

FFP was intended to promote financial responsibility; to stop the large number of football clubs who are run by people with the self-control of a toddler in a crisp factory from being bankrupted by their inability to spend less than they earn. Unfortunately, as if Micawber himself had drawn them up, the rules take a somewhat optimistic view of the road to financial happiness, trusting in good intensions and a belief that something will turn up. The result is a classic example of how poorly designed financial incentives can have unintended, sometimes totally counter-productive, effects.

You may be familiar with the nursery school example discussed in the best-selling Freakonomics. Concerned about the impact on staff of having to stay after-hours so late parents could collect their children, a nursery introduced a small fine for each time a parent was late. If they have to pay, the thinking was, they will make more effort to be on time. The result? Lateness increased as parents who’d previously felt guilty about being late felt it was now acceptable. The financial penalty legitimised the behaviour – moving it from social faux pas to commercial transaction. Why rush back from the office when you can just pay the fine?

Similar effects happen in professional sport. Some years back, for example, NFL team owners were unhappy about inflated contracts for emerging stars. Such was the demand for talent that rookies – players drafted out of college who’d yet to play a single NFL game – were receiving outlandishly large deals. Working with the players’ union, owners proposed a rule capping player earnings in their first four years in the league. The union, representing current players, voted in favour, hoping it would help redistribute money from future rookies to existing journeymen. Players had had enough, they decided, of seeing youngsters who’d not yet paid their dues becoming overnight millionaires.

It worked perfectly for owners: they could now get the stars of tomorrow cheaper. What it did, though, by making rookies much, much cheaper, was allow clubs to pay extra to their small number of established stars – usually quarterbacks – and then fill up their rosters with under-priced youngsters. Far from increasing equity, it depressed the wages of both rookies and journeymen, while reducing the opportunities for moderate players to get their second, life-altering contract.

Experienced players may have rightly resented untried youngsters out-earning them, but, by drastically cutting rookie earning power, they priced many of their own members out of the market.

The flaw in FFP

FFP contains just such an ill-considered clause; something that looked, at the time, like the harmless footballing equivalent of a tax break for working parents, but helped foment the situation where ever fewer academy graduates at top clubs are making it into first teams.

It works like this: while FFP mandates that clubs must break even, it exempts a number of costs from the calculation. These include infrastructure spending (like the finance costs of building a new stadium), investment in community schemes (school outreach programmes etc) and women’s football as well as the full cost of youth development. These expenditures, it was argued, were not the kind of things that clubs should be penalised for. In the case of youth development, though, what it means is that Premier League clubs can spend as much as they like on their academies without having pressure to cut costs – like transfer fees or player wages – to be FFP-compliant.

And, to compound the incentive, while academy costs are excluded from the FFP calculation, income from sales of academy graduates is included.

In other words, not only are significant operating costs excluded from your FFP calculation – meaning there’s no constraint on the number of youngsters in your academy – but you can also boost your total FFP-relevant income with player sales. You win both ways. You can spend as much as you can afford on player development, scooping up young players from around the world, and, if you can then sell them on, you can spend the extra on paying your first team. The more you spend scouting and improving players, then, the more you can plough back into the club’s performance on the pitch, even if those youngsters never actually play for you.

Which may help explain, at least in part, why Man City felt able to invest £200m in their youth facilities and Chelsea spend £8m a year running their academy.

As a general principle, incentivising youth development must have sounded quite uncontroversial to the framers of the rules. But, by giving such a wide-ranging and valuable exemption – loopholes to be teased open by the kind of well-rewarded advisers whose primary knowledge of geography comes from a list of tax havens – they unwittingly financialised youth development.

3a © HM Treasury (CC BY-NC-ND 2.0)

“Seven-year-olds! I want 100 units of seven-year-olds!”
© HM Treasury (CC BY-NC-ND 2.0)

Previously, the measure of an academy’s success was whether its costs were lower than the transfer and wage spending avoided by having graduates in the first team. Or, in the case of financially strapped clubs, it was if the value of player sales exceeded the running costs of the academy.

If enough players didn’t make the first team, that was considered a failure.

Now, however, it’s possible to class as a success academies whose graduates never earn a starting place, provided enough of them can be sold to other clubs. (Only the income counts towards FFP, don’t forget, the academy running costs are excluded, so each sale doesn’t have to be huge to be worthwhile.) Instead of developing talent, top clubs are incentivised to farm young people for profit.

Top clubs, of course, deny this. And it’s very hard to separate what’s legitimate expenditure on developing future first teamers from what’s FFP-incentivised ‘farming’.

There are some broad indicators, however; you can look at the number of players each team has in its academy. Not all Premier League clubs make their full list of younger players available. Of those that do, the majority of have between 30 and 40 non-first teamers in their u18s and above squads.*** Two clubs have conspicuously more. Have a guess.

Academy players

Of course, these raw figures are complicated by the fact that the richest teams, who are most likely to be ‘farming’ will also, by definition, have the best squads with the fewest opportunities for youngsters to make the break-through.

In late 2015, Sky Sports looked at which Premier League teams had the most academy graduates in their first team. Excluding the teams for which I don’t have player numbers, Chelsea are only 7th best of 14 at getting academy players in the first team and Man City 12th. The most successful – Arsenal, Southampton, Man United, Newcastle and Aston Villa – had, respectively, the 7th, 10th, 5th, 14th and 13th most players in their academies. (I wonder if it’s a coincidence that Newcastle and Villa, this season’s likely bottom two, are clubs with some of the smallest youth team set ups but some of the most graduates? Does this suggest they have great faith in how they select and train players? Or is it evidence of cost-cutting in the first team?)

So, while there isn’t a clear correlation between the numbers of players in an academy and youth team opportunities, it seems that Man City and Chelsea’s youth teams are carrying vastly more players than other academies but still not finding the next generation of home-grown talent.

None of this is proof, of course. I contacted seven Premier League clubs with academies of different sizes, seeking their views on if FFP was influencing youth policy. Of those that responded, none were prepared to comment.

From talent nursery to profit centre

We have a situation where the rules allow the academies of the biggest Premier League teams to help artificially sustain their financial advantage over smaller ones.

For clubs with wealthy owners, it creates an opportunity for disguised subsidies. You can’t just gift your club a brand new striker or sponsor your own kit in an above-market rate deal, but you can pump money into youth development, creating competitive and financial advantage that doesn’t fall foul of FFP rules. It’s FFP avoidance rather than evasion; all perfectly legal, but clearly contrary to the intensions of the regulations. (Uefa confirmed to me that the youth exemption was designed “to encourage clubs to steer more of their income to investing for the long-term in academies rather than short term spending.”)

4 © Farm Sanctuary (CC BY-NC-ND 2.0)

Man City’s academy begins to pay dividends.
© Farm Sanctuary (CC BY-NC-ND 2.0)

As a result, it’s turning youth development into a futures market, where some players are signed as much for their investment potential as their ability to improve the quality of the first. If Third-Party Ownership (TPO) is outlawed, how can this be allowed?

It’s bad for the national side and an unacceptable way to treat dedicated young people pursuing their dreams.

You might think that this sounds a bit far-fetched. We know clubs often acknowledge how desperate they are to get more youngsters playing in the first team. After all, even developing your own third-choice centre back or fifth-choice centre midfielder could easily save you a transfer fee of £10m+. The problem is that, with ever more money in the Premier League – where lower-mid-table teams can offer better contracts than all but a handful of European teams – it’s never been harder to break into the first team. Ask yourself which young players have joined a top six side and immediately produced? Gareth Bale and Cristiano Ronaldo didn’t.

At the same time, the penalties for failure are horrendous. Even a few lost points can be worth several million pounds in TV income, tens of millions if it means missing out on Champions League qualification. What manager will stick with a young player when Jose Mourinho, one of the two best managers of the last 20 years, can be sacked half-way through the season after which he won the title? It’s telling, I think, that LVG’s much lauded experiment with youth occurred only after the title was gone, his managerial fate all but sealed and the quarter of a billion pounds of talent he recruited had been seen to fail.

Only then, as the absolute last resort, have the youngsters been allowed to play. Ironically, it may be Mourinho who benefits from these players getting first team experience if he takes over in the summer with a clean slate and a handful of freshly-blooded youngsters.

In the modern game, the financial incentives from TV money already stack the deck against young players, so it’s crazy to let FFP rules make it worse.

Possible solutions

So what’s to be done? In simple terms, we need to force clubs to focus on signing only those young players who might genuinely improve their first team. We need to narrow the scope of the double break that FFP gives them, so that clubs are financially incentivised not just to invest in youth development but to actually play the products of that investment.

A first step might be to that the sale of an academy player is only FFP-eligible income if that player has made, say, 30 or more league starts. Clubs could still sell academy graduates at a profit, but it would only help defray crucial FFP costs if and when they’d had a chance to establish themselves in the first team. (Don’t worry about the specific threshold here – that, like any effective regulation, would require a proper study to produce a figure that balances the competing interests.)

Additionally, we could say that clubs could only claim an FFP exemption on a proportion of youth development costs determined by how many of their graduates in a given period were making a set number of starts a season. (The exact structure would take some modelling, but, again, it’s perfectly doable.)

In this way, Tottenham, for example, would be amply rewarded for the number of young players in their team – even if they don’t sell them – while Chelsea’s and Manchester City’s bloated academy projects would become a financial drag on the first team. (For a terrific account of the money-no-object attitude of some top clubs to youth recruitment, read Ed Thompson’s piece on City’s pursuit of Kelechi Iheanacho.)

If we were feeling really aggressive, we might also seek to limit the number of players a club can send out on loan – to stop clubs running a similar trick by accumulating dozens of graduates from other academies, loaning them out and then selling those who show promise. In this manoeuvre, the cost of the development is pushed onto the clubs borrowing the players, who pay their wages, coach them and then absorb the impact of the inevitable but essential mistakes from which the players learn. The loaning club, meanwhile, books the income from any sales, further boosting what they are allowed to spend on their first team. This is important because, once a player hits 18, his wages become FFP relevant. If somebody else is playing those wages, however, a young player can be pure profit from an FFP perspective.

To tackle this, either we can limit the total number of players you can have on loan (presently only loans within the English (and Welsh) football pyramid are capped). Or we could place an FFP charge on a club, even if the full cost of the loanee’s wages are being paid by the borrowing club. In other words, we might say that, for example, 50% of a player’s wages still count in the club’s FFP calculation, even if the borrowing club actually pays the full amount.

In short order, these measure would begin to influence academy recruitment decisions; when the cost of your academy begins to eat into what you can spend on first team wages, you will consider the size of your youth development programme, and each player you recruit to it, that little bit more carefully.

Ideally, we’d see top clubs recruiting fewer players and giving more youngsters first team opportunities. This would allow the marginal talents in the academies of the Big Clubs to find a home further down the pyramid – where they will get played earlier, so reducing the number of promising players in their early 20s who’ve played only a handful of competitive games.

5 © Jim Sher (CC BY-ND 2.0)

Disengage regulatory autopilot then slowly pull back on the controls.
© Jim Sher (CC BY-ND 2.0)

Now, of course, with any rule changes, we need to be alive to the danger of introducing our own unintended consequences. We don’t want to penalise clubs for investing in good facilities and coaching, let alone drive them to close their academies – which might worsen the tendency to import ready-made players.

Ed Thompson, the author of the piece on Iheanacho, is a leading authority on FFP. He points out, quite reasonably, that, while he has his reservations about the youth exemption, it may also produce unintended positive consequence. “Uefa,” he says, “might argue that providing footballing training (with compulsory educational development) is a good thing for a young person. The rules therefore enable more youths to go through this training than would otherwise be the case.” Likewise, he says it’s not impossible that some of the foreign-born players accumulated by top clubs might end up representing England and strengthening the national team.

I asked Uefa for their view on FFP and youth development – including if they are concerned about Premier League academies’ behaviour and if they have any plans to review the youth exemption – and they responded with a detailed statement indicating they felt farming was unlikely to be a problem. They said that since the “wages of any player over 18 have to be included in the break-even calculation, any potential academy transfer profits would have to be weighed against wage and other non-excludable costs.” Further, they feel that, since the number of clubs missing the break-even target is falling, the “spending culture of clubs” is improving. This, they say, means “the potential for a club to use academy transfer profits to help meet UEFA break-even rules is probably low and decreasing.” Finally, they said they’d be concerned that excluding academy player sales from FFP calculations could be counter-productive by reducing academy investment.

And, of course, it would. They question is, by how much and at which clubs? Adjusting ill-functioning regulations is tricky – and it’s impossible to have complete certainty as to the results – but I believe we must break with football’s entrenched suspicion of administrative complexity and try.

We need to rebalance the scales, incentivising investment in youth only to the extent it generates first team appearances for that club.

Why this and not other initiatives?

As I said at the outset, the journey to better youth development doesn’t have many shortcuts. To my mind, though, some of the things we’re discussing instead of this reform are plain ludicrous.

Take B Teams or reforms to the loan system designed to increase the number of players sent to the rest of the pyramid.

Loans help smaller clubs and do provide more competitive games for players, but it’s not clear that they actually help player development. According to submissions by Premier League clubs to the FA, there is concern that, while smaller clubs benefit from it, it may harm long-term player development by depriving them of a continuity of quality coaching. Premier League clubs aren’t keen to increase the number of loans within the English and Welsh game because they don’t think the coaching is good enough. They’d rather send them to loan clubs abroad where they have more control.

Unlike most of the Premier League’s special pleading, it’s an argument I have some sympathy with. We don’t, after all, have a German-style national footballing philosophy, where all coaches are working towards the same goals.

B Teams, meanwhile, which I’ve written about before, are ineffective if limited to cup competitions – the JPT, for example, gives teams an average of only about two game a season – and a dangerous assault on football’s integrity if they involve full league participation.

What I’m proposing isn’t a complete solution, of course. The FA still needs to regain its sense of purpose. The Premier League’s stranglehold on youth development needs to be loosened. We need collective agreement that we need to improve facilities and coaching so we can decentralise development and limit the number of players in top clubs’ academies.

But, as a starting point, we should at least stop making it profitable for clubs to horde, under-use and then discard the next generation of young players.

Clubs may deny they’re farming youngster, but the problem with ill-considered incentives is they can have an effect without the need for a conscious policy decision by the beneficiaries, let alone a deliberate desire to gain an unfair advantage.

Doubtless many genuinely believe, as their academies are the best funded and have premier facilities and coaches, that young players, no matter how many they have, are better off there. But, if that’s true, let the clubs pay for it from their own pockets. Remove the exemption and let’s see who is prepared to cut their first team costs to keep their academies well-stocked.

The competitiveness of the league and the future of the England team depend on it.

 

Martin Calladine

If you enjoyed this, please buy my book “The Ugly Game: How Football Lost Its Magic And What It Could Learn From The NFL”. That way I’ll have the money to write more things you might like. Oh, and please spread the word, too. Thanks a lot.

 

*** Going into the 2016/17 season, the Premier League published a list of registered non-first team players by team.

u21s

The players included in this calculation are those over 16 that are not in the first team. It excludes academy players between 9 and 16, and those even younger with a less formal affiliation to a club, as well as those in the first team (where each club is limited to 25). In other words, many Premier League clubs now have easily more than a hundred players in their ranks. The implications for those individuals’ careers, and the health of English football generally, are quite obvious.

The vast gap in income and resources that plagues English football is on display here as well. Manchester City, with 67 non-first team players, have 85% more young players on their books than Hull, the team with the fewest. Given the resources City pour into scouting and wages, it’s reasonable to assume the average quality of each player is higher.

Youth team football, then, like so many areas of the English game, is a casino. Fans are nightly seduced by the glamour and the smell of fresh cash into believing that, yes, their team might really win the jackpot. In the long-run, though, it’s the people who set the odds who always win.

 

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3 thoughts on “Save the children – how a simple change to Financial Fair Play could improve youth development

  1. Great piece, loved it. Do you think this might explain why Barça started selling so many Masia players under the Rosell / Bartomeu regime? They’ve practically dismantled the famous youth academy of interesting future prospects and lesser known youngsters in the past 5 years…

  2. Hi Jordi,

    Thanks so much for your kind comments. I hate to be a cop-out, but I don’t know enough about the Barca situation – I’m just not close enough to Spanish football.

    I’d assume the financial incentives would be on the radar of all the big European clubs competing for financial dominance, of which Barca is certainly one. But a significant factor in changes to the academy? You’d need to ask a someone with inside knowledge of the club.

    Apologies. Your compliments deserved a better, more illuminating response.

    Cheers
    Martin

  3. Pingback: Harvey Headbanger – the EFL chief presses on even though his plans lie in ruins | The Ugly Game

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