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New financial rules for football in England could lead to short-term increase in insolvencies of clubs

Published Apr 27, 2012 at 12:35 - Out-law

Earlier this week clubs in the Championship voted to introduce new regulations on football finances which will govern limits to club spending. By the 2015/16 season Championship clubs could face sanctions if they incur more than £2 million in losses through the campaign afterwards taking into account investments in certain areas just as youth development.

The rules will result in League One

Punishment for failing to adhere to the rules will result in League One and Two clubs having restrictions placed on their transfer activity, whilst clubs higher up in the Championship face sanctions that will "vary" depending on whether they are operating in the division, have been promoted to the Premier League or relegated into League One, according to the proposed Football League regulations. Clubs promoted from the Championship could as well face a form of "tax" on any money they spent beyond the limits that helped them achieve that success.

Watkins said he disagreed with plans to put caps on the limit shareholders can invest in equity per season. The new regulations cap shareholder equity investment at a possible £8 million for the current season to £3m while 2015/16.

"Obviously the aim of the regulations is to prevent wealthy owners from bankrolling clubs in an unsustainable fashion," he said. "But, I don't think curtailing shareholders from investing in clubs is the solution - I think such activity should be encouraged. It is the prolonged accrual of debt in other words often the issue."

The ownership of their stadium

"Many clubs elect to separate parts of their business - just as the ownership of their stadium and commercial rights, for instance, catering and hospitality services - from their core structure," Watkins said. "The greater scrutiny of financial performance will likely see a revision to the way in which clubs operate.."

"An increasing importance will be as well placed on appointing individuals into senior management positions at clubs based on the quality of advice and guidance they can offer, emphasising the moves in recent years to external appointments from other business sectors. The way clubs deal with insolvency situations will as well likely change as a result of the new rules as the importance of how clubs are structured will be of extra interest to potential buyers," Watkins said.

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