Leicester’s finances from promotion campaign still under investigation

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Leicester City is just three wins away from winning the 2015-16 Premier League title but some questions remain about the last time they won a trophy.

In 2013-14 the Foxes won the English Championship, the second-tier, but the Football League has asked for more information regarding finances and is still investigating their promotion season.

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If Leicester is found guilty of breaking the Football League’s financial fair play rules (FFP) it wouldn’t impact their last two PL seasons but it could involve paying a hefty fine to the Football League authorities.

But only if they are relegated back to the Football League. The Premier League currently does not have FFP rules but the issue could become tricky with Leicester entering the UEFA Champions League next season. That means they will have to comply with their FFP rules and will likely mean King Power will no longer be their sponsor and another company, paying much more, will take over the rights.

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In the past Paris Saint-Germain’s owners, Qatari Sports Investments, sold their sponsorship rights for double the market value and were subsequently fined, plus had wages, transfer activity and squad restrictions placed on them by UEFA.

The clubs owner, billionaire Thai businessman Vichai Srivaddhanaprabha, also owns King Power, a duty-free company from Thailand. He bought Leicester in 2010 and helped them reach the PL where they’ve been for the last two seasons.

So, what’s all this about?

It all relates to a deal which saw Leicester sell their sponsorship rights to a company, who then sold the rights back to their Thai owners. The deal with a newly formed company called Trestellar Ltd — which has no phone number, is registered to a trading estate in Sheffield and has links to Sir Dave Richards who is closely connected with Leicester’s Thai owners — happened in January 2014 and Leicester say it was to market the club in the UK and south-east Asia.

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Almost overnight an extra $16 million was made from this deal and it reduced Leicester’s losses from the previous season, meaning they complied with the Football League’s financial fair play rules. According to Leicester’s financial records for 2014-15, Trestellar sold the sponsorship rights for the stadium and the players’ shirts to King Power, the company Leicester’s owner also owns. King Power also owned those sponsorship rights before the deal with Trestellar was made.

The strange nature of this deal has been questioned by other clubs in England’s second-tier who are said to be furious that Leicester may have found a loophole in order to met financial fair play rules and spend more money on player wages without sanctions.

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The rule states that if a company the clubs owner also owns sponsors the club, they cannot spend much more on a sponsorship deal compared to the next offer. Due to Leicester being a Championship club when the deal was struck, huge sponsorship deals weren’t exactly pouring in and their rival clubs were getting paid significantly less than them in terms of shirt and stadium sponsorship deals.

David Conn from the Guardian published a piece on Tuesday which looks at exactly why the Foxes finances are under scrutiny.

Below is an extract from Conn’s piece:

The investigation centres on a deal Leicester say they did in January 2014 with a company called Trestellar Ltd, to market the club in the UK and south-east Asia. That deal immediately produced an apparent £11m increase in Leicester’s sponsorship and commercial income, reducing the club’s loss from £34m the previous year. In the club’s most recent accounts, for 2014-15, Leicester say Trestellar sold the club’s main sponsorships – the name on the players’ shirts and the stadium – to King Power, the club’s owners.

The Thai owners were already sponsoring the shirt and stadium before the Trestellar deal; in 2012-13 Leicester’s sponsorship and other commercial income was £5.2m. After the Trestellar deal, with King Power still holding the same main sponsorships, the income immediately jumped to £16m.

That substantially reduced Leicester’s loss, which was otherwise likely to have resulted in a large fine under the Football League’s then new financial fair play rules by which all clubs agreed to cap losses at £8m to try to reduce excessive spending on players’ wages. Losses under FFP rules are not reduced by a club owner paying money to the club, or by doing so via sponsorship, if the amount paid is clearly inflated beyond market value.

Leicester still say Trestellar paid the club for the rights to market their brand, then sold the sponsorships to the owners. The resulting smaller loss – £21m in 2013-14, including expenses clubs are allowed to offset – meant Leicester argue they complied with FFP rules and no sanction should be applied. Some other clubs are furious, arguing they reduced spending on players to comply with the rules while Leicester overspent on players’ wages, achieved promotion and have since resisted any sanctions.

While Conn also spoke to several chairman and owners of second-tier teams, who all wanted to remain anonymous until the investigation was concluded, but one had a pretty damning statement on Leicester’s financial activities.

“What Leicester did looks like financial doping by the owners, while other clubs were complying with the rules we all agreed.”