Rule change pushes Premier League into Sh39 billion loss

Leicester City's Italian manager Claudio Ranieri (centre) stands with the Premier league trophy as the Leicester City team take part in an open-top bus parade through Leicester to celebrate winning the Premier League title on May 16, 2016. PHOTO | GLYN KIRK |

What you need to know:

  • Results for that financial year, which includes 5,000/1 outsiders Leicester City's shock Premier League title triumph, are due to be published next week.

LONDON

The Premier League is set to announce a record annual pre-tax loss of £312 million because of the declining value of the sterling and new accounting rules, the Financial Times reported on Friday.

English football's top flight is the wealthiest major domestic football competition in the world, with much of its income generated from lucrative overseas broadcast deals.

This season alone is set to see the 20 clubs in the Premier League each take a cut from international media rights agreements worth an estimated £3 billion (3.53bn euros, $3.76bn) in total.

The league clubs have usually received their share in sterling, with the Premier League using financial instruments known as derivatives to offset the exchange rate risk that comes from the fact that television contracts are also paid in US dollars and euros — a process called hedging.

But UK rules for the reporting of derivatives have changed, with companies now required to value their contracts annually at market prices, instead of waiting until a deal had been completed to make a formal declaration of its worth.

Last season's edition was the first time these new rules had become applicable to the Premier League.

On July 31, 2016, the last day of the Premier League's financial year, the pound was worth $1.32 — a 12 percent decline since Britain voted to leave the European Union in a national referendum.

Results for that financial year, which includes 5,000/1 outsiders Leicester City's shock Premier League title triumph, are due to be published next week.

The Financial Times, citing Premier League documents yet to be made public, said the new reporting rules had turned what would have been a slight profit into a multi-million pound loss.

According to the FT report, the Premier League said the loss had done no actual damage to its income or ability to make distributions to its member clubs.

The consequences for the Premier League of 'Brexit' which, following the referendum, is due to take place in 2019 after two years of 'divorce' talks, may not be limited to currency fluctuations.

Currently, Premier League clubs can sign EU players without having to apply for work permits on their behalf.

Non-EU players must satisfy criteria regarding how many international appearances they have made and how strong their national team is in order to be granted visas, although exemptions can be granted.

A study by The Guardian published in September showed that two thirds of Premier League players from the EU would not meet these criteria.

Fewer stars means reduced international appeal, potentially making rival championships such as Spain's La Liga or Germany's Bundesliga more attractive to overseas broadcasters and so reducing the long-term financial strength of the Premier League.