With reports emerging that Liverpool could have breached the UEFA Financial Fair Play rules, Gunnar Lemmermann holds a conversation with his alter ego TheSpecialGunn over what is behind those reports.

First of all I have to say that I am certainly no expert and the rules of FFP aren’t easily understood. But bear with me here. I try not to go too much into detail and leave out certain parts because they won’t affect Liverpool FC.

What is FFP and why is it reported that it might affect LFC?

Most people refer to Financial Fair Play (FFP) when they mean UEFA’s requirement for clubs to “break even”. But the rule book for UEFA’s FFP is 90 pages long and includes much more. It ensures that clubs keep up with their taxes, pay their players wages on time and their transfer fees.

However for most Premier League clubs the “break even” requirements are the main concern.

I strongly advise you to watch this video to get a better insight on what FFP is about.

What does this mean for Liverpool’s 2014/15 Champions League campaign?

In short: Nothing. As seen in the video above the monitoring period for this years Champions League campaign are the seasons 2011/12, 2012/13 and 2013/14. Because Liverpool didn’t play in the Champions League last season it wasn’t required from them to submit their accounts and there can be no punishment this season. Affected by sanctions (if any) will be the 2015/16 UEFA football season.

Sound. So have we breached the rules in a way that it could affect next seasons Champions League campaign if we qualify?

We have to reach out a bit more for this. In March 2014 Liverpool released their club accounts. It was showing a combined loss of over £90m for the 2011/12 and 2012/13 season. (More details: The Telegraph)

This figure is way above the by UEFA permitted loss over two seasons (£37m). If Liverpool would’ve played in the Champions League last the club would’ve certainly failed the FFP “break even” test and would have received a sanction.

Hold on a minute. We made a loss of £90m over two seasons when we were allowed a loss of £37m. But the monitoring period interesting for us includes the 2013/14 as well. This doesn’t look good for us does it?

Here’s where it gets complicated. There are four factors that all come to our “rescue”:

The £50m loss announced for the 2012/13 season include a number of one-off costs that are unlikely to be repeated in the near future. By including the 2013/14 season, LFC can include the new increased TV deal (£97.5m – previously: £54.8m – increase: £42.7m) Certain types of expenditure are allowed to be excluded. High wage bill during 2011/12 season which can partly be excluded as well.

For example: The 2012/13 accounts include £10.7m for player impairment – basically paying up some player contracts.

This generated a one-off hit but will reduce wage cost and the gradual write off on transfer fees in future accounts.

The accounts for 2013/14 season will include an additional £25m of income relating to the new BT Premier League TV deal (More details: The Guardian). This extra revenue will continue at this level for three seasons and will certainly help to stay within FFP limits. Liverpool might even report a small profit for the 2013/14 season.

Got it. You said certain types of expenditure can be excluded. Such as what?

UEFA are very keen to develop the game and don’t want the FFP rules to hold back clubs from investing and developing. Clubs can therefore exclude costs for infrastructure development and youth development costs. This helps Liverpool by almost £30m over the three year monitoring period.

And there is more: The FFP rules contain an exclusion that allows deduction of player wages during the 2011/12 season if the player was signed before June 2010. This exclusion only comes to fruition if certain very complicated criteria are met. One of them is a reducing trend in losses over the 2012/13 and 2013/14 season. Liverpool will be able to use this rule to exclude at least £50m.

Any chance you could put all this into an overview of things?

1. Projected loss for 2011/12, 12/13 and 13/14 seasons: £83m

2. Exclusions:

Youth and Community costs: £18.9m

Depreciation: £9.6m

Wage exclusion (as explained above): £50m

Total exclusions: £78.5m

3. Readjusted loss total: £4.5m

(Source: FinancialFairPlay.co.uk)

Liverpool are therefore set to pass Financial Fair Play without receiving any sanctions. Plus the additional £25m-50m Champions League revenue will help the club to comply with the FFP rules in the coming years.

Follow @TheSpecialGunn