Some of the shine is coming off of Leicester City's glass slippers thanks to a new report about shady sponsorship deals that they did during the 2013-14 season. Their shirts are sponsored by their owner's company, but not directly. Instead, that company buys the sponsorship through a marketing company, and Leicester's sponsorship income has increased significantly since they started selling sponsorship through those means.
The Football League -- which runs England's second, third and fourth divisions -- is investigating Leicester City for financial fair play violations. And when Leicester is in the Champions League, they'll be subject to UEFA's FFP policies. But no matter how unethical this deal was, Leicester is almost certainly going to get away with it. Mostly because they were so good this season that they can go legit for next season.
How is Leicester potentially violating FFP?
Championship clubs have agreed to a FFP system that caps losses. Leicester complied with FFP during the season they were promoted, but the Football League and many of its member clubs believe that they only managed to do that by using the owner's money as a sponsorship that greatly exceeded fair market value, funneled through a marketing company.
There's no rule preventing King Power, the company run by Leicester owner Vichai Srivaddhanaprabha, from paying to sponsor Leicester's stadium, shirts or anything else. However, to avoid getting sanctioned for financial doping, they can't spend more than fair market value for that sponsorship. If they were found to have spent significantly more than the next highest offer for a sponsorship, they'd be violating FFP rules.
When Leicester were in the Championship, the fair market value of their sponsorships wasn't much. Srivaddhanaprabha had Premier League ambitions and wanted to build a squad that could get promoted quickly. That was going to cost more money than the team made in revenue. So Leicester sold their marketing rights to a "sports marketing company" called Trestellar, which is "unaffiliated" with Leicester or King Power, and they sold the rights to King Power. This deal caused Leicester's sponsorship revenues to increase from £5.2 million to £16 million. This is an abnormally large sum for a Championship club.
"What Leicester did looks like financial doping by the owners, while other clubs were complying with the rules we all agreed," an anonymous Championship chairman told the Guardian.
Is this marketing company the Illuminati?
Yeah, probably. Emphasis below is ours.
Trestellar, then and still, have no website nor telephone number. At the registered address - 6 Shepcote Office Village, on a main road in Sheffield, there is no Trestellar presence or sign. Asked by the Guardian why the company has no telephone number or website, Richards Jr, who runs a print, design and marketing company, Glue, from the same address, replied: "Why would we need one? We are very busy, we are relatively well known and in the networks in which we move, we are known to the people we wish to be known to."
This company sounds like the focus of the lost sixth season of The Wire.
Is there any precedent for Leicester getting sanctioned?
Yes! Not in the Football League, but in UEFA. They found that Paris-Saint Germain's owners Qatar Sports Investments signed a sponsorship deal with themselves that was worth double what fair market value would have been. They had their transfer activity, wages and squad size restricted as a condition of competing in the Champions League, though they did not get kicked out of the competition or have points deducted. They met the targets set for them by UEFA and their sanctions have been lifted.
Queens Park Rangers were in a similar situation to Leicester, but for something different. They avoided the Football League's FFP sanctions by not being in the Football League, but then promptly got themselves relegated. Upon their return, the Football League was nice to them. Instead of making them pay a fine of the entire amount of the losses that their owner wrote off, they fined QPR £8 million.
Can this get them in trouble in the Premier League?
Nope! Unlike the Football League and UEFA, the Premier League does not have financial fair play rules. Leicester will get sanctioned if they get relegated, and they'll get sanctioned if they do a bunch of shady business next year while playing in the Champions League, but otherwise there's nothing stopping them from paying themselves lots of money.
They're in the Champions League now, so what do they do?
Sell their sponsorships to someone other than King Power, probably. When Leicester were a Championship club, then favorites for relegation two seasons in a row, they probably couldn't get a legit sponsorship worth more than Srivaddhanaprabha was willing to spend on the club. Now that they're the world's sporting darlings and headed to Champions League, they're going to get big sponsorship offers -- bigger than King Power/Trestellar pays right now. They're going to make legitimate money next season.
But ... but ... they're only in the position to make legitimate money because they cheated!
So Leicester are only getting in trouble if they get relegated, or if they're stupid enough to not sell real sponsorships next season?!?!?
That is correct.
That's not fair! They bought Riyad Mahrez with money they shouldn't have had! I am an Arsenal and/or Derby County supporter who is now extremely Mad Online!