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The elite Spanish and English Football clubs have enjoyed the global football explosion over the last two decades. This paper analyzes Financial Fair Play regulations and their effects on professional soccer clubs in Europe as well as their prospective effects on the economy.
According to Veysey (para. 1), the Financial Fair Play (FFP) rules came into effect as from June 1, 2011. Unanimous votes were secured across Europe for the new regulations. FFP regulations are meant to level the playing field for European professional clubs. This covers 53 European countries and 600 top division football clubs (Veysey para. 3). The policy was introduced amid concern over extensive spending by a number of professional football clubs across Europe. The rationale behind the financial fair play is to improve the overall financial position of European club soccer. In other words, football clubs have to prove that they have settled their bills (Butenko, Jaime and Panos 102). All football clubs that participate in the European Champions League are subject to Financial Fair Play regulations. According to the Union of European Football Associations (para. 5), the enforcement of financial fair play regulations started in the year of 2011 amid concern over extensive spending by a number of professional football clubs across Europe. As of this writing there was Financial Fair Play rules in: league 1 and 2, The Premier League, The Championship and UEFA competitions. In the Championship and the Premier League, enforcement of the regulations coupled with punishments started from the 2013/14 season. In fact, for the first time in football history, all English professional football divisions embrace the Financial Fair Play regulations that restrict their expenditures (British Broadcasting Corporation para. 5a).
After long deliberations, the Financial Fair Play regulations finally took effect in the 2013/2014 season. While smart football clubs have been prepared for this, there are serious questions pertaining to the enforcement of the regulation (Butenko, Jaime and Panos 102). That is to say, many clubs are still doubtful to whether UEFA and its independent Club Financial Control Panel has the legal authority and capability to regulate the expenditure of football clubs in Europe. Moreover, if the panel has a legal authority and capacity to enforce Financial Fair Play rules, there is mist surrounding the possible penalties and set of accounting practices or standards that will be used (Butenko, Jaime and Panos 103). Central to this is the question of how clubs will be affected by the Financial Fair Play regulations. With that in mind, this study will address almost every aspect of Financial Fair Play in one broad based discussion.
The roots of Financial Fair Play (FFP) as UEFA brands it, is linked to the Club Licensing system that has been in operation since the beginning of the 2004/05 season. This system outlines procedures and requirements that European soccer clubs must achieve in order to be eligible for their domestic leagues and UEFA tournaments (Union of European Football Associations para. 5). In addition, the Club licensing system provided structures designed for domestic football governing bodies, such as the FA in England to use when implementing their domestic financial reporting requirements. Financial Fair Play was unanimously approved by the UEFA Executive Committee in 2009 as a response to the unreasonable financial losses and the growing competitive imbalance among football teams in Europe (Homewood para. 3).
Financial Fair Play may restrict clubs from spending, but it does not create a ceiling to how much the club earns. From this perspective, Financial Fair Play regulations are constrained. However, if they manage to stand against legal challenges, there are nine potential sanctions or penalties that UEFA can impose on a professional football club. These include: warning, fine, reprimand, deduction of points, withdrawal of an award or title, exclusion from future tournaments, or disqualification from UEFA competitions in progress, with holding revenues from a UEFA tournament and transfer embargo in UEFA competitions (Markus 105). Lastly, UEFA may restrict the number of players that a football club can register for participation in its tournaments (Rumsby 5).
The responsibility of ensuring that the regulations are correctly applied is delegated to the Club Financial Control Panel. It consists of eight independent experts. During its creation in 2011, the panel was overseen by Jean-Luc Dehaene, former Belgium prime minister. The independent Club Financial Control Panel is responsible for making decisions pertaining to sanction, fines and punishments. For example, the panel planned to make a decision in April 2014, whether the deal between PSG and Qatar Tourism Authority breached Financial Fair Play regulations (Rumsby para. 1). Consequently, this would result in a punishment or sanction that would take the shape of an expulsion from UEFA Champions League. Any such penalty would take effect from 2014/15 season. This would be controversial if PSG manages to win the 2014 UEFA champions league. As of this wring, PSG accounts were being audited forensically to establish whether their deal with Qatar Tourism Authority is not a related-party transaction and represents fair market value (Rumsby para. 4).The table below highlights spending constraints for the 2013-2014 season.
The Financial Fair Play regulations not only stipulate the maximum allowed spending but also outline the maximum allowed loss (British Broadcasting Corporation para. 5). For example, professional soccer clubs competing in the UEFA Champions League or European League must never exceed above 45 million Euros (£39.5m) over a period of 3 seasons. This can be subsidized by the club owners, but only if the club owners spend the money permanently in exchange for shares, not by lending it. When Roman Abramovich first took control of Chelsea, he subsidized the club losses by selling the debt. Such practices are not allowed under the Financial Fair Play rules. If club owners are not capable of subsidizing their debts, Financial Fair Play rules caps the maximum loss at €5m (£4.4m). As from the 2014 to the 2017 season, the generally permitted loss will be reduced to 30 million Euros (£26.3m) for a block of 3 seasons monitored by UEFA (British Broadcasting Corporation 5a). UEFA hopes that, by then, professional clubs would have adjusted their financial positions and be legitimately breaking even. Based on the new regulation, action was to be taken as from the 2013/14 season. This action was to be backed by financial evidence from the accounts of 2011-12 and 2012-13 seasons. In addition, the first possible sanction was exclusion from the 2014-201 UEFA competitions.
If Financial Fair Play regulations prove to be ineffective, some football clubs may overspend to get hold of the best players during a transfer window. For example, the Chelsea manager, Jose Mourinho indicated that the Chelsea owner Roman Abramovich was keen to spend heavily during the 2014 January transfer window if the proposed Financial Fair Play regulations failed to be enforced (Stevens para. 1).The proposed Financial Fair Play regulations are welcomed by most clubs because they law a neutral ground for all soccer clubs in Europe. In other words, the rules promote self–sufficiency. For example, during the 2014 January transfer window, Chelsea was performing well financially; this was attributed to the fact that it had anticipated that the Financial Fair Play rules could be enforced, hence the club could have missed the next UEFA Champions League tournament. In the same context, clubs can strategize and come up with innovative and cost-effective programs. For example, Arsenal is known to be working on cost-effective projects that develop young talents from within and without the club instead of reaching on its accounts to buy players (Jefferson para. 10). In addition, Chelsea changed its strategy to developing young talents from its academies rather than spending the club’s finances on developed players who tend to be very expensive (Stevens para. 4). The central objective of the financial fair play regulation was to prevent professional football clubs from overspending in pursuit of football success. As of consequence, the policy will prevent clubs from getting into unhealthy financial positions that might threaten their long term survival (Union of European Football Associations para. 5). In addition, small clubs will also have an equal opportunity to bid for players during transfer windows. Moreover, more young talents will be identified and nurtured, thereby making players less expensive. This does not necessarily imply that football players will be cheaper, but it simply means that professional clubs will enjoy an improved access to a large pool of talented players who can play across all divisions of soccer in Europe.
Football league clubs, which do not adhere to the Financial Fair Play structure of spending, face a transfer embargo. Fines will be given out to clubs that break the rules if they get fully implemented (British Broadcasting Corporation para. 5b). This implies that the financial positions of clubs will be affected by the rules. A club that fails to follow the rules will incur reasonable losses in terms of fines and sanctions. For example, if a club is excluded from Europa League of Champions League, it will certainly lose the participation or price money. In addition, the club stands to lose considerable revenue generated from television stations and advertisements (British Broadcasting Corporation para. 10c). Moreover, a club that is stripped off a title or is excluded from top-flight tournaments would certainly lose their reputation.
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The other impact of these rules is that the club may end up losing players to other high profile clubs in the event that it is relegated (Markus 155). The human aspect in football is that players always want to win and participate in high profile tournaments. Therefore, if a team such as Barcelona is excluded from UEFA Champions league, there is a likelihood that it will lose some of its key players to rival teams such as Real Madrid or Atlético Madrid. It would not make sense for players such as Lionel Messi and Neymar among other to be out of both the Spanish League and the UEFA competitions yet they can move to other teams (British Broadcasting Corporation para. 5c).
FFP regulations also protect clubs from losing players through extremely expensive bids. For example, Chelsea has given an incentive to resist the advances by PSG for £300m pair Oscar and Eden Hazard (Jefferson para. 1). The UEFA Financial Fair Play rules make the bid impossible because PSG would only bid for the players if it has the money. However, since PSG is financially constrained, it has to subsidize the bid which may be costly to the team. Were it not for the restriction, Chelsea and other small teams would be outspent and powerless in the football market.
According to Rumsby (para. 1), Paris St-Germaine (PSG) football club is in serious risk of being found guilty in breach of the UEFA’s Financial Fair Play rules over a sponsorship deal signed between the club and the Qatar Tourism Authority. UEFA has concerns about PSG’s £167 million (€200 million-a-year) business tie with the Qatar Tourism Authority. This has made the club one of the richest globally. Qatar Tourism Authority is established to promote the Gulf State. In addition, Qatar Investment Authority owns a part of the club.
For football clubs that register massive losses, they may have to make loan signings to reinforce their clubs. This is subject to the fact that the club is not allowed to make signings from the money that it has not received. Economically, FFP rules strengthen the financial positions of professional clubs. For example, in 2011/12 season, Ipswich Town made a loss of near £16m and the debt to the owner rose to £72m (British Broadcasting Corporation para. 1a). This implies that Mick McCarthy has to make loan signings to reduce the spending of costs.
At both state and the community level, the EC competition law plays a substantial role in regulating the conduct of companies. Competition can affect coordinated actions, state subsidies, incentives to innovate, pricing behaviour and contracts. Given that football clubs such as Barcelona and Real Madrid are businesses within the European Union, they are subject to investigation by the EC (Jefferson 5). In the European Union, markets, the European Commission competition law has assumed a critical role in monitoring the conduct of football clubs with the aim of ensuring that in that case, the football teams act in a way that leads to a workable competitive market. In this perspective, sanctions from FFP regulations would act as red flags for regulation institutions such as the European Commission (EC). In addition, competition law sought to ensure fair play and improved consumer welfare. In this respect, consumer welfare may be the equality in terms of team’s capability to buy a player of high standards.
According to Jefferson (para. 1), Barcelona and Real Madrid faced EC investigation over alleged irregular public funding. Other La Liga teams that were under investigations include Valencia, Athletic Bilbao, Osasuna and Elche. Such sporting clubs as Real Madrid, Athletic Bilbao, Osasuna and Barcelona are accused of having a corporate tax advantage of 5% (Chesters para. 5). Real Madrid is suspected to have sold its training ground piece of land to the City of Madrid at an over-inflated cost of 22.7 million Euros. Valencia, Elche and Hercules and are alleged to have benefited from state-based loans that amount up to 75 million Euros (Chesters para. 10). The impact of these investigations is that if the professional clubs are found guilty, they will lose money that the EC will reallocate to the Spanish government. From this perspective, we can clearly point out that if the FFP regulation and other regulations, such as the EC competition law, work in hand, football clubs will avoid irregularities hence ensuring that public investments are protected.
Furthermore, football clubs will be run professionally to maximize profits not only through core operations, but also through innovative programs that strive to minimize costs. The discussion about the enormous advantage that Barcelona and Real Madrid football clubs gain through their hugely favourable Television deals, approximately 150 million Euros each per season, has been echoing on for several years (Chesters para. 12). This debate and underlying facts have not only been the cause of complaints and finger pointing from other teams in the Spanish League, which have convened on a regular basis to discuss possible alternative, but also internationally, with Europe’s high profile clubs falling under the feet of the two clubs in a reference to their own
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According to Chesters (para. 2), the Spanish government has been taking further and more stern measures with a proposed bill in the new Sports Law that would put an upper limit on the maximum revenue that Real Madrid and Barcelona can realize. This would result on an even share of the TV revenue. In addition, the revenue from TV deals will be more evenly distributed amongst all soccer clubs participating in the Spanish League. The President of the Spanish League, Javier Tebas, responded to concerns over the TV highlighting that as of this writing, Real Madrid and Barcelona earn nearly 6.5 times more of the TV revenue, generated as compared to the share that small clubs in the Spanish League receive. He continued to point that under the proposed Sports Law, their revenue will be capped to a 4 times the amount received by the smallest team. The extremely unbalanced television revenue received by Real Madrid and Barcelona has also boosted them to being the wealthiest football clubs in the world. This is something that other high profile football sides in Europe and the rest of the world are far from achieving. With approximately 150 million Euros from their television deals with MediaPro, Real Madrid and Barcelona earn almost three times that of the next team in the revenue stake in the Spanish League (British Broadcasting Corporation para. 2b).
Although governments and regional unions may intervene with laws to place an upper limit on the revenue that Barcelona and Real Madrid can receive, neither Real Madrid, nor Barcelona will view such initiatives favourably in any dimension. On the other hand, other clubs will no doubt be greeting the moves wholeheartedly. In other words, high profile teams that have enjoyed their economies of scale will not view UEFA Financial Fair Play regulations favourably (Markus 125). The main aim being promoted by state-based and UEFA Financial Fair Play regulations is to reach a continental agreement amongst all the professional football clubs in Europe, so that the football environment is even for every football club. One of the key reasons the Financial Fair Play rules are being prompted is not only a matter of trying to create a more even playing field in a more competitive and sporting perspective, but also owed to the huge debts that the majority of professional soccer clubs are carrying, an immense deal of which is attributed to EC tax and national insurance contributions (Markus 102).
The enforcement of financial fair play regulations started in the year of 2011 amid a concern over extensive spending by a number of professional football clubs across Europe. According to UEFA, clubs that have qualified for Europa League and UEFA champions League must prove to be financially stable subject to the Financial Fair Play regulations. In 2011, only Arsenal would comfortably meet the Financial Fair Play requirements. With the anticipation of the rules to be effected, football clubs have financially improved their accounts to avoid being sanctioned by UEFA. Some of the sanctions of the Financial Fair Play regulations include point deduction, relegation of clubs, withdrawal of a title or award, less or no attendance of fans and disqualification from competitions. Moreover, a club may lose reputation. One of the scenarios where the regulation applies is when a club signs a player with the money it has not spent. The other fault is when the club’s huge interest payment continues to push it losses as in the case of Manchester United.
The discussion on UEFA Financial Fair Play regulations discussion is something that is gaining momentum and is likely to be tropical in the next few years. It is something that has emerged on different platforms and the biggest challenge of all, is that there is no team that ever seems to completely agree and adhere to the financial structures put in place by UEFA. FIFA, UEFA, the Spanish League, the English Premier League and state-based agencies involved have introduced Financial Fair Play measures with the aim of strengthening the financial practices and stability of European professional football clubs. Financial Fair Play regulations entail penalties and sanctions for professional football clubs that do not balance their balance sheet. When it comes to these regulations, they will only be effective if they are enforced completely. The benefit of Financial Fair Play regulations of the Sports Law proposals in Spain is pretty much the same to those that emanate from the Financial Fair Play regulations. With that said, given the present financial situation in Europe, such initiatives are gathering more pace, more weight and more support than ever before. However, football clubs can never underestimate the political and financial power and influence that high profile teams such as Manchester City, Chelsea, PSG, Barcelona and Real Madrid have. Spanish and English politicians have frequently raised the debate on Financial Fair Play, but never had opponents see it through.
It would be ideal to have a scenario in which all European football clubs could enjoy a Financial Fair Play model used in the English Premier League, in which a portion of the TV revenue is passed down to the lower divisions and grass roots football. Beyond a shadow of a doubt, rich clubs such as Manchester City, Chelsea, Barcelona and Real Madrid certainly will not be eager to give up the massive financial advantage they have in the football world. To conclude, before certain club managers or presidents are handed abundant funds to buy players, the best platform to create an even ground and ensure that the funds are well managed would be the enforcement of the UEFA Financial Fair Play rules fully. This implies that, they should also work in hand with any legal proposals to distribute TV revenues more evenly.
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