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Football fair play – Balancing the books in a multi-million pound industry

In this two part article we look at the UEFA Financial Fair Play rules.  Part 1 provides an overview of the rules and the aims they seek to achieve. Part 2 considers whether the rules do enough and where they are open to challenge.

The problem

…we learn by experience all over the world [that] most club executives tend to operate riskily, tend to overestimate their chances in the Championship. This may result in disproportionate spending relative to the income some clubs generate… club executives have somehow to be protected from themselves.

Christian Muller, CFO of the Bundesliga

 In 2009 a UEFA review of European clubs showed more than half of the 655 European clubs made a loss in the previous year and 20% were assessed to be in ‘financial peril’.  The total debt in the Premier League for the year 2008-2009 was approximately £3.1 billion; a figure which would have ranked them 106 out of 189 if they were compared with the national debt of countries around the globe, with double the level of debt of New Zealand. 

The intention

The UEFA executive committee approved the Financial Fair Play (FFP) rules in 2009 with the stated aims of:

  • Introducing more discipline and rationality in club football finances;
  • Decreasing pressure on salaries and transfer fees and limiting the inflationary effect;
  • Encouraging clubs to compete within their revenues;
  • Encouraging long-term investments in the youth sector and infrastructure;
  • Protecting the long-term viability of European club football;?and
  • Ensuring clubs settle their liabilities on a timely basis.

The FFP rules require a gradual reduction in club debt leading to an eventual position of trading on a break-even basis.  The hope is that, by improving the financial performance of clubs, the regular reports of liquidity difficulties, delayed payments and even administrations can be removed – with a focus on football clubs being run on more commercial lines.

The rules

Clubs competing in UEFA competitions must balance the books in relation to football-related expenditure.  The assessment is based on a three year period and the intention is that there will be an acceptable variation of €5million. To stage the introduction of the requirements, clubs are permitted a loss of up to €45 million over the three year periods up to 2013-14 and 2014-15.  This will then reduce to €30 million from 2015 to 2018 if the loss is covered by equity contributions only.  Article 61 allows UEFA to monitor the process and set further stages for reduction from 2018 onwards.

A failure to comply can lead to penalties including:

  • Reprimand/warning
  • Fine
  • Points deduction
  • Withholding of revenue from UEFA competitions
  • Prohibition on registering new players for UEFA competitions
  • Restrictions on how many players a club can register
  • Disqualification from a competition
  • Exclusion from all competitions

What goes into the breakeven equation?

A clubs outgoings in terms of transfers is weighed against income from sale of players, tickets revenue, TV revenue, prize money, advertising and merchandising.   Infrastructure, training facilities, youth development and wages are all excluded from the equation.  Transactions between ‘related parties’ will be adjusted to a fair value.

The rules in action

The first penalties are already upon us.  On 11 September 2012 UEFA announced the temporary withholding of prize money from 23 clubs for failing to comply with the FFP rules.  The clubs were given until 15 October 2012 to prove that they had plans to address the unpaid wages, unpaid transfer fees and social taxes.

So the rules are here, the Club Financial Control Body was formed in June 2012, the clubs figures are being counted and the penalties have begun but will the rules achieve their aims and will they face legal challenges.  We explore these issues in part 2
  
Related link:  Profile of Lydia Banerjee
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