In 2009, UEFA with the strong personal campaigning of Michel Platini, agreed to get the ball rolling on Financial Fair Play (FFP), thus meaning that from this season onwards, it is effectively in motion. At its core, FFP establishes a set of parameters/criteria in monitoring European clubs in order to prevent them from “over-spending” and, as a consequence, threatening their own long-term survival. Reports had suggested that hundreds of European clubs were running in debts with a percentage in serious financial peril. Most recently, the perilous state of Glasgow Rangers has come to light. A large proportion of European club debts is attributed to clubs within England, Italy and Spain. It must be noted that French and German leagues have been running regulations similar to FFP for years and, hence, their clubs are in better financial shape than their counterparts in the other countries mentioned.
After numerous delays in implementing FFP, the current season is the beginning of the monitoring period from within which clubs will not be allowed to lose more than a certain amount per three-year period. With that said, it is still unclear to many as to what constitutes FFP, what is allowed under it, what is not, and what happens if clubs do not adhere to it. What we will try to do is to simplify everything through a question and answer analysis in order to dissect FFP to its basic core.
Question marks, such as those raised by Arsene Wenger, lay over how far UEFA would go in potentially punishing violators. Already and very significantly, Manchester City have signaled their acceptance that they may not be able to fulfill all regulations and pass the FFP’s first monitoring period review. The question remains over how UEFA deals with clubs such as Manchester City, and possibly Chelsea, who in all likelihood, may fail to fulfill UEFA’s criteria in gaining a license for European competition the first time around. Only time will tell.
What will UEFA Financial Fair Play do?
a) Monitor club finances ensuring that clubs do not lose more than a specific amount annually
b) Implement periods of monitoring (three years) to avoid single-season “one-off” events from distorting financial prospects
c) “Punish” violators of FFP
What must clubs do?
They need to ensure that they don’t make losses of more than €45m per three year period except for the first monitoring period which is over two seasons (2011/12 and 2012/13) and would impact over participation in 2014/15 European competitions. The “allowed” loss drops to €30m over three years from the 2015/16 season onwards (3rd season of FFP application).
However, clubs are only allowed to record this level of loss if owners are willing to “subsidize” losses above €5m by injecting equity, otherwise the maximum permitted loss is €5m for the first review period of 2011/12 and 2012/13. So in reality the level of losses “allowed” by UEFA is much lower than what is being widely reported. Although equity injection helps owners such as those at Chelsea and Manchester City to have a better chance of compliance with FFP. Complicated much?
Will all “expenses” under expenditure be monitored?
In a word, no. Any expenditure accumulated under developing or building new stadiums will not be recorded under FFP monitoring. Furthermore, any expenses made towards youth development and infrastructure or anything to do with the youth team will not contribute towards expenditure either
So what exactly is considered in terms of “expenditure”?
Only football-related expenses from transfer fees and salaries. Transfer fees would be “amortized” or divided evenly over the term of a player’s contract
What about in terms of income?
Almost everything will be part of the assessment of income. That means ticket sales, TV money, sponsorships, merchandising, player sales and prize money from competitions.
What are critics saying about FFP?
a) They are questioning whether smaller clubs will be able to compete with bigger clubs if clubs can only “spend what they make”
b) Wages for players contracts signed before June 2010 will not go across calculations for the 2011/12 break-even analysis. A one-season waiver has been given by UEFA for the first monitoring period and again this goes a long way to help clubs such as Chelsea who signed deals with Drogba, Terry, Cech, Cole, Lampard, Essien and Kalou, among others, before that deadline
c) Potential for bigger clubs to create “artificial” income from sponsorships/stadium rights from companies with vested interests from their owners. Manchester City’s stadium naming rights with Etihad Airways has recently come under the microscope. UEFA have yet to rule on its validity although they have stated “if we see clubs looking for loopholes, we will act”. UEFA have said they will ensure “Fair Value” is given to such deals
d) Effect of different tax rates across countries mean some clubs will be paying more/less gross than the net figure accounted for
e) Third-party ownership is “allowed” by FFP but the English Premier League out-laws it, thus disadvantaging English sides
f) Solidarity or “parachute” payments to lower league clubs are only made by the Premier League and Ligue 1. These payments will be accounted for in FFP as the Premier League continues to lobby UEFA to discount them
g) UEFA states that if there is a loss recorded in a review period but there is a “positive trend” and losses recorded for 2011/12 can be attributed partly to deals undertaken before June 2010, then the club may not be sanctioned
Has FFP effected club behavior already?
a) Italian clubs have, for the first time, negotiated a collective TV rights deal which gives bigger clubs a smaller share of the cake in the spirit of creating a more level playing field in Italian football. Spain’s La Liga remains the only major league which still negotiates individual TV rights and, as a consequence, creates a huge gulf between income raised by Barcelona and Real Madrid compared to other teams
b) Clubs can no longer afford to lose major players on Bosman free transfers, as signaled by Arsenal’s sale of Samir Nasri and Gael Clichy to Manchester City in the summer of 2011. Manchester United manager Sir Alex Ferguson admitted in March 2012 that even though they will let Dimitar Berbatov leave in the upcoming summer transfer window they will “sign a new contract” with him first in order to get a fee for him and not lose him on a Bosman transfer
c) Traditionally heavy spenders like Inter Milan and to an extent Chelsea have begun curbing their spending
How will UEFA punish violators of FFP?
a) Give them a warning
b) Fine the club. Although this may seem like a chicken/egg conundrum when one thinks of it
c) Deduct points. This is likely to occur in the group stages of the Champions League and Europa League. Importantly, this measure was a new punishment proposed and ratified immediately at Nyon in an Executive Committee Meeting in January 2012
d) Disqualify the team from UEFA competition. Although this is a major step, it is difficult to see if UEFA will take this stance
e) Exclude the team from future UEFA competitions. Again, similar to above, it is difficult to see if UEFA will adhere to such a measure
f) UEFA will discuss three other potential punishments for violators at the Istanbul UEFA EXCO on March 20-21. They include the withholding of UEFA prize money for taking part in the Champions League and Europa League, preventing clubs from registering “new players” for UEFA competitions, as well as restricting the total number of players that clubs may register for UEFA competitions. UEFA have shelved the proposal to implement transfer bans on clubs after receiving legal advice suggesting that it would contravene the European Community’s Restraint of Trade regulations
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When it comes to debating which of Europe’s football leagues is the “best”, there is never likely to be widespread consensus. Supporters of clubs in each of Europe’s top leagues, especially in Spain, England and Italy will be advocates for their leagues. Supporters in Germany would argue back that theirs is the most competitive. Supporters in France may argue back that there’s is the most open league. A choice of words could tip the argument on its head. From best to strongest, to most competitive, to most entertaining, advocates of each league will be able to have their way one way or the other. We don’t want to get involved in a subjective discussion about the merits of each league.
For our purposes, we will establish that strength is largely, if not wholly, indicated through success. Let’s not lose sight of the fact that the most telling indicator, and, importantly, only time when “leagues” come up against each other is during European football, in either the UEFA Champions League or UEFA Europa League. Whilst, this may be subject to fluke or one-off results, over a period of years, a pattern or trend, which would be hard to dispute, would emerge. It is quite straightforward to highlight Europe’s “strongest” league through these parameters during respective eras of European football. That is not what we are trying to do, although, nevertheless it would, naturally, be highlighted during the course of the article.
Success does not necessarily begin and end with the lifting of the Champions League, but the overall performances of clubs in European competition. This season’s Champions League has seen critics of the Premier League highlight the plight of the English sides in Europe. Most people claim to have seen this coming for a few years. Others state that it is just a blip and things will be back to business as usual next season. However, in order to understand why there has been a fluctuation of “strength” in some of Europe’s top leagues, namely the Premier League, Serie A, La Liga, Bundesliga, Ligue 1 and the Eredivisie, we have looked at the relationship between spending and European performance since the 2002/3 season in order to draw potential conclusions or even parallels.
Spend the Money
Since the 2002/3 season, the English Premier League has been the biggest spending football league in the whole world let alone between the 6 leagues that we’ve analyzed. It has spent €6 billion, which is almost twice as much as the next biggest spenders, the Serie A. Needless to say, the Premier League has spent far more money than it has recouped in each of the seasons in question. La Liga and the Bundesliga are the other two leagues who have spent more than they’ve received each and every season during our analysis. Ligue 1 has made a profit in 6 of the 10 seasons at hand, whilst, the Eredivisie has made a loss only once, during the first season of the period. Serie A provides us with one of the most interesting patterns which we will go into further depth later during the article. It made significant profits between 2002/3 and 2004/5, coinciding with the period where superstars left Italy to play in Spain and England, as clubs faced financial constraints and bankruptcy, only to be hit with the Calciopoli scandal in 2006, which further damaged Italian football.
Some other interesting patterns that emerge include the Premier League’s increased spending season on season from 2002/3 until 2007/8, when it almost hit €1 billion. It then experienced back to back drops until a “resurrection”, during the 2010/11 season, was followed by another drop in spending during the current campaign. Another interesting development is that Serie A has out-spent La Liga during each of the past four seasons. Serie A and Ligue 1 are the only two leagues that did not experience their biggest spending seasons in 2007/8. The Italians broke their spending record during the current campaign.
The amount of money spent cannot illustrate, on its own, the pattern a league takes during a period of time. It would also be helpful to look at the “migration flows” into and out of the leagues in question. We’ve analyzed whether there was an influx or outflow of players during each season. Some of the telling points we’ve come across have included the fact that the Serie A has largely seen an outflow of players into other leagues, until the current season when it hit record numbers of bringing in players in a season. Serie A “bought” 231 more players than it transferred out of the league this season. This is the first time an influx has been in three digits in any of the leagues. What this demonstrates is that the Serie A has looked into making up for “lost time” as well as its previous dormant period by competing with the other big leagues for big players. It had seen more players leave than enter the league during the preceding 5 seasons. There is far more balance when it comes to the other leagues from season to season as visible from the table below.
Where the Money Goes
Having established which leagues have been spending the money during the last decade, as well as establishing the influx/outflow ratios during the said period, it may be pertinent to fill in the final piece of that picture by looking at where the money is going to as well as where the players are coming from.
The English Premier League, unsurprisingly, has a trade “deficit” with the other 5 leagues when it comes to dealing in transfers to and from. The intake from Spain to England is the most lucrative across Europe with the move across the Channel from France to the Premier League being the second most lucrative. La Liga follows in third place with its intake from the Premier League which comes in third in the overall table. The Italians love to shop in Spain, spending more in La Liga than anywhere else, but the Spaniards almost reciprocate that spending and the trade stands at parity. The Bundesliga’s favorite hunting ground is the Serie A whilst the Dutch-English and French-English provide the least balanced trade relationships.
In terms of numbers, more players move from Ligue 1 to the Premier League than through any other path. A close second is the players moving from Argentina to La Liga, followed by from Portugal to Spain.
Reap the Rewards?
When it comes to tasting consistent “success” in European football, the last decade has largely been dominated by English and Spanish clubs. The tables below highlight UEFA European co-efficient points per season as well as rankings from 2002/3 till the current, on-going, season. During that period, the Premier League has finished as the best performing “league” in European competition twice (and is currently leading this season too). It has only finished outside the top three once. It has bettered the other 5 leagues mentioned 4 times out of the previous 9 seasons, and may do so for a 5th time in 10 seasons by the end of the current campaign. La Liga has finished first twice and has never finished outside the top three. Its “golden period” during the past decade coincided with a time when Sevilla added its weight to Spain’s continental strength. The Bundesliga has cemented itself in the top four consistently over the past four seasons. Whilst Bayern Munich has been its notable representative in the Champions League, the strength in depth of Germany’s performance has largely been due to its clubs endeavors in the Europa League. This is a strong indicator of the competitive depth found within the Bundesliga.
The Bundesliga – Serie A clash, which eventually led to the Germans gaining a 4th Champions League spot at the expense of the Italians is as tight as ever. Serie A bettered the Bundesliga during the first five seasons, whilst the Bundesliga returned the favor during the previous five, including the current campaign. Effectively, this translates to mean that the Italians need to significantly improve their European performances especially in the Europa League where they have been especially dire if they are to loosen the German grip off that additional Champions League spot.
Value for Money
The beauty about football, probably more so than most other sports, is that on any given day almost any side can beat another, despite un-level playing fields brought upon by spending power, transfer budgets and wages. Watching sides like Levante, Monchengladbach, Montpellier and Swansea impress everyone in their respective leagues this season is testament that you can “succeed” even if you have microscopically smaller budgets than other sides. However, when it comes to football at the highest level, in the Champions League and Europa League, this argument gets transferred onto a bigger “league” stage. The Dutch, for example, have done themselves proud when it comes to performing in Europe when one looks at the spending their sides do in comparison to the other leagues.
The table above is self-explanatory as it details how many points each nation’s clubs would have accrued on a per season basis compared to their spending pattern during that given campaign. The Dutch league consistently punches above its weight and considering its export nature is really performing as well as one could perceive it to. The Premier League spends the most for the amount of points it gets, whilst the Bundesliga does relatively well in terms of its points per Euro spent, spending almost one-third of what the Premier League has to spend per every point. Let’s not lose sight of the fact that whilst the Dutch get “value for money”, the highest points that they have attained in Europe was 12.00 during the 2004/5 campaign. The Bundesliga has out-scored that figure 4 times, Ligue 1 twice, and the Premier League has scored more points during each of the past 7 seasons, including the current incomplete campaign, despite having two major sides knocked out in the group stages of the Champions League already. La Liga has never scored less than 12.437 during any of the past 10 seasons whilst Serie A has out-scored the Eredivisie’s figure 4 times. That puts things into perspective, with the reality that whilst a league may perform well in terms of the resources they’ve spent, the “success ceiling” will be limited past a certain point.
Looking at it from another angle, the graph below looks at things from the perspective of how many million Euros have been spent, per co-efficient point, and may be easier to relate to. Only on three occasions has the Premier League spent less per point than another league. On each of those occasions, including the current campaign, it has been the Serie A that has spent more per point. In terms of consistency and value for money at the highest level, one must not look past La Liga. Whilst not necessarily spending the most, their sides performances have remained consistent over the past decade. Whilst the Premier League has never spent less than 30 million Euros per point, La Liga has only spent that figure only twice during that period.
Direct Correlation between Spending and Succeeding?
Having illuminated many aspects of the argument, it is time to look at a graph designed to illustrate the direct relationship between league spending and European performance by that nation’s clubs. Looking closely at the graph a few realities are realized. The horizontal axis demonstrates the amount of money in millions of Euros whilst the vertical one establishes the UEFA co-efficient points.
1) The most recognizable trend is that the English Premier League sides perform better in Europe as their league spending increases. In other words, performances are better when spending is higher. Their points move upwards and to the right almost without disruption. The consistency of this breaks on a couple of occasions but as stated previously, “one-off” results and performances may vary but the overall pattern/trend over 10 seasons validates our point. The Bundesliga follows a similar model to that of the EPL. Its best performances in Europe have correlated to its biggest spending seasons. However, with a clear cap in its spending, its sides have had limited success past a certain level. No German side has won a European trophy during the period in discussion.
2) Ligue 1 sides seem to perform better when their league has spent less money during the transfer windows. This could suggest that retaining their squads and maintaining continuity is more influential in France when it comes to performance. Serie A also follows a similar model and argument. Money certainly does not equate to success in these two leagues. Furthermore, it may also suggest that a lot of the transfers do not work out over a period of time for the teams and players may be re-transferred sooner than expected. Although, this would require deeper analysis.
3) La Liga falls somewhere in between the two models, probably closer to the Ligue 1/Serie A one. Again, retaining squads and creating “eras” aided La Liga sides during the past decade. Sevilla and Barcelona are two of their success stories during that time. Atletico Madrid, Valencia and Espanyol are three other sides that played in European finals during the past decade.
4) Annual expenditure of approximately 200 million Euros will largely restrict a league to collecting under 12 co-efficient points during the corresponding campaign.
If history is an indicator then a country’s performance in European club football plays a significant role in establishing the “strongest” league of different time periods. La Liga dominated during the 1960’s until English football took over in the late 1960’s for approximately a decade when the Bundesliga went to the fore. This lasted until the mid 1980’s when before a brief return of English football to the tip of European club football, it would be the Serie A, which would go on to dominate for over a decade, almost without interruption, until the early 2000’s. La Liga would then return to the top of the performance charts for the first time in forty years, until the Premier League got its heyday near the end of the decade. At the moment, the balance is poised between the Premier League and La Liga. Whilst we have just described overall European performances, it is clear that this closely correlates to people’s perception of the strongest football leagues during those eras as well.
Money has come to play a huge role in European football during the last twenty years. Serie A dominated continental competitions during the 1990’s when they spent more than they had. It came back to hurt the Italians and they have yet to recover from it, even though signs are there that as money and players begin to pour into Serie A again, Italian football may begin to play a more key role in continental competitions in the near future. The English Premier League has been the biggest spenders over the last decade, however, the level of success attained is probably less than what the kind of money should have warranted. As top English sides begin to stall in Europe this season, there is talk of spending sprees for Chelsea, Arsenal, Manchester United and Manchester City in the coming summer, but is there money to spend, with the Financial Fair Play rules coming into play next season? Considering the fact that the Premier League sides taste more success as they spend more, this could be an obstacle that may allow Italian football back into the equation and turn the two-way tussle between La Liga and the EPL into a three-way.
It is clear that league spending plays an integral role in bringing “relative” success for its clubs in continental competition. However, there are two important ceilings to consider. Firstly, unless a certain financial threshold is broken, thought to be approximately €200 million, it is difficult to surpass certain levels of “success”. However, at the same time, on the flip side, spending more and investing in players, will likely move a nation’s clubs only up to the next level in terms of “relative success”. Looking at the previous table, leagues that spent between €400 million and €600 million largely fell into a central zone gaining between 10 and 16 co-efficient points per season. Moving past that level depends on a number of other factors which seem to have been more prevalent in La Liga.
This could imply that a model which is a hybrid between continuity and transfer expenditure may be the best strategy in ensuring “further” success past a certain point. Squads are retained for a longer period in La Liga, as sporting directors play a key role in player recruitment. The transfer policy does not change from manager to manager, unlike what happens in the Premier League. There is more emphasis on coaching than management. There is a far more significant turn-over of players in the EPL than any of the other leagues discussed whilst their most successful sides during the past decade have been Manchester United and Chelsea, who, notably, retained a strong nucleus of the same players over a long period of time. As the EPL re-examines its financial prowess at the end of the season, it may be worthwhile for the clubs to take a closer look at the Spanish model in order to create more consistent European performances across a wider range of clubs.
A special thanks to Mahdi Rahimi, whose help in compiling some of the analysis/graphs was immense. We hope to be seeing some work from Mahdi in the near future. If you would like to get acquainted with him please follow him on Twitter @liaBIGPUNnov. Majority of raw transfer data has been collated due to the great work from the people at Transfermarkt.
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