The Idiot’s Guide to UEFA Financial Fair Play: What Does it All Mean?

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.

Karl-Heinz Rummenigge, Chairman of the Executive Board at Bayern Munich as well as Acting Chairman of the European Club Association representing European clubs after the dissolution of the G-14, is a strong proponent of FFP

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

Yet to be seen if clubs like Chelsea and Manchester City will be smiling after UEFA addresses their financial reviews under FFP

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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