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How Fair is Financial Fair Play?

financial fair play - how fair is it?

Financial Fair Play (FFP) is an initiative by UEFA that aims to improve the financial conditions of European football clubs. While the principles of these regulations do get revisited and updated, the core principles are still:

  • Improve economic and financial capabilities of football clubs.
  • Ensure clubs settle their liabilities.
  • Introduce more discipline and rationality into club’s.
  • Encourage responsible spending.
  • Encourage clubs to operate on the basis of their own revenues.

The catalyst for the creating FFP regulations arose from the number of football clubs in deep financial trouble, or in some severe cases, going bankrupt. So, building on those principles, the following objectives of FFP are:

  • Balance their books over a period of time (first assessment period started in the 2013/2014 season).
  • Meet all employee and transfer payments at all times (first assessed in the summer of 2011).

The most common misconception about FFP is that UEFA simply restricts spending, and as such, it has led to many people being baffled by the spending of clubs like Manchester City and Real Madrid. In actuality, UEFA’s Club Financial Control Body (CFCB) looks at a club’s profit and loss statement (a statement that shows all revenues for the fiscal year, less expenses for the fiscal year, which results in either a profit or a loss) each season, analyzing the last three years of financial figures to determine if they meet the break-even requirements.

I decided to take a look at the financial statements for one top team in four of Europe’s top leagues to see what their profit or loss was for the past three fiscal years:

ClubAs at 2018As at 2017As at 2016
Manchester City£10,438,000£1,088,000£20,483,000
Real Madrid€31,000,000€21,400,000€30,300,000
Bayern München€22,000,000€33,200,000€20,600,000
Juventus€(19,228,819)€42,567,924€4,062,312

* Note: Paris Saint-Germain’s full financial statements are not available on their website
** brackets denote negative figures and a comma is used as the thousand separator

As is evident, each of these four clubs are compliant with FFP regulations over a threeyear period. Contrarily, a club that is currently in breach of FFP regulations, had the following financial results over the same reporting periods:

ClubAs at 2018As at 2017As at 2016
AC Milan€(126,019,000)€(32,624,000)€(74,900,000)

Evidently, the numbers show that the FFP regulations are being implemented in the right way, and there is no clear indication that any clubs who are violating the regulations are not being punished.

Even though the regulations are being applied to each club equally, does that make these regulations truly fair? If you’re opposed to any interference by a governing body, the answer will, of course, be no. But what if you agree with the need for the regulations but are unsure about the punishments? Currently, UEFA will punish non-compliant clubs by levying fines or banning them from UEFA run tournaments. But does that hurt or help? If the goal of FFP is to make clubs more stable, then the result of breaching the regulations should be instructive and not punitive. Currently, these are the basic ramifications for clubs in breach of FFP:

  • Fines. The very idea of levying a fine against a club that has a net loss for the past few fiscal periods seems inherently counter-intuitive. If expenses are outpacing revenues and UEFA is aiming to avoid that, then surely adding to those expenses isn’t in the best interest of any party involved.
  • Banning from UEFA tournaments. While this measure seems to be a better solution than issuing a fine since it is not monetary, it essentially is worse than a fine. Most clubs that play in UEFA tournaments such as the Champions League and the Europa League rely on the revenue generated from those competitions as a significant portion of annual revenue. Taking this revenue away will only worsen the financial position of the club, making it extremely hard to make up the lost revenue

So where do we go from here? Many ideas have been floated around to make FFP more effective, such as:

  • Salary caps. In North American sports leagues such as the National Hockey League (NHL), there is not only a limit on the salaries of each team, but also a salary floor that the team cannot dip under. In 2019, the cap is $81.8M and the floor is $60.2M meaning that total player salaries for the season cannot exceed $81.8M but they also cannot be below $60.2M. I see many problems with trying to institute this is European football
    • There are so many leagues across Europe that trying to come up with a uniform salary cap and floor would be a huge undertaking to institute and enforce
    • Even if we only consider the top flight of each league, the difference between revenues for each league vary so greatly that a salary cap could cripple a top league while a salary floor could decimate a less commercial league

My personal recommendations are:

  • Best practices. This would essentially be a form of credit counselling where UEFA would come up with a list of best practices for managing expenses and generating sustainable revenue streams. However, if a club isn’t making efforts to follow the best practices, punitive measures should be introduced
  • Transfer cap. The idea behind this being that UEFA would set a limit on per-player transfers. For example, if, after assessing market trends, they decided that €100,000.00 was the transfer cap, then no club could negotiate the transfer of a single player above that amount. This scenario, of course, would limit bargaining power of clubs, but it would prevent a transfer fee bubble
  • Wage bill limit. This might sound like a salary cap, but my suggestion is vastly different. UEFA would essentially review a sample of financially stable clubs to see how much their wage bill is in relation to revenue. So, say the average salary to revenue ratio is 25%, all clubs would then have to manage their squad and staff to ensure they’re paying a reasonable wage relative to their revenue. It’s a way to manage expenses in a flexible way, since the wage bill could increase with revenues
  • Agent fee restrictions. A relatively unknown aspect to transfers is the agent fee. Currently, agents negotiate their fee as a club would negotiate the player’s transfer fee. Instituting a set percentage for agent fees would significantly cut down on expenses. For example, agent fees cannot exceed 1% of the total transfer fee

In the end, it is impossible to know how the regulations can be worked to best achieve the objective. However, one thing seems to be undeniable, if the goal of FFP is to improve the financial stability of clubs, punitive measures are not the way to achieve this goal.

Written by: Sabrina Belmonte

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