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The UEFA Financial Fair Play Regulations were brought in by UEFA to prevent professional football clubs living beyond their means. It had become a trend for clubs to spend more than they earned in their pursuit of success, and in doing so getting into financial problems which might threaten their long-term survival.
In its very crude sense FFP aims to curb the big spending by clubs in European football. It aims to create a more “level playing field” and have a hold on wealthy owners giving their clubs an unfair advantage over the others. With a plethora of penalties for those who don’t comply with the rules, the ultimate penalty being disqualification from European competitions, UEFA has managed to create a huge buzz amongst the European football clubs.
This article looks into the other side of FFP. But before we do that, let’s have an overview of FFP.
A quick background on FFP
Gianni Infantino, UEFA’s general secretary, described FFP as the last wake-up call. Pointing to the risk of crisis, liquification of clubs and bubble bursts, he says “we simply cannot go on like this”. UEFA’s president, Michel Platini considers FFP “vital for football’s future.” And they aren’t wrong when one looks at the financials of the football clubs.
In 2010, Portsmouth FC had a shortfall of almost 60 million pounds. The club went under administration to avoid being liquidated, were slapped with a nine-point deduction from the Premier League and ultimately were relegated into the lower division. A similar series of events had affected another English club, Leeds United. Manchester City was in debt of 197 million pounds at the end of the 2011/2012 season.
Across Europe the scene was no better. Elite European clubs like AC Milan and Inter Milan had debt piling up. Clubs like Porto, SL Benfica, Ajax and PSV were forced to cover their losses by selling their star players (who were bought at cheat prices / were products of their academies) at large profits. Even the biggest names in world football, Real Madrid and Barcelona, sit on top of a mountain of debt (541 million euros and 441 million euros respectively).
Despite these large figures of “debt”, the likes of Real Madrid, Chelsea , Barcelona and Manchester City have splashed the cash to bring in players (in case of Real Madrid, an outrageous 86 million pound move for a player from a club with barely any modern day Champions League experience and which plays third fiddle to its London peers Arsenal and Chelsea).
There is also the case of leveraged buyouts at Manchester United and as Tom Hicks and George Gillett tried to (and nearly did) with Liverpool FC. Leveraged buyouts is a practice where the owners borrow heavily to buy a football club, and then use future earnings to pay the interest. So while clubs like Chelsea and Manchester City have used their debt to fund the purchase of better players and Arsenal used theirs to build a new stadium, Manchester United’s debt was only used to enable the Glazers to buy the company. Quite comical!
A bunch of wealthy benefactors had also ushered in money at their clubs creating, in UEFA’s view, an unfair playing ground. Hence came about the FFP.
Why FFP might not be good for the game
Creation of a Big Club Status Quo
Sadly, what FFP fails to recognize is that it has created a “big club status quo”. Considering that now clubs can only spend what they earn, the “big clubs” will continue to be big and the clubs in the lower tiers have seemingly no way up. A few years ago it was possible that a club in the League two division of England would secure promotion all the way into top flight and even challenge for European honours. After all, the great Bill Shankly is given credit for having done the same with Liverpool FC. But with the FFP in place there is no way that a team in the lower divisions of any country can aspire to be a “Big Club”. Having said that, it makes complete sense that UEFA’s FFP rules are what pushed Manchester City to spend like there was no tomorrow. They had to do it before “the gates were shut”. If not, Manchester City would never have become a “Big Club”.
Big Clubs will continue to spend big
If you are wondering why the huge “debt” doesn’t stop big clubs from spending big, the answer is quite simple. Here’s an analogy. Suppose the house loan mortgage for you is 5 million pounds. You are expected to pay half a million pounds as yearly instalment. Whilst you would be under “debt” of 5 million to the bank, your balance sheet would reflect only a negative of half a million. “Big clubs” can use this to their advantage given that they generate more revenue than the smaller clubs and can have their record books pointing to a bright future. After all, FFP is about how the club is going to move forward.
Sponsorship Deals
Let’s take a look at Manchester City’s stadium naming deal. Etihad Airways and Manchester City had struck a naming deal of 400 million pounds over 10 years. At this point Manchester City hadn’t won the league for 44 years and were hardly what one would call “a successful club”; they were more of noisy neighbours, as a certain Sir Alex Ferguson would say. What’s more, Etihad Airways and the other sponsors of Manchester City, Abu Dhabi tourism authority, Etisalat and Aabar, are ultimately owned by government of the United Arab Emirates of which Manchester City owner Sheikh Mansour is one of the Deputy Prime Ministers.
Compare these sponsorship deals to Arsenal’s in 2004. They had a 90 million pound deal over 15 years for the naming rights of their stadium with Emirates. Now some may say Arsenal really needed the money to fund the new stadium and made the agreement a tad too early. But in 2004, Arsenal had just won the title without losing a single game in the season. Surely it makes sense for a sponsor to invest in a “successful club”.
To drive the point home Paris Saint-Germain are paid an eye-watering €200 million per season by the Qatar Tourism Authority,a sister concern of the Qatar Investment Authority that owns the club. In 2012, Chelsea started a sponsorship deal with Gazprom, a Russian gas and oil company with ties to Roman Abramovich.
Different Tax Rates
With the rules of FFP being the same across Europe, it is unfair to clubs in countries where the tax rates are higher. Especially with the emergence of Monaco (a tax-free haven), the other football clubs will have their mouths covered in sand.
Loopholes in the FFP
The FFP does not mention how it would tackle “related-party transactions”. Many eminent personalities, including Sir Alex Ferguson and Arsene Wenger, fear that clubs will unfairly enter into agreements which mean that instead of them paying a player £150,000 a week, they could pay half that figure and get a sponsor to pay the rest. This process is called a related-party transaction. With the deal happening between the club and a third party, it would be near impossible for UEFA to scrutinize this.
Economic meltdown in Italy
Italian clubs have simply been unable to comply with the FFP. Only eight clubs produced a profit during the 2010–11 season, with the rest of them making huge losses. Losing one Champions League place to the Bundesliga hasn’t helped the Serie A rake in the extra Champions League revenue it would before. The big 3 of Italian football – AC Milan, Inter and Juventus – were all bankrolled by wealthy owners. As Milan Vice-president Adriano Galliani bemoans, “FFP hurts Italy. There will no longer be patrons that can intervene. Until now people like Berlusconi and Moratti would be able to support us, but with the fair play it will no longer be possible.”
The Spanish Bail out
Despite Spanish teams being very successful in European club competitions and its national team being European and World Champions, Spain remained in deep financial difficulties, with soaring unemployment rates, increasing public debt and almost zero growth. Spain was reliant on the loans secured from the European Central bank amounting to 152 billion pounds, much of which was supplied by Germany on the condition that the Spanish government would use the funds judiciously.
The Spanish Minister for Sport, Miguel Cardenal, caused a huge stir by announcing that the government was looking to write off the €1.3 billion owed to the Spanish Government by La Liga clubs. This caused outrage in Germany with the Germans asking why they should pay taxes to cover the wages of Cristiano Ronaldo/Lionel Messi. With the likes of Uli Hoeness, the president of Bayern Munich, questioning the move, it does put FFP in very poor light.
Spanish Bank “Bankia” was one of the banks bailed out by EU. The same bank loaned Real Madrid the money to secure the services of Cristiano Ronaldo and Gareth Bale.
Ticket Prices
With UEFA pressing for self-sustainability, it doesn’t take Nostradamus to predict that the ticket prices will go through the roof in the coming seasons. The average ticket prices have already gone up at most stadia with Arsenal fans having to shell out the most.
Monaco have taken a unique step in this direction. With club president Dimitri Rybolovlev introducing luxury tickets that cost up to 2,000 euros, one does wonder how they will fare under FFP.
With so many pressing concerns about the FFP one does wonder if it will be successful. Right now all we can do is hope that UEFA will cover most of the loopholes and it becomes a fool proof scheme. Over to you Michel!
