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Impact Of UEFA’s Financial Fair Play Regulations On Football Club’s In Europe’s Top 5 Leagues

*Written by Triaaksh Kolke.




Introduction


Football is the most widely played sport on the planet. The sport has European origins, and European professional football has driven the sport. The most important leagues and clubs are in Europe; Europe generates the majority of the elite players, and those who are not European are enticed to play in Europe by huge earnings. Despite this, European football teams have seldom been successful, and financial difficulties are regular. The evolution of broadcasting technology has boosted the reach and revenue levels of European clubs at an incredible rate over the previous two decades, yet the financial situation of European professional clubs appears to have worsened. UEFA, the regulatory body of European football, published a set of policies known as 'Financial Fair Play' (FFP) in 2010 with the goal of bringing 'control and rationale' to European football club finances.

In September 2009, the UEFA Executive Committee unanimously endorsed the FFP concept. The first set of FFP laws was adopted in June 2010, and they have been revised three times since then (UEFA, 2012, 2015, 2018). However, the essential requirements of FFP have largely stayed unchanged:

  1. it emphasizes transparency and credibility by establishing minimum disclosure requirements for clubs' financial statements;

  2. it requires clubs to demonstrate that they do not have any outstanding payables to other clubs, their players, or social/tax officials all through the season; and

  3. it requires clubs to meet the break-even requirement.

FFP's break-even criterion specifically stipulates that relevant earnings and spending must essentially equal during the reporting periods, and any discrepancy must be more than a preset level. Failure to meet the FFP rules can result in a variety of sanctions spanning from cautions and penalties to disqualification/exclusion from UEFA tournaments (i.e. the Champions League or Europa League).


Impact of FFP on the Top 5 European Leagues


Despite broader economic difficulties, the European football market has risen at an exponential rate during the previous two decades. The 'big five leagues in European football, notably the English Premier League (England), Bundesliga (Germany), La Liga (Spain), Serie A (Italy), and Ligue 1 (France), are responsible for a substantial percentage of this rise (France). These five leagues contribute 54.5% of the total revenue earned by the market (€24.6 billion). The English Premier League is well ahead of its main four rivals (in terms of income), garnering €4.87 billion in 2015/16, more than €2 billion more than its nearest opponent, the Bundesliga in Germany (€2.71 billion), with Spain (€2.44 billion), Italy (€1.92 billion), and France (€1.49 billion) behind in terms of revenue. [1]


When it comes to financial constraints, the Premier League appears to be significantly more permissive than UEFA. It allows for three-year losses of £105 million, or £35 million each season, compared to UEFA's £25.4 million. Premier League regulations state that teams must report their annual accounts by March 1 of each year. As a result of the pandemic, the Premier League chose to postpone the March 2020 evaluation owing to the season's suspension. Instead, the March 2021 evaluation was changed to encompass a four-year period spanning from 2017 to 2021.


Similarly, to UEFA, teams in England's top flight can have "add-backs" to their profit and loss statements for things like investment in women's football and youth development. According to the Premier League's regulations, any team that fails to achieve the financial conditions imposed may face a points punishment. As things stand, teams may find themselves in a scenario where they have violated UEFA standards yet follow Premier League guidelines.


Criticism of the FFP Regulations


Since their adoption, the restrictions and their impact on the game as a whole have garnered considerable interest, notably from the media and football stakeholders, while the scholarly literature on the topic, although relatively young, has increased rapidly in recent years. Muller assessed the applicability of UEFA's imposed FFP laws and determined that they are justified from a sports economics standpoint. UEFA's goal of combating 'financial doping', which, if allowed to continue unchecked, would have a detrimental influence on the sport's general demand and fan interest, was a crucial element in its development. [2] This evidence provides a compelling argument in favour of FFP and its favourable effects, considering the clear repercussions decreasing consumer demand would have on clubs. Evidently, this would be financially detrimental to clubs, and as such is an example of how UEFA may achieve their goal of "preserving the long-term profitability and sustainability of football".[3]


The 'fair' component of competition has been an often-mentioned criticism. It was determined by various scholars and critics that FFP would not increase the competitiveness of European football; rather, it will diminish the overall level of competition. FFP is, in essence, a 'salary cap' – where clubs are given a restriction on how much they can pay players in wages – which has been established in European rugby and American football. [4] This concept parallels the conclusions of other critics, who concluded that FFP was, in essence, a pay limit.


Case study on Chelsea F.C.


Since their rapid ascent following its sale to the Russian Abramovich in 2003, Chelsea has drawn much attention. In conversations about FFP and football governance in general, Chelsea is often the subject of unfavourable attention. They have been criticized for "financial doping"[5] and "financial irresponsibility", and the notion of their being financially independent has been labelled a "far-fetched ideal". During Abramovich's tenure as Chelsea owner, the club has incurred substantial losses and accumulated debts in excess of £700 million, mostly owed to the owner. Therefore, they look financially unstable, spend much over their means, and rely excessively on their owner to fund their lavish spending. They are thus in many respects the antithesis of Financial Fair Play. [6]


The greatest source of revenue for Chelsea is gate receipts. The club's primary source of revenue, although a minor decline in its importance, is nonetheless this event. A study was conducted in which it was found that Chelsea's comparatively small stadium capacity (42,000) is holding them back in comparison to rivals like Arsenal and Manchester United, whose stadiums can accommodate up to 60,000 spectators. [7] This is where Chelsea might make major long-term investments without violating Financial FairPlay requirements. As club infrastructure investment is not included in the break-even criteria, Chelsea may consider following Arsenal, who constructed a new stadium to garner much greater levels of match-day revenue. Given the probably certain reduction in player transfer fees, the funds may be utilised for this investment instead.


Unsurprisingly, Chelsea is in a poor financial situation in terms of FFP. They have lost money in all but one of the sample period's years, amounting to net losses throughout each of the nine monitoring periods. Not only would they have failed to meet the original break-even criterion, but the losses were so severe that the rule allowing for owner equity infusion would hardly apply since it wouldn't even come close to paying the losses. Their wage-to-revenue ratio has repeatedly been above the required level; nevertheless, during the last two years, they have been able to bring it within the recommended barrier. FFP still affords them the chance to enhance their match-day revenues, which have been seen as preventing them from being a top club. As a consequence of lower player investment, Champions League participation is expected to result in less success and prize money, coupled with fewer fans and therefore diminished commercial income. Overall, FFP looks to be very harmful to the model that Chelsea has employed; hence, significant modifications will be necessary if the club is to remain successful.


Conclusion


Financial Fair Play is a subject that will continue to split academics and sports pundits due to its wide-ranging consequences and effects on teams. As time passes and the law takes full effect, it will become evident how it has altered the face of European football.

Had FFP been in place earlier, Chelsea's much-maligned transfer policy, ownership, and finance source would have been substantially diminished in relation to the regulation's goals. Given Chelsea's reputation for 'financially irresponsible' spending, this is positive for UEFA's ultimate goal of fan ownership and FFP's goal of promoting 'responsible' expenditure.

FFP clearly has a place in the current game, which has maybe gone uncontrolled for too long, given the severe financial challenges confronting European club football. However, there is a great deal of potential for modification in the specific manner in which the law accomplishes its goals, and measures will be required to protect the competitive aspect of the sport as well as its long-term financial sustainability.








*The author is a law scholar from Jindal Global Law School, OP Jindal Global University, India.



















(The image used here is for representative purposes only)




















References:


[1] Deloitte (2017). Annual review of football finance: ahead of the curve. Manchester, Sports Business Group.

[2] Muller, J. Christian, Joachim Lammert, and Gregor Hovemann. (2012). The Financial Fair Play regulations of UEFA: an adequate concept to ensure the long-term viability and sustainability of European club football? International Journal of Sport Finance 7.2 (2012): 117+.

[3] UEFA. (2012b). UEFA Club Licensing and Financial Fair Play Regulations. Edition 2012. http://www.uefa.org/MultimediaFiles/Download/Tech/uefaorg/General/01/80/54/10/1805410_DOWNLOAD.pdf

[4] Robinson, T., Howarth, A. (2008). The Impact of the Salary Cap in the European Rugby Super League." International Journal of Business and Management 3, no. 6 : 3-7.

[5] Barlow, M. (2012). Wenger hits out at reckless spending of rivals as he warns of financial doom.

Available at <http://www.dailymail.co.uk/sport/football/article-2181959/Arsene-Wenger-Chelsea-Manchester-City-damage.html>

[6] Guardian. (2010). Roman Abramovich still owed £726m under complex Chelsea structure.

Available at <http://www.theguardian.com/football/2010/may/19/roman-abramovich-chelsea-loandebt>

[7] Deloitte. Football Money League 2014. Available at <https://www.deloitte.com/assets/Dcom-UnitedKingdom/Local%20Assets/Documents/DeloitteFootballMoneyLeague2014.pdf >