Written by Milind Malhar Sharma*
Introduction
The pyramid structure of European Football leagues is open as opposed to the ‘closed’ sporting leagues which exist in countries like the USA where teams do not have a system of promotion and relegation. This particular characteristic is important to understand football in Europe as the excitement of promotion to a higher division and the prestige of playing in European competitions play a significant role in club decisions. The boundaries which demarcate any regulatory space are defined by a range of issues which makes it not only a contested idea but demands that attention is paid to the relations between organizations that occupy a regulatory space.[1] The same is true for football where the role of organizations such as UEFA as well as traditionally successful clubs is important in order to understand the regulatory arrangements. Money in the sport has primarily grown through the negotiation of lucrative television broadcasting deals negotiated by clubs themselves.[2] Clubs work extremely hard and invest heavily in buying some of the most expensive players to ensure maximum success. This sometimes leads to situations where clubs end up accruing massive debts leading to financial instability. It is in this light that the regulation of football clubs has to be understood.
Self-Regulation and Financial Regulation of Football Clubs
The models of regulatory arrangements in any economic activity are usually based on distinct theoretical foundations. Sports pose a distinct challenge in that they not only fulfil distinct public functions and welfare of people but are largely driven and controlled by private actors. The distinct model of regulation that operates in sports like football is private regulation. Mislav Mataija in fact argues that sport is the ‘paradigmatic’ example of private regulation where the rules governing conduct beyond games being overwhelmingly developed and enforced by private organizations, in this case, the organization being UEFA.[3] Furthermore, beyond setting the rules for the conduct of competitions and clubs, dispute settlement and enforcement is also privately handled in order to prevent states from intervening.[4] For football, the Court of Arbitration for Sports (“CAS”), an arbitral tribunal with its seat in Switzerland serves as the dispute resolution authority. Its decisions and supervision are isolated from the Court of Justice of the European Union.[5] The reasons for these private self-regulatory arrangements are many. They include among others - the pursuit of the private interests of members (in this case, the football associations and clubs), expertise and efficiency.[6] However, UEFA has not been completely exempted from the free movement and competition rules of the EU which have, according to Mataija, have defined the limits and conditions of the autonomy of sports regulators.[7]
This arrangement shows the freedom enjoyed by UEFA in regulating the sport in Europe, which has been described as ‘regulatory autonomy’- where wide discretion is granted to organizations to regulators like UEFA but they cannot claim private autonomy where they are exempted from the rules of free movement and competition rules prescribed in EU law.[8] UEFA is also a commercial entity that makes money from the sport besides regulating it, which further complicates the arrangements.[9]
The financial fair play regulations (“FFPR”) introduced by UEFA in 2012 were created for the regulation of football clubs in terms of financial and greater accountability of clubs to its personnel and to create an overall atmosphere in which the sport can thrive. Article 2(2) of the FFPR states the objectives in specific relation to financial fair play. These include among others to encourage financial discipline among clubs, protect their long-term viability and encourage clubs to operate on the basis of their own revenues.[10]
The operative principle behind these regulations is the break-even requirement. This requirement is fulfilled under article 64 of the FFPR either through a break-even surplus or a break-even deficit within the acceptable deviation which is calculated based on relevant income and expenditure.[11] Failure to meet these requirements can lead to a number of sanctions from the UEFA Club Financial Control Body (“CFCB”) including withholding of revenue from UEFA competitions, fines and exclusion from future competitions.[12] Any decision by the CFCB can be appealed by a club to CAS which is the final appellate authority for decisions regarding FFPR breaches.[13]
Assessing the impact of the UEFA Financial Fair Play Regulations
UEFA’s attempts to maintain its regulatory authority over member clubs while simultaneously trying to resist EU intervention has resulted in the FFPR having a lopsided effect. In a pyramid structure of promotion and relegation, pressure from supporters forces clubs to prioritize competition over finances. It has been shown that the current FFPR focuses on financial accounting rather than understanding the motivations for spending which leads to undermining financial reporting transparency.[14] It leads to deterioration in financial accountability and circumvention of rules.[15] Furthermore, by forcing clubs to operate on the basis of their revenues, the regulations inadvertently end up protecting and favour traditionally and financially powerful clubs leading to a widening gap in terms of commercial growth and on-field performance between big clubs and small clubs. The big clubs in this sense also include clubs like Manchester City and Paris Saint Germain- clubs though not traditionally considered powerful but have become successful on and off the football pitch as a result of acquiring wealthy owners.[16]
Meanwhile, UEFA itself seems to be in cahoots with powerful clubs who have continuously argued for and have gotten a bigger share of the revenue from UEFA’s competitions.[17] Thus, there seems to be a significant degree of ‘regulatory capture’ by the big clubs since they have more to gain or lose than the regulator (in this case UEFA).[18] This can be seen through the example of the recently approved ‘Swiss model’ of the UEFA Champions League which will come into effect from the 2024-25 season. This new format will lead to more games being played in a given season and will ensure much bigger revenues for the big clubs, who are expected to take a much larger share of the broadcasting revenues.[19] Because of the dominance of big clubs, the competition every year within leagues and European competitions becomes more and more predictable as clubs consolidate power. UEFA’s failure to ensure compliance by these clubs leads to questions regarding the regulatory autonomy it has claimed from EU rules based on the special status of sports and the extent it can ensure compliance by clubs.[20]
The Way Forward for Football Regulation
It has become clear now that only do the FFPR fail to protect the interests of small clubs and benefit the big clubs, UEFA itself has failed to develop a system that can resist the dominance and influence of big clubs. Not only is there evidence of capture in terms of demanding greater revenue, but there is also a failure of the foundational arguments of self-regulatory regimes i.e., efficiency and expertise. Instead, what is apparent is a system where this lack of accountability stemming from a high degree of private control ( between member clubs and UEFA) and very little involvement by an external organization (the EU and its super-national rules of free movement and competition).[21] As has been understood by several scholars, regulations under contemporary conditions of advanced capitalism requires paying attention to ‘organizations’ and their interdependence and network linkages that create the regulatory space.[22] In the present context, what is needed is a regulatory approach that focuses on the dominant football clubs as ‘organizations’. Rather than applying a solely private run regulatory arrangement focussed on resisting EU involvement and furthering private interests of big clubs, what is needed is a risk-based regulatory approach. Such an approach requires a regulatory strategy that focuses on the risks that parties will present to the regulatory body achieving its objectives.[23] The biggest risks that are posed at present by the dominant clubs is a virtual monopoly over competition and revenues as well as a threat to flout the authority of UEFA over clubs and form break-away leagues. This was recently witnessed when the richest clubs in the world announced the formation of the European Super League as a breakaway European competition.[24] The format in this competition was not only going to be much more lucrative for these clubs but resembled the closed leagues of North America.[25] Because of massive protests by fans, however, the plans eventually crumbled within a span of 2 days.[26] Thus, there is a need for urgent regulatory reforms.
Conclusion
The question going forward is this- who should decide on the issues of regulation of football in Europe – the EU, the member states or the UEFA? It is unlikely that the question will be answered anytime soon. But this article has illuminated the complexities involved in the regulation of sports especially in Europe. The analysis carried out here dictates a need for a risk-based approach that can prioritize strategic roles for UEFA as well as the EU. There is an urgent need to level the playing field and to ensure that the dominance of big clubs is broken. This would require reforms regarding spending caps for big clubs and inclusion of public perceptions[27] (especially supporters) in risk-based frameworks as well. Changes in approaches would enable football in Europe to once again become the beautiful game- made exciting and lively through competitive teams.
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*The author is a law scholar from Jindal Global Law School, Sonipat.
(The image used here is for representational purposes only)
REFERENCES
[1] Leigh Hancher & Michael Moran, ‘Organising Regulatory Space’, in Leigh Hancher and Michael Moran (eds), Capitalism, Culture and Regulation, (Calendron Press 1989) 271,277. [2] Stephen F. Ross, ‘Competition Law as a constraint on Monopolistic Exploitation by Sports Leagues and Clubs’, (2003) 19(4) Ox. Rev. Of Econ. Policy, 569,573. [3] Mislav Mataija, ‘ Private Regulation and the Internal Market: Sports, Legal Services, and Standard Setting in EU Economic Law’ (OUP 2016) 157. [4] ibid. [5] ibid. [6] Robert Baldwin, Martin Cave and Martin Lodge, Understanding Regulation (2nd edn, OUP 2012) 139. [7] Mataija (n 3) 178. [8] ibid 178. [9] Stephen Weatherill, ‘Never let a good fiasco go to waste: why and how the governance of European football should be reformed after the demise of the “Super League” ’( EU Law Analysis, 21 April 2021) <http://eulawanalysis.blogspot.com/2021/04/never-let-good-fiasco-go-to-waste-why.html?m=1> accessed 1 September 2021. Also See Bosman ruling of the European Court of Justice- Union Royale Belge des Sociétés de Football Association ASBL v Jean-Marc Bosman (1995) C-415/93 [10] ‘Procedural rules governing the UEFA Club Financial Control Body: Edition 2019’ (UEFA) <https://documents.uefa.com/v/u/tiwZWPkjhpinhlndT5sc9A> accessed 29 August 2021. [11] ‘UEFA Club Licensing and Financial Fair Play Regulations: Edition 2018’ (UEFA) <https://documents.uefa.com/v/u/MFxeqLNKelkYyh5JSafuhg> accessed 2 September 2021. [12] Procedural rules (n 10) art. 29 [13] ibid. art. 34(2). [14] Panagiotis Dimitropoulos, Stergios Leventis & Emmanouil Dedoulis, ‘Managing the European football industry: UEFA’s regulatory intervention and the impact on accounting quality’, (2016) 16(4) European Sport Management Quarterly 459, 479 [15] ibid. [16] Calum Roche, ‘Manchester City - PSG: how much money have both clubs spent in recent years?’ (Diario AS, 4 May 2021) <https://en.as.com/en/2021/05/04/football/1620144134_492638.html> accessed 1 September, 2021. [17] Mataija (n 3) 159. [18] Baldwin, Cave & Lodge (n 6) 44. [19] Dale Johnson, ‘Champions League Swiss Model revamp: All you need to know’ (ESPN, 23 April 2021) <https://www.espn.in/football/uefa-champions-league/story/4366699/champions-league-swiss-model-revamp-all-you-need-to-know> accessed 30 August 2021. [20] Mataija (n 3) 158. [21] Baldwin, Cave & Lodge (n 6) 144. [22] Hancher & Moran (n 1) 291. [23] Baldwin, Cave & Lodge (n 6) 281. [24] Press Release, ‘Leading European football clubs announce new super league competition’ (The Super League, 18 April 2021) <https://thesuperleague.com/press.html> accessed 1 September 2021. [25] ibid. [26] Weatherill (n 9) [27] Baldwin, Cave & Lodge (n 6) 293.