Decoding Financial Fair Play

[Author: Deokinandan Sharma, a third year law student at Jindal Global Law School]

Having been termed as “financial doping” by the ex-UEFA president Micheal Platini, Financial Fair Play indeed was the need of the hour when the European giants were spending unbelievable amounts of money in their transfer windows. In the year 2010 the idea of Financial Fair Play (referred to as “FFP”) was termed by the Union of European Football Associations (referred to as “UEFA”) with an aim of “improving the overall financial health of European football“. The majority of football debt in Europe is owed by its three most dominant leagues in the Premier League, the Serie A and La Liga. Even among elite European clubs, continued excessive spending within the transfer market has been justified by owners and executives as being necessary to keep the club competition competitive. After the UEFA 2009 report stated that 665 European clubs were suffering enormous financial losses, some of them surviving solely because of their owners, the regulatory body of UEFA brought these regulations into force from the 2011-12 season. The prerogative for UEFA had become to level the playing field in monetary terms and not let the club spend above their means and to keep a check on themselves. The Portsmouth scare in 2012 was another instance which reminded the authorities why not controlling the finances could result in teams falling in despair and uncaring ownership.

The main concept of Financial Fair Play has been built upon four core ideals on its journey to help clubs:

1. to promote greater transparency of what clubs are earning, and therefore should be spending;
2. to ensure clubs “live within their means”;
3. to see that clubs pay their ongoing debts in a timely manner;
4. and to make clubs sustainable, long term businesses.

What UEFA was trying to do seemed like making the clubs more accountable for their actions and their spending in the wake of many teams carrying unsustainable debt, spending more than they earn and failing to pay off their creditors. The main guideline allowed the club to spend approximately €5 million more than they earn per assessment period (three years). However, two mistakes have led to serious problems with regulating the FFP. Firstly, the amount could be exceeded to a certain limit (an initial sum was €45 million but it was cut down to €30 million), if it is entirely covered by a direct contribution/payment from the club owner(s) or a related party. This prevents the build-up of unsustainable debt for the club.  In the same situation it was rather needed from the club to maintain their weekly income of players and employee salary commitments. Secondly there has been a major grey area involved with the question of “whether sponsorships are to be included in the calculation ?”. While there has been no specific amount mentioned in their guidelines the UEFA handles it on a case-by-case basis. However if a club’s owner injects money into the club through a sponsorship deal with a company to which the owner is related (if the sponsor accounts for more than 30 percent of the club’s revenues), then UEFA’s competent bodies will investigate and, if necessary, adapt the calculations of the break-even result for the sponsorship revenues to the level which is appropriate (‘fair value’) according to market prices. 

Further, these guidelines provide for a grant of licence to the teams that qualify for the UEFA Champions League and UEFA Europa League. There has been a separate body formed other than the UEFA national associations in each country, called the Club Financial Control Body through the Addendum to UEFA Club Licensing and Financial Fair Play Regulations 2018.  After this governing body clears the necessary paperwork, UEFA then re-checks the accounts and documents provided by the clubs that qualified for the UEFA competitions. After this process the clubs get the green signal or are called upon for non-compliance.

CONSEQUENCES OF NON-COMPLIANCE

Though UEFA believes that a certain small amount of debt is a normal financing approach. What matters is the build-up of net debt and therefore the same has been restricted by break-even rules. Under these the owners or investors of the clubs are required to recapitalise and cover any losses. But in circumstances when these guidelines are not complied with measures and sanctions range from disciplinary action to removal of title from an award. The list of sanctions does prove to reprimand clubs from spending huge amounts of money  in transfer windows and therefore stay on track. The most recent cases include the clubs Manchester City and Paris Saint German. The case of Manchester City involved the club being found guilty in following the regulations in 2014and consequently being fined an amount of €60 million. Though a more proactive probe by the UEFA stated that the club had indeed followed the necessary guidelines and after returning a sum of €40 million let the club off with a warning.

The transfer of Neymar Jr. Dos Santos in 2017 for a whopping €222 million from FC Barcelona to Paris Saint Germain, broke all transfer records and bought direct spotlight on the management of finances of PSG. While the UEFA was taking a long time to file their report, the Court of Arbitration for Sports found the club not guilty and let them off. It was also noteworthy that the club had played it smart by signing a slew of sponsorship deals and associations with enterprises that were linked to its owners. This particular case brought severe backlash to the UEFA board for filing the report and after this particular case the board decided to set the limit to 10(ten) days for filing the report.

IS IT LEGAL ?

The UEFA claims that the FFP operates within the necessary European Union and have infact stated that “UEFA has been in permanent dialogue with the European Commission about financial fair play and has received continued support for this initiative.” A better understanding of this was provided through the following two cases:

1. Galatasaray v UEFA

In the 2014-15 season the Galatasaray club had exceeded their losses by €130 million and thus breaching the FFP guidelines. The CFCB as a reprimand excluded the club from UEFA’s competitions for two seasons. Galatsaray appealed the decision to CAS arguing that FFP is illegal in accordance with EU Competition law. It was held by the CAS that the aim of  FFP guidelines were to promote financial stability of the clubs and was in accordance of European Union’s competition law thus dismissing the appeal of Galatstray.

2. AC Milan v UEFA

After CFCB had informed the club officials that no settlement would be offered to the club as the breach of the break-even amount was a sum total of €121 million. Therefore the club filed an appeal against the ruling of the Board before the CAS challenging the 2 year ban and disciplinary sanction. The court held that they could that “settlement agreements and disciplinary sanctions are two legal instruments serving the same purpose”, but since the judgement of the CFCB was on facts that were based on out of date facts the sanctions were to be re-checked by them.

The UEFA continues to expend great effort in establishing a defence based on the objectives of FFP to any potential challenges under EU competition law. Even though the legalisation through a clear acceptance of the FFP regulations to be included as a part of the competition laws by the EU court is a far-fetched thought, going by the plethora of cases in the CAS  and CFCB it looks like work in progress.

IMPACT

The UEFA believes in redistributing any amount that they receive among the clubs that qualify for the season’s Champions League and Europa League and a small amount towards those clubs that failed to go beyond the qualifying rounds of the abovementioned competitions. A data released by the UEFA for the 2016-17 season stated that 80 percent of the amount (approximately €78,300/club) with the clubs that qualified for UCL and UEL and the remaining 20 percent (approximately €8,540/club) going to the teams that failed to qualify. While the impact is just not limited to that, the financial reports of European clubs have proved the net debt to plunge from 65% to 35%.  The support of FFP in the growth of the European football community include:

1. Directly restricting excessive-loss making clubs; (so far making 28 settlement agreements with clubs and to bring them back to break-even)
2. Adopting preventive measures for preventing build up of debts in clubs with comparatively smaller debts by compelling owners/shareholders to infuse capital;
3. Thorough regulation of markets, thereby encouraging new and continued owner investment;
4. Inspiring introduction of parallel domestic rules based on principles of Financial Fair Play that can be tailored for the specific environment.

While the above pointers are not exhaustive one of the main impact is how there has been an increased interest in the finances of the big-spending clubs thus making them accountable and sustainable.

CONCLUSION -THE WAY AHEAD

While the UEFA has had a safe run with the Financial Fair Play Regulations since its imposition in the 2011-12 seasons, it has been compelled to play on its backfoot for the past 4 seasons. Such a complacent stand from the UEFA board has been repeatedly highlighted by the slow and less active approaches in the cases of Paris Saint Germain and Manchester City raise questions as to the double standards of the governing body. These decisions and delay in filing of reports from the UEFA board raised questions on whether they had forgotten the pillars on which this body was built in the first place. Despite its significant improvement in the underlying health of the European club finances such complacency needs to be avoided.  It is time the Club Financial Control Body to make the footballing community understand that these regulations are designed to reduce the worst excesses and make them sustainable in the long-run, rather than attempting to make these clubs more equal or address other challenges faced by club football. 

*For any query, feedback or discussion, the Author can be contacted at [deokinandan.sh@gmail.com].

PREFERRED CITATION: Deokinandan Sharma, Decoding Financial Fair Play, SLPRR, <https://sportslawandpolicyreviewreporter.com/?p=1187> March 11, 2021.