The UEFA Financial Fair Play Regulations have altered the landscape of European soccer, but not quite as intended.
The original intent of UEFA’s Financial Fair Play (FFP) policy, devised in 2009, was to curtail club debt by capping the amount of money spent on transfer fees. At first glance, the idea behind FFP is an honorable one: success should come as a result of smart and careful management, player development and tactics, not the ability to (irresponsibly) spend the most amount of money on transfers. But while it seems like a sound initiative in theory, FFP hasn’t always had the desired effect.
What does FFP do?
The condensed version of FFP is that a club’s cumulative losses over a three-year span can’t exceed 30 million Euros (approximately $35 million). For example, if a club have generated $40 million in revenue over three years through TV rights, tickets sales and player sales but have also spent $76 million on, say, James Rodriguez, they would be in violation of FFP. (There is one important caveat: expenses associated with youth development, investment in infrastructure and facilities are exempt.)
This all seems noble enough, especially given the financial troubles of the day when the FFP was devised. In 2009, half of European soccer clubs incurred a loss the prior year, and 20 percent of those clubs were in danger of bankruptcy. A similar study showed that Premier League clubs were in debt to the tune of $4.5 billion (with a “b”) at the time. Those numbers are staggering, and something had to be done.
Beyond capping debt levels, UEFA went a step further in an attempt to level the playing field, creating the Club Financial Control Board (CFCB), a regulatory body designed to oversee clubs’ financial activities and enforce the FFP regulations. One of the CFCB’s main tasks is to ensure that each club’s revenue stream is generated through legitimate sources (tickets sales, broadcasting rights, merchandising, player sales, etc.), as opposed to piles of petrodollars funneled to the club by billionaire owners.
FFP widens the gap between big clubs and small
One of the most obvious ways to circumvent FFP is through sponsorship deals. These allow teams’ financial backers to funnel “sponsorship money” thorough a third-party, or one of their related entities, thus creating an overinflated revenue stream.
The CFCB’s task is to determine such sponsorship deals are done at fair value. This type of regulatory authority created problems from the start, as the term “fair” is largely a subjective one. For example, if Manchester United sign a $20 million-per-year sponsorship deal with Chevrolet while Manchester City sign with Etihad for $27 million per year, can the extra $7 million in the Manchester City deal ever be deemed “unfair”? Any lawyer worth his salt would have an easy time dismissing the “unfairness” of the richer deal, regardless of how the extra $7 million came to be included in the package.
This loophole wouldn’t be so troubling if not for the fact it disproportionately benefits Europe’s superclubs. To keep up with the big boys, smaller clubs need to attract investors. The issue is that a significant jump in investment will cause the revenue numbers to jump, attracting the unwanted attention of the CFCB. In other words, FFP helped freeze the hierarchy in place, as the big clubs have already made the necessary investments to maintain their wealth.
It’s one thing for Real Madrid to spend $200 million on transfer fees, as their revenues are enormous. The same sort of spending at, say, Stoke, would raise a lot of CFCB eyebrows. The revenue brought in through conventional means at Stoke doesn’t justify that type of lavish spending — exactly the sort spending UEFA’s watchdog is there to prevent.
The FFP is not all bad
For all its imperfections, FFP has had some measure of success. The overall debt clubs across Europe has decreased dramatically. Three years after implementation, the combined debt across European top flight teams was reduced by $700 million. Although some of that reduction can be attributed to an increase in TV revenue and improved overall economic conditions, the curbing of transfer fees played a significant part. In 2012, there was a 25 percent reduction in expenses associated with transfer fees compared to the pre-FFP era.
In addition, with youth development and infrastructure investment being exempt from FFP, many clubs have started to direct more funding toward their youth academies. Anything that encourages clubs to invest in youth development can’t be all bad, although the loan policies at clubs like Chelsea and Manchester City raise questions about the honesty of some of these efforts.
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What next?
The recent increase in club revenues resulting from the increase in TV broadcasting rights has caused an upward trend in transfer rights fees ($2 billion in 2016 versus $1.5 billion in 2015). In its current format, in which expense levels are tied to revenue, FFP is not constructed to cap transfer fees. However, keeping expenses in lockstep with revenue is a positive thing in and of itself.
The rise of the Chinese Super League poses a real issue for UEFA clubs. Absent any legislation curbing transfer fees, the CSL enjoys a huge advantage by being able to attract European-based talent without having to worry about the intricate details of how to properly finance player transfers. Anything goes as far as investment methods.
Additionally, if UEFA is serious about leveling the playing field and increasing competitiveness across the board, it would do well to take lessons from the American system, where a salary cap and yearly draft help maintain parity. Given the influence carried by Europe’s superclubs such measures seem unrealistic, as any legislation that ends up punishing the top clubs is unlikely to come to fruition.