1.3.3. Financial fair play

From June 2011 a three-year transition period has started in the European football. Because of the industry non-profitability, UEFA President Michel Platini has secured unanimous agreement across Europe for the new rules, which will be phased in from June. As an initial compromise, clubs will be able to record maximum losses of €45 million (£39.5m) in total over the following three years. That can be subsidized by an owner but only if they invest the money permanently in return for shares, not by lending it as Roman Abramovich did when he first took control of Chelsea. If owners are unable to subsidize debts, the maximum loss is €5m (£4.4m). From 2014 to 2017, the overall permitted loss will fall to €30m (£26.3m) for each three-year block monitored by UEFA. After that, UEFA hope clubs will have learned financial balance and be genuinely breaking even¹⁷.

Based on information from the 2011-12 and 2012-13 accounts, action can be taken for the first time during the 2013-14 season with the first possible exclusions from UEFA competition taking place in 2014-15. According to UEFA’s general secretary Gianni Infantino “around half, maybe a little more” of the 660 clubs did not break even in 2009 but played down concerns over that figure, stressing that UEFA “have to be careful not to apply future rules to past situations”. 

The main idea of this change is to make football industry profitable and equalize chances for 660 top division clubs scattered across 53 European countries. The task of ensuring the rules are correctly applied falls to the newly created Club Financial Control Panel, a team of eight independent experts chaired by former Belgium prime minister Jean-Luc Dehaene.

The elite English and Spanish clubs have been the greatest beneficiaries of the global football explosion over the last decade. Using the television revenue from the Champions League and the two most-watched domestic competitions in the world, they have dominated the European scene, splashed out on the best players and become a magnet for billionaires keen for a slice of the action.Yet only Arsenal of the five highest profile Premier League clubs would comfortably meet the requirements of FFP based on recently published financial results. Manchester United, Chelsea, Liverpool and Manchester City would all fail. However, Uefa’s break-even calculation is not the same as a club’s statutory accounts. Expenditure such as youth development, stadium infrastructure and community development does not count towards FFP. Depreciation on tangible fixed assets is also excluded.

In the case of Chelsea, for instance, analysts estimate that around £10m a year is spent on a youth set-up that has yet to really bear fruit, while another £9m can be lopped off for depreciation on tangible fixed assets such as spectator facilities at Stamford Bridge or training facilities at the club’s Cobham headquarters.Therefore, FFP rules would allow Chelsea to reduce their expenses by £19m, which is a considerable portion of the £70.9m loss revealed on their last annual balance sheet. There is room for clubs to maneuver in other areas. The entirety of a transfer fee does not automatically show up as an annual expense because clubs tend to amortize player acquisition costs over the length of their contracts. For instance, Fernando Torres’ £50m January switch from Liverpool to Chelsea would not show up as one lump sum in Chelsea’s 2010-11 accounts – instead it would be an annual amortization of £9m (£50m fee divided by the 5.5 years of his contract). Add in an estimated salary of £8m and the total cost of Torres, as far as UEFA’s accountants are concerned, is £17m per year.Furthermore, deep in UEFA’s 91-page FFP document lies a safety net. Even if a club misses the break-even target, it can still be granted a license if it meets two criteria – the trend of losses is improving; and the over-spend is caused by the wages of players that were contracted before June 2010 (when the fair-play rules were approved). However, that flexibility is only available for the reporting period ending in 2012.

Chelsea and Manchester City are the two clubs most guilty of overspending and then using cash injections from their rich benefactors to balance the books. Yet both are on the record of being confident they will eventually become financially sustainable. There is scepticism among football finance experts how City’s Abu Dhabi owners can possibly indulge a loss of £121m last year and break even within three years. One avenue is generating more commercial income. Even without the sell of Champions League football, City’s commercial revenue more than doubled last year to £52.8m, nearly £9 more than that of Arsenal, an established member of Europe’s elite. Yet a simple glance at City’s official website reveals the club’s sponsors are predominantly linked to the owners. Shirt sponsor Etihad Airways, telecommunications company Etisalat, Abu Dhabi Tourism Authority and investment company AABAR are all based in the Middle East. Even Ferrostaal, a virtually unknown German engineering company, have been taken over by the Abu Dhabi government. This has raised suspicion that clubs such as City can bypass FFP rules by means such as sponsorship. Not so, say UEFA, who stress all deals will be market-tested for fair value.