Even in a sport as old as football, the rules of the game can change. The same is true off the pitch, as with the introduction ten years ago of so-called financial fair play regulations.
Designed to ensure that clubs spend within their means, the rules were implemented by UEFA in 2011 to prevent European teams from accumulating huge losses and debts, and to encourage them to exercise financial prudence.
The warning signs had been on the cards for some time and UEFA wanted to “improve the overall financial health of European football”.
In England, for example, Chelsea FC had debts in 2004 of Â£ 295million (up 67% from the previous year). Leeds United, with debts of Â£ 78million in 2002 (up 50% from 2001) had to sell their star players at a very bargain price. Elsewhere in Europe, similar cases in Spain (Deportivo La Coruna) and Italy (Parma) had also drawn UEFA’s attention.
In 2009, UEFA felt compelled to intervene. Net losses across Europe amounted to 1.6 billion euros (Â£ 1.3 billion, up 33% from 2008), and on average, clubs were spending 64% of their income in player salaries. In 78 extreme cases, it was greater than 100%.
The cornerstone of Financial Fair Play (FFP) is the so-called âbreak-even requirementâ which obliges every team participating in UEFA competitions (238 clubs in 2020) to limit their losses to 5 million euros over three years.
Importantly, this only takes into account what is considered to be “relevant” income and expense – what clubs earn from normal football business activities – to prevent richer owners from funding players’ investment in football. clubs. The idea is that this will encourage clubs to spend within their means and provide a level playing field in financial terms.
So, ten years later, has she achieved her goals?
In 2019, European football’s net loss was â¬ 125m (down 92% from 2009) after the first consecutive years of overall profitability in 2017 and 2018. These figures suggest that FFP had the effect desired by removing clubs. losses.
Part of the revenue growth is due in part to the introduction of the rules. Sponsorship deals – which must respond to a fair market value assessment performed by UEFA – with the brands have replaced loans previously relied on to fund club operations.
Another important source of income, which respects the requirement of balance, is the sale of players for profit, even (but not always) to clubs considered to be close rivals.
Winners and losers
Chelsea, for example, which made Â£ 94million in profit in the nine years leading up to FFP, made Â£ 623million in the same period thereafter, according to our assessment of the club’s own statements. The new laws prevented its wealthy owner, Roman Abramovich, from directly funding the club’s investment in star players. .
But not everyone has experienced this kind of financial success, and one of the biggest criticisms of financial fair play is that it leads to a freeze on competition. Some believe that historically successful clubs with elite footballers and the financial power to acquire new talent will dominate because the rules restrict non-football income for investment in the player squad.
This means that fresh money arriving at old clubs – like the Saudi-backed Newcastle United buyout – may struggle to have an immediate impact. The new owners will not be able to invest additional funds if the club qualifies for European competition (FFP only applies to clubs involved in tournaments organized by UEFA such as the Champions League).
Careful financial planning has also been greatly undermined by the impact of COVID. As supporters were unable to attend the matches, income dropped dramatically. UEFA therefore announced an interruption of the surveillance period to isolate the years 2020 and 2021. (As expected, most clubs reported large losses related to the pandemic, but the pre-tax loss of 555 million FC Barcelona’s euros (up 317%) raised their eyebrows again.)
Beyond the effects of the coronavirus therefore, with the primary objective of reducing losses and promoting overall profitability, the FFP regulation must be considered a success. Evidence suggests that the change in the business model it encouraged – player sales and sponsorship income – is responsible for the overall improvement in the profitability of European football.
However, the regulations have failed to curb the inflation of high salaries and transfer fees, which could further threaten club finances. Reports suggest that UEFA is seeking to replace the FFP with a salary cap and a luxury transfer tax, but the organization has rejected the idea of ââabolishing the FFP, saying it “will adapt”. It may be that the upward trajectory of wages and transfer fees will end up being an aspect of football that the regulator will simply learn to live with and decide to play.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Adrian R Bell receives funding from the AHRC.
Andrew Urquhart and Mobolaji Alabi do not work for, consult with, own any stock or receive funding from any company or organization that would benefit from this article, and have not disclosed any relevant affiliation beyond their academic appointment. .