Even in an old game like football, the rules of the game can change. The same is true off the pitch, as was the case ten years ago with the introduction of the rules known as financial fair play.
Designed to ensure that clubs spend within their means, the rules were put in place by UEFA in 2011 to prevent European teams from running into huge losses and debt and allow them to be financially prudent. to be encouraged.
Warning signs were 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 of £29.5 million (67% higher than the previous year) in 2004. In 2002, with a loan of £78 million (up 50% from 2001), Leeds United were forced to sell their star players at steep discounts. Elsewhere in Europe, similar cases in Spain (Deportivo La Corua) and Italy (Parma) had attracted the attention of UEFA.
By 2009, UEFA felt compelled to intervene. Net losses across Europe were €1.6 billion (£1.3 billion, up 33% from 2008), and on average, clubs were spending 64% of their income on player salaries. In 78 extreme cases, it was more than 100%.
Financial fair play (FFP) is the cornerstone of what is known as the “break-even requirement”, which requires each team participating in UEFA competitions (238 clubs in 2020) to lose more than €5 million over three years. needs to be kept low.
Importantly, it takes into account only “relevant” income and expenses – which clubs earn from normal football business activities – to prevent the wealthiest owners from funding the clubs’ player investments. The idea is that this would encourage clubs to spend within their means and provide an equal financial playing field.
So, ten years later, has it succeeded in its goals?
In 2019, European football had a net loss of €125 million (a 92% drop from 2009), following the first consecutive years of overall profitability in 2017 and 2018. These figures show that the FFP has had the desired effect in taking clubs away. from harm.
Some of the increase in income is partly due to the introduction of regulations. The sponsorship agreement – which must meet a fair market value assessment carried out by UEFA – replaces the loans brands have already relied on for the club’s operations.
Another important source of income, which follows the Breaking Even requirement, is selling players for a profit, even (though not always) clubs considered close rivals.
winners and losers
For example, Chelsea, who made a profit of £94 million in the nine years prior to the FFP, made £623 million later in the same time period, 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 investments in star players, so it instead bought young players, sent them on loan to gain experience, and then paid them for a substantial transfer fee. Successfully adopted a selling model. ,
But not everyone has enjoyed this kind of financial success, and the biggest criticism of financial fair play is that it stifles competition. Some think that elite footballers and the financial power to acquire new talent will dominate historically successful clubs because rules restrict non-football income to investment in playing squads.
This means that new money coming in to older clubs – such as the Saudi-backed takeover of Newcastle United – could struggle to make an immediate impact. If the club qualifies for European competition the new owners will be unable to invest the additional funds (FFP only applies to clubs participating in tournaments organized by UEFA such as the Champions League).
Careful financial planning was also undone by the impact of COVID. With fans unable to attend matches, income declined dramatically, so UEFA announced a pause in the monitoring period to separate the years 2020 and 2021. (As expected, most clubs reported significant losses related to the pandemic, but Barcelona FC’s €555 million pre-tax loss (up 317%) still raised eyebrows.)
Then the FFP regulation should be considered successful, taking into account its overarching objective of reducing losses and boosting overall profitability, apart from the effects of the coronavirus. Evidence suggests that the business model revision it encouraged – player sales and sponsorship income – is responsible for the overall improved profitability in European football.
However, regulation has not been able to curb high wage and transfer fee inflation, which may yet jeopardize the club’s finances. There have been reports that UEFA is looking to replace the FFP with a salary cap and a luxury tax on transfers, but the organization has rejected the idea of eliminating the FFP, saying it would be “favourable”. It could be that the upward trajectory of salaries and transfer fees becomes an aspect of the football business with which the regulator will simply learn to live, and decide to play.