Is Financial Fair Play working?
By: timbersfan , 12:11 AM GMT on September 07, 2012
I had the opportunity to spend a little bit of time with Michel Platini and the rest of the UEFA top brass in Monaco last week, and unsurprisingly, Financial Fair Play was one of the big talking points. It's pretty obvious that FFP will be one of the defining issues of Platini's tenure as president and may impact whether he goes on to head FIFA, as some say he hopes to do, or whether he disappears into the background when his mandate is up.
FFP basically limits the number of losses a club can sustain. If you're one of those wonkish types who enjoys reading legalese, you can get your kicks by checking out the full regulations here. The penalties for FFP noncompliance include a limit on squad size in UEFA competitions such as the Champions League and Europa League, fines and withholding of prize money and, ultimately, exclusion.
There is still plenty of confusion around FFP in some quarters. Some of it can be cleared up rather easily; some of it requires some conjecture and guesswork. Here's my attempt to shed some light.
Q: What's to stop a wealthy owner from simply doing a bogus deal between one of his other companies and his club to inflate revenue? For example, an owner could sign a $200 million sponsorship deal between his ball-bearing company and his club and they'd instantly have all this extra money to spend.
A: Many point to the very lucrative sponsorship deal that Manchester City signed with Etihad, an airline that happens to be owned, like City, by Sheikh Mansour as an example of this. UEFA is pretty vigliant here. The regulations say that sponsorship deals will be "benchmarked" against those struck by other clubs. So, for example, if Barcelona has a $50 million sponsorship agreement with someone and it's the highest in the world, then a smaller club with less reach than Barca can't very well claim a $200 million deal. Or, rather, UEFA will calculate only a proportion of that and assume the rest is bogus or a covert "gift" from the owner.
GettyImages / Xavier Laine/Getty Images
Thiago Silva signed with PSG for a transfer fee reported to be around 42 million euros.
UEFA has made it very clear that it has closed all loopholes in terms of getting around the FFP regulations. This includes other types of transactions between a club and "related" companies. Again, using City as an example, the club can't sell a pen to one of Mansour's other companies or Mansour himself for $100 million. Or, rather, City could, but only the benchmarked value of the pen would count toward FFP.
Q: Do you really think UEFA can enforce those rules? What if there's a legal challenge?
A: UEFA seems pretty confident that it can. The way the rules are written, it has the ultimate discretion to determine who's compliant and who isn't. A club that's not satisfied can take the matter to the Court of Arbitration for Sport (CAS), but that's it. No more appeals.
I'm not a lawyer, but I can imagine the only possible legal challenge would be with the legality of FFP itself rather than a specific judgement. I guess anything is possible, but given that both the clubs and the European Commission are behind FFP, UEFA feels pretty confident that it can't be successfully challenged. And, even if it is, the case would likely take years.
Q: So if these rules are coming in and wealthy owners won't be able to rack up huge losses year after year, how do you explain the massive spending of Chelsea, Manchester City, Paris St. Germain and, most recently, Zenit, with its $100 million swoop for Hulk and Axel Witsel?
A: I don't know. I guess they have a plan to massively increase revenue down the road. Because that's another point that people are missing. If you read Annex XI of the FFP regulations (boring, I know), the suggestion is that as long as clubs are moving in the right direction and have some plan to reach break-even, they'll be OK. Ultimately, it's all at UEFA's discretion.
Q: A-ha! And the fact that Zenit is sponsored by the Russian conglomerate Gazprom, which also happens to be a major UEFA sponsor, or the fact that PSG is French, just like Platini, means it'll get an easier ride from UEFA?
A: Some make that argument. I don't buy it. First, Platini explicitly said the rules will apply to PSG exactly like they apply to every other club. His credibility is at stake, and remember, he has ambitions beyond UEFA. As for Gazprom, it's a big company and it sponsors plenty of things. But it's not as if it owns UEFA or, indeed, that its sponsorship is that crucial to the organization that it would do Gazprom's bidding. Unicredit has a similar sponsorship deal with UEFA, and it's actually a part-owner of Roma (mainly because of the debts piled up by the previous owners), yet nobody has suggested that Roma has been allowed to run roughshod over UEFA rules.
Q: OK, but surely Platini won't have the courage of telling huge clubs with huge fan bases like City or Chelsea or PSG they can't play in the Champions League, will he? I mean, the sponsors and broadcasters who paid good money for the rights would never stand for it, would they?
A: I think what everybody forgets is that these FFP rules were negotiated and agreed with the European Club Association, which represents clubs across Europe. Among the biggest proponents were big profitable clubs like Bayern and Manchester United. Now, they have their own reasons for backing FFP, namely they're already profitable, so if some of their competitors have to curb their spending, it's to their advantage.
But what will happen is that if Platini doesn't enforce FFP, some of Europe's biggest clubs -- which have got their financial house in order -- will be furious.
The bottom line is that FFP has the backing of most of the big clubs in Europe and, if they see the rules aren't being enforced, they won't stand for it. They might even threaten to walk out. And if you think not having City or PSG in the Champions League would hurt broadcasting and sponsorship revenue, well, that's nothing compared to not having Bayern and Manchester United.
So many have focused on exclusion from the Champions League as a punishment for violating FFP. And, sure enough, it's the ultimate sanction. Not participating in the Champions League means a huge loss of revenue and, just as important to some of the vainer owners, loss of prestige. But I think that will only come down the road, if at all. UEFA will give clubs every chance to comply. And, to be honest, if somebody insists on overspending year on year, I think there's another way it will be handled.
GettyImages / Alex Livesey/Getty Images
Sheikh Mansour's Manchester City splashed the cash to help fuel the club to the Premier League title last campaign.
Q: Really? What's that?
A: Well, the next level down of punishment is fines. And I think that's the direction we're headed, mainly because it suits everyone. I could see it working a bit like the luxury tax they have in the NBA or Major League Baseball. Imagine you have losses of, say, $50 million when you're allowed losses of only $20 million. You might end up paying a fine of one dollar for every dollar that you go over the limit. So, in this case, you'd pay UEFA $30 million in luxury taxes. That money could be used in different ways. Some could go to grassroots initiatives or UEFA-backed charities. Some of it could be distributed to other Champions League clubs. And some could go into prize money.
That way, a guy like Sheikh Mansour or Roman Abramovich could still spend as much as he likes, but there would be a major disincentive to doing so. And his spending would end benefiting other clubs.
It's just one scenario. UEFA is extremely cagey when you bring this up and insist that it's confident that everyone will meet FFP so there's no need to even contemplate this. But I don't fully buy it. As I see it, if you're going to have FFP, this is the only viable compromise.
The views of the author are his/her own and do not necessarily represent the position of The Weather Company or its parent, IBM.