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Football clubs to start living within their means

Football clubs to start living within their means

Malaga CF, a football club that plays in Spain’s La Liga, was banned from European competitions for twelve months by the Union of European Football Associations (“UEFA”) in December 2012, for violating its Financial Fair Play regulations. The Court of Arbitration for Sport has now upheld the ban. Daniel Geey, a European sports lawyer, spoke with us about these regulations.

Please scroll below to read the edited transcript of Mr. Geey’s talk.

While the UEFA Club Licensing and Financial Fair Play Regulations (“FFP Regulations”) have been in the news, there are domestic financial fair play regulations that are in place in the United Kingdom for the English Premier League, the U.K.’s top football league, and the Football League, the league below the top division.

UEFA is the governing body for a number of European football competitions and regulates them through rules that football clubs have to adhere to. In around 2009, UEFA made it necessary for clubs to live within their means. There was consultation with clubs through the European Club Association, the sole representative body of football clubs in Europe; players through FIFPro, a representative body of football players; national leagues; and other vested stakeholders in football to ensure that everyone had a say in how the regulations would be drafted.

The crux of the regulations is set out in the UEFA licensing criteria document, which includes what is called “the break-even criteria”, arguably the most controversial part of the FFP Regulations. It also sets out the aim of these regulations, which is primarily to ensure that clubs are breaking even.

In the widest sense, “break-even” is a situation where a club’s revenues equal its costs. There are a number of classes of revenues and costs that have to be considered for the calculation of revenues and costs for FFP compliance. Revenues, for instance, may include amounts received from another club for player transfers, stadium ticket attendances, television revenue, and other commercial sponsorships and arrangements. On the other side, a club’s costs include payments made to other clubs for transfers, wages, and other commercial and administrative expenses. Such classification of revenues and costs are important because a number of costs are excluded under the FFP Regulations to incentivise clubs to invest in the long-term and strategic elements and asset base of a club. The FFP Regulations therefore aim for greater rationality of club spending so that clubs organically grow their own revenues. This way, clubs are not completely beholden to either benefactor owners or mortgages on the club and to match their costs with revenues.

Malaga’s troubles

Very recently, Malaga Football Club lost an appeal before the Court of Arbitration for Sport (“CAS”) against a ban on its participation in European competitions for the next season. It was established before the CAS that at the time the club made its licensing application, it had payments overdue to other clubs, tax authorities, and players. UEFA had originally withheld prize money after it asked for additional information to ensure that those overdue payments had been made. Later, they also banned Malaga from next season’s competition. The CAS has now upheld this ban.

Benefactor owners and related sponsorship transactions

Manchester City, an English football club and Paris Saint-Germain, a French club, have entered into very large sponsorship deals with companies that some believe, are connected to the clubs. There is speculation that the reason for these sponsorship deals is to ensure that the club’s revenues are increased in order to cover their costs and comply with FFP. UEFA would have to, sooner rather than later, examine whether these transactions are “related-party transactions”. If so, FFP compliance would become more difficult.

FFP Regulations are now operational

For “break-even” purposes, the FFP Regulations are now in force. This will be based on clubs submitting their 2011-12 and 2012-13 accounts for the 2013-14 season. These two accounting periods will determine whether a club has complied with FFP Regulations.

Lesser sanctions

It is not correct to suggest that if a club breaches FFP Regulations, they will automatically be banned from European competitions. UEFA can choose from a number of sanctions that are proportionate to the behaviour that has occurred. “I am not convinced that for every instance of an FFP ‘break-even’ breach, that club will be automatically banned from European competitions.”

Not strict break-even

In the first monitoring period, which is this season, clubs can show up to forty-five million Euro in losses and still participate in European competitions. That figure is driven down in each subsequent season that a club has to submit its accounts for. In the next season, it is forty-five million Euros over three seasons, and in the season after that, it goes down to thirty million Euros over three seasons.

 

You can follow Mr. Geey on Twitter here or write to him on info@danielgeey.com.

 (Aju John is part of the faculty at myLaw.net)

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