Financial-fair-play-1

Getting to grips with Financial Fair Play – part 1

Financial Fair Play (‘FFP’) regulations are an important issue in football. UEFA introduced these regulations back in 2011 in a bid to improve the “overall financial health of European club football[1]. Ultimately UEFA want football clubs to become more self-sustainable by not spending more than what they earn (something you’d imagine would be fairly self-explanatory) and in the long-term protecting the sustainability of European football. These regulations are no doubt well intentioned however their complex nature that has meant there’s been a widespread lack of understanding of exactly what clubs can and cannot do. 

What-exactly-is-financial-fair-play

Financial Fair Play is a set of rules designed to curb the trend of football clubs operating on huge financial losses. Essentially clubs must prove to UEFA that they have paid their bills and are breaking even. The rules affect every club across England’s professional divisions.

FFP looks at what clubs have earned in revenue (which will typically be money paid to them through broadcasting rights, ticket sales and the sale of players) against their expenditure. There are exceptions to what constitutes expenditure in the context of FFP which include money spent on stadium development, youth facilities and any costs relating to training ground infrastructure. So in theory a club could spend a limitless amount on these areas and it would not affect the FFP assessment. Once these exceptions have been taken out of the picture, clubs must demonstrate that they have not spent more than they have earned.

While this seems fairly simple UEFA recognise that expecting all clubs to suddenly start breaking even will never happen. A transition period is required which is why the rules allow clubs to post acceptable losses. The table below shows what FFP considers an acceptable loss. League 1 and League 2 have not been included as the rules that affect their losses operate differently.

Competition Acceptable Loss Limit
Champions League/Europa League €5,000,000
Premier League £15,000,000
Championship £3,000,000

As a practical example Chelsea, while they do compete in the Premiership, would not be allowed to post a loss of £15,000,000 or more as they are also competing in the Champions League. Their acceptable loss would be limited to €5,000,000 (around £4,100,000). Stoke City on the other hand would be allowed to post a loss of up to £15,000,000 since they are only competing in the Premiership.

Even if a club competing in the Champions League loses more than €5,000,000, they can still pass the FFP regulations. If the limit is exceeded and the club post a loss of no more than €45,000,000 then this loss will be considered acceptable so long as the owner (or a related party) covers the loss by a direct contribution or payment. The table below shows when an owner can do this to pass the FFP regulations.

Competition ‘New’ Acceptable Loss Limit
Champions League/Europa League €45,000,000
Premier League £105,000,000
Championship £8,000,000

We’ll use the example of Chelsea again. If they post a loss of £30,000,000 (around €36,400,000) their owners must inject £30,000,000 into the club in order for this to be considered an acceptable loss. Obviously if a club exceeds the limits above (even if the owner injects money to cover the loss) they will fail the FFP regulations and be subject to a punishment. Likewise if the club post a loss above the acceptable amount in the first table and the owner does not cover it the club will be subject to a punishment.

It’s worth noting that what is considered an acceptable loss will not remain forever. FFP regulations state the come the 2015/16 season the acceptable loss featured in the second table will be reduced to €30,000,000 for clubs competing in the Champions League and Europa League. The amount will be reduced further for the 2018/19 season however UEFA have yet to announce what the exact amount will be.

Who-enforces-the-regulations

UEFA will be the body handing out punishments to any club that does not adhere to the regulations. They have created the Club Financial Control Body (CFCB) who are tasked with verifying the financial accounts from each club. They’ll monitor and ensure that all clubs are reaching the set standards. The CFCB are made up of eleven individuals who have qualified from legal and financial fields. In a bid to keep the body independent the members must not be members of another UEFA body nor should they hold a position in any of UEFA’s member associations, leagues or clubs. Decisions taken by the CFCB are achieved via a simple majority vote.

Interestingly the CFCB also have the power to conduct spot checks on clubs to ensure that rules regarding ownership and control over more than one club.

Conclusion

This is the first part in a series on FFP and is intended as a brief overview of overview of what FFP is to give those interested a foundational understanding in the topic. The next part in the series will look at what the sanctions and punishments are for clubs who break FFP rules.

Links


References

[1] Financial fair play: everything you need to know – UEFA

One comment

  1. Great article. I hope to read the next part of this series. Is there a particular mischief that could arise from clubs running into great financial loss which UEFA is keen on curing?

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