Understanding Financial Fair Play, the break-even provisions introduced by UEFA to help curb inflationary spending among clubs participating in the Europa and Champions leagues, can be a daunting task for even the most ardent football supporter.
Most of us get the gist of it—clubs that qualify to play in European competition are no longer permitted to spend more than they earn (with a few exceptions including stadium and academy investments). But what is Financial Fair Play, exactly? And how will it affect European soccer? Here are 10 different ways:
FFP is primarily meant to prevent teams from posting excessive losses—whether by going into debt or using owner equity—in their bid to buy the best players and compete for football’s top prizes. But this isn’t only meant to prevent individual clubs from spending beyond their means. By stopping clubs from spending more money than they earn, FFP lowers artificially inflated wages and transfer fees for all clubs. If a club cannot afford a transfer or to pay their best players unsustainable wages, they have no choice but to pay less or seek other options. In theory, this lowers player prices for all clubs, and allows for a more sustainable transfer and wage market for everybody.
So what does a Big Club do when forced to spend within their means? Increase their means! Several major European clubs have “gotten around” FFP in order to splash big cash on the transfer market by growing their revenue with huge, multinational (and sometimes nepotistic) sponsorship deals off limits to smaller clubs. And so Chelsea struck a three year sponsorship deal with Gazprom (in which owner Roman Abramovich had previously owned equity), Manchester City earned £400 million in sponsorship money from Etihad Airlines (a group with strong connections to City’s principal owner), and Paris Saint-Germain reached a €200 million deal with the Qatar Tourist Authority (which has connections to PSG owners QSI).
There are other ways clubs can skirt the spirit of FFP without breaking its letter, including investing in players as assets. Chelsea for example have taken to speculating on a host of young prospects which they loan out to “sister” clubs like Vitesse in the Netherlands. So, in addition to selling on talent from the first team (as they did with David Luiz to PSG), they can stockpile potentially valuable talent acquired on the cheap by sending them out on “permanent” loan to other clubs. See Patrick van Aanholt, on loan at Vitesse and sold by Chelsea to Sunderland for £2.64 million. Another way to help balance the books.
A third way to beat FFP involves multiple club ownership, which can be a convenient vehicle for rich teams to move around cash and “break even.” Manchester City, whose owners have also purchased soccer clubs in the United States, Australia and Japan, did this last season when they beefed up their revenue with the £22.45 million sale of Intellectual Property to their other assets, either New York City FC in MLS or Melbourne Hearts in the A-League. Ownership of multiple clubs allows for more creative accounting for ambitious teams.
So what about those smaller football clubs unable to win major sponsorship deals, engage in speculative loan schemes, or own several overseas clubs to get by FFP? One savvy option might be to invest in better, smarter player recruitment. By investing in analytics departments, smaller clubs can identify cheaper, undervalued talent, use them to help move up the table, and then sell them on for more revenue to buy more players. Soccer’s answer to “Moneyball.”
Along similar lines, smaller clubs will look to invest more in youth development and better youth coaching. This will not provide a more affordable source of talent, but it can boost the coffers when teams decide to sell their best homegrown talent. FFP rules allow for exemptions related to infrastructure investments including youth academies too, so smaller clubs would be wise to take the cheaper route and invest in the future.
While there are a number of ways smaller clubs can bridge the gap with their established competitors at the top of the table in a post-FFP world, there is no denying clubs like Manchester United have a built-in advantage. United for example already earns big revenue through their globally lucrative brand, which helped spur an IPO in the New York Stock Exchange and a major sponsorship deal with Chevrolet. That’s not feasible for a club like Burnley, for example. FFP not only does not address this income disparity, but it prevents clubs from spending above their means to “break in” the top flight. There may be pressure on UEFA to promote greater competitive parity, including more equitable redistribution of TV rights or impose some sort of luxury tax, to offset FFP’s negative effects.
Not all the effects of FFP will be cynical and self-serving. By forcing clubs to pay close attention to their books in order to break even each season, FFP may foment a saner, more long term approach to club finances which could have far-reaching implications for how most clubs are run. Teams may employ detailed player succession plans using specially-crafted software, consult with professionals on how to save money through more efficient business practices, and question some old practices (including handing over responsibility for millions of pounds in transfer spending to a manager who will be sacked on average in two years).
Additionally, though FFP may make the rich richer and force the poor to play smart, it will ideally prevent clubs from going into administration and forcing panic sales which threaten the very existence of beloved, historic institutions. A team that breaks even is a team that doesn’t threaten liquidity through excessive borrowing, and a team that can pay taxes (and not find itself suddenly wound up). Basic financial stability is a great platform for future growth.
The best and most important benefit of FFP will be helping supporters get a better understanding of how club finances work, even if it’s only to rail against UEFA and the unfair nature of its break-even provisions. Understanding FFP involves understanding how teams pay transfer fees (in amortization payments matching the number of years on the contract), the value of the club assets (including stadia costs), and other matters which will help supporters have a better understanding of how their club is run. Smarter fans are better fans.
Want to learn more? Ed Thompson’s masterful roundup may the best resource on Financial Fair Play.