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Financial Fair Play in Football: Curbing the Excess or the Enthusiasm?

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About The Author

Mark O'Neill (Regular Writer)

Mark is a graduate of the Open University, where he recently graduated with a First Class Honours in his BSc (Hons) Open Degree. Mark is currently working full time for the Financial Ombudsman Service as an Adjudicator, while also undertaking an LLM in Sports Law in Practice at De Montford University with the aim of working as a solicitor specialising in sports law.

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Why couldn’t you beat a richer club? I’ve never seen a bag of money score a goal.

Johan Cruyff

1992 was a big year for football: it saw the creation of the English Premier League and the replacement of the European Cup with the Champions League. Yet, financially speaking, it pales in comparison to modern day. Indeed, while in 1992 the top five European leagues (England, France, Germany, Italy, and Spain) were valued at around $1 billion; now, the value of those leagues has grown exponentially to almost $17 billion in 2018.

Furthermore, the huge increases in media rights and sponsorship have seen the game become richer than ever before, resulting in vastly increased rewards for success. In the 1991/1992 season, Leeds United collected £100,000 for winning the English First Division title; in contrast, Manchester City received £38.63m in prize money for winning the 2017/2018 Premier League. To further highlight the rewards on offer, the Champions League has a combined prize pot of £2.04bn, with the winners potentially netting a cool £72.12 million.

With such rewards on offer, the temptation for clubs to chase the dream is almost impossible to resist. In recent years, former footballing giants like Leeds United, Portsmouth, Borussia Dortmund and Deportivo La Coruna have almost collapsed under piles of debt, incurred while trying to sustain investments in transfer fees and player wages. In fact, since the 1992/1993 season, there have been 51 football club administrations in England alone, while other notable European clubs such as Parma and Fiorentina have had to fold and reform.

In light of this, football’s governing bodies saw the need to take decisive action to discourage clubs from what is colloquially known as ‘doing a Leeds.’ UEFA introduced the UEFA Club Licensing and Financial Fair Play Regulations (the FFP Regulations) in 2010 which came into effect in the 2012/13 season. This article – using the cases of AC Milan and Galatasaray as its basis – will examine the economic effect of the FFP Regulations, the fairness with which they have been applied, and will assess their compatibility with EU law.

What are the FFP Regulations?

By introducing the FFP Regulations, UEFA was looking to achieve the realisation of several main objectives, namely:

  1. Improving the economic and financial capability of clubs;
  2. Enhancing transparency and credibility through improved corporate governance;
  3. Boosting the protection of clubs’ creditors and the tax authorities;
  4. Bringing greater financial discipline and rationality to the management of clubs;
  5. Encouraging clubs to operate responsibly within their financial means; and
  6. Protecting the long-term viability of European football.

The key regulatory provision is Article 58 of the FFP Regulations, often known as the ‘break-even requirement’. This states that clubs should have an overall break-even surplus – an excess of relevant income over relevant expenditure – in the monitoring period. This monitoring period comprises:

  • The year that a UEFA club competition commences (T);
  • The two years before it commences (T-1) and (T-2); and
  • If the club is in breach, the year after T (T+1).

On this basis, for the 2018/19 season, T is 2018, T-1 is 2017, T-2 is 2016 and T+1 is 2019.

Annex X of the FFP Regulations defines relevant income as the sum of all football-related activities within a club, such as gate receipts, sponsorship revenue, broadcasting rights, commercial activities, UEFA prize money, transfer fees received, and all other operating income related to the football-related activities conducted by the club. This includes income coming from related parties, which must be of ‘fair value’ or it will be excluded for the calculation.

A related party is defined in Annex X Part F of the FFP Regulations as a ‘person or entity that is related to the entity that is preparing its financial statements’; the focus is on the substance of the relationship rather than its legal form. Thus, anyone who has control or joint control over a club’s activities and is involved in the preparation of its financial statements will be covered.

Manchester City higlights the importance of both the ‘related party’ and the ‘fair value’ principles. They were fined £49 million, hit with transfer caps and subjected to restrictions on the size of their Champions League squad for being in breach of the FFP Regulations. The breach in question was triggered by suspicions surrounding a £400 million sponsorship deal signed with Etihad Airways, Abu Dhabi’s state airline: its chairman at the time of the deal was the half-brother of Sheikh Mansour Bin Zayed al Nahyan, the owner of Manchester City. This deal was considered contrary to the ‘fair value test’ applied in assessing the market value of sponsorship arrangements and transactions with related parties.

Annex X of the FFP Regulations also defines relevant expenses for the break-even requirements: they include transfer fees, football related operating expenses, wages and salaries and finance costs. Clubs are allowed to subtract costs related to youth development activities, community development, women's football, infrastructure spending, all of which UEFA has specifically excluded from the calculations in order to encourage clubs to invest in their infrastructure and development. It is hoped that this will ensure that clubs become more self-sufficient in the long term.

Though clubs’ primary target is a break-even surplus, it is acceptable for clubs to run a limited break-even deficit. Article 61 of the FFP Regulations currently holds this figure to be €5 million. However, Article 61.2 of the FFP Regulations stipulates that this can be increased to €30 million if the deficit is funded entirely by contributions from equity participants (shareholders) and related parties.

Sanctions available for UEFA to impose for any breach of the FFP Regulations include warnings, points deductions, a prohibition on registering new players in UEFA competitions; they can even be as severe as disqualification from current and future competitions and withdrawal of titles.

However, as an alternative to sanctions, clubs may enter into a voluntary agreement with UEFA under Annex XII of the FFP Regulations with the aim of eventual compliance. This is how Manchester City resolved its issues in 2015. A club can apply for a voluntary agreement if:

  • They have been permitted to enter UEFA club competitions by its national association, but did not qualify for a UEFA club competition in the season before the implementation of the voluntary agreement; or
  • It has qualified for a UEFA club competition and fulfils the break-even requirement in the monitoring period before the entry into force of the voluntary agreement; or
  • It has been subject to a significant change in ownership or control within the preceding 12 months.

The Application of the FFP Regulations: Recent Case Studies

AC Milan, Italian Serie A

AC Milan is the most notable club to fall foul of the FFP Regulations within the past year. On 19 June 2018, the club was banned from participating in UEFA competitions for the next two seasons. The club had been closely monitored by UEFA since it was taken over in April 2017 by Rossoneri Sport, an investment vehicle used by Chinese investor Li Yonghong to help fund the €740 million purchase. The vehicle had taken out a high interest €300 million loan from an American hedge fund called Elliot Management Corporation (Elliot) that was to be repaid – alongside €40 million in interest – by October 2018. Alongside the acquisition of the club, the loan helped fund a €200 million investment in the playing squad.

However, in July 2018, the club defaulted on the loan when it failed to make a €32 million repayment. This resulted in Elliot taking control of the club.

Before Elliot’s takeover, UEFA concerns over the state of AC Milan’s finances had led it to investigate the club and impose the 2-year disqualification from UEFA competitions. In doing so, UEFA refused the club’s request to enter a voluntary agreement. However, after finalising the takeover, Elliot launched a successful appeal, convincing the UEFA Adjudication Chamber that they can refinance the debts with a clear plan for managing the club’s finances.

Galatasaray, Turkish Süper Lig

Galatasary, another regular participant in the Champions League, also recently fell foul of the FFP Regulations. The club was initially investigated by UEFA in 2014, and the parties entered into a settlement agreement. Under that agreement, the club needed to be break-even compliant by the 2015/16 season and ensure that employee expenses were no more than €90 million. If the club failed to comply, then it would be referred to the UEFA Adjudication Chamber .

By October 2015, it was clear that Galatasary had failed to comply: its break-even deficit was €134.2 million, and its employee expenses were €95.5 million. In March 2016, the UEFA Adjudication Chamber imposed a two-season ban on the club participating in UEFA competition and limited its employee expenses to €65 million. Galatasaray appealed to the Court of Arbitration for Sport (CAS), claiming that the FFP Regulations were illegal under EU law and that the sanctions were grossly disproportionate.

However, the CAS in Galatasary v UEFA [2016] rejected the appeal, stating that the club had failed to provide any economic analysis or empirical evidence of the impact of the FFP Regulations on competition. In the CAS’s view, the FFP Regulations facilitated innovative and sound competition, and any restrictions were proportionate. Furthermore, the CAS found that the club’s breach of the settlement agreement made the UEFA Adjudicatory Chamber’s original decision proportionate.

Have the FFP Regulations Fulfilled their Objectives?

Determining whether the FFP Regulations have been successful in achieving the intended goals necessitates an examination of certain key indicators: their impact on clubs’ net debts, net assets, and net profits.

In this respect, there appear to be some indicators of success. For example, UEFA’s Club Licensing Benchmarking Report for the 2016 Financial Year identified that net debts in the top 20 European leagues had fallen from 60% of revenue in 2010 to 35% of revenue in 2016. Meanwhile, net assets in the top 20 European leagues have more than tripled from €1.9 billion in 2010 to €6.7 billion in 2016. This is largely attributed to increased owner contributions, capital increases of almost €10 billion, and increased infrastructure investment.

The same report also highlights how clubs in the top 20 European leagues are enjoying record-high aggregate operating profits (before transfers) of €832 million in 2016 (up from net losses of €336 million in 2010), plus an 84% decrease in combined bottom-line losses since the FFP Regulations were introduced (down from €1.67 billion in 2011).

The evidence therefore suggests that the FFP Regulations have had a positive impact in improving clubs’ financial performance and longevity. Since their introducton, clubs have been forced to become more business-like and, as a result, there has been a general improvement in financial governance.

However, although it appears that clubs have become more sustainable, it might be argued that the FFP Regulations have helped to maintain the dominance of big, well-established clubs – such as Barcelona, Real Madrid, Juventus, Bayern Munich and Manchester United, all of whom already have well-oiled revenue generating machines – at the expense of smaller clubs, who may have their attempts to compete through significant short-term investment restricted by the FFP Regulations.

Are the FFP Regulations Fairly Applied?

Similar problems as regards big clubs versus small clubs can be identified in the application of the FFP Regulations, whereby a perception has been created that there is one rule for the big clubs and one rule for the smaller clubs; in legalese, a lack of natural justice.

Indeed, since the introduction of the FFP Regulations, UEFA is yet to uphold a ban for a so-called elite club; in fact, the AC Milan case is the closest they have come to doing so. Clubs such as PSG, Manchester City, Monaco, Inter Milan and Roma have all been before UEFA for various infractions of the break-even requirement, but none have faced exclusion. During the same period, UEFA has excluded smaller clubs like FC Sion (for two seasons); Panathinaikos, Hadjuk Split, NK Osijek, FC Rapid Bucuresti and FC Dinamo Bucuresti (for three seasons); and Malaga for four seasons. In light of this, it is hard to deny the appearance of a big club bias.

However, a crucial factor must not be overlooked: all the elite clubs that have faced the possibility of exclusion, but have been able to agree on voluntary arrangements with UEFA. In contrast, it is likely that these smaller clubs have less capacity to organise their affairs to come to a voluntary arrangement effectively.

Interestingly, in this respect, those who argue that a big club bias exists may be vindicated or undermined depending on the result of UEFA’s review into its decision in 2017 to close the investigation into PSG’s extravagant recent transfer spending (notably the €200 million transfer fee paid to Barcelona for Neymar, and the 2017 loan of Kylian Mbappe from Monaco which included an obligation to buy for €180 million).

Are the FFP Regulations Legal under EU Law?

Questions have been raised as to whether the FFP Regulations breach several of the fundamental principles of EU law that are contained in the Treaty of the Functioning of the European Union (TFEU).

On 6 May 2013, Daniel Striani – a Belgian football agent – lodged a complaint with the European Commission against the FFP Regulations. This complaint was dismissed by the European Commission in May 2014, but only on procedural grounds: it was held that he was not ‘directly affected’ and therefore lacked a legitimate interest to lodge a complaint.

Striani lodged a second legal challenge, this time reaching the Court of First Instance (CFI). He argued that the break-even rule impeded clubs from investing in their playing squads, had a deflationary effect on players wages, cemented the existing football market structure, and reduced the number of player transfers. In this respect, he asked the CFI to rule on whether fundamental principles of EU law were being infringed in three ways:

  1. Does the break-even requirement infringe the European competition rules in Article 101 or Article 102 of the TFEU?
  2. Does the break-even requirement violate the provisions on free movement of persons, services and capital in Article 45, Article 56 and Article 63 of the TFEU?
  3. Are Article 65 and Article 66 of the FFP Regulations on overdue payables, which distinguish categories of debts and creditors, disproportionate and discriminatory?

In effect, these questions reproduced a test that was articulated by the European Court of Justice (ECJ) in Meca-Medina [2006]. Here, two long-distance swimmers appealed four-year bans after positive drugs tests. In a landmark judgment, the ECJ established the primacy of EU law over sports federations by restricting the situations that sports federations could impose their own rules. The judgment posed three questions when determining whether a sporting rule was disproportionate:

  • What is the context in which the rule was adopted and what are its objectives?
  • Are any restrictions (such as restricting investment) caused by the rule inherent in the pursuit of those objectives (or are there other ways that these objectives could be satisfied, such as the luxury tax)?
  • Is the rule proportionate in light of those objectives?

Given the possible strength of Striani’s arguments, the CFI ordered a provisional blocking of the implementation of the second phase of the FFP Regulations, and then referred the case to the ECJ. However, in Striani [2015], the ECJ rejected the referral, declaring it manifestly inadmissible for lacking legal and factual context. It thereby appeared to settle the question of the FFP Regulations' compatibility with EU law

Nevertheless, it is interesting that Striani’s grounds for challenge were effectively the same as those used by Galatasaray before the CAS in Galatasaray v UEFA [2016], which considered the ECJ’s decision persuasive and came to effectively the same conclusion.


The intriguing legal question as to whether the FFP Regulations conflict with EU law seems to have been settled, thanks to the decisions in Striani [2015] and Galatasaray v UEFA [2016]. Though they appear to be a rather blunt tool to address club finances, the courts have found the FFP Regulations to be firm and more rounded. Either way, it is fair to conclude that – considering the financial landscape present in football in 2010, caused by the explosion of broadcasting rights receipts – FFP Regulations were wholly necessary to stop football clubs becoming a law unto themselves.

Furthermore, looking at the current levels of debt and the increased profitability of clubs today, it is hard to deny that the FFP Regulations have been successful in steering clubs towards a more financially sound footing.

That said, the FFP Regulations are not immune from criticism: their recent application does pose some interesting issues regarding natural justice and the rule of law. Whether Lord Hewart CJ’s famous pronouncement from R v Sussex Justices, ex parte McCarthy [1924] 1 KB 256 – that 'justice should not only be done, but should manifestly and undoubtedly be seen to be done’ – is being upheld can be called into question. Indeed, UEFA’s decisions to apply less harsh punishments to big clubs fail to exude fairness – especially when the cases involving PSG and Manchester City are taken into account.

From a sporting perspective, it is hard to avoid the feeling that the FFP Regulations may have helped to maintain a sporting cartel of the elite European clubs who trade the major honours between them. That said, for as long the FFP Regulations keep clubs in business, supporters of teams in the Isthmian League Division One South Central to the Premier League will keep dreaming about their turn to celebrate victory.

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Tagged: Competition, European Union, Sport Law

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