When it was suggested in the last edition of Premiership Primer that I do a post on UEFA’s Financial Fair Play rules, I figured that it was sort of like a salary cap for European football. Well….not quite. As commenter (and new CHN writer!) John Murphy said, it’s interesting but very complicated. Writing this series has helped me learn about the sport, so I will again remind you that I’m no expert. I’m just hoping I can try to explain this in a concise way.
The first thing that I concluded from reading a few posts about Financial Fair Play (FFP) is that it is not a salary cap. What it is, is UEFA (European Football’s governing body) telling its club to get its financial ducks in a row. UEFA has laid out a few objectives for FFP the first one being "to introduce more discipline and rationality in club football finances." With transfer fees going up and up and up (9 of the top 15 transfer fees in history have occurred in the last five years) this could be interpreted as UEFA telling its clubs "please, kindly, don’t do a Leeds". Quite possibly the biggest example of this is Manchester United who despite all of their success finds themselves in debt. The Glazers (not Man Utd supporters' biggest fans by any means) reported a 108.9 million pounds (just over $177 million) loss this past year. Even without FFP taking effect, it would be cause for concern. Man Utd is far from the only club in trouble. UEFA officials have said that about half of their clubs would not have met these standards as of two years ago. Currently, just about every Premiership side has debt, though as a table with this article shows, some clubs are much worse off than others.
Under FFP, with an owner subsidizing losses, clubs are allowed to be 45 million Euros in debt (just under $65 million) over a three-year period. That money cannot be loaned to the club; it must be given permanently. As the linked article says, this means owners are not just bailing out their clubs to keep them competitive. The club itself must become sufficient. This is probably what UEFA means by saying one of the aims of FFP is "to protect the long-term viability of European club football". If clubs are financially stable, they will be attractive to buyers. It should be noted that if owners do not subsidize their clubs, the debt limit is 5 million euros ($7.2 million).
There are some exceptions to FFP. For example, a club’s youth academy or stadium expenses don’t go towards the figures.
The obvious effect that this will have on European football is transfer and loan fees. In fact, UEFA states that it wants to "decrease pressure on player salaries and transfer fees and limit inflationary effect" This doesn’t necessarily mean transfer fees will get smaller. If a club can pay for it, they are free to do it. UEFA wants clubs to "compete within their revenues". There will still be the have and have-nots in European football, but perhaps that difference will be smaller and perhaps we’ll see more parody in the leagues.
How FFP punishes is in a way that could dramatically hurt teams like Manchester United. It would bar them from competing in UEFA events. Playing in the Champions League no doubts give Manchester United its big international profile and it doesn’t hurt financially either. What’s also interesting is that UEFA will make clubs that continually lose money give them a detailed plan bout how they hope to come to terms with their losses. It would seem that UEFA wants to make clubs accountable for their finances and will do what they can to make sure clubs are taking care of themselves.
The obvious question though is, what will UEFA do when a big club fails to reach these standards? The first time a Manchester United, Real Madrid, or AC Milan fails to meet FFP, what will they do? Will they follow through with a competition ban or will they let things slide to a certain degree? That remains to be seen, and we’ll know in a few years when the threat of competition bans takes effect.
These new rules, from what I can gather, are not about leveling the playing field as much as they are about making sure clubs are on solid financial footing. Leveling the playing field will be a bi-product of that. Will this help or hurt clubs like Newcastle United? NUFC has some debt to deal with, but its not as large as some of the other clubs. The rules will change, and it will take smart front office work to help clubs thrive within them.