UEFA’s New Financial Controls: Some Clarification

debt

UEFA’s plan to introduce a Financial Fair Play initiative in time for the 2013-14 season whipped up an enormous amount of speculation, including claims that evil Frenchman Michel Platini was deliberately targeting English clubs to get them excluded from European competition.

An interview by Reuters of UEFA general secretary Gianni Infantino makes a mockery of all that, and provides a wealth of detail on how the initiative is being put together and what the details will be.

Read the whole thing if you can, but we’ll extract some of the most interesting parts here, and I’ve bolded particularly key sentences for the even lazier amongst you.

The basics:

REUTERS: Can you explain what Finanical Fair Play is exactly?

UEFA: Essentially it is not a difficult thing. The main reason for financial fair play is that it is a tool to help improve the long-term stability and the financial health of European club football. It should help the clubs live within the revenues that they generate and one important element of this is that this whole concept was agreed last August in Monaco by all the stakeholders: the clubs, the leagues, the players unions and the national associations, they are all behind this concept.

This was approved by the Executive Committee and now we are in the middle of elaborating the rules. By ‘we’ its not just UEFA, but also external experts, members of the Club Financial Control Panel, in a broad consultation process.

So it’s all these folks against the big clubs? Nope.

REUTERS: The owners of the clubs are also in favour of this? Michel Platini has said that the owners of the big clubs have approached him.

UEFA: Absolutely. Reading some of the things recently I am puzzled, because this is very much a joint project from the beginning. Some of the club owners have said to Michel Platini “help us”. So it is not something that UEFA is imposing against English clubs or whatever, it’s not the case.

The whole media echo to some extent — not only in England but also across Europe — has contained so many inaccuracies.

We are doing this after very detailed research which we will publish next month. A report has analysed 650 clubs all over Europe, and it shows that around 50 per cent of those clubs are making losses every year — and 20 per cent are making huge losses — every year. Huge losses mean more than 20 per cent of their revenue. It also shows of these 650 clubs more than one third are spending 70 per cent or more of their income on salaries only — which is worrying.

The other element, which is again worrying, is that last season, revenues in in European football generally went up by 10 per cent which is very positive. But, on the other side, the increased costs — basically on the players’ salaries — have gone up 18 per cent.

So these are all trends that are worrying and which are saying to us, ‘we were right’ and by ‘we’ I mean the all the stakeholders had to take some action and move in the direction of Financial Fair Play.”

A salary cap, then? Nope, but clubs will be restricted to spending what they make.

REUTERS: Are you then looking at the possibility of putting some sort of limit on the percentage of revenue the clubs can spend on salaries?

UEFA: No, there will be some indicators, but the limit would be the break-even rule. You could spend 80 per cent on salaries, if the rest of your costs are 20 per cent, travel costs, for example, everything. But if your other costs are higher then the salaries have to go down. As a kind of indicator 60-65 per cent for example, you should be in the green zone; if you are not there, then we might have to look a bit closer — this would be the task of the Clubs Financial Control Panel to evaluate.

Debt, then. Will clubs like Manchester United and Liverpool automatically be banned from European competition, as some have presumed? Well, no.

REUTERS: What is the situation regarding clubs being in debt? Will they be banned from European competition when the new rules come in?

UEFA: If they owe money to other clubs or if they owe money to their players and non-playing staff and they are not paying what they should be paying, then that would be a reason to take a sanction. But the sanction would not necessarily be a ban in the first instance. We are still formalising the rules. So it is a bit premature to say this.

But this is only one thing. There are other elements to the rule like the “break-even” element which means that for the 2013-14 season, that clubs must basically break even. The rules are being written now and hopefully will be ready in the summer. But break-even basically means of course, the revenues that you generate you can spend but not more. You cannot have losses.

Now to define losses. You can have losses for one year, because perhaps you had one bad season, and you did not qualify. So we are looking at losses over a “multi-year” basis, for example over three years. So one year you can make a loss, but not over three years. So this is also a distinction — and this has been wrongly reported — because we are not speaking about debts. We are speaking about losses.

Debt, per se, is not necessarily a bad thing. The problem with the debt is the cost of the debt, for example the interest you have to pay, and this can create a loss. We are focusing on the losses.

But we are also also saying losses can be admitted, if the money is invested for long-term purposes — developing a youth academy for example or infrastructure. This of course can lead to a loss in the short-term, but in the long-term it will be beneficial for the club, help increase the revenues. So it is not true to say that if a club is in debt it will be banned from Eureopean competition.

What will be the positive effect? Why would clubs support this? Essentially, to force themselves to engage in collective restraint and not bankrupt themselves.

REUTERS: The President has often said that clubs in debt who carry on buying players they cannot really afford, are, in effect, “cheating.” Will the FFP stop this ?

UEFA: This is certainly one of the key objectives — to decrease the pressure on players salaries and transfer fees and to limit the inflationary effect. Everyone with normal common sense, would not engage in something they cannot afford. Sometimes, and especially in football, emotions come in and people act in an irrational way, but if you have a rule, which helps you to stay within some boundaries then of course you should respect the rule and this sort of inflationary effect will stop

Fascinating stuff. One interesting question not raised by Reuters is the issue of benefactor funding by the likes of Roman Abramovich, and whether that can be used to cover losses under these rules (see this discussion). That may be the biggest question mark remaining for the future of finance in football and especially for this initiative to receive support from English clubs. Overall, though, one can hardly say this isn’t a serious, substantial effort by UEFA to formulate some wide-ranging rules to straighten up the economics of European football.

Comments are closed.