I began to feel a bit queasy as I worked my way through various accounts of Uefa’s warning to any clubs in Europe’s top leagues who try to ‘cheat’ the Financial Fair Play (FFP) rules as crunch-time approaches.
The warning came off the back of the release of the latest Benchmarking Report published by Uefa, which illustrated that if the full FFP had been operating for the three years, 2008 – 2011, forty six clubs in Europe would have fallen foul of it. In other words, forty six didn’t break even.
In the most recent year surveyed, 2011, the clubs who actually played in either of Uefa’s competitions, were collectively just under half a billion euros short of breaking even.
The Uefa Gen. Sec., Gianni Infantino (a name which seems to indicate he could burst into uncontrollable sobs if he doesn’t get his way), continued his mission of ratcheting up the prospects of ‘sanctions’ by revealing that just under half of them made the kind of losses, year on year, that would call down fines, or even banishment from all Uefa competitions.
And if the usual suspects thought they might escape their difficulties by weighing in huge ‘sponsorship’ deals effectively with their owners, Infantino promised that such deals – perhaps especially the recently concluded PSG deal with Qatar Tourism, worth reputedly €200milion a season – will be closely examined for fair value.
If, for example, an ‘expert panel’ concluded that PSG’s deal and its inventory was double the market value, then €100m a year would appear on the wrong side of the break even calculation, and with a limit of only €45m over 3yrs deemed as ‘acceptable losses’, that could leave PSG a lot a ground to make up with new ‘income’.
My queasiness about all this coalesced around thoughts of ‘Where will that extra income come from?’ If the FFP rules do bite and Uefa is undoubtedly serious about loosing the dogs, there are going to be quite a few clubs across Europe’s top leagues that are going to have to redouble their efforts to derive more revenue.
Most clubs draw their revenue from three main areas: sponsorship; media rights and directly from hustling tickets and products to their fans (though ‘selling’ clubs can also make significant money from the transfer market). The relative importance of each of these three main sources of income changes of course from nation to nation and even club to club within nations.
Given the general difficulties persuading sponsors to shell out in hard economic times (pace PSG and a few others, for special reasons), there probably isn’t going to be much more growth from that revenue source. Media rights – for the ‘Big Five’ – have continued to rise sharply in recent years, but can this really go on for ever? And the much less sexy leagues (ie the other fifty or so Europe), are already struggling.
The focus will come more and more on squeezing the last dime out of the fans. Isn’t that where they always go in the end? The only real alternative is to hold/reduce players’ wages, in order to cut a club’s cloth…
My (queasy) gut instinct tells me it will be the fans who will have to pay more.
Releasing its latest benchmarking report, which showed cumulative losses of clubs across Europe ballooned from €0.6bn (£0.52bn) to a record €1.7bn between 2007 and 2011, Uefa said that a simulation exercise based on the last three years had showed 46 clubs would have failed the break-even test.
“It is a hell of a lot of money and a very worrying situation that the clubs have the responsibility to take very seriously. It is not about just one club that might go bankrupt. The whole of football cares, because the consequences of a club going bankrupt are felt across the game,” said Uefa’s general secretary, Gianni Infantino, of the spiralling losses.
Of the 46 clubs that failed to break even, 20 made losses of more than the acceptable total of €45m over three seasons that would lead to sanctions up to a ban from European competition.
Two of the 20, believed to be Chelsea and Manchester City, were English. The exercise was based on figures for the three seasons between 2008 and 2011 and both clubs remain confident of complying when the first assessments begin for real next spring.
Chelsea posted their first profit of the Roman Abramovich era for their Champions League-winning season of 2011-12, partly thanks to one-off share dividends, but are expected to go back into the red this year. Manchester City’s most recent results showed a loss of £97.9m.
Infantino insisted Manchester City’s deal with Etihad, which will deliver more than £400m over 10 seasons, and Paris Saint-Germain’s jaw-dropping deal with the Qatar Tourism Authority, which will deliver up to €200m per season, would be rigorously scrutinised to ensure they were fair.
Expert panels will assess the “fair value” of sponsorship deals and if related party transactions breach them, the relevant amount will be deducted from the break-even calculations.
“Everyone, including PSG, know the rules and knows when they kick in. They know the rules are that they have to generate revenues to cover their costs without cheating,” he said.
He said that he remained confident that the rules, which could see the first sanctions being applied in 2014-15, “have teeth”. Clubs that exhibit “warning signs” will be investigated by a panel headed by the former Belgian prime minister Jean-Luc Dehaene and sanctions handed down by a separate independent panel.
“When we first discussed FFP it was Chelsea [that attracted questioning], then you have Manchester City, then it was PSG. Our responsibility is to have a system that works for more than 630 clubs and not look at one club and neglect the rest. Each individual situation will be assessed very carefully by these two panels.”
Infantino pointed to the fact that Uefa has excluded 34 clubs from competition under its existing rules, including Besiktas and Málaga, as evidence it would not hesitate to act if required.
And he said that the extent to which the existing “overdue payables” rules had succeeded in reducing the amount of overdue debt by 68% to €18.3m since June 2011 was evidence that Uefa’s approach could succeed.
“PSG have to respect the rules, they want to respect the rules. They are telling us they want to respect the rules. The FFP rules are there to help the clubs. Uefa doesn’t want to sanction the clubs, we want to help them. But sometimes we have to sanction someone to help the clubs.”
Infantino said that despite the record losses, there were signs that rules already in force to ensure clubs paid their bills on time and the looming enforcement of the break-even rule were having an effect.
He said that the gap between revenue and costs was narrowing for the first time since it started compiling the figures – albeit by just 0.1% to 12.7%. Revenues and attendances have also held up across European football despite the ongoing financial crisis.
Uefa’s team of 15 accountants will begin analysing figures next spring for the years 2011-12 and 2012-13, the first period to be monitored under the new break-even regime. Clubs will be allowed an acceptable deviation of up to €45m over those two years, as long as it is met by a benefactor.
When clubs are assessed for real, contracts with players signed before June 2010 when the rules were announced can also be discounted from the calculation, along with investment in facilities, youth development and charitable donations.
According to Uefa’s exercise, the clubs competing in Europe this season would have had a “break even deficit” of €480m between them in 2011 if they were assessed for FFP now. Infantino confirmed that the fact that PSG are donating David Beckham’s salary to charity meant that it could be discounted from the FFP calculation. The Uefa general secretary also insisted FFP would not lead to a situation where the big clubs were able to “lock in” the established order.
“I would say this is not correct. Probably, the contrary will happen. FFP is not about blocking the system as it is,” he said, pointing to the way in which clubs such as Arsenal, Borussia Dortmund and Bayern Munich had diversified their revenues in a sustainable way.
“It is healthy and much more sustainable than someone coming in, promising a lot and then the next day the club is bankrupt. Look at the situation with Rangers. Secondly, big clubs have always existed, this will not change. In the past this was attendances, then commercial rights and TV rights,” he said. No club had won the Champions League two years running in its 20-year history, he added.
Infantino also confirmed that Uefa was determined to ban third-party ownership of players, as is the case in the Premier League. “We think this should be the case all over the world, certainly all over Europe. If Fifa will not do it, we will certainly do it as far as Europe is concerned,” he said.
Dr Rogan Taylor is the Director of the Football Industry Group at the University of Liverpool. He is also a writer and broadcaster, with five football books and numerous radio and TV contributions. He has acted as a special adviser to The FA, The Premier League and Premier League Clubs.
The views of our regular columnists are independent, and as such do not represent those of Leaders in Football.
