Financial Fair Play

[anfield11]

As a spin off from the "Targets" thread. Here's a really interesting article [ no I couldn't be bothered to read every word ] and look particularly at the charts 6th, 12th and 14th going down the article. From this, Inter in particular, could struggle under FFP and even Milan and Roma.

 

http://swissramble.blogspot.com/2011/05/udinese-selling-their-way-to-top.html

 

I'm sure other clubs in Italy will be liking this, as should we, if it reigns in Chelsea and Man City.

[Dan]

Also read this by Marcotti:

 

UEFA's Financial Fair Play (FFP) rules are a bit like parenting. You can tell your eight year old that if he doesn't tidy his room by the end of the day you'll take his bike away. But if dinner rolls around and it's not quite neat, but still not the absolute mess it was that morning and you believe he made a genuine effort to clean things up, you may let him keep the bike. Especially if you were really looking forward to that father-son bike ride the next day.

 

UEFA-bashing is popular these days (especially from Special Ones) but, in fact, European soccer's governing body has approached the Herculean task of implementing FFP with two much needed ingredients: common sense and flexibility.

 

The basic concept behind FFP is that you can't make more than a certain amount of losses over several seasons or UEFA will punish you by not awarding a license to play in the Champions League or Europa League. This will kick in from the 2013-14 season, when the maximum "losses" (acceptable deviation) will be €45 million ($66.8M) over the first two "monitoring periods," 2011-12 and 2012-13. (If you have time on your hands and enjoy both legalese and accounting, you can download the regulations.)

 

Now, you may remember that Chelsea announced a loss of €83 million ($123.2M) for the 12 months ending May 2010 and, since then, splurged roughly the same amount on Fernando Torres and David Luiz, virtually assuring a comparable, if not greater, loss for the 2010-11. Or that Manchester City, was around €150 million ($222M) in the red for 2009-10 and that was before splashing out north of €200 million ($296M) over the past two transfer windows. So how on God's green earth can these two clubs hope to comply with FFP?

 

The answer is that FFP is, at once, stringent and fuzzy. For a start, bear in mind that a club's annual financial statement is not equivalent to what the UEFA Financial Control Panel will be considering in terms of FFP. A whole bunch of expenses and revenue streams get included in a club's accounts which are not included in assessing FFP compliance. For example, much of the investment in youth development or stadium/facility expenditure is not counted toward FFP. For some clubs that can mean as much €20 million ($29.6M) lopped off the annual expenses.

 

Oh, while we're at it, let's knock one widely held misconception on the head right now. UEFA will be vigilant when it comes to any kind of attempt to circumvent the rules. So, for example, Sheikh Mansour can't buy, say, a used football from Manchester City for €100 million $148M) and then book that as revenue for City. Or, rather, he can, but UEFA will only count what it considers the "benchmark fair value" of the ball as revenue ... probably €19.95 ($29) or so. By the same token, Roman Abramovich can't get one of his companies to sponsor Chelsea for €200M a year: UEFA would look at the "benchmark" sponsorship deals -- probably Barcelona's with the Qataris -- and only count, say, €25M ($37) toward FFP.

 

Another key factor which is often ignored is that if a club can prove that it's outside the FFP parameters because of contracts signed before FFP came into effect, then UEFA will look the other way. So basically any contract signed before June 2010 which causes an overspend won't be counted. The effect of this rule will, obviously, wane over time, but, initially should provide a decent cushion in reducing the wage expenditure.

 

Also, transfer spending does not automatically show up in a club's account as an expense. Or, rather, not a full whack, because clubs tend to amortize player acquisition costs. Take Torres, for example. It's not as if his arrival automatically added €60 million ($80M) expense to Chelsea's 2011-12 accounts. What clubs do is spread out the acquisition costs of a player over the life of his contract. In Torres' case, it was five and a half years so Chelsea "only" takes a hit of around €11M ($16.3M) in 2011-12 (plus, of course, his annual salary).

 

But perhaps the most important factor is hidden away in Annex XI of the FFP regulations. And this is where things get fuzzy. If a club can make a persuasive argument that it's losing money today, but that this is part of a long-term strategy that will lead to break-even or at least FFP compliance, then UEFA may decide to grant a license anyway. Now, obviously it can't be as simple as "We'll make a €500M loss this year but don't worry because we've signed Leo Messi, Cristiano Ronaldo, Xavi, Wayne Rooney and Manuel Neuer and our strategy is to win the Treble every year while selling out our stadium and charging fans a thousand euros a ticket while selling a billion jerseys around the world..." It has to be "credible." But, of course, "credible" can mean different things to different people. (Some of those subprime mortgages looked awfully "credible" to a lot of folks until they blew up in everyone's faces.)

 

The other factor is that UEFA will consider a club's "trend." (And this may be the saving grace for clubs like Chelsea, City, the two Milan teams,etc.). In other words, if you cut your losses year on year and show UEFA you're moving in the "right direction" then they may license you anyway, even if you don't meet the requirements. A bit like the dad and son bike examples above: show good will, stick to it and we'll be understanding.

 

Some of the more virtuous clubs will, no doubt, complain, if and when UEFA's Financial Control Panel applies the rules in Annex XI to give somebody a "pass" into the Champions' League. But, in fact, UEFA is using common sense. Make regulations too hard and inflexible and clubs who don't have a prayer in terms of compliance will simply give up (which, incidentally, would weaken the Champions' League appeal). The trick in applying this "common sense" of course will be to do it in a way that seems "fair." Because if you're a little too understanding then your daughter, who always keeps her room nice and neat, might get a little peeved when her brother suffers no consequences and gets to keep his bike when, in her opinion, his room is still a relative pigsty.

 

 

[anfield11]

Also read this by Marcotti:

 

UEFA's Financial Fair Play (FFP) rules are a bit like parenting. You can tell your eight year old that if he doesn't tidy his room by the end of the day you'll take his bike away. But if dinner rolls around and it's not quite neat, but still not the absolute mess it was that morning and you believe he made a genuine effort to clean things up, you may let him keep the bike. Especially if you were really looking forward to that father-son bike ride the next day.

 

UEFA-bashing is popular these days (especially from Special Ones) but, in fact, European soccer's governing body has approached the Herculean task of implementing FFP with two much needed ingredients: common sense and flexibility.

 

The basic concept behind FFP is that you can't make more than a certain amount of losses over several seasons or UEFA will punish you by not awarding a license to play in the Champions League or Europa League. This will kick in from the 2013-14 season, when the maximum "losses" (acceptable deviation) will be €45 million ($66.8M) over the first two "monitoring periods," 2011-12 and 2012-13. (If you have time on your hands and enjoy both legalese and accounting, you can download the regulations.)

 

Now, you may remember that Chelsea announced a loss of €83 million ($123.2M) for the 12 months ending May 2010 and, since then, splurged roughly the same amount on Fernando Torres and David Luiz, virtually assuring a comparable, if not greater, loss for the 2010-11. Or that Manchester City, was around €150 million ($222M) in the red for 2009-10 and that was before splashing out north of €200 million ($296M) over the past two transfer windows. So how on God's green earth can these two clubs hope to comply with FFP?

 

The answer is that FFP is, at once, stringent and fuzzy. For a start, bear in mind that a club's annual financial statement is not equivalent to what the UEFA Financial Control Panel will be considering in terms of FFP. A whole bunch of expenses and revenue streams get included in a club's accounts which are not included in assessing FFP compliance. For example, much of the investment in youth development or stadium/facility expenditure is not counted toward FFP. For some clubs that can mean as much €20 million ($29.6M) lopped off the annual expenses.

 

Oh, while we're at it, let's knock one widely held misconception on the head right now. UEFA will be vigilant when it comes to any kind of attempt to circumvent the rules. So, for example, Sheikh Mansour can't buy, say, a used football from Manchester City for €100 million $148M) and then book that as revenue for City. Or, rather, he can, but UEFA will only count what it considers the "benchmark fair value" of the ball as revenue ... probably €19.95 ($29) or so. By the same token, Roman Abramovich can't get one of his companies to sponsor Chelsea for €200M a year: UEFA would look at the "benchmark" sponsorship deals -- probably Barcelona's with the Qataris -- and only count, say, €25M ($37) toward FFP.

 

Another key factor which is often ignored is that if a club can prove that it's outside the FFP parameters because of contracts signed before FFP came into effect, then UEFA will look the other way. So basically any contract signed before June 2010 which causes an overspend won't be counted. The effect of this rule will, obviously, wane over time, but, initially should provide a decent cushion in reducing the wage expenditure.

 

Also, transfer spending does not automatically show up in a club's account as an expense. Or, rather, not a full whack, because clubs tend to amortize player acquisition costs. Take Torres, for example. It's not as if his arrival automatically added €60 million ($80M) expense to Chelsea's 2011-12 accounts. What clubs do is spread out the acquisition costs of a player over the life of his contract. In Torres' case, it was five and a half years so Chelsea "only" takes a hit of around €11M ($16.3M) in 2011-12 (plus, of course, his annual salary).

 

But perhaps the most important factor is hidden away in Annex XI of the FFP regulations. And this is where things get fuzzy. If a club can make a persuasive argument that it's losing money today, but that this is part of a long-term strategy that will lead to break-even or at least FFP compliance, then UEFA may decide to grant a license anyway. Now, obviously it can't be as simple as "We'll make a €500M loss this year but don't worry because we've signed Leo Messi, Cristiano Ronaldo, Xavi, Wayne Rooney and Manuel Neuer and our strategy is to win the Treble every year while selling out our stadium and charging fans a thousand euros a ticket while selling a billion jerseys around the world..." It has to be "credible." But, of course, "credible" can mean different things to different people. (Some of those subprime mortgages looked awfully "credible" to a lot of folks until they blew up in everyone's faces.)

 

The other factor is that UEFA will consider a club's "trend." (And this may be the saving grace for clubs like Chelsea, City, the two Milan teams,etc.). In other words, if you cut your losses year on year and show UEFA you're moving in the "right direction" then they may license you anyway, even if you don't meet the requirements. A bit like the dad and son bike examples above: show good will, stick to it and we'll be understanding.

 

Some of the more virtuous clubs will, no doubt, complain, if and when UEFA's Financial Control Panel applies the rules in Annex XI to give somebody a "pass" into the Champions' League. But, in fact, UEFA is using common sense. Make regulations too hard and inflexible and clubs who don't have a prayer in terms of compliance will simply give up (which, incidentally, would weaken the Champions' League appeal). The trick in applying this "common sense" of course will be to do it in a way that seems "fair." Because if you're a little too understanding then your daughter, who always keeps her room nice and neat, might get a little peeved when her brother suffers no consequences and gets to keep his bike when, in her opinion, his room is still a relative pigsty.

 

 

Interesting too, but in reality all clubs should want this in the end, even the loaded ones. Albeit that they have the hardest road ahead to make it all work, because of the massive wages that exceed their income. Might eventually bring player salaries down too.

[Molby]

Interesting too, but in reality all clubs should want this in the end, even the loaded ones. Albeit that they have the hardest road ahead to make it all work, because of the massive wages that exceed their income. Might eventually bring player salaries down too.

 

or it may herald the breakaway European superleague

[Rimbeux]

or it may herald the breakaway European superleague

 

By whom? The big thing about this is that it has the support of the clubs. It's been very telling there has been no dissent about these rules, scepticism from the media and fans, arrogance from Richard Scudamore personally, but nothing from clubs, they back it though the European Clubs Association. Even Abramovich is said to be in favour, it fits in with how he wants Chelsea to be run.

[Molby]

By whom? The big thing about this is that it has the support of the clubs. It's been very telling there has been no dissent about these rules, scepticism from the media and fans, arrogance from Richard Scudamore personally, but nothing from clubs, they back it though the European Clubs Association. Even Abramovich is said to be in favour, it fits in with how he wants Chelsea to be run.

 

you've really nailed your colours on to this working out haven't you?

 

I hope you're right

 

 

the richest clubs today will have a head start on everyone else

 

 

 

maybe the clubs trailing in their wake if they find sugar daddies of their own?

 

 

or maybe the rich clubs will do a bit of land banking now and sell in a few years time when property values have recovered

that would be the easiest way especially in the context of commercial property valuations where wide discrepancies in value can exist and where those with cash can buy all kinds of stuff at staggering discounts

[Antynwa]

Am I right in saying that teams like Wigan have f*** all chance of doing anything if these rules are implemented?

 

Or is it just for teams in European Comps?

[Rimbeux]

you've really nailed your colours on to this working out haven't you?

 

I hope you're right

 

 

the richest clubs today will have a head start on everyone else

 

 

 

maybe the clubs trailing in their wake if they find sugar daddies of their own?

 

 

or maybe the rich clubs will do a bit of land banking now and sell in a few years time when property values have recovered

that would be the easiest way especially in the context of commercial property valuations where wide discrepancies in value can exist and where those with cash can buy all kinds of stuff at staggering discounts

 

Way back when this was first mooted I was as sceptical as anyone and dismissed it as fanciful b******s that would never work or be agreed to, but I'll readily admit I've been convinced and converted to the view they have this issue under control. That's because they have models to work on in France and Germany and also have the support of the clubs, it's not an imposition with everyone screaming and resisting, it's an open door.

 

If you look at the way it lies today, there are very few clubs on the wrong side of this, City certainly, Chelsea and Inter in terms of the reality if not the spirit of what they want to do, but they have a huge effect on the top of the market and it flows down to effect the rest. Most of the big beats like Real, Barca, Man U, Liverpool have no current problem and will have no problem with breaking even.

 

Completely true that it fixes the market so to speak, but clubs knocking on the ceiling have got more chance if there isn't inflation caused by chasing Carlos Tevez earning £250k a week, funded by cash from without the game. A mid level club wanting to break through have got a big interest in this working as it's easier to buck a rational market with efficiency than it is to either find your own billionaire or hope to compete with the warped wages and fees. The establishment dont want to run at huge loss to compete with billionaire backing either, it threatens their very existence.

 

Am I right in saying that teams like Wigan have f*** all chance of doing anything if these rules are implemented?

 

Or is it just for teams in European Comps?

 

It's just for Europe, doubt the PL would touch anything like this because the likes of Fulham, Wigan, Sunderland and a few others rely on huge handouts to keep afloat. If they were in Europe I'm not sure they would be making losses big enough to get a ban anyway, €45m of the first three years for example.

[growler]

I think it actually helps clubs like Wigan. They can invest in infrastructure an build a good team and progress and have a long terms chance of breaking in. At the moment kamikaze clubs get to the top and disappear.

 

Imagine if abramovich had invested 300 million in building the best youth academy in the world and signed the worlds best 16-18 year olds from around the world. Instead he has a stack of over 30's with nothing supporting in the squad coming up.

 

A club that does things the right way like udinese Or man city before they were sold for example have a better chance at long term success.

[Farmer's Tan]

i am already seeing loopholes and excuses for the same few to overspend....same bullsh!t as whats goin on at present,clubs will still over spend but be much smarter in how they do.Won't stop anything. Throw a bribe here and there and big spenders will get away with spending what they like under the guises of a longer term financial plan that will even itself out in a few years but never does.

[Rimbeux]

There's no current penalty but insolvency for overspending in this country, the football authorities give zero demands for clubs to break even, I dont see how everything stays the same. We are effectively only talking about two English clubs and maybe two or three in the rest of Europe who exist hugely in the red because their owners pick up the tab, but they have a huge influence on every other club's costs, so near every other club welcomes the moves.

[Farmer's Tan]

There's no current penalty but insolvency for overspending in this country, the football authorities give zero demands for clubs to break even, I dont see how everything stays the same. We are effectively only talking about two English clubs and maybe two or three in the rest of Europe who exist hugely in the red because their owners pick up the tab, but they have a huge influence on every other club's costs, so near every other club welcomes the moves.

 

why would people with a huge advantage,ie man city or others of their ilk want to just take away that advantage.Chelsea for all their talk and intentions of breaking even just spent upwards of 70mill and i would wager will do the same when any player they want becomes available rules or no rules. lets say ronaldo or messi become available,chelsea like most top teams in the game are after them does anyone think that overspend rules will stop them breaking the bank when they can come up with some bullsh!t and convince those in power that they will get their house in order further down the line? I can't see it myself. Maybe its just me but when i see this "taking a common sense approach" i see room for big spenders to maneuver and still get what they want.

[Rimbeux]

why would people with a huge advantage,ie man city or others of their ilk want to just take away that advantage.Chelsea for all their talk and intentions of breaking even just spent upwards of 70mill and i would wager will do the same when any player they want becomes available rules or no rules. lets say ronaldo or messi become available,chelsea like most top teams in the game are after them does anyone think that overspend rules will stop them breaking the bank when they can come up with some bullsh!t and convince those in power that they will get their house in order further down the line? I can't see it myself. Maybe its just me but when i see this "taking a common sense approach" i see room for big spenders to maneuver and still get what they want.

 

 

Cos they will not be allowed to play CL football. Man City dont make the rules, they dont even lead the opinion of the clubs group, remember Chelsea were never invited into the G 14 when it existed. The other clubs in that group actually looked at introducing an unofficial code that included large elements of and was in the spirit of FFP. If UEFA and all the other clubs back rules that mean Mansour cannot spend as he currently does, they will have to toe the line or be excluded, it's that simple. Common sense in this respect has been defined as looking at the impact of contracts signed prior to June 2010 and allowing a €45m variation over the first three years with clubs needing to show they are actively moving to break even if they fall outside.

[Farmer's Tan]

Cos they will not be allowed to play CL football. Man City dont make the rules, they dont even lead the opinion of the clubs group, remember Chelsea were never invited into the G 14 when it existed. The other clubs in that group actually looked at introducing an unofficial code that included large elements of and was in the spirit of FFP. If UEFA and all the other clubs back rules that mean Mansour cannot spend as he currently does, they will have to toe the line or be excluded, it's that simple. Common sense in this respect has been defined as looking at the impact of contracts signed prior to June 2010 and allowing a €45m variation over the first three years with clubs needing to show they are actively moving to break even if they fall outside.

 

i'd love for it to pan out in a way that's as fair as possible but there is too much gray area/room for interpretation for me to be anything more than skeptical atm. Having said that i really haven't gotten a lot of information outside of quotes and the odd article.

[Raj]

Man City are allegedly working towards this. Mansour is said to have given an interview where they are only looking to bring in two players this summer and to cut the squad in some areas.

[growler]

I think if you look at the rules actually existing as an achievement in itself that would be a great start. Most countries follow UEFA models so expect leagues to follow suit over the coming years.

[mally]

Fair play for starting this thread.

[The_MC]

I wonder how airtight these rules will be? I can imagine they'll be difficult to enforce. An owner could just set up a seperate business buying something from the club for loads of money as a way to plough their own cash into the 'income' of the club. That way they're still breaking even, and still spend whatever they want. Obviously they will try to stop something like this happening, but it may be hard to prove they're doing anything wrong. For instance, say Mansour used one of his other businesses to buy shirt sponsorship for like £500m. It could be argued that he genuinely wants them to use the advertising space, and i'm sure he can afford a good lawyer or two to argue his case in court if necessary.

Edited May 19, 2011 by The_MC

[Sion]

Has anyone seen a note of what will happen if a team is not allowed CL entry?

i.e. City win the league next year, but get banned for financial reasons, would 5th place get the spot?

[Falconhoof]

Has anyone seen a note of what will happen if a team is not allowed CL entry?

i.e. City win the league next year, but get banned for financial reasons, would 5th place get the spot?

 

they won't get banned because of the handy get out of 'if they are seen to be moving in the right direction'

As long as they spend a bit less than last summer they will be fine, won't they ?

[Rimbeux]

I wonder how airtight these rules will be? I can imagine they'll be difficult to enforce. An owner could just set up a seperate business buying something from the club for loads of money as a way to plough their own cash into the 'income' of the club. That way they're still breaking even, and still spend whatever they want. Obviously they will try to stop something like this happening, but it may be hard to prove they're doing anything wrong. For instance, say Mansour used one of his other businesses to buy shirt sponsorship for like £500m. It could be argued that he genuinely wants them to use the advertising space, and i'm sure he can afford a good lawyer or two to argue his case in court if necessary.

 

There are clauses about related businesses and also market valuation as pointed out in the Marcotti piece, ie Mansour cannot but a used football for millions of pounds through one of his companies or hugely exceed the top of the market for sponsorship. There are already rules on how much interest one entity can have in two clubs to prevent conflicts of interest or dodges like a player being on loan to a top side from a second division Lithuanian outfit who paid millions for him and still pick up all his wages.

 

 

Has anyone seen a note of what will happen if a team is not allowed CL entry?

i.e. City win the league next year, but get banned for financial reasons, would 5th place get the spot?

 

Next one down or in line I'd guess, as happened with us when Pompey failed to achieve a European licence due to being insolvent under the previous less hardcore version of the FFP rules.

[Molby]

I reckon these rules, relative to what they are supposed to achieve, will be as about effective as the United Nations, relative to what the UN is supposed to achieve

 

tbh the only thing that makes me think they might be properly effective is the enormous scope for controversy and embarrassment to UEFA if they f*** this up - and this would run and run, year after year

[Bo Benn]

Will financial fair play earn you a place in the Europa League?

[David Hodgson]

I reckon these rules, relative to what they are supposed to achieve, will be as about effective as the United Nations, relative to what the UN is supposed to achieve

 

tbh the only thing that makes me think they might be properly effective is the enormous scope for controversy and embarrassment to UEFA if they f*** this up - and this would run and run, year after year

 

I think where they have a chance in being effective is in 10 years time in blocking any future Mansours or Abramovichs. For now, they've just created a window in which City and Chelsea can go for broke, and then get away with it by beginning to 'show willing' in 3 years time. That's why we're seeing no signs of any restraint in their spending.

 

An assumption Broughton got very wrong was that a sugar daddy would be no use to us now with FFP. Now, is exactly when one would come in very handy.

[Rimbeux]

I think where they have a chance in being effective is in 10 years time in blocking any future Mansours or Abramovichs. For now, they've just created a window in which City and Chelsea can go for broke, and then get away with it by beginning to 'show willing' in 3 years time. That's why we're seeing no signs of any restraint in their spending.

 

An assumption Broughton got very wrong was that a sugar daddy would be no use to us now with FFP. Now, is exactly when one would come in very handy.

 

How does that work? Say someone bought a player now for £50m, even Torres, he's going to be costing them £10m a season in amortization alone, they cant turn around and say in three years they didn't know and we'll start to do something now with any credibility. The rules are clear but you are correct to be sceptical about the leeway that will be given, however the €45m allowance and the June 2010 line are the concessions brought in after consultation. I can see why there is a suspicion that a club losing £100m a year will be given a pass if they lose £90m, then £80m, but given they have already set the acceptable losses at €15m a season after consultation, and that the rules are pretty much targeted at a handful of clubs, I'm optimistic they will be seen through.

 

I don't know the motivation or the thoughts of Mansour, he might think he has two years to win the CL before having pull the plug for a few years or even completely, but there is nothing sustainable in continuing to spend as they have. Perhaps we need to wait and see what actually goes on this summer at City and Chelsea, who slashed a lot of players and staff to save costs last summer before going big in Jan, probably fearing worse if they dropped out of the CL, they may well slash again and go back to the idea of bringing youth through.