08 February2022

UEFA is developing a new financial regulation

Without hard fair play, but with a salary cap, clubs will be offered to spend no more than 70% of revenue on salaries

For 10 years, UEFA has been strictly monitoring the accounting of European clubs, but the pandemic forced them to loosen control. Now the organization is developing a new financial regulation

Two years of the pandemic has significantly affected the football industry, including changing the fundamental rules. Since 2011, financial fair play (FFP) has been operating in European football. UEFA introduced spending caps in order to improve the football economy - unlimited spending often led clubs to debt and bankruptcy. The FFP rules caused a lot of controversy, but they worked - by 2017, club Eurofootball showed a profit for the first time (600,000 euros). However, the coronavirus crisis has reduced the income of most teams and forced UEFA to reconsider the terms of financial control over the activities of clubs.

Convergence in discussion

In fact, the FFP in its original form no longer exists: back in the summer of 2020, UEFA announced a relaxation of the requirements, and later announced the development of a new version of the rules. The previous version limited financial losses: the club was allowed losses of 5 million euros over the three reporting seasons, and with the participation of the owner's personal funds - up to 30 million euros. A separate commission analyzed the documents of clubs that got into European competition.

Of the Russian teams, due to non-compliance with the FFP, Dynamo Moscow (suspended for a year from European competitions in 2015) and Rubin Kazan (in 2018 for two years) suffered. Questions arose for both Zenit and Lokomotiv, the most frequent participants in the Champions League from Russia, but they managed to justify deviations from the norm and present a convincing plan to improve the situation. UEFA did not automatically exclude clubs, but took some under special control and asked for details of the information provided.

The initiators of the FFP are considered historically large clubs such as Real Madrid and Manchester United. They did not like the appearance of large investors who are ready to invest huge sums in transfers in order to bring an average team to the top level.

One of the main irritants was Chelsea: after the purchase by Roman Abramovich in 2003 and a transfer campaign for 100 million pounds, the team, which 19 years before had only once got into the prize-winners of the championship of England, became the champion in the second year, then defended the title, and finished in the top 3 for eight consecutive seasons. Later, according to a similar scenario, events developed in Manchester City, PSG and other clubs.

Now the strict FFP rules, with which both City and PSG had problems, have been suspended - clubs may not comply with loss standards, and new regulations have not yet been developed. In mid-December 2021, UEFA President Aleksander Čeferin said that he himself did not yet know what the new configuration of financial control would look like.

The UEFA Executive Committee met on December 16, along with a global plan for the recovery of the football industry, and discussed the new FFP, but no final decisions were made - the next round of discussion is scheduled for the end of March. The current status in the organization was described as follows: "It is necessary to adjust the rules in order to improve the financial stability of the clubs, which have been greatly affected by the pandemic, a package of such measures is being discussed."

At the same time, Čeferin clarified that he was surprised by the coincidence of the positions of the participants in the discussion: the head of UEFA admitted that he expected a much more tense conversation on this topic. And the ex-head of the German Football League, Christian Seifert (since he left his post on January 1, 2022, he definitely participated in the negotiations as the head of the Bundesliga) admitted that the positions of representatives of different countries were initially noticeably different, but in the end the options that close to the finals, arrange the Bundesliga.

Creative Accounting

How exactly the FFP will change and whether a temporary anti-crisis solution will be adopted first or a new long-term regulation right away is not yet clear. One of the main options discussed by the European media is the transition to a system where each club will individually calculate the spending limit.

According to The Times, it is planned to set the bar at 70% of revenue and this amount will be allowed to be used for salaries. A similar system operates in the Spanish La Liga, where on the eve of the season for each team they determine the spending limit on salaries and transfers - based on the club's income.

For such a scheme, it is especially important who exactly will control the accounting of the clubs, says Dmitry Dagaev, head of the sports research laboratory at the Higher School of Economics.

“Who will count – FIFA, UEFA or national associations? - he argues in an interview with Vedomosti. Sports. – Not all European countries trust national audit. And it is also important to whom the rules apply: FFP mainly affects potential participants in European competitions, and

Spain has a salary cap for all La Liga clubs. I'm afraid the automatic application of the rules to teams with a weak economic model will require serious political will."

Focusing on a few metrics, rather than the club's financial system as a whole, will increase the objectivity of control, said Oliver Jarosh, managing partner at consultancy Club Affairs and board member of LTT Sports. In recent years, handling FFP rules has become more and more like a competition in accounting creativity and the ability to find legal ways to get around the rules, Yarosh adds. An illustrative example was the deal in the summer of 2020 between Barcelona and Juventus, when the clubs, in fact, exchanged players - the Brazilian Arthur left for Italy, and the Bosnian Miralem Pjanic went to Spain, but they made two separate transfers. The first cost more than 70 million euros, the second - more than 60 million.

“No one would ever pay that kind of money for these players if it weren’t for the need to properly reflect the one-time large income from the sale and the purchase costs distributed over the contract period,” Yarosh explains in an interview with Vedomosti. Sports. “The FFP has never looked at the most important component of the football economy – financial flows.” The main thing UEFA should focus on when it comes to licensing is that clubs don't spend money they don't have, Yarosh said. “We need to shift the focus from how much money clubs use to how they do it,” he says. “If a club has 200 million euros in salaries and spends it, it’s not as scary as if someone with a budget of 1.5 million signs contracts with players for 1.2 million.”

An example of the NBA

According to Yarosh, PSG has a great influence on the new edition of the FFP - this is possible due to the coincidence of several factors: the CEO of the Parisian club, Qatari Nasser Al-Khelaifi, heads the European Club Association, and besides, he is a top manager of beIn Media Group, one of major UEFA media partners. The fact that the 2022 World Cup will take place in Qatar also adds to PSG's weight in strategic discussions.

It is assumed that the updated version of the FFP may include a "luxury tax" - in fact, a fine for exceeding the salary spending limit. A similar system operates in the National Basketball Association (NBA),

and Aleksander Ceferin is considered an adherent of the American economic system in sports. Funds collected in the form of fines, according to this idea, should then be distributed through the solidarity mechanism, which has long been operating in UEFA to support economically weaker leagues and federations.

“For the FFP rules to work as an institution, it is important that they are predictable,” says Dagaev. - Switching from one extreme to another will prevent clubs from building a strategy for their development in a crisis. In my opinion, the best option would be a significant easing of the rules for the coming year, with a clearly defined trajectory for their gradual tightening.”

Dagaev perceives the emergence of new investors who are ready to invest big money in transfers for the sake of explosive growth in results as the most real opportunity to change the balance of power in European football. The new giant may well be the English "Newcastle", which in October was bought by the Public Investment Fund of the government of Saudi Arabia.

“Whether it is evil or good is a philosophical question,” says Dagaev. “It is important that earlier the FFP was needed to reduce the risks of bankruptcy due to the departure of investors, and now the football economy faces other main threats.”

Source : vedomostisport.ru