A short overview of UEFA’s Financial Fair Play Regulations

by Stavros Tsiovolos, member of the International Law Research Team

This paper will analyze in short the Financial Fair Play Regulations (FFP) that UEFA has established to prevent professional football clubs from spending more than they earn in the pursuit of success. To fully understand these Regulations, relevant case law will play a major role, especially the recent decision of the Court of Arbitration for Sport (hereinafter, CAS) on Manchester City’s Appeal against UEFA’s sanctions. Analysis of a Football Club’s duties under said Regulations will cover the main body of this paper, while efficiency concerns will provide a larger scope. At last, the author will try to include some proposals to ameliorate the financial environment of the European football.

What exactly are the Financial Fair Play Regulations?

The FFP was introduced by UEFA in 2010-11 to prevent Football Clubs that qualify for its competitions from spending beyond their means and to stamp out the “financial doping” within football (BBC, 2019). All clubs hope to find themselves fighting for a chance to enter UEFA Champions League or UEFA Europa League, because of the financial gains it provides for its participants. In order to achieve this goal, they spend large sums of money to bring in new players, coaches, training personnel or managing teams etc. Many clubs took gambles on acquiring players and incurred exorbitant transfer fees and salaries, which they could not afford, but with the hope that, on the field, success would follow and the revenues would increase, so that the costs could then be covered (Gaetano Taormina, 2019). Such poor corporate mismanagement led to serious financial issues, especially for large clubs. As evidence, in 2012, European Football Clubs totaled 2.036 billion euros dept (Gaetano Taormina, 2019). UEFA, in order to deal with such a serious issue, introduced in 2009 the concept of FFP that entered into force in June 2010 (UEFA). The Union of European Football Associations (UEFA) is the governing body of European football and the umbrella organization for 55 national associations. Its objectives are, among others, to deal with all questions relating to European Football, to promote and protect ethical standards and good governance and to safeguard its member associations for the overall well-being of the European game (UEFA). 

Despite its name, the FFP regulation is not so much about “fair play” in the traditional sense of the term, but it is rather designed to improve the overall financial health of the European football clubs (M. Hovell, T. Gunawardena, 2015), and most importantly, to safeguard the integrity of the football competitions they are participating in, especially those that are of the highest level, the prestigious and prominent ones, like the ones under the auspices of UEFA. 

Duties of the clubs according to FFP Rules

The arrival of the 21st century has brought dramatical changes in football. Among others, clubs and especially their owners, started to spend, or much worse to provide elusive or unfounded promises that they will actually spend enormous amounts of money. In order to control this situation, UEFA proposed and finally put into force the FFP Rules that impose several duties to the clubs. Football clubs, in order to compete in UEFA’s competitions, must undergo a monitoring process. This process is mainly navigated by the UEFA’s Club Financial Control Body (CFCB), which is divided into an investigatory and an adjudicatory chamber. According to Article 56 of UEFA’s Club Licensing and Financial Fair Play Regulations, the first obligation of the licensee (club) is to cooperate with the licensor and the CFCB by providing all the necessary information and relevant documents to fully demonstrate that monitoring requirements are fulfilled. Indeed, “failing to cooperate” in that sense was one of UEFA’s investigatory chamber points to justify the enforcement of sanctions against MCFC (Manchester City) (Forbes, 2020). 

However, the main duty that most of the large European football clubs struggle to comply with is the “break-even” requirement. This notion defines the difference between the licensee’s  declared income and their expenses and prohibits clubs from incurring greater expenses than that relevant income. This monitoring process covers three consecutive reporting periods (Article 59), which means that the licensing season 2019/20 covers the reporting periods ending in 2019, 2018, 2017. If the break-even result is positive (equal to zero or above) then the licensee runs a break-even surplus. The problem arises when the club runs a break-even deficit. In this case, the club needs to limit its deficit within the limits of the FFP orders. Specifically, the FFP provides clubs with an acceptable deficit. This deviation sets the limit to 5 million euros, but it can exceed this level up to 30 million if such excess spending is entirely covered by contributions from equity participants or related parties. As “related party” is defined a person or an entity related to the licensee. The focus is not solely on the legal relationship, but the “substance of the relationship”, meaning that this party has control or joint control, significant influence or is a key management member. Close members of that person’s family, who may be expected to influence his dealings with the entity are also considered related to the club (G. Taormina, 2019). Since the 2013-14 season, CFCB has charged 13 clubs with breaching this indicator. However, all 13 utilized the settlement process and none of them have yet come to CAS, with the exception of MCFC in 2019-20. The one that attracted the attention of the press the most was the Paris Saint-Germain settlement, as agreed sanctions in this case included a fine of up to 60 million (GOAL).

As mentioned earlier, the main purpose of the FFP Rules is to maintain the financial health of all Clubs. In order to achieve this goal (and always within the monitoring requirements from UEFA), clubs assume the obligation not to have any overdue payables towards other football clubs as a result of transfers undertaken up to 30 June and up to 30 September (Article 65 and Article 49). In fact, the licensee must disclose all new player registrations and transfers. A payable will be considered overdue if it is not paid according to the agreed terms between the clubs.  The licensee must also prove that they have not overdue payables to their  employees and towards social or tax authorities resulting from a contractual or legal obligation (Article 50, Article 66 and Article 66bis). 

Sanctions and judicial protection against UEFA’s decisions. 

Having mentioned some of the most important duties and obligations that the clubs assume under the FFP Regulations, this part will now focus on case law and special reference will be made to the sanctions that UEFA imposed on MCFC (Manchester City) for breaking FFP Rules. The adjudicatory Chamber of UEFA’s CFCB said that  MCFC had broken the rules by “overstating its sponsorship revenue in its accounts and in the “break-even” information submitted to UEFA between 2012-16” and added that the club failed to cooperate in the investigation (Reuters, 2020). The penalty imposed was a 2-year ban from European competitions and a fine that reached 30 million euros. The club answered directly that it would appeal this decision before the CAS (Court of Arbitration for Sports) by stating that “Simply put, this is a case initiated by UEFA, prosecuted by UEFA and judged by UEFA”, thus implying that it was a prejudicial process. 

The CAS had jurisdiction to settle this dispute according to Article 34 of CFCB Procedural Rules. Specifically, a party directly affected has the right to appeal for a final decision of the CFCB. An appeal can only be admissible before the CAS. The legal basis for CAS’s jurisdiction is also provided by Article 62(1) UEFA’s Statue, which states that: “any decision taken by a UEFA organ may be disputed exclusively before the CAS as an appeals arbitration body and excludes any ordinary court or any other court of arbitration”. (MCFC Appeal v UEFA). 

When the intention of Manchester City (MCFC) to appeal before the CAS became public, the first question to arise was if the former could challenge the legality of the FFP itself. The answer is yes, this could be an option, but with no high possibility of success, as this attempt had already been made by Galatasaray, QPR and Saracens and the claim had not flourished (The Independent, 2020). So, the CAS had jurisdiction to settle this dispute and indeed according to UEFA’s FFP Rules. In its decision, the CAS stated that most of the FCBC’s alleged breaches are time-barred and that MCFC indeed failed to cooperate. It further stated that this breach alone cannot lead to its ban from UEFA’s Champions League competition, but it also found appropriate a ban of 10.000.000 euros imposed on MCFC (rather than 30 million) (MCFC Appeal v UEFA). This decision was considered a major win for Manchester City and a confirmation that the FFP Rules really need a reevaluation and should undergo scrutiny, in order to comply with football’s financial reality. 

The circumvention of UEFA’s FFP Rules.

Although the rationale behind the FFP is to ensure that clubs do not spend beyond their means, some clubs discovered ways to undercut the spirit of FFP, while technically remaining within the regulatory guidelines (Sims, Patrick J.,2018). UEFA requires relevant income and expenses from related parties to be assessed at fair market value. Especially in the case of sponsorships though, it is very difficult to discern what part of the revenue is truly intended to be a sponsorship and what portion amounts to equity contributions to the club from the related party. Such an issue is not unknown in UEFA as there is precedent that connected Manchester City and the Airline Etihad. Both owners hail from the UAE. They valued their sponsorship deal to be worth around 400 million over ten years (Bleatcher Report,2011). The amount of this deal was the cause that led UEFA to investigate it, while MCFC posted revenue of -93 and -121 million, respectively. So, UEFA investigated the deal mainly because MCFC was facing such large losses in the years prior and thought that these two facts might be related (Sims, Patrick J., 2018). In addition to this, the spirit of the FFP could be sidestepped by what is known as “efficient breach”. The CFCB found Paris Saint Germain FC liable for breaching FFP Rules, specifically the break-even analysis (GOAL). The punishment came only in the form of pecuniary sanctions and heightened supervision. But PSG’s owners are among the richest people in the world, so if there is no process to levy harsher punishments against repetitive offenders under the FFP, we may see club owners (such as in PSG case), pricing UEFA’s monetary fines into the cost of doing business. Therefore, it becomes crystal clear that the spirit of the FFP Regulations is not serving its purpose, if in practice clubs are allowed to “efficiently breach” the FFP via having their owners paying the fines (Sims, Patrick J.,2018).

Proposals…

To conclude, Financial Fair Play has garnered positive financial results. Through the implementation of these rules we have even seen clubs like MCFC and Chelsea (offending Clubs) embrace the Regulations and invest huge sums of money in their youth facilities, stadiums with a long-term approach to develop the next football stars, rather than spend enormous amounts of money to buy a ready-made one. Thus, the Regulations appear to be encouraging clubs to spend more responsibly, a behavior that UEFA is keen to promote (M.Hovell, T. Gunawardena, 2015). But there is always space for improvement and the following proposals intend to enhance the efficiency of FFP and ameliorate some regulatory flaws. 

The first proposal is to impose an absolute spending cap rather than the current break-even relative cap. The ratio behind this proposal is to increase competition and make it somehow more fair, as all clubs would have the same spending limitations. A second proposal is to create an exception to the break-even requirement for clubs that experience a change of ownership. This modification would provide the new owner with a major assistance as it would allow him to cover the club’s deficit with a direct injection of capital coming from him (Gaetano Taormina, 2019). The third suggestion refers to an update of Article 29 of the procedural rules governing the UEFA club financial regulations. As analyzed before, the main sanction provided for FFP breaches has a monetary character, but such an approach may lead to “efficient breaching” for large clubs with wealthy owners. This term refers to a situation in which rich owners are not discouraged from violating FFP Rules for the sole reason that even if there are sanctions imposed, they are able to repay them and escape “actual punishment”. The solution to this may be to impose harsher sanctions, in order to make these clubs comply with the Regulation. At last, the term “related party” needs to obtain a broader and more liberal sense (Sims, Patrick J., 2018). By adopting such a vision, clubs will lose one more method to circumvent UEFA’s FFP Rules, especially through the influx of foreign investments and “hidden financial injections” through sponsorships. 

BIBLIOGRAPHY

[1] BBC (2019), “Financial Fair Play: All you need to know about how it works”. Available here.

[2] Bleacher Report (2011), EPL Debate: Manchester City’s Etihad Stadium Deal Evading Financial Fair Play?, Available here.

[3] Forbes (2020), “UEFA Bans Manchester City For 2 Years: Separating Facts From Fiction”. Bobby McMahon. Available here.

[4] Gaetano Taormina (2019), “UEFA’s Financial Fair Play: Purpose, Effect, and Future”. Fordham International Law Journal, Vol, 42, Issue 4, pp.1269-1324,

[5] Goal, PSG penalized for FFP breaches, Harry West. Available here.

[6] Manchester City FC v. UEFA, CAS 2020/A/6785, Appeal, Conclusion pp.90. Available here.

[7] Hovell, Mark Gunawardena, Tiran (2015), “UEFA’s Financial Fair Play Regulations: Saving Football from itself”, Entertainment and Sport Lawyer, pp.37-45. 

[8] Reuters (2020), “Man City banned from European competition for two seasons by UEFA”, by Simon Evans. Available here

[9] Sims, Patrick J. (2018), “The Circumvention of UEFA’s Financial Fair Play Rules through the Influx of Foreign Investments”, Northwestern Journal of International Law & Business, Vol.39, Issue 1, pp.59-84

[10] UEFA’ s official page. Available here.

[11] UEFA Club Licensing and Financial Fair Play Regulations (2018). Available here.


[12] Martin, J. (2020). “Man City’s CAS Appeal explained: How UEFA failed to have Champion’s League ban upheld”. The independent. Available here.

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