Series UEFA's Financial Fair Play

[rafa]

What is Financial Fair Play?

The "Financial Fair Play" rules are already set into motion by UEFA's president Michel Platini. The main goal behind these rules is to level the playing field for all clubs in Europe, and the last transfer window was the beginning of a three-year transition that will move clubs towards breaking even.

Over the following three years, clubs cannot have more than €45 million (£39.5m) in total losses. This can be subsidised by an owner, but only if they buy shares of the club, not by lending (as done by Abramovich when he arrived at Chelsea). If the club has no-one to sell shares to, the maximum allowed loss is €5m (£4.4m).

Things will get tougher later on. From 2014 to 2017, the overall permitted loss will fall to €30m (£26.3m) for each three-year block monitored by Uefa. After that, Uefa hope clubs will have learned financial balance and be genuinely breaking even.

Based on information from the 2011-12 and 2012-13 accounts, action can be taken for the first time during the 2013-14 season with the first possible exclusions from Uefa competition taking place in 2014-15. However, it's important to notice that more than half of all European clubs did not break even in 2009!

How can it affect your club?

There is a lot of scepticism on how rigid can UEFA be with the big guns. Imagine if Manchester United’s massive interest payments continue to push them into losses - will UEFA be strong enough to punish them?

In recent years, the top English and Spanish clubs have benefited the most of the global football expansion. Using the television revenue from the Champions League and the two most-watched domestic competitions in the world, they have dominated the European scene, splashed out on the best players and become a magnet for billionaires keen for a slice of the action.

However, in England only Arsenal - out of the five highest profile Premier League clubs - would comfortably meet the requirements of FFP based on recently published financial results. Manchester United, Chelsea, Liverpool and Manchester City would all fail.

Luckily Uefa’s break-even calculation is not the same as a club’s accounts. Expenditure such as youth development, stadium infrastructure and community development does not count towards FFP. Depreciation on tangible fixed assets is also excluded.

This is good news for Chelsea, as they spend around £10m a year on youth set-up (look how this is working ), while another £9m can be lopped off for depreciation on tangible fixed assets such as spectator facilities at Stamford Bridge or training facilities at the club’s Cobham headquarters. Therefore, FFP rules would allow Chelsea to reduce their expenses by £19m, which is a considerable portion of the £70.9m loss revealed on their last annual balance sheet.

Additionally, transfer fees do not automatically show up as an annual expense because clubs tend to amortise player acquisition costs over the length of their contracts. So Fernando Torres’ £50m January switch from Liverpool to Chelsea will not show up as one sum in Chelsea’s 2010-11 accounts – instead it will be an annual amortisation of £9m (£50m fee divided by the 5.5 years of his contract). Add in an estimated salary of £8m and the total cost of Torres, as far as UEFA’s accountants are concerned, is £17m per year.

And there are more good news for the big spenders: Even if a club misses the break-even target, it can still be granted a licence if it meets two criteria – the trend of losses is improving; and the over-spend is caused by the wages of players that were contracted before June 2010 (when the fair-play rules were approved). However, that flexibility is only available for the reporting period ending in 2012.

Chelsea and Manchester City are the two clubs most guilty of overspending and then using cash injections from their rich benefactors to balance the books. Yet both are on the record of being confident they will eventually become financially sustainable.

But how City’s Abu Dhabi owners can possibly indulge a loss of £121m last year and break even within three years? One avenue is generating more commercial income. Even without the sell of Champions League football, City’s commercial revenue more than doubled last year to £52.8m, nearly £9 more than that of Arsenal, an established member of Europe’s elite.

Yet a simple glance at City’s official website reveals the club’s sponsors are predominantly linked to the owners. Shirt sponsor Etihad Airways, telecommunications company Etisalat, Abu Dhabi Tourism Authority and investment company AABAR are all based in the Middle East. Even Ferrostaal, a virtually unknown German engineering company, have been taken over by the Abu Dhabi government.

This has raised suspicion that clubs such as City can bypass FFP rules by means such as sponsorship. UEFA denies, stressing that all deals will be market-tested for fair value.

How the top ten European clubs should fare:

AC Milan: “It would be preferable to reach break-even by growing revenue, but that is future music, very reliant on commercial expansion plus a new (or redeveloped) stadium. Although Milan’s last results were within Uefa’s acceptable deviation, this was only achieved with the highly profitable sale of Kaka, which cannot be repeated every year, hence the push to cut the wage bill.” (Swiss Ramble, football finance blogger)

Arsenal: “Out of all the elite Champions League clubs Arsenal are the best placed. When we can finally renegotiate our flagging commercial deals (2013) we'll put another £25m onto our annual revenue. Arsenal are looking at this FFP and thinking, ‘once we get here it will be a level playing field’. It would be nice to think Arsenal will come out on top but I can’t see it. The richest clubs will always find ways around the rules.” (Pedro, author of Arsenal fans’ website Le Grove)

Barcelona: “Despite their vast broadcasting income, Barcelona would have breached financial fair play last year, which is why the new regime are trying to cut back. The problem is the wage bill. They also got really carried away with the Zlatan Ibrahimovic deal and the fees paid to agents. They will be fine but they need to calm down a bit and they might have to let some players go if they want to bring in expensive players.” (Andy Green, author of financial football blog AndersRed)

Bayern Munich: “Bayern Munich have produced a profit for 18 consecutive seasons, which is not only a notable achievement but puts them in an outstanding position to meet financial fair play. Although the German pay TV market is relatively immature, Bayern benefit from having the largest fanbase in Europe’s largest commercial market and their revenue from this source is the biggest in Europe.” (Emmanuel Hembert, football business expert for management consultants AT Kearney)

Chelsea: “If Chelsea do go on a summer spending spree without recouping some of their expenditure, then all bets could be off in terms of financial fair play. However, up until now, it looks to me as if they have been boxing rather more clever than many people have assumed. They are indeed well on course to break even, despite the astonishing expenditure in January, through things like improved commercial deals, profit on player sales, reduction in bonuses, and there is evidently some method in their apparent madness.” (Swiss Ramble, football finance blogger)

Juventus: “They are in pole position among Italian clubs to meet the new challenge of Financial Fair Play regulations. Juventus have done remarkably well to recover from the Calciopoli scandal although the new stadium will be crucial to the club’s future success. While the club’s ‘business project with a long-term vision’ has undeniably left them in the strongest position of the major Italian clubs, they now need to match those heights on the pitch.” (Swiss Ramble, football finance blogger)

Liverpool: “It is fair to say that Liverpool would not find it as hard as Chelsea and Manchester City and possibly even Manchester United. Looking at the top six clubs Liverpool are at the better end rather than the worse end but the Champions League is a big issue. Traditionally, they have budgeted to be in the Champions League for three seasons out of four. They will not be in the Champions League next season and there are question marks about the season after that.” (Professor Tom Cannon, University of Liverpool Management School)

Manchester City: “They clearly have an issue to catch up and meet financial fair play. Even their participation in the Champions League next season will not completely cover their costs. They will have to get rid of some players and lower their wage bill to reduce their debts and be where they need to be.” (Emmanuel Hembert, football business expert for management consultants AT Kearney)

Manchester United: “They will be fine. The problem with United's debt is not that it will bust the club, but that there is such a huge amount of money wasted on interest payments every year. At the moment it is an affordable waste and will only become a problem if the club fails to qualify for the Champions League for a couple of seasons, which I can't see happening. The expensive PIK loans have now been ‘repaid’ and whatever has replaced them falls outside the FFP calculations.” (Andy Green, United fan and author of financial football blog AndersRed)

Real Madrid: “In the coming years, particularly as financial fair play takes effect, Real Madrid’s revenue prowess should, in theory, translate into a competitive advantage on the pitch. In the short term, Los Merengues will need their star player signings of 2009 to justify their transfer value on the pitch both domestically and in the Champions League in order to maximise its revenues and keep ahead of Barcelona in the money league.” (Deloitte Sports Business Group)

Are players going to earn less?

Those who are expecting an end to £200,000-a-week contracts may be disappointed, according to Sam Rush, chief operating officer of Wasserman Media Group, whose clients include Steven Gerrard, Michael Owen:

“I don't think Champions League footballers should expect their wages to decrease at all,” said Rush. “There are plenty of revenue-generating opportunities that have not been explored in the past so I'm certainly not worried that the elite entertainers in world sport are going to suffer financially as a result.

“The challenges for lower down the leagues are significant as a result of a variety of factors. I always think new rules can have an unwanted effect on third parties for whom the legislation was not intended.”

Financial Fair Play and FMH

I would love to see FFP in FMH. In my opinion, the financial management is one of the weakest parts in the game. The introduction of Financial Fair Play would require - and motivate - SI to improve this area of the game dramatically.

1. Accounting - FFP requires teams to present their financial accounting to UEFA. Therefore, we would be able to see our current club's accounting and how much cash we could actually spend - with updated forecasts of our finances for the 3 year period.

2. Investments - That could be a great way to develop the way the game handles training facilities, stadium expansion and youth development. We could be in charge of allocating cash to all these 3 areas, and be rewarded inside the FFP rules as they do not count towards the debt calculation.

3. Sugar Daddy unlockable - This guy will not only show up from nowhere and hand you cash - he would actually buy your clubs shares, having a bigger influence over your club, maybe even interfering with your market dealings more often...

4. Consequences - Think on how sweet is to manage Man City in FMH11: plenty of cash, world star players and an infinite amount of transfer budget at your disposal. Now think of managing Man City under FFP rules: a world class squad that will probably need to be dismantled... And you have 2 years to get it done, without compromising football achievements. Now that's what I call a challenge!

Imaginary screenshots

---

I hope you enjoyed this article. Most of the information about the Financial Fair Play rules were taken from Goal's website.

Feedback is appreciated!

[Sunny]

It might make the game too complicated of you add in the FFP...

Accounting and Investments are interesting, but if sugar daddy will interfere with your transfers, the game won't be fun anymore? No more unknown regens suddenly making an impact on your team.

As for Consequences, I always regarded Man City as a decent club to test tactics with(for top teams), and it would make things too complicated. FMH should continue to be the simplified version, not becoming more and more like the PC/Mac version. That sounds like something that should be in the FM series though...or you could set up a challenge with it

[Dec]

Nice work Rafa, sadly though FMH haven't implemented the Premier League 25 man squad in order not to overcomplicate the game so I would say this is well out.

[rafa]

It might make the game too complicated of you add in the FFP...

I think it can be implemented in a non-complicated way. A bit like the "expectations screen" you get in the beginning of the season, for example.

Accounting and Investments are interesting, but if sugar daddy will interfere with your transfers, the game won't be fun anymore? No more unknown regens suddenly making an impact on your team.

Sugar Daddy can interfere in different ways. I was actually thinking about Abramovich's role in signing Torres, for example - never on vetoing transfers.

As for Consequences, I always regarded Man City as a decent club to test tactics with(for top teams), and it would make things too complicated. FMH should continue to be the simplified version, not becoming more and more like the PC/Mac version. That sounds like something that should be in the FM series though...or you could set up a challenge with it

It still can be made very simple. I should add a suggestion in the article later.

I've been thinking about a challenge for a long time

Nice work Rafa, sadly though FMH haven't implemented the Premier League 25 man squad in order not to overcomplicate the game so I would say this is well out.

You might have a point Dec. The problem with the 25-man squad is that they would need to be hand-picked, or automatically selected - both options would be bad, because the first one is too tiresome for a handheld device, and the second one can get you with this feeling that the ASSMAN picked the wrong players.

Again, I'll try to formulate a way on how FFP could work in a simple way and post it in the article.

[rafa]

Edited: Added "imaginary screenshots" with financial fair play related gameplay.

[Ollie]

Wow!!! Rafa once again you have astonished me :blink: However I will have to agree with Sunny and Dec that it may be hard for them to add in (at this current time) but who says that it is not to be added in for the future e.g. 2020 haha

[rafa]

Wow!!! Rafa once again you have astonished me :blink: However I will have to agree with Sunny and Dec that it may be hard for them to add in (at this current time) but who says that it is not to be added in for the future e.g. 2020 haha

C'mon, why not? I even made the screenshots for SI already!

Thanks Ollie, I appreciate the compliment!

[Marc Vaughan]

Interesting idea - well fleshed out and I have to say I love your skin

It'd need some 'real consequences' to how the budgets are set and a lot of work to implement ... but hmmmm, perhaps one day

[rafa]

Interesting idea - well fleshed out and I have to say I love your skin

It'd need some 'real consequences' to how the budgets are set and a lot of work to implement ... but hmmmm, perhaps one day

Haha, Powerpoint FTW

Thanks Marc, I really think it would add a lot to the game

If any day you feel like discussing it, just PM me.

[Dylan]

Are them screenshots from FMH?

and good work again Rafa

[Ollie]

Edited: Added "imaginary screenshots" with financial fair play related gameplay.

Dylan read next time

[Dylan]

Jee :blush: guess i missed that one

[samhardy]

I agree with Dec as the 25 men squads aren't in the game, but still great work

[RAC]

Good article Rafa, I want the game to remain simple not big in depth like FM because it will lose its appeal to me.

[Eoin]

Holy S*** rafa, you are actually so smart, that skin is amazing, I bow down to you.

+1 and a whole lot more respect.

[Mysterion]

This is a good article but I have to agree with Ryan if that is added in it would become overcomplicated and unappealing to me

[rafa]

I think that by mentioning the intrincacies of the rules I failed to communicate the simplicity of the proposed solution...

It would only be more complicated for Marc & co as they would have to actually figure out a more realistic economical system - which would not require any involvement from you players.

In terms of gameplay, the new budget screen would eliminate the "board requests" for stadium expansion and youth facilities improvement - they would improve/deteriorate according to the amount of money you place on their budgets.

So, instead of transferring money from wages and transfers, you would transfer money between debt, transfer, wage, stadium, youth and training. It would take less than a minute, but give you greater control on how you want the club to be run.

And the FFP would be running on the background - just like a lot of things do without needing your attention (manager rankings for example). The only thing you would need to do is what most of you already do: try not to overspend in your budgets, or you will suffer consequences.

[Franco]

The way you explain it, it seems to me to be fairly easy to comprehend and wouldn't be too much time consuming. I would like to see it incorporated as I like to do that sort of thing (tactically sorting out your money so it spreads across the different aspects).

[Jayze]

Best guide I've read on here Raf. Nuff said.

[JeffreyA]

I wish I was as smart as you Rafa

[rafa]

Holy S*** rafa, you are actually so smart, that skin is amazing, I bow down to you.

+1 and a whole lot more respect.

Haha, glad you liked the skin

Best guide I've read on here Raf. Nuff said.

Thanks a lot, really motivates me to keep on doing stuff around here!

I wish I was as smart as you Rafa

Haha, you probably are smarter than me in many things

Everyone else, thanks a lot!

[Dec]

Glad I bought you over Rafa ? See I knew you could do this stuff.

[rafa]

You bought me over and I spent £10 on this site, see what a dream deal you got yourself

[Sunny]

You bought me over and I spent £10 on this site, see what a dream deal you got yourself

A bargain. Like getting Thiago Alcantara for free

Seriously that skin was really cool...

[rafa]

Apparently a lot of people enjoyed the spoof skin I created. Therefore, I decided to make the powerpoint file available for download. So you can have fun editing it yourself for whatever purpose you may wish

Get it here!

Ps.: I am not going to teach you how to use Powerpoint