Part Two of this series looked at the
legal challenges FFP has faced in the five years since the controversial ‘break
even’ requirements were incorporated.
Those challenges to FFP’s legality have been ineffective in defeating
the rules altogether; however, there have been iterative changes during FFP’s
lifetime. Those changes are marked by
greater procedural sophistication, and a move towards the liberalisation of
equity input by owners in certain circumstances. In light of recent statements from UEFA President Aleksander Čeferin, it is possible that the financial regulation of European football
will be subject to yet further change.
FFP from 2010 to 2015
FFP was integrated into UEFA’s
licensing requirements in the Club Licensing and Financial Fair Play Regulations Edition
2010. In the 2010 Edition, implementation of FFP
was to be overseen by the UEFA Club Financial
Control Panel. Disciplinary action was carried out by
the UEFA Control and Disciplinary Body, whose decisions could be appealed to
the UEFA Appeals Board.
In the Club Licensing and Financial Fair Play Regulations Edition
2012, the oversight
and disciplinary procedure of FFP was amended. The functions of the Club Financial Control Panel, Control and Disciplinary Body, and Appeals Board were replaced
with a two-tier Club Financial Control Body (CFCB). The two chambers of the CFCB are the
Investigatory Chamber, which actively monitors FFP compliance; and the
Adjudicatory Chamber, which levies sanctions for non-compliance.
Under Article 53.1 of the 2012
Edition rules, the CFCB “carries out its duties as specified in the present regulations
and the Procedural rules governing the UEFA Club Financial Control Body”
(the Procedural Rules). The bespoke Procedural Rules establish a
framework for the composition of the CFCB, the decision making processes of
both the Investigatory and Adjudicatory Chambers, and the rules applicable to
the whole proceedings. Like the Club Licensing and FFP Regulations, the
Procedural Rules have gone through iterative changes (2014, and 2015 editions).
The Procedural Rules are a
welcome development to FFP, ensuring the independence of the CFCB (Articles 6
and 7); bestowing broad investigatory powers upon the Investigatory Chamber
(Article 13); and setting clear parameters for disciplinary action and process,
including setting out potential disciplinary measures (Article 29). Overall, the
Procedural Rules increase the legal sophistication of the end-to-end FFP
process, and in doing so reduce the risk of irrational or arbitrary
outcomes. This protects clubs and UEFA;
clubs who are in breach of FFP have clear guidance on the process that will be
followed; clubs who adhere to FFP are reassured that those clubs who breach the
rules will be put through a sophisticated investigation and (if necessary)
disciplinary process (and additionally, pursuant to Article 22, where third
party clubs and member associations are affected and have a legitimate interest
in joining proceedings before the Adjudicatory Chamber, may do so); and UEFA,
in having a clear and detailed rules governing procedure, helps to insulate FFP
from legal challenge.
(By way of aside, in light of
the changes to the procedure governing FFP sanctions, it is noteworthy that
Bursaspor, in CAS 2014/A/3870 Bursaspor Kulübü Derneği v. Union des
Associations Européennes de Football, argued that Control and Disciplinary Body and
Appeals Board were “not professional on financial subjects”, although
the Turkish club was unsuccessful in its appeal, and UEFA’s rebuttal was to
highlight that the Club Financial Control Panel was made up of “financial
and legal experts” and that the creation of the CFCB was “principally
motivated by a desire to streamline the process”.)
Amongst the Procedural Rules,
Article 33 stipulates that decisions of the Adjudicatory Chamber are to be
published (subject to redaction to protect confidential information or personal
data), which has the effect not just of increasing the transparency of UEFA’s
decision making, but also of increasing the transparency of the financial
affairs of European club football.
Settlement Agreements
One of the more dramatic
changes implemented by the Procedural Rules was the implementation of
‘Settlement Agreements’, which are “aimed at ensuring that clubs in breach of the break-even
requirement become compliant within a certain timeframe and are designed to be
effective, equitable and dissuasive.”
Settlement Agreements have
been described as “basically a plea bargain”. Redolent of the settlement procedures in many
competition law or white collar crime regimes, Settlement Agreements are
consensual agreements entered into between a party who has breached FFP and the
CFCB, which avoid the need for a breach to be referred to the Adjudicatory
Chamber (Article 15.1). Settlement
Agreements have been viewed by the CAS as effectively giving clubs a ‘second
chance’ to comply with FFP (CAS 2016/A/4692 Kardemir Karabükspor v. UEFA),
albeit with more stringent conditions applied.
Settlement Agreements may
include sanctions and timeframes for compliance (Article 15.2) and are
monitored by the CFCB Chief Investigator (Article 15.4). If there is a breach
of a settlement agreement, the matter is then referred to the Adjudicators
Chamber.
FFP from 2015
The next major changes to FFP
were implemented in the Club Licensing and Financial Fair Play Regulations Edition
2015.
Introduction of Voluntary Agreements
In contrast to the ex post
compliance approach of Settlement Agreements, Voluntary Agreements are an ex
ante mechanism for clubs to derogate from the normal FFP standards, with
the ultimate aim of complying with the break-even requirement. Voluntary Agreements
are defined as being “a structured set of obligations which are individually
tailored to the situation of the club, break-even targets defined as annual and
aggregate break-even results for each reporting period covered by the
agreement, and any other obligations as agreed with the UEFA Club Financial
Control Body investigatory chamber” (Edition 2015, Annex XII A.5). They can last for up to four reporting periods (Annex XII A.3).
In order to enter into a
Voluntary Agreement, a club must adhere to certain procedural requirements.
These include submitting a long-term business plan “based on reasonable and
conservative assumptions” (Annex XII B.2(a)).
On the face of it, the concept
of the Voluntary Agreements–allowing clubs with new owners to incur debts on
the promise of future FFP compliance–sounds like a recipe for sort of financial
peril FFP was created to avoid. However,
in order to be allowed to enter into a Voluntary Agreement, there must be put
in place “an irrevocable commitment(s) by an equity participant(s) and/or
related party(ies) to make contributions for an amount at least equal to the
aggregate future break-even deficits for all the reporting periods covered by
the voluntary agreement” (Annex XII B.2(c)).
Break Even Limit Increase
Another significant change
implemented by the Club Licensing and Financial Fair Play Regulations Edition
2015 was a variation
to the quantum of the break even limits in certain circumstances. The limits
were increased from €5m to €45m for
assessment periods 2013/14 and 2014/15, and €30m for
assessment periods 2015/16, 2016/17 and 2017/18
“if it is entirely covered by a direct contribution/payment from the
club owner(s) or a related party” (Article 61.2).
This balance between
short-term losses, guaranteed in the event of financial failure (per the
Voluntary Agreement process) or offset by owner input, against long term
sustainability are superficially congruent with the objectives identified by
UEFA for its licensing regime, which include “to introduce more discipline
and rationality in club football finances; to encourage clubs to operate on the
basis of their own revenues; to encourage responsible spending for the
long-term benefit of football; and to protect the long-term viability and
sustainability of European club football” (Article 2 (c)-(f)). But this takes a somewhat narrow view of the
impact of spending in football. A club’s spending affects not just a buying and
selling club in a market transaction for a player’s registration, but affects
the overall market in football players.
Inflation in the market for
player registrations far outstrips inflation across the broader economy (by one
estimate, inflation in football transfer fees runs ten times higher than inflation in the “normal” economy – and those figure were
calculated before Paris Saint Germain doubled the record transfer fee with the
purchase of Neymar in the summer of 2017. Player wage growth runs at over 10% per annum. Voluntary Agreements and increased owner
investment may contribute to this vertiginous inflation. This runs in contrast
to some of UEFA’s messaging around FFP. For example, it has previously been stated that FFP was intended to “decrease pressure on salaries and
transfer fees and limit inflationary effect”.
Of course, it should be borne
in mind that there is nothing inherently wrong with inflation where it is
sustainable; but when considered in an environment where capital is accruing to
the wealthy elite (top 15 European clubs) at a quicker rate than the rest of
the market (see UEFA’s Financial
Fair Play Regulations and the Rise of Football’s 1% by van Maren for further analysis), there is a
risk of bifurcation of the financial capabilities of football clubs, with
inflation marginalising the non-elite.
European clubs have seen revenue growth at over 9% per annum on UEFA’s figures, although since 2009, the average English Premier League club has
added “five times more revenue than the average Italian Serie A or
French Ligue Un club”.
Inflation, if not intrinsically problematic, certainly has the potential to
cause problems; and UEFA, in administering and approving Voluntary Agreements,
and in weakening its stance on owners offsetting losses, should consider the
impact on inflation and stability. Voluntary Agreements and financial input by
owners are potentially gateways to the elite level; however, this should not be
at the expense of those who do not have wealthy owners or pre-existing wealth.
Perhaps more significantly,
there is a normative dimension to the introduction of Voluntary Agreements and
the relaxation of financial input from benefactors. The message behind FFP was
one of “revolutionising European football”, with then President of UEFA
Michel Platini saying that UEFA would “never [be] going back on this.”
Quite conversely, the changes brought about by the 2015 Edition of FFP were
welcomed with a message of FFP being “eased”. This is disappointing because, on UEFA’s own
figures, FFP has had
a considerable positive impact on the European football financial landscape. On
one view, allowing equity input from owners is a pro-competitive encouragement
of exogenous investment; on another, it is rowing back from a positive and
successful policy initiative at the expense of those not fortunate enough to
have a benefactor owner.
The impact of FFP
In defence of its loosening of
the restriction on loss-making, UEFA would doubtless point to the positive
impact the FFP has had to date,[1] which, perhaps,
creates financial latitude that once did not exist.
As a part of FFP, the clubs
under UEFA’s direct jurisdiction report standardised, audited, financial
information. UEFA publishes annual benchmarking reports, which draw upon the
information clubs submit. Since the introduction of FFP, there has been a
general positive trend in European clubs’ finances.
For example, UEFA’s 7th
Benchmarking Report, covering the financial year 2014, showed wage growth to
have slowed to its “lowest rate in recent history” at 3%. Overdue payables (essentially debts that
clubs owe but have not paid on time) had reduced by 91%. The most recent report
published by UEFA, its eight Club Licensing Benchmarking Report, covering the financial year 2015, indicates that
clubs “have generated underlying operating profits of €1.5bn in the last two years, compared with losses of €700m in the two years before the introduction of [FFP]”; whereas “Combined bottom-line losses have decreased by
81% since the introduction of [FFP]”.
Of course, there are
methodological problems in ascribing the improvement in European clubs’
finances exclusively to FFP when in reality there are a combination of factors
at play. However, what we can comfortably say is that there is an evident correlation
between FFP and the stabilisation of the football financial landscape.
There is also a second-order
effect of FFP at play. UEFA, in its position as the game’s regulator, in
introducing FFP, has had a hegemonic influence on the governance of the game at
national level. For example, in England,
domestic iterations of FFP have been instituted in the Football League, and the
Premier League has introduced its own Short Term Cost Control Measures.
Thus, by setting the tone of
sustainability expectations, UEFA has influenced the financial stability of
clubs outside of its jurisdiction. This is highlighted neatly in the following
passage from UEFA’s eight Benchmarking Report:
“The centrepiece of
financial fair play, the break-even rule, may not directly address small and
medium-sized clubs with costs and incomes below €5m, but financial fair play has other direct and indirect impacts on
these clubs. Direct in that UEFA and the Club Financial Control Body pass their
eyes over detailed financial data from all clubs competing in UEFA competitions
and in particular take careful, regular note of all overdue payables. And
indirect in that financial fair play has resulted in a significantly higher
level of scrutiny of club finances and the actions of club owners and
directors. In addition, some countries, such as Cyprus, have introduced their
own versions of financial fair play, tailored to their clubs and the scale of
their financial activities.”
So, whilst UEFA can
legitimately point to the more secure position across the financial landscape
as a good reason that Voluntary Agreements or wider economic input from owners
will do no harm, it should continue to reflect on the message this loosening of
FFP may send to the wider football market.
FFP Exemptions
One area of change for which
UEFA should be applauded is in its use of certain exemptions from the FFP
‘break even’ calculation. These include areas such as infrastructure and youth
football, both essential to the game’s long-term sustainability. By exempting
these areas from the break even calculation, clubs’ owners are incentivised to
invest (by equity rather than debt) in the game’s future, without an impact on
short-term competitiveness.
More recently (from 2015),
UEFA has moved to exclude expenditure on women’s football from the break-even
calculation (Annex X C(i). Again, UEFA should be praised for taking positive
steps to encourage growth across less wealthy areas of the game.
The Future of FFP after
Neymar
Over the summer of 2017,
public interest in FFP has reignited. The rules are now becoming synonymous
with Neymar and his new club, Paris Saint Germain, after the Brazilian player’s
reported €222m release clause was activated, doubling the
world record fee for a player transfer.
This move, followed by French player Kylian Mbappe joining Paris Saint
Germain from Monaco for similarly large fee, has upset some in the game.
These events pose a
significant problem for UEFA. It is not yet known whether PSG are in breach of
FFP (and, of course, it is conceivable that they have sufficient financial
capabilities to fund the purchases without any breach of the rules); however,
the transactions have raised questions, including La Liga President Javier Tebas stating that he believed PSG were guilty of “infringing on UEFA
regulations, financial fair play and EU laws”, and Arsenal manager Arsène
Wenger saying that “it looks like we have created rules that cannot be
respected…there are too many legal ways to get around it.”
The public grievances around
FFP precipitated by PSG’s spending do, to an extent, seem to conflate simply
spending large sums of money with breaching FFP. The rules do not prohibit
spending large sums on transfers or otherwise; rather, they limit how much debt
can be incurred by a club, assessed over a three year rolling period, with only
limited equity input from an owner. The rules were not designed to prevent a €222m
transfer per se (with the fee amortised across the length of the
contract period, as is standard practice in the football industry); rather,
they were designed to ensure that any such spending was sustainable, and did
not put clubs at risk.
However, FFP is a reactive,
not a proactive tool. Clubs report spending after the event; they are not
required to seek permission from UEFA to make a capital investment. This ex
post approach does perhaps reveal a flaw in managing any egregious
short-term infractions that should arise, the impact of which will be felt by
other clubs before UEFA, through the CFCB, can have its say.
The broader problem associated
with PSG’s spending is one of opacity. PSG is owned by Oryx Qatar Sports
Investments, which is an investment vehicle for the state of Qatar. There were
contemporary (unconfirmed) reports that the deal would be structured to take place off of PSG’s
accounting books, with Neymar being paid the value of his release clause
directly for agreeing to become an ambassador to the Qatar World Cup, so that
he could in turn pay his own release clause.
If true, this would notionally take the release clause fee off of PSG’s
books, but would almost certainly qualify as a related party transaction with
the meaning of FFP’s Annex X F and thus remain examinable by the CFCB. Similarly,
it was reported that PSG’s loan-come-purchase of Kylian Mbappe was “complex”. While complicated transfer arrangements are to be expected in a
game that is going through increasing commercial sophistication, there are
evidently some suspicions that PSG are attempting to circumvent FFP (or, more
colourfully, ‘peeing in the pool’).
However, UEFA anticipated
clubs employing ‘creative’ tactics to superficially comply with FFP, and gave
the CFCB jurisdiction to consider “at all times…the overall objectives of
these regulations, in particular to defeat any attempt to circumvent these
objectives” (Article 72.1). (At this stage, one can only speculate as to
what, if any, FFP objectives PSG may have breached, but the CFCB will surely consider
Article 2.2 (a) and (c) - (f)).
UEFA has publicly stated that it is investigating PSG’s FFP compliance, saying “The
investigation will focus on the compliance of the club with the break-even
requirement, particularly in light of its recent transfer activity”. Of
course, this should not be particularly surprising given the CFCB annually
examines the finances of each club that enters into UEFA competitions under the
standard FFP procedure, but it will be interesting to observe how CFCB’s
investigation progresses, and, if PSG is found to have breached FFP in letter
or in spirit, what punishment is meted out to PSG.
Whether PSG’s aggressive
spending was emboldened by UEFA’s weakening of the more restrictive elements of
FFP will remain unknown. Similarly, one
can only speculate as to whether the dilution of FFP, through changes such as
the implementation of Settlement Agreements and Voluntary Agreements, came
about as a result of legal challenges already brought and defended by UEFA; or
whether UEFA is insulating itself from further legal challenges; or whether
UEFA is simply altering the rules for the good of the game. As detailed in Part
One of this series, the legality of FFP will rest on its proportionality. These
changes have moved FFP towards a more flexible, and arguably more proportionate, proposition; but, given the public exposure that PSG’s spending has
precipitated,UEFA will surely wish to ensure that FFP is not seen as a paper
tiger.
The matter is on UEFA’s
agenda. Even before the events involving PSG in the summer of 2017, incoming
UEFA president, Aleksander Čeferin, spoke about the possibility of a fixed wage cap and closing the gap between the game’s haves and have nots. Such
changes would certainly make FFP more congruent with its name. FFP is not about
being ‘fair’ in the sense of being egalitarian or introducing a level playing
field. It is a gentle brake applied to the rate of growth in the game, aimed
predominantly at reducing long-term loss making and insolvency. Perhaps the
rules might have been less controversial from the outset, and might not have
been a mechanism for the frustration ventilated by sum following PSG’s purchase
of Neymar and Mbappe, if instead of being called FFP, the rules were called
‘financial management rules’, and absolved themselves from the pretence of
‘fairness’.
Alternatively, UEFA could
revisit FFP, implementing a genuinely egalitarian set of rules – a hard
salary cap, a luxury tax, the abolition of the transfer market, or some
combination of those things and others. This would, however, undoubtedly
engender its own set of legal challenges, as we have seen with FFP.
Whilst the challenges to
various aspects of FFP have been largely ineffective in defeating FFP (see for
example CAS 2016/A/4692 Kardemir Karabükspor v. UEFA; CAS 2016/A/4492 Galatasary v. UEFA; CAS 2014/A/3870 Bursaspor Kulübü Derneği v. UEFA; CAS 2014/A/3533 Football Club Metallurg v. UEFA; CAS 2013/A/3067 Málaga CF SAD v. UEFA; CAS 2012/A/2824 Beşiktaş JK v UEFA; CAS 2012/A/2821 Bursaspor Kulübü Dernegi v. UEFA; CAS 2012/A/2702 Györi ETO v. UEFA ), the rules have, against the backdrop
of repeated disputes about their legality, iteratively changed, including a
move towards greater liberalisation in respect of equity input into clubs by
owners.
And so UEFA finds itself at a
crossroads. FFP, bombarded with legal challenges (which it has to date ridden)
has gradually developed and liberalised as financial stability in European
football has improved. Now, with the transfer market having escalated, the
efficacy of the rules has come into question. UEFA must decide on the path it wishes
to take; whether to liberate the market altogether, whether to institute a truly ‘fair’ system,
or whether to continue on FFP’s current centrist ground. Aleksander Čeferin, a
lawyer by extraction, is certain to face a legal and political struggle in whichever
direction he turns.