This article has been authored by Shivam Kunal, a second-year law student at Institute of Law, Nirma University, Ahmedabad.
The involvement of unreal money into football has rendered several unfavorable results for the smaller clubs. It also led to the emergence of an anti-competitive behavior at the outset of the transfer market in football. The French Maestro Arsene Wenger had raised concerns over the alleged discrepancies in the FIFA & UEFA rules. The legendary manager called for a reform in the Financial Fair Play (“FFP”) rules in an interview dating back to 2015 where he stated,
“I am in favour of measures that reinforce checks around club management, over measures that restrict and limit.” We should value quality management and encourage it. “I am also in favour of opening things up to more investment, which FFP does not allow for.”
The clubs that dominate Europe today are those that were built and made investments during an era when FFP did not exist. FFP prevents emerging clubs who want to invest from doing so.” At the same time, it allows investment from foreign sources and it helps as way to gather more finance for the already giant clubs. Foreign sponsors are willing to invest money in clubs where they see glimpses of profitability and none of the bottom 10 clubs in any of the top European league fits into the rigid strata.
Bruce Buck of Chelsea F.C., stated
“The problem with FFP in essence is it goes a long way to preserving the status quo.” Mr. Buck also added “one of the great things about football in this country, and many others, is if you are last in [a lower league] you can still hope one day you will be in the Premier League. That is difficult, if not impossible, with FFP.”
Evolution of FFP
Over the last five years, big-money moves in the footballing world have increased the demand for reform in the FFP pertaining to its inefficacy in dealing with the current scenarios. Union of European Football Association (UEFA) investigated the transfer of Neymar and the governing body sanctioned Paris Saint Germain (PSG) for breach of transfer and wages rules, and the Commercial Court of Arbitration later annulled the decision for Sports on technical grounds. The most recent piece of the controversial puzzle involving the FFP, Court of Arbitration for Sports (CAS) and the UEFA, is the revocation of the ban imposed on the Emirati owned club Manchester City. The blues were banned for two years and fined £24.9m after being found to have committed serious breaches of the UEFA's club licensing and FFP regulations. We have to reassess whether the CAS is the appropriate body to which to appeal institutional decisions in football.
The Financial Fair Play was introduced in the year 2009 and imposed from the season 2011-2012 in a bid to regulate the spending by clubs on transfer and wages. An act that looks purely intended to regulate the footballing market has been criticized heavily due to the legal loopholes entailed that limit the internal market for a league and aims to maintain the status quo of the large clubs by limiting investment for other smaller clubs.
The UEFA president and legend Michel Platini affirmed before the implementation of the rules. "Fifty per cent of clubs are losing money and this is an increasing trend. We needed to stop this downward spiral. They have spent more than they have earned in the past and haven't paid their debts."
The introduction of a rule which could regulate the market was welcomed. The absence of a cap or ceiling on the expenditure by football clubs led to a devastating financial situation for most clubs. The English, Italian, and Spanish league alone accumulated a net debt of over 4 Billion Euros. Several premier league clubs were reportedly overspending, including West Ham United and Everton. The clubs popularly known as the "hammers" and "toffees" registered a net loss of 90.2 million and 29.7 million Euros in the fiscal year of 2010. The picture was not any different in the Italian League, where most of the clubs reported negative income graph owning to over expending on the players than revenue. Two of the most famous names in the footballing world are Real Madrid C.F and F.C Barcelona, and both the clubs reported an increase in debt payable, although the clubs' net asset saw an escalation.
Relevancy of FFP in Modern Football
Under Article 3, The enforcement of FFP rules has been vested with the Club Financial Control Body (“CFCB”). The CFCB has two chambers, both of which answer to the CFCB chairman. First, the investigatory chamber has the task of monitoring clubs and investigating potential wrong-doings. Second, the adjudicatory chamber oversees the judgment stage of any proceedings. The CFCB chief investigator heads the investigatory chamber and the CFCB chairman heads the adjudicatory chamber. The CFCB has a wide range of punishment in their armory if a club is found in violation of the FFP norms. These punishments range from suspension from the European club competition or ban from the transfer market to internal settlements agreements by the virtue of Article 15.
To ensure a constant supply of money and a stable situation for the clubs, UEFA introduced the break-even analysis to regulate debts. Article 58 to Article 64 of the FFP rules deal with the beak even-analysis and its implications. The applicability of Break-even analysis is not stringent as set out under Article 61 that allows for deviation from the rules by amounts up to 5 million Euros. However, if the club has an equity owner or a related party making contributions to the club, the club is allowed a deviation of €30 million. Allowing a deviation of €30 million if capital contributions are present from equity owners or related parties is a reduction from the €45 million that the 2012 version of FFP regulations allowed.
The Financial Fair Play rules were introduced largely to control the finances through regulating and limiting the amounts spent by clubs. Many clubs in Europe are backed by owners capable of injecting constant dollars despite an increase in the fiscal deficit. Incidents in the past have shown us why the clubs' overdependency on their owners could lead to fragile circumstances. If clubs become so dependent on their owners, they fall into existence‑threatening trouble if the owners leave or lose their fortunes. That happened at Portsmouth, when Sacha Gaydamak's money dried up, West Ham United when Bjorgolfur Gudmundsson's Icelandic billions melted away, at Manchester City under the fugitive corruption convict Thaksin Shinawatra, and at many other clubs at all levels. Even when a club is backed by an owner as unshakably wealthy as City under Sheikh Mansour of Abu Dhabi, UEFA argues the money pumped in inflates the wages all clubs have to pay. That spiral is absolutely evident in England where, as revealed in the Guardian, the Premier League clubs last year made a record £2.1bn but spent an average 68% on wages, and 16 of the 20 clubs made losses, £484m in total.
UEFA requires, per FFP article fifty-eight, relevant income and expenses from related parties to be assessed at fair market value. Investments in football comes from more than one source and the largest chunk of the contributor it through sponsorship deals, when it comes to related party income, it can be difficult to discern what part, if any, of the revenue is truly intended to be a sponsorship payment and what portion is equity contributions to the football club from the related party. The sponsorship deal of Manchester City and Etihad was called into question pertaining the revenue received from the related party.
UEFA sanctioned French club Paris Saint Germain for the breach of this rule in 2018, the French club reportedly signed Neymar for a whopping 222 million Euros and made fabricated changes in its accounts to match the criteria set under the FFP rules. The ruling was set aside by the Court of Arbitration for Sport owing to a technical fault in the judgment. Article 16(1) of the rule places a time bar on the decision and states that the review procedure must be completed within ten days from the commencement of such review. It is noticeable that the rule does not consider any exceptions but adheres to a rather stringent policy.
Inflation of the football market narrows the scope of a tighter competition for the title, and it places an embargo on the "top four" in leagues across Europe. The top four in elite European leagues earn direct entry into the UEFA Champions League and an opportunity to earn hefty amounts ranging from 15 million to 60 million Euros as prize money. Inclusion in a top European competition attracts lucrative Television deals and more injection of dollars and stability into the balance sheets of the powerhouse clubs. It was the norm until 2015 when Leicester City wrote the craziest and most remarkable chapter in the history of football ever by toppling 50 to 1 odd and emerging as the Premier League winners. This led to the giant killer's status being taken seriously by the advertisers, and an investment row followed, which allowed the relatively smaller club to compete for a place in the top four or top six.
The limitations imposed by the FFP rules on investment through the break-even analysis in a football club limits the scope of exemplary big-money signings for the clubs going through a phased era of development compared to the already established giants that had carried out investments before the FFP came into place. For instance, Porto has one-third the budget of Real Madrid C.F, and yet the Portuguese club has managed to win the European title twice. The record signing made by Premier League winners Leicester City is 45 million euros which less than one-fourth of the record signing made by the Qatari businessmen owned PSG amounting to 222 million Euros, and yet the Foxes reached the quarter-final stage which was better than PSG who was eliminated at the Round of 16 stage. Allowing controlled investment and regulating not only the net income and expenditure but also fragmented expenditure on wages and contracts would make the entire idea of implementing the FFP more plausible and probable. There is a need to implicate harsher punishment for repeat offenders under the FFP, for instances Porto was fined for three consecutive years for not complying with the FFP norms under Article 58 and Article 59, the fine accumulated to 5% of the total revenue generated by the club over three seasons. Monetary fine is an easy way for the “giant” status clubs to not adhere with the norms and yet not suffer.