Introduction: FFP in Football Financial Fair Play (FFP). A term that is often heard, especially in the football world. But what does it mean? What did the Union of European …
Introduction: FFP in Football
Financial Fair Play (FFP). A term that is often heard, especially in the football world. But what does it mean? What did the Union of European Football Associations (UEFA) try to do when implementing the FFP regulations in 2011?
This blog article will examine why the UEFA implemented them, how the rules are applied, the benefits and drawbacks, and whether clubs are truly punished when breaching these laws.
Why there was a need for FFP (Financial Fair Play) regulation in Football?
UEFA implemented Financial Fair Play (FFP) regulations in response to the growing concern over the financial sustainability of football clubs. The main objective of the FFP regulations is to promote financial stability and fair competition within European football.
Before introducing the FFP regulations, some football clubs were spending vast amounts of money on transfer fees and player salaries, often funded by unsustainable debt levels. This led to a situation where some clubs could gain an unfair advantage over their competitors by spending more money on players than they could realistically afford.
UEFA recognized that this situation was not sustainable and could ultimately lead to the collapse of football clubs and the wider football industry. The FFP regulations were designed to address this issue by requiring clubs to balance their books and limit their losses over three years.
By introducing the FFP regulations, UEFA aimed to promote financial stability within the football industry and ensure that all clubs operate within their means. This, in turn, would help protect the football industry’s long-term viability and prevent the collapse of football clubs due to unsustainable levels of debt.
In conclusion, the core objectives behind the FFP regulations are to promote greater transparency of clubs’ revenues, to ensure that clubs “live within their means,” to guarantee that clubs pay their debts on time, and to transform them into more sustainable and long-term businesses. This will help clubs be more accountable for their actions and spending to avoid financial losses, which can lead to them being unable to pay their staff wages, debts, and taxes.
Clubs like Portsmouth, Rangers, Leeds United, and others suffered similar consequences. Such financial collapse can even result in liquidation, which UEFA tried to prevent by introducing the FFP.
What are the rules, and how does the UEFA determine who breached the regulations and who did not?
For FFP regulations to take place, the following must be respected:
Break-even requirement: Clubs must break even over a rolling three-year period, meaning their total expenses cannot exceed their total revenues during that period. If a club fails to meet this requirement, it may face penalties.
Monitoring: UEFA monitors the finances of all clubs participating in its competitions. Clubs must submit annual financial reports to UEFA, including details on the club’s revenue, expenses, and any outstanding debts. UEFA then reviews these reports to ensure that clubs operate within their financial means.
Reporting and disclosure: UEFA requires clubs to provide accurate and transparent financial reporting, and any material changes to the club’s ownership or financing must be disclosed to UEFA.
The rules prevent clubs from spending more than they earn and require them to disclose their financial information to UEFA annually. Clubs breaching FFP regulations, including fines, transfer bans, and exclusion from UEFA competitions, can face penalties.
How is accountancy used in FFP?
UEFA wants to encourage clubs to invest in their infrastructures and youth systems to become self-sustainable and have a solid base for the future. For this reason, any stadium development expenses and all costs related to youth growth will not be considered when clubs disclose their financial information to UEFA. However, clubs are required to provide evidence of these expenses to UEFA.
So let us look at what counts, which is the transfer fees. These are not paid straightforwardly, and that is why many clubs found some ways to go past FFP rules.
For example, a club signed a player on a four-year contract for €20 million. This €20 is not paid straight forward from one club to the other once all papers are signed. Instead, the transfer fee is amortized over the length of the player’s contract. In our case, it is four years. Remember how clubs have to disclose their financial situation every three years? That means the club will report that they only spent €5 on him. This is how Chelsea has managed to get around the FFP rules this season. People have been expecting them to be punished after spending more than €600 million in both the summer and transfer windows. However, the Blues signed the likes of Enzo Fernandez and Mikhaylo Mudryk on eight and half year contracts, allowing them to spend more than all of the Serie A, Ligue 1, and Bundesliga clubs COMBINED during the last transfer window.
Benefits and Drawbacks of FFP
Since their introduction in 2011, FFP regulations have been a topic of debate within the football world. Some critics argue that the regulations are unfair and limit clubs’ ability to invest in their teams and compete at the highest level. Others argue that the regulations are necessary to prevent clubs from overspending and destabilizing the football system.
One of the key benefits of the FFP regulations is that they promote financial stability within the football industry. By requiring clubs to operate within their means and limit their losses, the regulations help prevent clubs from accumulating unsustainable debt levels. This, in turn, helps to protect the long-term viability of the football industry as a whole.
Another benefit of the FFP regulations is that they promote fair competition within the football industry. By preventing clubs from overspending and using their financial resources to gain an unfair advantage over their competitors, the regulations help to level the playing field and ensure that all clubs have a fair chance of success.
Despite these benefits, the FFP regulations have faced criticism from some quarters. Critics argue that the regulations are too restrictive and limit clubs’ ability to invest in their teams and compete at the highest level. They argue that the regulations disproportionately affect smaller clubs and reinforce the dominance of the biggest clubs in the industry.
Some big, established clubs with worldwide fanbases, like Manchester United, spent vast amounts of money during the last ten years. Still, it was never mentioned that they could breach the FFP rules. That is because United are a well-known, marketable brand that can live off its revenues despite the debt placed by its owners and the dividends they take each year. This is where people argue that FFP rules are put in to favour the bigger clubs in world football.
Penalties and fines in FFP
In 2022, many clubs failed to comply with UEFA’s ‘break-even’ requirement. PSG, Juventus, and Inter Milan have all been fined.
In 2014, PSG was caught outspending its income. The club was fined, had its UEFA squad reduced, and was handed a transfer spending restriction and two-year squad salary restrictions. Manchester City, on the other hand, might be facing the most significant punishment available as it was found to break FFP laws allegedly. The Citizens are said to have over 100 breaches after an investigation. It is still unclear whether City is guilty or innocent. Therefore, it is still unknown what kind of punishment they could face.
Conclusion: Financial Fair Play is a set of regulations designed to promote financial stability and fair competition within the football industry. While the regulations have faced criticism from some quarters, they are essential for ensuring that football clubs operate within their means and do not accumulate unsustainable debt levels. Clubs should comply with these regulations. Many have found themselves struggling financially, especially after the COVID breakout. For that reason, FFP laws should be strictly implemented to ensure the sustainability of clubs.