Who Benefits the Most from UEFA’s New Financial Fair Play Regulations?

Introduction

UEFA President, Aleksander Ceferin, labelled the Financial Fair Play (FFP) rules as a great success. They were introduced in 2010 by UEFA to prevent clubs from spending unsustainably and outside of their means. This restricted the extent to which financial mismatches occurred between clubs competing within the UEFA jurisdiction. Ceferin argues that FFP laws were responsible for ‘saving’ European football.

Over a decade after FFP was first implemented, a new system has been devised and approved by UEFA in April of 2022. The system was presented in front of a committee that included the European Club Association, European League representatives, European Parliament, National Association representatives, FIFPro, Council of Europe, the European Commission and supporter groups from European clubs. Following significant support of the plans, the newly named Financial Sustainability and Club Licensing Regulations (FSCLR), more casually known as the ‘Squad Cost Rule’, is planned to come into force as soon as June 2022.

In this blog I will explain exactly what the FSCLR is and what is required to comply with these rules. I will then also examine why this change in financial regulations for clubs is necessary, the implications it will have and any issues that might arise.

Financial Sustainability and Club Licensing Regulations

The newly devised FSCLR relies on three separate pillars; solvency, stability and cost control. They are understood as follows:

A) Solvency

1. Solvency requires that clubs have no overdue payables to other parties.
2. This includes tax payments, money owed to other clubs and to the employees of their own club. This includes player contracts. In the past, in certain countries, some players have been persuaded to sign an agreement to dismiss the money they are owed and prevent their club breaching financial fair play rules.UEFA must introduce rules that ensure this is no longer a possibility.
3. This will be monitored closely by quarterly checks and automatic penalties will be given to those found not to be adhering to the rules. This is a stricter version of enforcement than was previously seen with FFP regulations.

4. These penalties will be predefined sporting punishments or financial measures such as point deductions, squad limits and fines.
5. There is also the potential for clubs to be relegated between competitions for serious or multiple breaches. For example, a club can be demoted from the Champions League to the Europa League.
   
   B) Stability – ‘the football earnings rule’
   
   1. The stability guidelines refer to the ‘acceptable deviation’ or, in other words, the amount of money that a club can afford to lose in a year.
   2. There are new and different football earning requirements outlined by the FSCLR.
   3. Whilst the FFP rules allowed for €30million to be lost over three seasons, the FSCLR now allows for up to €60million.
   4. However, clubs that are deemed to be in sustainable, strong and financially healthy positions can lose up to an additional €10million.
   5. This has been included in the face of the COVID-19 pandemic increasing financial losses across Europe.
      
      C) Cost Control – ‘Squad Cost Rule’
   1. This simply stipulates that a club’s expenditure on transfer fees, player wages and agent remuneration must be equal to less than 70% of their annual revenue.
   2. UEFA has decided that this third pillar will be gradually phased in to allow clubs to adjust to the changes.
   3. In the 2023/24 season, clubs will have to fall under 90% of their revenue; 80% in 2024/25 and finally under 70% in 2025/26.Additional clauses of the FSCLR require an improvement in the recording of balance sheets and ensuring that clubs are aiming at reducing their debts, consequently increasing the stability of balance sheets for European clubs. A significant factor for ensuring this is the newly adapted understanding of Fair Value and Related Party transactions.

Previously, FFP regulations demanded that only related party transactions had to be of fair value. Fair value referred to the concept that any commercial deal and transactions that occurred between clubs and interested parties such as sponsors, were in accordance with the true market value of these transactions. The FSCLR now demands that all transactions and commercial contracts are monitored closely and will use external agencies to advise if deals are completed at a fair value, reflective of the real market value. In order to adequately judge the value of sponsorships and deals, using at least two agencies will produce the fairest assessments and avoid biased opinions.

Firstly, this removes the additional administrative burden of having to determine which transactions fall under the ‘related party’ category. Furthermore, it will prevent instances of clubs falsely inflating the value of sponsorship transactions in order to comply with financial regulations. This has occurred several times over the last decade and major European clubs have been found guilty of such offences.

Why Change from Financial Fair Play?

UEFA has decided that following the financial impact of the COVID-19 pandemic and changes in the football industry, there is a need for wholesale reform of financial regulations and new sustainability initiatives. The aim of FSCLR is to protect football by addressing financial imbalances and challenges, building a more sustainable future and preparing for mitigating future shocks.

This seems sensible once we consider the estimated €7billion that European football was estimated to have lost during the COVID affected 2020/21 season. The need for change is reinforced by the additional issues that during the 2019/20 season, wages increased by over 2%; transfer fees had risen by 18% in 2021 and profits from transfers had fallen by 41%. The compilation of these factors presented a starc financial worry for European football the UEFA needed to address. Their answer was FSCLR.

Will This Just Benefit Rich Clubs?

The first impression of the FSCLR regulations is that they will be of benefit to the more financially advantaged clubs. This is because there is an impression that wealthy clubs will simply continue to breach the rules and pay the fines that do not dramatically impact their financial situation. However, for less financially strong clubs, these fines would have a significant impact and they cannot afford to break the FSCLR.

This was the case under the original FFP regulations over the last decade. The regulations disadvantaged and punished smaller clubs whilst bigger clubs were often unaffected by the financial penalties given to them for breaching the policies. The regulations contributed to a growing inequality between the small and big football clubs across Europe.

UEFA aims to overcome this issue. They have ensured that the FSCLR is reinforced by progressive sanctions. In other words, sanctions are proportionate to the financial situation of the offending club and multiple, repeated offences receive a progressively increasing financial penalty. Furthermore, the ability to demote large clubs from the Champions League into a lesser competition should be enough to discourage these clubs from manipulating the system. It remains to be seen whether this new approach will solve the financial issues facing European clubs. Who do you think will benefit more from the FSCLR and will it create a fairer financial system?

Another advantage that FSCLR has over FFP regulations is that UEFA will aim to punish clubs more efficiently. In the past, FFP regulations have created long and drawn out legal battles in determining the extent of offences and the punishments that should be enforced. Under the new FSCLR, UEFA maintains that clubs will be handed their penalty within just three months of when their offence was first noted.

What About National Association Policies?

Another issue lies in the fact that some national associations have their own financial regulations to try and promote fairness within their jurisdiction. This undermines UEFA’s attempts to ensure fairness across international European competitions as the individual national associations create inconsistent, unique rules. For example, under the Spanish Federation regulations, Barcelona were unable to resign Lionel Messi and hence were forced to allow him to leave. However, the French football association does not adopt or enforce its own financial fair play regulations and Paris Saint Germain were able to sign Messi without any financial repercussions or fair play punishment.

This immediately creates a problematic inconsistency between different national financial fair play systems and consequently causes inequalities between clubs despite the magnitude of both Barca and PSG as powerful clubs. In this instance, the Real Federación Española de Fútbol (Spanish Football Federation) enforced far stricter financial regulations whereas UEFA allowed for PSG to go far beyond this.

The inconsistency between national association FFP enforcement and UEFA’s more flexible and lenient regulations has been a problem since FFP was first introduced. It could be argued that COVID-19 is simply being used as an excuse for the financial mismanagement of European football rather than causing it itself. To prevent inequalities between big and small clubs and even competing big clubs, UEFA and the European football national associations need to ensure that the FSCLR is consistently reinforced across all clubs within the European jurisdiction. It fundamentally undermines the new regulations if national associations are enforcing alternative and stricter measures. This would have the adverse effect of continuing to accentuate inequalities between clubs rather than minimising them.

Summary

FFP regulations began the movement for, as the name suggests, fair financial conduct of clubs across Europe. However, the evolution of football and a global pandemic has led to UEFA devising the new and improved FSCLR.

The primary aim for UEFA is to increase the transparency of financial regulations and create a more efficient and robust system for clubs to comply with. Furthermore, a stricter and more easily enforceable set of financial regulations has the added effect of enhancing the competitiveness of all clubs across all European competitions and leagues.

The new regulations are not a guaranteed solution. Unfortunately, there remains further issues such as national associations creating independent policies that could undermine the aims of FSCLR. It will be fascinating to see if the new regulations, despite their proposed intentions, do indeed benefit some clubs, more likely the larger ones, over others, the smaller clubs.