Understanding The Financial Fair Play (FFP) Rules

A 2009 UEFA review revealed that more than half of 655 European clubs incurred a loss over the previous year. Net losses across Europe stood at €1.6 billion (£1.3 billion, up 33% from 2008), and on average, clubs were spending 64% of their income on player wages. In 78 extreme cases, it was more than 100%.

Although a small proportion were able to sustain heavy losses year-on-year as a result of the wealth of their owners, at least 20% of the clubs surveyed were believed to be in actual financial crisis.

Going by the review, UEFA felt compelled to intervene. Thus it introduced the Financial Fair Play (FFP) Rules.

In this article, FootballOrbit brings you all you need to know about the FFP.

What are the Financial Fair Play (FFP) Rules?

The Financial Fair Play (FFP) Rules are a set of regulations established to prevent professional football clubs spending more than they earn in the pursuit of success.

It was introduced with the aim of preventing clubs from getting into financial problems which might threaten their long-term survival.

The FFP were agreed to in September 2009 by the Financial Control Panel of football’s governing body in Europe (Union of European Football Associations — UEFA).

UEFA logo

The regulations provide for sanctions to be taken against clubs who exceed spending over several seasons, within a set budgetary framework.

Although it was initiated in 2009, implementation of the regulations started at the beginning of the 2011/12 season.

“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. We don’t want to kill or hurt the clubs; on the contrary, we want to help them in the market. The teams who play in our tournaments have unanimously agreed to our principles…living within your means is the basis of accounting but it hasn’t been the basis of football for years now. The owners are asking for rules because they can’t implement them themselves – many of them have had it with shovelling money into clubs and the more money you put into clubs, the harder it is to sell at a profit.”

Former UEFA President Michel Platini announcing the FFP

Platini went on to say that the measures were supported by the majority of football club owners and that an independent panel would be set up to judge whether clubs had broken the rules.

The most essential part of the FFP regulations is the break-even requirement, where clubs are ordered to not spend more than the income that they generate, and that they must balance their books over the course of three years.

Clubs are permitted to spend up to €5 million more than they earn per assessment period (three years).

However it can exceed that level to a limit if it is covered by a direct contribution from the club’s owner.

Before the FFP regulation was introduced, some clubs like Chelsea, Manchester City and PSG were spending exorbitantly due to their billionaire owners.

This drew considerable criticism from other clubs and football figures.

Arsenal manager Arsène Wenger — a major proponent of the FFP legislation — referred to transparent owner equity investment as “financial doping” and accused Chelsea, Manchester City, and Real Madrid for being “financially doped”.

What are the punishments for breaking the Financial Fair Play rules?

The FFP legislation allows for eight(8) separate punishments to be taken against clubs for breaking the rules. The punishments are ranked in order of severity:

  1. Reprimand / Warning
  2. Fines
  3. Points deduction
  4. Withholding of revenue from a UEFA competition
  5. Prohibition to register new players for UEFA competitions
  6. Restrictions on how many players a club can register for UEFA competitions
  7. Disqualification from a competition in progress
  8. Exclusion from future competitions

Criticism of the Financial Fair Play (FFP) rules

Although the intentions of encouraging greater financial caution in football were well-received, FFP has been criticised as illegal by limiting the internal market, failing to reduce football club debt, for protecting the status quo of the “big clubs” and encouraging dubious sponsorship deals.

In 2015, UEFA announced that FFP would be “eased”. A newspaper article alleged that this was in response to a number of lawsuits.

With the ever-climbing transfer fees and players’ wages, clubs started finding it difficult to abide by the FFP rules and regulations.

The majority of football debt in Europe is owed by its three most dominant leagues; Premier League, Serie A and La Liga.

Among elite European clubs, continued excessive spending in the transfer market has been justified by owners and executives as being necessary to keep the club competitive.

Which clubs have been penalised by Financial Fair Play (FFP)?

In April 2014, it was revealed that less than 20 clubs had been thought to have violated the break-even rule of FFP, and that Manchester City and PSG were among the clubs listed.

In May 2014, UEFA announced that they reached settlements with 9 clubs after FFP investigations, with sanctions covering break-even targets (limit of wage bill), sporting measures (decrease of UEFA club competition size) and financial contribution (fines).

PSG were handed a €60m fine with €40m suspended, and had their UEFA squad reduced to 21 players as well as transfer spending restrictions and two-year squad salary restrictions.

Manchester City were given a €60m fine, suspended €40m and also had the same squad reduction and transfer limitations.

Man City also got a 2-year ban from the Champions League in 2020 for allegedly breaching the FFP rules, but the ban was overturned by the Court of Arbitration for Sports (CAS) after the club appealed.

Similarly, AC Milan got banned from participating in the Europa League in 2019 for breaking Financial Fair Play rules.

Has the Financial Fair Play (FFP) Rules succeeded in achieving its goals so far?

In 2019, the net loss in European football was €125 million (a 92% fall from 2009) following the first ever consecutive years of overall profitability in 2017 and 2018.

These figures suggest that FFP has had the desired effect in moving clubs away from losses.

Some of the growth in income is also partly attributable to the introduction of the FFP.

Sponsorship agreements – which must meet a fair market value assessment carried out by UEFA – with brands have replaced the loans previously relied upon to fund club operations.

Another important source of income, which adheres to the requirement of breaking even, is selling players for profit — even to clubs considered as rivals.

Chelsea, for example, which made £94m profit in the 9 years before FFP, made £623m within 10 years after the rule was introduced.

The new laws prevented its then billionaire owner, Roman Abramovich, from directly funding the club’s investment in star players. So instead the Blues successfully adopted a model of buying young players, sending them out on loan to gain experience and then selling them for substantial transfer fees.

But not every club enjoyed this success, and one of the biggest criticisms of Financial Fair Play is that it reduces competition and makes football less exciting.

Some observers believe that the “big clubs” with elite footballers and the financial power to acquire new talent will continue dominating because the rules restrict non-football income for investment in the playing squad.

This implies that new money arriving at old clubs – such as the Saudi-backed takeover of Newcastle United – may struggle to immediately make an impact.

The new owners will be unable to invest extra funds if the club qualifies for European competitions (FFP only applies to clubs involved in UEFA organised tournaments — Champions League, Europa League and the Conference League).

Careful financial planning was also mightily undone by the coronavirus pandemic.

With fans unable to attend matches, income dropped dramatically and UEFA announced a break in the FFP monitoring period to isolate the years 2020 and 2021.

So aside from the effects of coronavirus, its main objective of reducing losses and promoting overall profitability; Financial Fair Play (FFP) regulation should be considered as a success.

Evidence suggests that the business model modification it encouraged — player sales and sponsorship income — is responsible for overall improved profitability in European football.

However, the regulation has not been able to curb high wages and transfer fees inflation, which could yet threaten club finances.

2022 Reformation

In April 2022, UEFA announced some new reforms to the Financial Fair Play (FFP) rules, majorly:

(1). The amount that clubs are permitted to lose over a three-year period will double from €30m to €60m.

(2) . Under the new regulations, European clubs will be limited to spending 70% percent of their revenue on wages, transfers and agents’ fees.

UEFA’s new rules will come into effect in June 2022 but clubs will have up to three years to implement them.

It is expected that clubs will be allowed to spend 90% of their income in 2023/24 and 80% in 2024/25, before the rules come into full force in 2025/26.

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