Football in Europe is without a doubt one of the biggest money industries. All of the top leagues in Spain, England, Germany and Italy in the season 2011-12 had a combined revenue figure of well over 1 billion GBP, with the revenues of English football clubs itself put together was well over 3 billion GBP for the first time (Riach 2013).
Even though clubs are bringing in money through large revenues, they tend to spend a lot more than their incomes. 55 percent of clubs that participated in the top divisions of Europe had made a net loss of which 38 percent of the clubs recorded a negative equity (UEFA 2011).
Looking at these figures itself, there is no surprise that some high profile football clubs have suffered a collapse financially. For example Rangers that is a Scottish football club, have won over 54 Scottish titles, more than any other club. But off the field, they were put into administration after failing to pay their debts of over 75 million GBP in unpaid taxes that was owed to Her Majesty’s revenue and Customs. Rangers then began its liquidation process after failing to reach their agreement with their creditors and were dropped down into the third division of the league (Pritchett 2012).
Concerned over such issues of financial backdrop, the Union of European Football Associations (UEFA) developed the Financial Fair Play (FFP) regulation with an attempt to restore a lot of financial rationality into European football. These regulations are based on the theory that teams that overspend on player salaries would ultimately drive them to bankruptcy and hence eternal interference would be necessary in order to prevent this from happening (Chaplin 2010).
These regulations are operated as a part of UEFA’s already existing club licensing system and have further set up a variety of financial requirements that clubs must adhere to in order to gain a license (UEFA 2010).
The details of certain regulations will be discussed later on in this dissertation, however, the most discussed topic is the regulations on how UEFA expect clubs all over Europe to break-even in their finances which means requiring clubs to live within their means and not spend more than what they earn overall (European Commission 2012).
The FFP at a first glance would just appear to be a mere quality standard. However, the break-even rule highlights limits how much clubs are allowed to spend on the salaries of players making the regulations take the form of a quasi-salary cap (Peeters and Syzmanski 2012).
These rules only apply to football clubs who apply for a UEFA club license. Although, it seems likely that most clubs will adhere to the rules according to UEFA who organise four club competitions namely UEFA champions League, UEFA Europa League, UEFA Super Cup and the UEFA Women’s Champions League (UEFA 2015).
These competitions are one of the most prestigious events that a European club can compete in and in particular the UEFA Champions League that offers major earnings to clubs that qualify for it (UEFA 2015).
The FFP regulations is a 93 page document that states a clubs financial obligations which range from a requirement to publishing its interim and annual reports to ensure that the club has no overdue payables to other clubs, employees or tax authorities (UEFA 2012).
By August 2013, UEFA Club Financial Control Body (CFCB) had already returned decisions against nine clubs for payable over dues of which eight received sanctions, with six excluded from participating at the next UEFA club competition that they would qualify to compete in (Panja 2013).
The notion of break-even is stated in Article 60 of the regulations which stipulates the difference between relevant expenses and relevant income which is the Break-even point and which needs to be calculated in accordance with Annex X for each reporting period. Relevant incomes however limited to incomes rising out of football operations only such as gate receipts, sponsorships and advertising and does not by chance include equity injections from wealthy owners. This would however prevent a situation similar to the one seen in the English Premier League where Manchester City owner Sheik Mansour pumped in over 1 Billion GBP into the club, taking them from a team that stood 9th in the year 2008 to 1st in 2012 (Conn 2012).
If a club has a break-even deficit larger than the acceptable deviations, or breach any other rule of the FFP regulations, they might be penalised by the UEFA CFCB, where the possible penalties could range from warnings to banning a club from participation, to heavy fines (UEFA 2012).
Rationale and Topic Importance
The FFP regulations are quite an extensive piece of legislature which has been introduced all over Europe where football is concerned. The rules have been set to maintain and secure financial future of football clubs.
The key areas this piece of research will explore are:
*What are the Financial Fair Play rules that are currently in place and how do they apply to football clubs in Europe?
*What are the objectives of UEFA bringing these rules into play?
*Are there any loopholes that clubs are using to bypass the rules?
*Would the rules of the FFP benefit some clubs more than others?
Football being one of the big money industries in Europe can have a massive effect on other industries as well like the effect performances of teams have on television rights for example. This study will look into the financial aspects surrounding finances of football clubs and how these rules that have been brought in would help the future of many football clubs.
This study will also help and benefit football fans, football clubs and their representatives as well as audiences that have financial interests. This topic is a very new subject and would be a platform for future research in this area.
The case studies that have been taken up for analysis are: Manchester City FC, Paris Saint Germain and Chelsea FC.
All three clubs have a major history with Manchester City having a 140 year rich history, PSG almost 45 years and Chelsea a history of a 110 years.
All these clubs have over 90 titles combined together, such is their history, but what is striking and the main reason for taking up these clubs as cases is them being backed by billionaire tycoons in the past couple of years in order to be dominant forces all around the continent if not the globe.