Football in Europe is without a doubt one of the biggest money industries

Introduction

 Background

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).

Content

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 9^th in the year 2008 to 1^st 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.

 

Aims, Purpose of research

 

The main Aim and purpose of doing this piece of research is to clearly understand:

 

*What is the FFP and why have UEFA introduced them into European football?

 

*How have the FFP affected clubs around Europe?

 

*What are the loopholes that clubs have capitalised on in order to manipulate these rules?

 

 

 

 

Objectives and Suitability of topic

Football is a huge industry involving billions of pounds and has in a way boosted the economy of certain nations in Europe.

 

As a fan of football who on a regular basis contributes to financial income of clubs via merchandise and ticket sales, the researcher has a keen interest and desire to investigate into what lead the UEFA bring the FFP into play and to understand of how clubs have reacted and have changed their ways in either getting around the rules or adhering to them in the right way.

 

This research will benefit the researcher both on a professional level as he would like to work in the finance sector of a football organisation, as well as on a personal level and this information could also be used by club officials, football associations and academic students to give them a deeper insight into the FFP.

 

There is very little research done in this area as the FFP was brought into play only in 2009, hence it would add a new layer to future research and would see the effects that these rules have had on clubs.

 

 

Literature Review

 

Introduction

With UEFA bringing in the FFP rules in European football has caused a major confusion and

havoc in the world of football. From company directors, owners of clubs, to journalists and

representatives of clubs, interpretation and understanding of the FFP has led them to spend a

lot of resources in order to gain knowledge about the rules set up. While the rules of FFP and

its guidelines are openly available to the general public, there are large amounts of

information which have been provided only to football clubs. The research done on the

subject is of information that was available only from 2009 to the present date. Throughout

this chapter, speaks about as to what were the main reasons that UEFA

introduced the FFPR’s and how they affected the clubs.

The research information has been revived from articles written by some of the industries

leading analysts, from the official UEFA website and other sources.

The topics that would be taken up for the reasons of why UEFA brought in the Financial

Fair-Play would be Expectations to Break-Even, Avoid Over investment in clubs for future

financial sustainability, Achieve competitive balance, To duplicate salary caps as a way to

achieve rationality among clubs as practised in North America.

On the other hand we will see what clubs have done and are still doing to avoid the rules and

regulations of the FFP to get around it.

 

 

What is Sport Governance and why is it necessary?

Originally sport has been a self-regulating activity by itself. There are various bodies that govern sport which in this case talking about football, the global bodies being FIFA and UEFA that are global sport organisations(GSO’s) which regulate football and its events autonomously through its network that are self governed by and with its rules and regulations (Henry and Lee 2004).                                                                                                           There has been a trend, where sport is increasingly relying on public services like the polices for example who are deployed by the government as well as the governing bodies necessary to ensure safety of environment at sport events. Sport has been growing commercially as well and has been regarded as more of an economic activity which is influenced by powerful external commercial actors. Its evolution has caused central and local authorities to question the autonomous status of reports. Entities that are political are trying to get a hold on sport bodies from a rule perspective but however come across great difficulties. On the other hand, sport clubs are very reluctant to give up their autonomous position that they cherish and point out to specificity of their sector to justify this (Henry and Lee 2004).

There have been various types of failures in governance in many GSO’s. Where football is concerned, cases of money laundering, corruption, bribery, malicious player agents are some of the failures that have been witnessed. The most recent one being FIFA that came under fire when it was found that senior officials on the board were accused of taking bribes. (BBC News and Gibson 2010). These kinds of abuses show clearly the failure of governance in the football industry. Governments at the same time give sport a total special status. The sport is treated quite often with legal and economic exceptionalism by governments. Ever since the Bosman case at the European level occurred, UEFA as well as FIFA have adhered to be a strong protectionist of sports governance and have also stated that should be given complete decision making power by the EU institutions (Parrish 2011).

Looking at all the money being invested into European football by billionaire tycoons, UEFA felt the need to intervene and bring about change in the system and take it to a whole new different level by bringing into play the Financial Fair Play in the year 2009.

 

Expectations to Break Even

The club licensing and Financial Fair Play Regulations have been constituted by UEFA and in the policy which can be divided into two part namely licensing requirements that needs to be fulfilled before the licensor who is able to grant a license and then a club would be able to participate in competition. (UEFA Club Licensing and Financial Fair Play Regulations 2012).

The financial requirement within this policy particularly focuses on having no overdue payable. To this there is an addition that clubs need to provide at any given time its financial information in case the club faces a deteriorated net liabilities position or when the club cannot submit a statement of ‘going concern’(UEFA Club Licensing and Financial Fair Play Regulations 2012).

Added to these license agreements, clubs that qualify for UEFA competitions have to comply when it comes to monitoring requirements (UEFA Club Licensing and Financial Fair Play Regulations 2012). These requirements in particular consists of the break even requirements that states that clubs aren’t allowed to have more relevant costs than relevant revenues during the given monitoring period (UEFA Club Licensing and Financial Fair Play Regulations 2012).

According to the UEFA financial fair play rules article 59 and 60 deals and assess the break even points that clubs under them have to adhere to. Rules under article 59 describes how the break even requirements are assessed over three reporting periods which are: the reporting period ending in the calendar year that the UEFA club competitions begins (T), the reporting period ending in the calendar year before the commencement of the UEFA club competitions (T1) and then finally the preceding reporting period (T2) (UEFA Communications 2012).

In article 60 of the FFPR’s, they state that all European clubs that have an annual income or expense over 5 million Euros must ensure and prove that their aggregated break-even results of the three periods of assessing is positive. The deviation levels that are acceptable are shown below on how clubs can exceed the sum of 5 million Euros level up to a certain amount only under the condition that the excess amount is covered by the contributions that are made from equity or through other related parties:

Currently

• An amount of 45 million Euros for the monitoring periods assessed in the 2013-14 and 2014-15 seasons
• An amount of 30 million Euros for the monitoring periods assessed in the seasons 2015-16, 2016-17 and 2017-18 seasons
• A lower amount that would be decided in due course by the Executive committee of UEFA for the periods to be monitored and assessed in the following years (UEFA, 2012 p.35)

 

An Associate of the Chartered Institute of Bankers by the name of Thompson, E. (2013) who is a leading analyst of the UEFA’s FFFPR’s in the country who says that clubs having a wage bill of over 52 million Euros, their annual increases would be capped at 4 million Euros a year and the club would then only be able to go in excess of that limit and if they do, they would have to show additional funds that have been generated in the form of increased revenue earned commercially such as new sponsorship deals (Tongue 2012).                          This change that has been brought about change in the entire status quo and will find clubs finding it difficult to increase their spending power in the form of wages compared to other clubs (Tongue 2012).

Ed Thompson also focuses on certain loopholes in the rules of the system to which clubs might take advantage of in order to pass the test of break-even (Thompson 2013)                          At a seminar Ed Thompson spoke about some of the loopholes in the rules that can include mixed party related transactions, pure party related and those costs and transactions that take place outside that of the clubs accounts (Geey, Thompson, Hamil 2013). The issues that have been raised up by Thompson leave a lot of room for investigation to take place in these areas and which have been seconded but not investigated by industry analyst greats Daniel Geey and Sean Hamil (Hamil 2013).

 

Avoid Over investment in clubs for future financial sustainability

To be putting corporate financial regulations into football in Europe is not something new. In the year 2002, there were a group of the most prominent clubs all over Europe known as G-14 who had proposed a limit maximum to salary cost which is different from the one known as salary caps in North American major leagues (Kesenne 2003)                                                                         However, it was identified that it had an assumed negative impact when it came to the competitive balance in a league and since then the plan had never been put into practice (Kesenne 2003).

It was mentioned in the year 2006 that tighter rules and regulations from UEFA would be the best way in order to combat the instability in finance even though such measures were credible only if there were strong legal backing provided during the given period (Lago, Simmons and Szymanski 2006). The authors also state that there would be a possibility of spread of a crisis in one club or, a group of clubs that would damage the financial stability of the other clubs (Lago, Simmons and Szymanski 2006).

Recently studies have also stated that there needs to be a necessity of regulative means and measures where a consulting firm by the name of A.T. Kearney arrived statistically with startling figures saying that if the leagues that existed in England, Spain and Italy were running as ordinary companies in the market, they would be bankrupt within a span of two years (A.T. Kearney 2010)

A question asked generally is that whether would European football fail? And the answer to that would be no and that it is too popular to fail as the survival rate is very high in the football industry (Kuper and Szymanski 2009). Nielsen and Storm put down the idea of immortality of professional football clubs in the continent and then trace it back to the soft constraint budgets that clubs operate with (Storm and Nielsen 2012).

Following one of the great economists of Hungary by the name of Janos Kornai the authors have compared large professional clubs in Europe to the loss making firms in socialist economies saying that would be somehow bailed out by public as well as private investors either way. This kind of perceived security ex ante thus then leads to overinvestment in clubs and according to the authors the regulations that have been put down by UEFA is with a view of attempting to harder budget constraints (Storm and Nielsen 2012).

The game theoretic approach demonstrates of why European clubs tend to over invest in the club as well as on talent in the market and then tend to face various financial problems even though the revenue they earn is high. There is an argument made by the authors Solberg and Haugen saying that the goal of win maximisation does result in a vast lack of correlation in between costs and revenues and this then leads eventually to a more aggressive type of strategy in times of competing for players (Solberg and Haugen 2010).

Some say that there is escalation or rise in the expenditure due to the difference in structures within national leagues (Frank 2010).

In a way it can be said that the Champions League is to be blamed for the cause of such developments which are negative. The financial attractiveness in the form of ‘pay offs’ at such a competition brings about change and leads to unhealthy financial outcomes to its extreme (Solberg and Haugen 2010).

Achieve Competitive Balance

Competitive balance can be explained as quality in the sporting quality of various teams that are in a particular league or tournament. Gerrard and Kringstad (2004) stressed on the concept of competitive intensity in order to impact the prize in a league when it came to its degree of competition.                                                                                               Surely, it does get affected by changes that are brought about in structures of a league which can be in the form of promotion and relegations where in football, it would be promotion of the top teams in the league and relegation of the bottom teams(Gerrard and Kringstad 2004).

The whole idea of UEFA bringing the Financial fair play to European football was to see that none of the teams of its leagues would be treated unfairly when it came to spending for the club being equal to that of its revenues gained through the previous season. (Masters 2014)

Competitive balance generally has three dimensions namely a short- term one, where it lasts for say a particular game, a mid-term one, where it generally last for an entire season or a specific league and the third would be a long- term one where for example there is domination in a league by the a few teams over the course of time. When a certain degree of Competitive balance is maintained results in reasons as to why certain rules and regulations like salary caps which are present in the North American major leagues and schemes of redistribution like the one for revenues from media in European football. These are some common practises in sport leagues that are professional all around the globe which however at times they being effective is put to question most of the time (Peeters 2011).

It is very important these days to maintain a particular degree of competitive balance within a sports league since theory states sport competitions that are generally imbalanced tend to have the potential to negative influence in the form of low fan interest, low viewing on television and low attendance in stadiums (Rottenberg 1956).

On the other hand European professional football states that the level of participation by the fans both on and off the field increases when most of the teams playing a league that have equal chances of winning which leads to sales of more match tickets as well as TV audiences that rise (Szymanski 2001).

Recent study even states that spectators would prefer watching the home team play against a team who is inferior and who have every chance of upsetting the superior team or the away team being the favourite to win the tie (Buraimo and Simmons 2008).                                   The latter part of the statement could be explained by most spectators that prefer to see a strong brand of a team like FC Bayern Munich (Pawlowski and Anders 2012) or in a game where the audience feel that there is a fair chance that there might be a big upset (Coates et al. 2012).

Over a longer period of time theory and surveys state that attendance in a season have risen up in the German, English and Spanish league, even though these leagues around Europe are dominated by a roughly small amount of teams in number over the past decade. (Flores et al. 2010, Pawlowski et al.2010).

Generally competitive balance plays at different levels of the game. There is match level completive balance which turns out to be high in a game that is undecided until the ending seconds of the game. Then there is Seasonal competitive balance which focuses on the closeness among teams within a league and where European football goes, the struggle to survive at the lowest most point of the table which is relegation as well as qualifying for Champions league football does contribute to the tensions throughout the season (Peeters 2012).

The last type of competitive balance is the inter-seasonal competitive balance deals with the domination of leagues over time and when similar teams end up on top year after year, the inter-seasonal balance is very low. It seems that collective sales are one of the ways in which there would be an increasing seasonal and inter-seasonal balance rather than just a game level competitive balance (Peeters 2012).

To duplicate salary caps as a way to achieve rationality among clubs as practised in North America.

In almost all professional sports around the globe, the teams that participate compete among each other to sign players, based on the rules that are imposed by the league or that has been agreed among them (Ross 2004).

One common rule that is imposed in most of the leagues is that of a salary cap. Salary caps do come in various different variants. A salary cap of a club is that can be described as the amount of money that a team can collectively spend on the wages of a player (Ross 2004).

When it comes to the limit of a club salary cap it can be set as a universal amount for all clubs, or can be set to a limit that is relative to each team, which for example could be based on the percentage of a particular team’s revenue (Dietl, Lang and Werner 2008)

Coming to salary caps for a player which is the limit or maximum amount of money that can be a paid to a single player which could vary depending upon the number of years of service of the players in the league or could also be the salary he was paid earlier.                     Despite of the tiny differences in salary caps, all of them share a similar core characteristic of a restriction spending on player salaries. This characteristic is also present in the Financial Fair Play in European football where the salary cap of a particular player is based on a certain percentage of his clubs revenue (Ross 2004).

Salary Caps have been put into practise in different forms across various sports, in several jurisdictions. The United States of America was the first to introduce salary caps in to the National Basketball Association (NBA) in the year 1982 with the National Football League (NFL) following in the year 1993.48 England then followed by introducing salary caps in the Rugby Football League in the year 1997 closely followed by the Rugby Football Union in 1999 (Premiership Rugby 2015). These caps have also been implemented in Australia into the Australian Football League, National Rugby League as well as in the A-league (Davies 2010)

Now, in spite of using salary caps in various other sporting leagues, this concept was a foreign one to European Football. However, this changed via the introduction of the FFP regulations. Football in Europe was closest to setting salary caps in 2003 when a group of Europe’s 14 most successful football clubs came together to be known as G-14 and who had agreed to limit of spending to 70 percent of the revenues. This measure was never successfully implemented, the reason being is still up for debate with some making a point that there was lack of enforcement mechanisms while others state that it was never really put into place (Dietl, Lang and Werner 2008).

The European football market feels that if restrictions are placed on salaries of players, it would lead to develop barriers in the competitive process and its direct effect would be lower salaries for players. In a free market without any salary restrictions, the optimal allocations of players would be achieved where forces in the market would operate to place such players with teams that would value them the most. When salary caps are in place, clubs face more complex issues when it comes to making decisions and when they deciding to sign a player or not. Factors have to be considered by the club such as how much finance does the club have to offer a player and how much of room, the signing would leave them with in order to purchase other players. Such caps also make clubs decide whether they should purchase a single high quality player or two lesser quality players where previously they may have just purchased all of them. That means a club that valued a player a particular player higher than any other club may not have ended up signing the player due to salary caps. Thus when a free market process is prevented, these caps lead in the inefficient allocation of players among various teams (Ross 2004).

UEFA have therefore brought into play the FFP rules and regulations and have been aiming to stress on applying salary caps to all European football clubs and have taken an initiative to stress further on the regulations of G14 which states that salaries in the form of wages to players should be to the limit of only seventy percent of the total revenues earned by the club in the financial year (European Commission White Paper on Sport 2010).

 

The Danger of Competitive Advantage, Sanctions, Ammortisation, Misleading reports and Ossification

When the European transfer marker opens every season, there begins a ritual of sticking price tags on football players. The various clubs in Europe and around the globe are pretty much coy about their spending on their particular midfielder or striker but somehow it always tends to leak out (Caroll 2014).

Fans always love to throw around the eight or nine digit figures on transfers of players from or to their clubs, which mean little on their own. It may be easy to discuss the transfer fee amount but never does it provide a proper or clear indication of what the club has actually spent on bringing in a player (Law 2014).

So when clubs are preparing their financial statements people wonder how they calculate the real cost of players bought. All it basically takes for clubs is some accounting. It is known that Europe’s top six leagues amortizes and capitalizes player’s acquisitions. In easier words when a player is signed, his transfer fee is spread across the amount of years that he has signed for the club to put into their financial books for accounting purposes and mainly done with a view avoiding financial fair play (Cohen 2015).

In addition to this the clubs also take into their accounting the players wages annually as well as any fees that has been paid to the player’s agent which according to UEFA, Europe’s soccer governing body is on an average equivalent of an average estimate of an additional 12.6 percent of the transfer fee agreed(ForzaInterForums 2015).

If a European club realises that a player fits its long term benefits of the club, then signing a player to a new deal can often be a perfect proposition as the player is making more money on his contract whilst costing less to that club in their financial books. While there is no salary cap in European football UEFA’s FFPR’s have made it mandatory to spend only what they can earn with a loss that is capped. Moreover even the richest clubs know that their decisions in the transfer market must make sense not only on the pitch but also on the books that have led them to amortise a player’s transfer fee (Cohen 2015).

 

The introduction of FFP has made even the richest club benefactor to go into competition which are necessary based on payrolls and which are largely financed through the huge incomes that are generated in the football industry. Big club owners will no longer have the upper hand to challenge the bigger clubs that exist in the market by just spending more money on players in spite of having the personal finance to do so. The idea that the FFPR’s might establish the domination of the already ‘big clubs’ has gotten popular both in the media as well as in sport economics (Sass 2012).

The ossification of hierarchy theory with related to FFP assumes that ‘small clubs’ can only and will only challenge ‘bigger clubs’ where there is a system of unlimited injection of money. This seems however most unlikely as firstly, there is no sort of mechanism that systematically allocates its payroll injections according to some patterns that enables small clubs to be relatively more competitive. It is more of a type of an inverse mechanism that is at play that makes sure that money comes to money. On the other hand it becomes even more of a doubt that unlimited money injections have become an instrument for shaking already existing hierarchies, once the incentive of good management are taken well into consideration (Thompson 2013).

 

The owner, in order to be affected by the FFP has to obviously be willing to inject money into the payrolls of the club instead rather than the publicity generated through the success of his team for the past couple of years. It is known that benefactor owners like these pay and inject only for success per se. But such owners will now be restrained by the regulations of the FFP and be restricted in a way that they can’t spend in the way that they were doing, turning them into success seekers through fair methods of finance (Dascal 2013).

It is known that the behaviour of European football clubs is typically described as a “win maximization that is subject to a zero profit budget constraint” (Szymanski 2006). Based on these views, theoretical models have been developed. In 2006 Garcia-del-Barro/Szymanski has enough empirical evidence where they used data on the football clubs in England and Spain especially focussing on their performance. Their findings stated that European clubs spend their entire revenues so that they are successful on the pitch. The findings also suggest that European clubs will welcome any sort of additional income from outside in the form of sanctions and which will increase their spending power in the market (Garcia-del-Barro and Szymanski 2006).
Theory states that clubs that have a big market potential would not want to lose against supported underdog teams that are from smaller markets but have benefactor payroll injections. Hence, they adapt their structures of governance in a way that open the doors to benefactors. Generally benefactors that are seeking success will spend their money where the probability of winning is the highest and clubs that follow win-maximizing would prefer the largest payroll injection, where in the end the benefactors with the largest of pockets get assigned to the teams that have the largest market potential making them the most dominant team. Hence such injections are the reason to the rise of ossification in European football (Vöpel 2011).

However, the FFP reduces the gap between the underdogs and the favourites by expecting and forcing all clubs to carry out their operations within their potential in the market rather than just allowing the favourites to spend without any restrictions through the subventions that they receive by the richest benefactors that are chasing sporting success. The FFP may not be a form of a uniform payroll when compared to the North American leagues that have salary caps, but it does lead to more intense competition that breaks the ‘money comes to money’ equilibrium, where in the end the deepest pockets get attached to the teams that have the biggest market potential (Andreff 2011).

 

Research Methodology

Introduction

Methodology can be defined as both ‘the collection of rules or methods through which a piece of research is taken up’ as well as the theories, values and principles that underpin a particular approach to research (Somekh and Lewin 2005).

Walter (2006) states and argues that methodology being the frame of reference for research taken up is influenced by the ‘paradigm in which our perspective of theory is developed or placed.

Research methodology most commonly is defined as being an overall approach to research linked to a theoretical framework or paradigm while the method is referred to systemic modes, tools and procedures that are used for collections and the analysis of data (Mackenzie and Knipe 2006).

This study intends to analyse of how, since the Financial Fair Play was introduced in the year 2009 has affected clubs in the continent of Europe focussing on more of English Premier League teams and a few other European teams. The analysis mainly focuses on methods that the teams that come under the UEFA FFP have used in order to manipulate and get around the rules and regulations stated.

The analysis will also find a definite answer on the issue of ossification as well as on the loopholes and potential gaps within the rules that football clubs will definitely capitalise on.

 

Research Questions

Research questions are the main key driver behind the research process. It is vital that the research questions are defined clearly in accordance with the objectives of the research. The following questions have been formed which in every way are related to the researchers objective questions and will help answer them to identify and to assess the effect the FFPR’s are having on European clubs and what are these clubs doing in order to avoid punishments or penalties.

*Does the introduction of the FFP justify the solution to financial instability in European clubs?

With this question the researcher gains proper knowledge on understanding how stable or unstable the finances are within the European football Industry.

*To what extent have clubs gone to in order to avoid FFP?

This question deals with the strategies that clubs have and helps the researcher understand how these clubs have altered their strategies so that they fit in well under the rules and regulations of the FFP.

*If the FFPR’s are implemented successfully or unsuccessfully what might be the consequences?

This question being important, it helps the researcher identify the consequences the clubs face for successful implementation of the FFP as well as the methods used by clubs to get away from the FFP and the situation when it is implemented unsuccessfully due to loopholes in the rules and regulations.

 

Research Plan

This part of the chapter, research details are given in the terms of research approach

Research Approach

This section gives detail on the kind of approach that has been adopted in order to gather the information for this research work.

Realism & Deductive approach

Realism says that objects that are real exist independent of human consciousness, but such knowledge is only socially created (Saunders et al 2007). It is concerned with what kinds of things are there and how they behave to things and accepts that reality may exist in spite of science and observation, hence there is validity that recognises realities that are but simply claimed to act or exist, whether proven or not (Blaikie 1993). Realism distinguishes that natural and social sciences aren’t the same. Hatch and Cunliffe (2006) describes the researcher who is realistic as enquiring into mechanisms or structures that underlie institutional forms and practices how they emerge in time or how they may empower & constrain social actors, and how these forums could be critiqued and changed. Research here is done in different angles as reality can exist on multiple levels (Chai 2002).

Deductive approach is an approach of the relationship between the theory and research in which the research is conducted from top to bottom and hence called Top-Down approach. This involves thinking about the theory of our topic research, then narrowing it down to observations and then confirmation (Bryman 2004).

The financial crisis in European football is a major issue that this dissertation has a look at with regards to its characteristic and main causes, to finally lay stress on the solution adopted by UEFA and questions its efficiency. The FFP aims at bringing in financial rationality in Europe. The analysis on the implementation and the consequences of this concept will not be focussed on; rather this research will adopt a European wide look looking at different teams.

Interesting fields of study such as financial issues are looked into. Thus in order to be as complete as possible this dissertation tries to find out and address the issue of clubs that are using specific methods financially, in order to avoid the FFP.

Since the FFP concept is very new and its effect has only come into effect two seasons ago, to the best knowledge researcher, there is a very limited area of research focussing on the topic trying to assess the efficiency of the FFP as well as assessing methods used by teams to avoid them. Hence the researcher has selected to adopt the deductive and realism approach as mentioned above.

 

 

 

 

 

 

Research Choice

The methods that were used here were both of quantitative approach as well as qualitative approach to collect information as well as answer the questions and objectives of the study.

 

Qualitative Research Approach

Qualitative research is one type of research in which knowledge claims are made based on the constructive perspectives by the researcher (Creswell 2003). The strategies that are used in such a research design would include grounded theory studies, case studies, participative inquiries, ethnogarphies and phenomenology. Qualitative research generally puts more focus and emphasises on words rather than just quantification in the analysis and collection of the data. (Bryman 2004).

 

Quantitative Research Approach

Quantitative Research is that type of research that uses claims that are positive for developing the researcher’s knowledge like using measurements and observations, testing of theories, cause and effect thinking as well as reduction to specific variables and hypothesis and questions (Creswell 2003).

Quantitative research generally emphasises quantification in the analysis and collection of data and the strategies used in this type of research design experimental studies, predetermined instruments and surveys used in data (Bryman 2004).

This researcher will adopt both a quantitative research (Deductive approach), where data collection will be from journal articles, academic journals, company reports, internet website sources and books as well as qualitative approach data where data has been extracted from case studies as well as extracts from already conducted interviews from the past.

Research Ethics

As per ethics is concerned this research has not caused harm to any organisation, author/s, football club as all the information is secondary and available freely via secondary resources which are very reliable.

Sources of Data

This piece of work involves a lot of information from secondary sources and documents that reflect whether clubs are adhering to the FFPR or are finding a way around it. It will look to find clubs that are well prepared for the FFPR’s and would also analyse if their strategies of business could be a benchmark to follow. All information in this research has been taken from reliable and valid sources including academic journals, online journals, the World Wide Web, i.e., the internet, newspapers, and magazines. Some of the academic journals were purchased from journal sites like ESCO publishing and Sage journals for information that is not valid freely online keeping in mind the topic.

 

 

Data Findings, Analysis and Discussion

UEFA surely doesn’t expect the above stated in the literature review to come that easy as professional clubs these days are marked by increasingly even more complex structures. Due to tricky interconnections in between sophisticated outsourcing of liabilities and several subsidies, UEFA does face the difficult challenge to assess the documents of 236 licensees from countries all over Europe with different accounting systems leading their monitoring costs to be very high. However UEFA confirms feasibility of controlling clubs (Preuss 2012).

The FFP document might not be a complete one and clubs do realise that and in order to go ahead with their usual spending have developed techniques and strategies to play with these rules which we will see further in the discussion and analysis.

The researcher will start with a case study to analyse how Manchester city being the only EPL team to have failed the FFP and how they were fined by UEFA further which starts the discussion and analysis of methods used by clubs to play with the rules.

 

Case: Manchester City

The results of the first period of the FFP were announced and released in May 2014. A total of nine top clubs across Europe failed the FFP and were all given sanctions, with Manchester City being the only club from the English Premier League to fail the Break Even test. (Appendix 1)

The club was handed a fine of 49 million Pounds by UEFA for the reason being, failing to adhere to the FFPR’s and were told that they had to cut down their squad for the next season’s Champions League from a total of 25 players to 21 players. Manchester City accepted the sanctions but didn’t appeal against it; however the club did have a “fundamental disagreement” with many aspects of European football governance related to the break even rules. It was also noted that two thirds of their 49 million pound fine would be returned if they had fulfilled UEFA’s specified measure on operations and finances over the coming two seasons (Blitz 2014).

Manchester City FC had not failed the test because of an oversight or a fundamental disagreement: they failed because they had chosen to do so. It is said that they made a conscious decision to fail the break even test and prioritised on-field performance over the possible sanctions for failing. The FFPR’s were agreed by clubs almost five years prior to their punishments which meant that Manchester City had a lot of time to adjust as per the rules. They hired well sophisticated accountancy teams and hence were able to weigh up the merits of adhering to the rules against any sort of punishments received. If they had chosen to meet the FFPR’s, they would definitely have reduced their chances to compete on the field (Thompson 2014).

Thompson, Ed (2014), stated two decisions that the club made to prove their overspending. First, they had sacked their manager Roberto Mancini in May 2013, which was less than three weeks before their accounting period ended. Instead of waiting those extra weeks and maybe lose out on their chosen manager, City just but decided to push ahead with this decision and overspent which was a deliberate choice (Thompson 2014).

Secondly, if the football club was focussed on complying with the FFPR’s, they could and would not have spent 38 million Pounds on buying Sergio Aguero. It’s clear that they prioritise on-field success rather than financial rules. They have been champions of England two out of three seasons from 2011/12-2013/14. Their decision to ignore the FFPR’s has helped them in their on-field success, however the other clubs and competitors who have complied with the FFPR’s and have not spent in the same way that Manchester City have. This does raise a number of questions and issues of the severity of the sanction given to Manchester City FC and whether or not these sanctions and fines that are imposed on them are justified and fair to all the other clubs in Europe (Thompson 2014).

 

 

 

 

There are many loopholes to the UEFA Financial Fair Play and football clubs all around Europe are making the best use of the areas by which these rules can be avoided to the maximum. They are:

 

Amortisation

The ‘UEFA Financial Fair Play rules: a difficult balancing act’ is a paper published in the year 2011 by a leading industry analyst Daniel Geey. This paper focuses on the hypothesis that the FFP rules are very effective when it comes to entry for mid- level teams in a particular league. This paper states that the rules that have been set up leads to entrenchment of top clubs, who do receive a lot of Champions League money and in turn commercialise their rights in a way more effective manner leading them to gain more revenue to off-set their cost base against (Geey 2011).

He also argued that clubs could not go on a major spending spree before the accounting period between the years 2011-2012. The logic behind this is that the shopping spree would have been booked in any clubs 2010-11 accounts and this would in no way have any sort of effect on the clubs that wanted to adhere to the FFP rules which however was proven wrong with the way each club amortises each of its players on its balance sheets (Geey 2011).

‘The Swiss Rambler’ a football economist posted an article where it was highlighted the incident in which Manchester City showed a loss of a 121 million GBP for the year ending May 2010. The article analysed regulations that when a player is bought, his total cost is capitalised onto the Balance sheet of the club and would be amortised (written down) over the total length of his contract. In easier terms if a transfer that takes place in a 2009-10 season, would affect a club that tries to break even in 2013-14 being the initial monitoring period (The Swiss Ramble 2010).

Daniel Geey also explains how amortisation of a certain transfer fee last for the length of the contract and may then be included when a club is trying to calculate its FFP break-even position.(appendix 1).                                                                                                                 The details that are provided in Appendix 1 depict how clubs amortise a specific player’s value over the length of his/her contract. So say a player is signed on a contract in January 2010 for a transfer amount of 10 million GBP for five years that is worth five million GBP a year in wages. So by the clubs balance sheet accounts it would show as 10 million GBP spread out over the five years amortised as 2 million GBP each year for the five years. The transfer may have happened in the year 2010 but now, as it is amortised through five years, the transfer would affect the clubs future years accounting (Geey 2011).

Additionally to this the clubs balance sheets is also affected in the way a player is sold and for this the Swiss Ramble`s article is a perfect example where they highlighted Brazilian footballer Robinho’s transfer. He was bought by Manchester City in the month of September 2009 for a sum of 32.5 million GBP on a four year contract which would show amortisation amount of 8.125 million GBP per year. Robinho was sold after a period of two years for a sum of 18 million GBP. If viewed by an ordinary person, this would have looked as a loss of a sum of 14.5 million GBP which however is not the case on the balance sheet of the club. This infact proved to be a profit 1.75 million GBP. Post two years into the contract Robinho’s value on the books was 16.25 million GBP (32.5 – 2*8.125). Such an example

shows how clubs can write off the transfer value of a player over the term of their contract (The Swiss Ramble 2010)

;

 

 

 

Club Spending

From the time the FFP regulations have been brought into effect, some of the top clubs in Europe have taken up a new strategic approach with a view of passing the FFP regulations Break even test.                                                                                                                                    Focussing on the English Premier League, one such club that has adopted a lower cost based strategy and has brought down its spending over the last many seasons is Sunderland Football Club. Sunderland FC losses in the year 2009 and 2010 were about 23.5 million GBP and 25.5 million GBP respectively and then, the club needed to curb down its wage bills to stem losses which had set it on a path to fail UEFA’s FFPR regulations (Herbert 2011).

At this point of time the clubs wage bills was almost 72 per cent of turnover in their previous financial year and no change of strategy meant that the club would have been on the way to post an aggregate loss of 73.5 million GBP. The club’s owner Ellis Short pumped in over 67 million GBP into the club during the years 2010 and 2011 because losses of over 5 million GBP are only accepted under the FFP regulations if money is brought in through the injection of equity to cover such a loss, which would have him to pump in an additional 40 million GBP (Herbert 2011).

The change in strategic approach of Sunderland in 2011 caused its financial results in March 2013 showing losses of 26 million GBP taking their losses down to 44 million GBP over a period of two years, meaning that Ellis Short would have to inject an amount of around 30 million Pounds through equity again in order to meet the FFP regulations which would allow them to apply for a UEFA license and they did succeed in doing so (Herbert 2011).

Another big club in England too adopted this low cost strategy technique being Aston Villa. Following the introduction of the FFP regulations according to Conn (2013), Aston Villa too changed their strategy and approach to reduce their expenditure. The club announced losses of 17.7 million GBP for the year ended May 2012, where a reduction of 36 million GBP from the previous financial year which was achieved mainly by cutting the wage bill and selling its players. Aston Villa’s income dropped heavily by 11.6 million GBP in the year 2011-12, 12.6 per cent to 80 million pounds and overall staff costs during this period was reduced by 13.8 million to 70 million GBP. The figures during this period were due to the profits made by the club on player trading amounting to 7 million pounds. It was reported that the club owner, Randy Lerner, waived interest on the loans to the club of a whopping 107 million pounds that cost him 20 million pounds personally in an attempt for the club to pass the FFPR’s (Conn 2013)

Coming to the financial period that ended May 2013, Aston Villa reduced their operating losses heavily by 9.5 million to 42.6 million pounds for the year (Kendrick 2014).                                                       Losses for that year however, increased by 34.1 million to 51.8 million GBP mainly due to the lack of players sales that were generated. The 2012-13 season still showed losses whereas, the season after that the club showed itself to be self sufficient (Kendrick 2014).

As stated by the clubs chief financial officer Robin Russell in 2014, the 2012-13 statements showed closing of losses to the club and the beginning of the club being self sufficient and being compliant with both the Premier League as well as UEFA’s Financial Fair Play requirements (Russell 2014).

By adopting such low cost strategies clubs are ever aiming to comply with the rules and regulations of the FFP. However if the club is not looking out for Champions League football, then the FFPR’s will not need to be complied with letting clubs only to adhere to the less strict rules of the their particular league. This leads to throw up a certain degree of strategic dilemma for football clubs in Europe. If clubs are ambitious and are willing to grow further and play European football then they would need to lessen their spending to comply with the UEFA FFP regulations. On the other hand if the clubs do want to play Champions League football, they do not need to adhere to the rules of the FFP and continue with their excess expenditure. When it comes to the leagues like the EPL, they do not disclose as to which clubs have applied for a UEFA license and fans are then unaware of the true ambitions of their respective clubs. This has an effect that fans of certain clubs turn up for cup games not knowing that their club cannot compete in UEFA competitions however successful they may be (Herbert 2013).

 

 

Sanctions Signed

If monitoring requirements or club licensing are not fulfilled, then the Club Financial Control Panel (CFCP) may take up such a case to UEFA’s independent disciplinary bodies for further investigation and who take appropriate measures with any delay in accordance with the standard procedure that is put up in the books of UEFA’s disciplinary Regulations. Exclusions from future competitions or heavy fines are two of the potentially main disciplinary sanctions that are applied (UEFA 2011).

The first sanctions for the clubs that do not fulfil the Break Even requirements was first taken during the 2013-14 season where more than seven top European teams failed to comply and were fined heavily that included clubs like Paris Saint German and Manchester City FC. The first exclusions relating to break even breaches were for the UEFA competition season of 2014-15 (UEFA 2012).

It is said that if UEFA do not establish its FFPR’s in sufficient detail and do not enforce the regulations fully in a proper manner, then these rules will be easily evaded by clubs which will ultimately mean that only the rich clubs around the continent would survive (Perez and Santorcuota 2013).

No doubt that the introduction of FFPR’s has helped clubs across the first divisions in Europe to have reduced losses of 600 million Euros together as these rules have created an awareness among clubs that have exorbitant wages bills. That being said it is believed that that UEFA should adjust the control surrounding new arrivals of tycoon billionaires into the football industry (Perez and Santorcuota 2013).

For instance, Sheik Mansour bin Zayed bin Sultan Al Nahyan, who is a member of Abu Dhabi’s royal family and the owner of Manchester City FC and who has a sponsorship contract with Etihad Airways an entity which is also owned by the members of the Abu Dhabi’s royal family for a whopping amount of 400 million Pounds. There have been instances where a Council of Europe committee have called this being improper, referring to Manchester City’s deal but however it isn’t prohibited by the FFP rules and regulations. UEFA should control sponsors who in a way overpay for such deals to happen and those that are closely connected to such ownership deals which lead to avoiding improper transactions (Perez and Santorcuota 2013).

Another deal that is highly controversial is that of the one which included French heavyweights Paris Saint Germain and the Qatar Tourism Authority (QTA) which is to be valued at a dazzling 167 million pounds. It is highly controversial because the club is owned by a sovereign wealth fund that invests in Qatar’s vast oil and gas wealth in overseas companies. Now, given that the QTA too is a branch of the Qatari state, the deal that was struck in between them is supposed to be taken as a ‘related party transactions’ by UEFA as they mean to say that contracts must be of a fair sort of value and should be similar to deals struck by clubs of the same size in Europe (Conway 2014).

 

 

 

More of Competitive advantage than Competitive balance

FFP was brought into football because of overspending done by billionaire club owners and because of the downfall of some debt-ridden sports clubs, yet the FFP model has been much of a controversy.                                                                                                                                                  Arsene Wenger had stated Real Madrid’s pursuit of Gareth Bale saying it “makes a joke of FFP” (Wenger 2014), while others point out to the huge spending of Manchester City, Monaco and PSG to say that the system is flawed.                                                                                  UEFA stressed that the laws were welcomed by the game’s biggest clubs and that there were signs that the effects had been positive despite of the escalation of transfer fees in Europe.

Former CEO at Chelsea and Everton Trevor Birch stated that clubs were beginning to take FFP seriously and have begun to change their behaviour in line with the rules (Birch 2014).

A survey from Goal.com found that 83 percent of clubs were planning to spend less or on the same payroll costs in the coming season of which 42 percent stated that this decision was because of the influence of FFP (Goal.com 2014)

Top clubs that are globally famous have everything in place and are marketed well enough in order to bring in enough of revenue for the financial year. It is exciting to see how high profile clubs like Man City, Monaco and PSG flout the FFP, but the things are more complicated than that in reality (Goal.com 2014)

UEFA general secretary Gianni Infantino claims the FFP to be working very well and in a positive way. He states that payment arrears have gone down by 40 percent between 2011 and 2012 (Gibson 2013).

Contradicting this Birch says that FFP may turn the world of football upside down and into an even more uneven playing field, with the smaller clubs and their restricted commercial income struggling to survive and compete against the bigger clubs and their huge commercial revenues. While clubs like Malaga in Spain, Rapid Bucharest in Romania and a number of clubs with smaller revenues have been ruled out from playing this year in the Champions League as a result of breaching the FFP, clubs like Man City, PSG, Real Madrid and Monaco continue to splurge financially knowing that their revenues over the length of their stars contracts should be more than enough to cover the clubs major outlays (Birch 2014).

Birch states that the rich clubs are getting richer and the poor ones are getting poorer leading to obvious bankruptcy and to being insolvent. He gives the benefit of doubt to UEFA for stepping up with an intention of having a level playing field in the form of competitive balance but also states that the current situation looks like certain top clubs are gaining through this in the form of competitive advantage. (Birch 2013).

 

 

 

 

 

Misleading Financial Reports

These days’ clubs all over Europe are resorting to methods to increasingly bold actions with a view to bury their bad financial reports. What the clubs do financially somehow reaches the media and now the clubs have resorted to various ways of giving out information about their financial reports in order to avoid ‘bad press’. Where the fans of the clubs are concerned, they do not literally get deep into the financial statements that their club releases and they heavily rely on the interpretations of journalist’s. Various approaches are being adopted by clubs in Europe in releasing their financial reports in such a way that the full extents of their reports are not highlighted fully (Thompson 2013).

A very good example of this would be of European giants Manchester City, who released a poor financial statements after the 2012-13 season which was a cynical approach where not only did they make journalist all over aware of their release of statements but also managed to give out different information to different journalist’s (Thompson 2013).

When the figures that were given out one afternoon, they were accompanied with a press briefing that gave highlight to wrong information financially (Drayton 2012).

However City’s plan did work with the fact that the owners of the club had paid 12 million GBP to the club for intellectual property that slipped under the radar of the media completely (Thompson 2013).

Another example would be Chelsea FC’s approach where they made upbeat press releases well in advance of the release of their full figures. This approach was made to disguise the cancellation of an approximate 18.5 million GBP in preference shares, declaring they had made a 1.4 million GBP profit in the press release (Tongue 2012).

These situations show that that introduction of the FFPR’s have made clubs to react in all different kind of ways in an attempt to pass the FFPR’s and also attempt to the level of financial stability that their clubs have by providing such false information (Tongue 2012).

 

Salary Caps- The Wrong Benchmark?

The salary caps that exist in most of the North American sports shows maximum levels of payroll expenditure for all the teams present in their particular leagues which in turn improve the overall competitive balance thus making the sport a more attractive one. The salary caps in the USA have a benefit, which may lead to the offset of anti-competitive interventions when it comes to the player market. The break-even rule does not by any chance define any sort of uniform maximum level when it came to payroll expenditure for all teams within a league. Thus, having salary caps like in the USA which is a benefit in North America cannot be even attributed to the FFP (Peeters and Syzmanski 2012).

It is very surprising that not even a single team among all the leagues in Europe that has opted or volunteered to follow the American System and voted for salary caps to be present in the European football system. The European contingent has been simply ignorant. Either the football in Europe is based on complex mechanisms of suspense generation than the US leagues or attaining competitive balance through salary caps is just not possible to put into the European system (Pawlowski 2013).

Ossification

European football for decades has been following and been operated by the “open” system and is soon now coming to an end and will soon start to follow the “closed” system also known as the American system (Szymanski 2013).

He also believes that the introduction the FFPR’s have brought a big change for football in Europe, so much so that the old school notion of setting up a club by anyone and anywhere and through the system of pyramid promotion and relegation and to those that aspire to play in the UEFA Champions league will no longer exist anymore (Szymanski 2013).

After UEFA completed a study it was found that 63 percent of clubs in Europe’s top division clubs were reporting an operating loss while 55 percent were only reporting a net loss overall. This was all despite the fact that revenues of clubs had grown up at an annual rate of 5.6 percent in the past five years (UEFA 2011).

It was also noted that wages since the year 2007 have been rising up by 38 percent to date compared to the average turnover increase at 24 percent (Blitz 2013).

Szymanski also believed that the FFPR’s was brought into the picture by the UEFA to have a similar structure to the sports in the USA whose leading sports leagues have hugely developed successful championships based on shifting bargains among the many franchise owners. The rules of revenues to be shared and players having salary caps were actually designed to maintain a competitive between teams which however makes barriers of entry very high where for example buying a Major League Baseball club or buying a team in the National Football League would approximately cost anyone around 1 billion USD (Szymanski 2013).

He believes that the FFPR’s would have a complete ossification effect meaning that the rich clubs remain rich while the poor clubs will remain poor. Therefore he thinks that the FFPR’s will limit the potential for top clubs to be challenged by the others (Szymanski 2013).

 

 

HOW FFP GOT BEATEN BY CHELSEA, AND HOW PSG WERE LATE

Chelsea and PSG are two of the richest clubs in the world of football, but as FFP has held the latter team back, Chelsea is moving from strength to strength.

There is very little difference between the two teams, where one team is built with Qatari money while the other is built from Russian money. One team buys the best world talent for prices that are highly inflated much like the other.                                                                                      The business model of PSG of amassing most of the world’s footballing talent is not different from that of Chelsea, in the early days of Roman Abramovich’s reign (Fisher 2015).

By the time the FFP was set up and put into the play Roman Abramovich had sailed far waving to Nasser Al-Khelaifi (Owner of PSG). PSG got to action pretty late like Manchester City when all the rules and regulations were put into action and their quest to reach the levels of playing like Chelsea, Bayern and Real Madrid had become impossible (Fisher 2015).

UEFA fined PSG 20 million GBP for breaching the rules in spite of reducing their losses from a whopping 98 million GBP to 52 million GBP between 2012 and 2014 and then found UEFA to be watching over them closely (Fisher 2015).

Chelsea had lesser concerns when it came to this. FFP had only started to worry the club after they won the UEFA Champions League and the premier league meaning the club had already gained a lot after selling mass of their players and replaced for a similar fee as required. Andre Schurrle’s departure to Wolfsburg in Germany making space for Juan Cuadrado is an ideal example how Chelsea are operating within the guidelines in an effective manner. As per Deloitte football money league PSG are two places over Chelsea but however practically the value of their wealth is lesser than Chelsea (Voakes 2015).

Strategies

On one hand PSG haven’t really helped themselves by their expenditure on unproven players with almost no Champions League experience when it comes to players like Marquinhos and Lucas Moura or on players like David Luiz and Thiago Silva who have a limited resale value because of their age (Voakes 2015).

Last summer PSG had been restricted by UEFA to the spending of not more that 50 million GBP- where they blew it all on David Luiz (Voakes 2015).

Chelsea did make such mistakes previously while the FFP wasn’t an issue and when it became one, they changed their entire transfer policy. While a lot of people think of Abramovich as reckless, his dealings in transfers have been shrewd.                                                    Their policy is to buy the best young talent as soon as they emerge and then send them out on loan to see what they build up to be as well as covering their wage cost (Twomey 2015).

Next they make a simple decision: whether do they need that type of a player in the team? Or would they benefit by selling the player?

Kevin de Bruyne, Thibaut Courtois and Romelu Lukaku are only three players to have been bought in around the 10 million GBP mark, and then shown their potential or either being shown the door or a place in the dressing room at Stamford Bridge. A profit of 11 million of De Bruyne, 12 million for Lukaku and landing in a 30 million GBP calibre keeper in the form of Courtois for just 8 million GBP (Twomey 2015).

It is not only with young players only, Andre Schuerrle was bought for a sum of under 20 million GBP and barely started a match for 18 months, who somehow booked his spot for Germany at the World Cup and who it all was then sold for a profit of 9 million GBP (Twomey 2015).

With such strategies going on at clubs the balance sheets are in red are in the black now. Manchester United and Real Madrid have made FFP almost irrelevant with such large global marketing happening for them whereas Chelsea have become masters of the FFP through shrewdness and guile.

 Recommendations

 Since studies show that the FFP reduces competitive balance and brings in other negative points, alternative instruments to FFP can be considered in order to reduce all sorts of problems of the clubs over spending and that come under UEFA (Schokkaert 2013).

These are some of them:

 

Creation of European closed Super league

 Szymanski and Hoehn have advocated that a ‘US-style Super league’ should be implemented. Such an implementation would be beneficial to clubs, both big and small ones (Szymanski and Hoehn 1999).

 

This has everything to be linked with achieving maximum profits and competitive balance that can be achieved only through such closed leagues, as the security provided by such closed leagues allow all its members to behave in a fashion where they can retain profits and redistribute them in an effective way (Holt 2009).

 

But there are high doubts about the creation of such a super league as there is little or no enthusiasm shown by the clubs in Europe towards its introduction in the continent.

While some feel that this idea is as good as dead and won’t come into consideration for a long time, as similar propositions were made by the G-14 in the year 2003 and as certain big clubs were not in favour of this idea given the revenues that were at stake (Humbert 2013).

Added to this, another hurdle of an introduction of a closed league would lie in the European sport model and the open-format of its competitions. The European Union promotes open-league formats for competitions in Europe as it is with this system that has a promotion and relegation system as its core for football (Humbert 2013).

However introduction and implementation of such a league would prove beneficial to all the teams in Europe as well as UEFA.

 

 

Hard Salary Caps should be implemented

 

Along with the creation of a European Super League, there are many that say that an introduction of another aspect of the US sport model would be a hard salary cap instead of the soft salary cap that is in use (Humbert 2013).

For many a hard salary cap would be better than the FFPR’s because the FFP ‘treats symptoms’ whereas a hard cap would solve both the main cause of inequitable resources and at the same time promote competitive balance (Lindholm 2010).

 

There are various barriers to this however due to Europe having around 53 national associations that UEFA has to deal with compared to the rules in North America involving only the USA and Canada. There would be market differences in Europe in the case of tax policies or market potential but however gradual efforts to such an implementation would bring great change in the European Football market (Diet et al. 2008).

 

The US salary caps fits into a logic of social negotiations which is the ‘collective bargaining agreement’, in which players, unions and the owners agree to an agreement made. This is possible even in Europe, even though it is a legal difficulty. But a collective agreement between nations under UEFA would solve the issue of an absolute salary cap being brought into play.

 

Improve revenue sharing policy

One of the other recommendations would be to improve revenue sharing at European club competitions level in order to maintain a more level field of play (Alliot and Flanquart 2013). As we have found out that revenue generated from UEFA club competitions are redistributed to clubs unequally which creates a gap and contributes in making big clubs stronger in their domestic leagues and European competitions (Bourg and Gouguet 2012).

Therefore it is a must to implement more revenue sharing measures so that there is reduction in income differentials (Franck 2010). Franck also says that if UEFA president Platini wants to increase competitive balance, he would need to distribute broadcasting, advertising and sponsoring revenues equally as well (Franck 2010).

 

Although the financial gap will be narrowed, smaller clubs will not have to go through high levels of indebtedness to compete with top clubs. However, it would be difficult as top clubs have more power in the governing mechanisms of European football and would be against this idea. Platini says that UEFA wouldn’t be able to do anything until 2018 with regards to revenue sharing as UEFA, the clubs, leagues and players have a ‘Memorandum of Understanding’ where it is not possible to decide where the money will go and even if it chooses to decide, it would need the permission of the clubs (Drut and Raballand 2010).

Enhance club’s financial & accounting management tools

Other than implementing better revenue sharing policies it would be of great use for European clubs to set up financial as well as performance indicators so that their quality of management increases and the European financial crisis would be resolved. One way of innovation would be to encourage clubs to use more sustainable business models and more-future looking management attitudes (Franck 2010).

Introducing new tools to the concept of FFP would definitely help clubs to improve financial management. Encouraging UEFA to introduce governance and monitoring mechanisms in clubs which would not let any team manipulate with regulations, but UEFA does not incorporate such mechanisms. As rightly said, UEFA’s restriction will not improve financial status of clubs but will act as a catalyst to clubs finding ways if not a way to get around it (Dimitropoulos 2011).

 

Strengthen European sport policy further

 It is proved that the EU has no power to interfere with European football as it is limited to propose any sort of supportive decisions (Velasquez 2011) and it is necessary that they do begin to realise that their sport industry are high stakes and start to standardize its policy in European competitions.

Platini states that the lack of standardized criteria is the main obstacle to regulation and had called for a real specificity of sport in front of the EU heads of state in 2007 (Besson 2008).

At the end of the meeting it was discussed that the difference in tax and financial policies was a major drawback that concerned the implementation of the FFP across the EU states in order to have a level-playing field (Humbert 2013). With such disparities in tax and financial policies across the EU, it was first highlighted that ‘Fiscal dumping’ needed to be stopped in order to keep financial levels stable among clubs in Europe. But because of being politically out of reach, they proposed another solution which would be to ‘ban special tax dispensations’ for football players which would be practical and would be a significant progress (Flanquart et al. 2011).

 

 

Conclusion

The set of regulatory policies that have been set up by UEFA by the name of Financial Fair Play has marked a turning point in the football market. Enormous efforts have been taken by UEFA to address the financial issues that are hampering the game by implementing these rules.

The main aim is to guarantee long term viability and financial protection to European clubs. This condition is fundamental in order to restore the games credibility primarily in the eyes of the fans, without whom the football system would surely collapse.

In my opinion there are some great points that UEFA have tried to bring about through the FFP, where for example they expect clubs to break even, avoid debts and ensure financial viability for them.

However I have also realised that where Break even is concerned, it may not be sustainable for all football clubs, especially for the small ones which mostly rely on different income sources in order to comply with competitive requirements. Another big point would be dominance of the most powerful clubs that would be enhanced where the rules are concerned, with the thought of smaller clubs hasn’t been taken into consideration at all.

Huge respect and appreciation for the efforts made by UEFA, without which the football sector would have reached a point of no return if these rules were not implied for a start at least.

And to finally answer the researchers for this piece of work would be that the FFP introduced by UEFA has a lot of pros as well as cons. However it being a boon to UEFA as well as many clubs in Europe because of the balance that it expects to bring with regards to competition and also see that clubs move towards a debt free future leading to financial stability, it could also be a curse to the developers of these rules as seen in the analysis and discussion.

 

 

 

Appendix

1.

(Geey 2011)

 

 2.

List of clubs that failed the FFP (UEFA 2014).

3. Financial Statements of Manchester City for the years 2011/12/13

(Manchester City Annual Report 2011-12)

 

 

 

 

(Manchester City Annual Report 2012-13)

 

 

 

 

(Manchester City Annual Report 2013-14)

 

 

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