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Football as a sport is incredibly popular in the UK, and all across Europe. As a result of its popularity, the business of football has always been relatively profitable. However wherever a business is attempting to make profits, there will always be an element of risk involved. Football clubs are no different. While football clubs are regularly featured in the media, in recent years more of their financial health rather than their success on the playing field has been the subject of debate.
As a result of concern over the financial affairs of football clubs, a number of regulations have been enacted. These regulations, called Financial Fair Play Regulations, require football clubs to keep a close eye on and place some restrictions on their finances.
The point of this article is to introduce the topic of Financial Fair Play Regulations; give an overview of where they came from and what they do; and what the legal position for football clubs dealing with these regulations is. See more of our Sports Law Guides.
Financial Fair Play Regulations (FFPR) are part of a series of rules concerning the financials of football clubs. While there has been a great deal of local activity dealing with FFPR, this article will concentrate on the developments at the European level and the implications this has for clubs that wish to participate in UEFA Champions League and Europa League competitions. The Regulations that will be discussed in this article are the UEFA Club Licensing and Financial Fair Play Regulations.
The creation of the UEFA Club Licensing and Financial Fair Play Regulations followed the discovery that many European football clubs had been operating using risky business models. UEFA conducted a review in 2009 of 665 European football clubs, and found that over 50% had made a loss over the previous year. The report also found that while some of the clubs benefitted from being owned by wealthy individuals whom could mitigate any such loss, at least 20% of the clubs included in the report were believed to be in genuine financial difficulty.
Those clubs found to be in financial difficulty were found to be engaging in very risky practices that were not unusual in football. Club owners and managers would borrow substantial sums in an attempt to increase their chances in various tournaments by signing the most well-known and talented players to their teams. However, problems arose when the sum of money borrowed by certain clubs far outstripped what the club earned in a given year. It was in response to this disproportionate spending that UEFA decided to create a set of rules, the FFPRs, to rein-in spending of clubs that wish to participate in European tournaments.
The primary objectives of the regulations are set out very clearly in Article 2.2 of the UEFA Club Licensing and Financial Fair Play Regulations;
The main goal of the objectives listed above, is to ensure that professional football clubs in conducting their operations and spending do not exceed the income that they receive – the income that they receive from football. This is what is meant by UEFA when it says that clubs looking to participate in its tournaments must ‘break even’.
Where a football club hopes to participate in a European tournament, to comply with the FFPRs they must meet what are known as ‘break even requirements’. This involves submitting a series of financial documentation to UEFA. UEFA in turn, through its Club Financial Control Body, will undertake a review club finances and ensure that they are in-keeping with FFPRs.
The financial limits have been phased into use over a number of years, so to allow an ‘adjustment period’ for football clubs. For the 2011-12 and 2012-13 seasons, clubs were entitled to make a loss of up to £37.2 million. Between the 2015-16, 2016-2017 and 2017-18 seasons, this limit will drop to £25 million. As time goes on, this will again be reduced. These reductions in the limit that football clubs can ‘overspend’ by are to encourage responsible spending and a long term view of business financial health.
This relatively simple rule is complicated by the fact that a number of exemptions operate within the regulations. There are different criteria that will operate under UEFAs rules. However, generally any spending which is related to infrastructure e.g. building new stadiums or on training younger players will not be counted under the FFPR limits.
As was mentioned above, UEFA through its Club Financial Control Body will investigate the financials of all football clubs who are hoping to participate in one of the UEFA tournaments. The Club Financial Control Body is split into two different chambers; (i) an investigatory chamber and (ii) an adjudicatory chamber. The investigatory chamber tends to carry out the majority of the Control Body’s work, appraising the financial affairs of clubs to ensure that they do not exceed the allowable expense limits. The adjudicatory body will only be engaged when investigations point to a football club exceeding the financial limits, and is prosecuted under UEFAs FFP rules.
Where a club is prosecuted under the FFP rules, it will be for the adjudicatory chamber of the Club Financial Control Body to decide on the appropriate sanction. Ultimately, the sanction that will be issued will depend on the severity with which a football club breaches the FFP rules. The range of sanctions that the Club Financial Control Body are set out in Art.21 of the ‘Procedural rules’ and include the following;
UEFA has developed a system whereby, if a sanction is necessary, clubs are encouraged to engage in discussions with the Club Financial Control Body to agree on a punishment that is proportionate to their breach of the UEFA rules.
The introduction of UEFA’s FFRPRs was not met with much support among European football clubs. Football clubs, prior to the introduction of the regulations, had become accustomed to maintaining their operations often while running at a substantial loss. In some cases, what could have been deemed as irresponsible spending by football clubs was excused by the fact that some clubs were owned by wealthy individuals that would be able to absorb any such loss. As mentioned above, the main objective of the UEFA FFPRs was to curb this kind of behaviour, and encourage a more responsible and long-term view of football club management and spending. However despite UEFAs good intentions, a number of clubs expressed concerns over the impact of FFPRs on football clubs.
A number of questions have been raised over the validity of UEFAs FFPRs, and most of these have centred on concerns regarding the rules’ possible breaching of European law.
As mentioned above, the aim of the regulations is to encourage responsible spending amongst football clubs. In turn, this requires that clubs think strategically about the finances they spend. Some voice concern that, amongst other things, this could mean that players will face substantially reduced salaries, and in turn, players agents will see a reduction in fees owing to the lesser number of players that clubs sign to their teams. Furthermore, many have voiced concerns that the FFP rules restrict investment in a club in no longer allowing them to operate at a loss and that they will prevent smaller clubs from breaking the dominant position of rich clubs, in preventing those smaller clubs from operating at a loss above a certain level.
The rules of sporting bodies have already attracted the attention of the courts. In the historic Bosman ruling of the Court of Justice of the European Union (CJEU), restrictions on foreign EU players within national leagues were deemed illegal. The court also ruled that football players within the EU should be allowed to move to another club at the end of their contract without the need for a transfer fee to be paid. Ever since, it has been very clear that sporting rules that relate to the ‘economic’ aspects of sporting activities can be challenged under European law.
During the creation of the FFP rules, UEFA engaged the European Commission and several other interested parties in ensuring that the FFP rules would be compliant with European law. In March 2012, the Vice President of the European Commission and the UEFA President issued a joint statement on the relationship between UEFAs FFP rules and European laws. This statement confirmed that the financial rules were in line with the European Union policy. It was hoped that this joint statement from the regulatory and governing authorities would allay concerns of football clubs that there was some illegality in the new financial requirements of clubs being introduced by UEFA.
Following on from the concerns voiced by agents, owners, managers and players in the sport, and despite assurances to the contrary, an Italian football agent issued a legal challenge to UEFAs FFP rules in early 2013. His challenge was widely reported on, and is essentially that UEFAs rules breach European laws relating to competition and the free movement of workers. Despite the European Commission having been consulted during the creation of FFP rules, it is bound by law to investigate any claim that there has been a breach of European law.
More recently there has been speculation that a UK football club, Manchester City, is also considering mounting a legal challenge to the UEFA FFPRs. The club was investigated by UEFAs Club Financial Control Body in early 2014 and was subsequently found to have breached the FFP rules. Following discussion between both the club and the adjudicatory chamber of the Club Financial Control Body, reports suggest that the club will accept a fine of £16 million.
When dealing with the FFP rules in particular, parties have suggested that they violate the following rules;
As noted above, EU laws have and will apply to sport governing bodies. In this case, this includes UEFA and its Financial Fair Play rules. Some reports suggest that the argument could be made that under Article 101 TFEU, by UEFAs Financial Control Body fining football clubs and having an effect on its commercial operation – in having to find the sums to pay the fine – grants a commercial advantage to other football clubs. As a result, this could be interpreted as anti-competitive. UEFA, as an organisation that is made up of ‘an association’ of football clubs would fall within the meaning of Article 101. As a result, its actions would be subject to review by the European Court.
Alternatively, under Article 102 TFEU, football clubs would be required to show that there was an abuse of a dominant position within the European market by UEFA, through its FFP rules. There are two prongs to this kind of legal argument;
If a football club is to mount a convincing legal challenge, it must look to answer these questions. Clubs hope to participate in large European tournaments for two reasons; (i) prestige and (ii) financial reward. Participation in such events not only recognises a football clubs players skills and abilities, but also brings with it substantial sums of money e.g. licensing fees and ticket sales. It could be argued, by a football club, that a fine that is issued by UEFA via its Club Financial Control Body and the requirement to operate within the confines of the rules constitutes a barrier to entry to European football.
Alternatively, as has been reported, a football club could argue that the requirements of the FFP rules “directly or indirectly imposes unfair purchase” under Art. 102 (a) of the European Treaty. UEFA created the FFP rules with a view to instilling responsibility in football club spending. However, clubs could potentially argue that the rules prevent them from operating as they wish. The FFPs requirements that clubs operate within strict financial guidelines before it can access European tournaments may lead to the established powerful clubs raising barriers to entry of their own e.g. raised ticket prices. This kind of argument is essentially an argument on the ability of football fans to gain access to football matches within European tournaments. If the Commission where to entertain it, it will investigate to establish precisely what forces an ‘unfair purchase’.
Given that there may indeed be room to argue that the UEFA FFP rules are contrary to European law, both football clubs and indeed UEFA itself will look to gauge the likely success of any legal challenge. The Court of Justice of the European Union has agreed to consider the legality of FFP rules under European law, but not before 2015.
It is almost impossible for anyone to give a concrete indication of how the Court will address the kinds of argument mentioned above. However, it is important to bear in mind that the FFP rules were drafted by UEFA, while it was in consultation with the European Commission and other interested parties. Objectively, one can appreciate that UEFA took this kind of action with a view to minimising the likelihood of any legal challenge to the rules being successful. However, the European Court will take its own view of the legality of the FFP rules and is expected to issue its judgement in February 2015.
Nothing in this guide is intended to constitute legal advice and you are strongly advised to seek independent advice on matters that affect you.
