Financial Fair Play – a necessary evil?

Stephanie Leach, UEFA Club Licensing and Financial Fair Play speaking at the conference Challenges for Football. Photo by Mette Thorsen

The new UEFA concept of Financial Fair Play is blurry and mounts the risk of court cases, according to leading sport economic, Professor Stefan Szymanski from the CASS Business School in London. Others do not see any good alternatives.

Why is it wrong that wealthy people put money into professional football clubs? How will UEFA promote rational behaviour in European football without defining in detail what it means? And why are small clubs not going to be affected by the new UEFA rules on financial fair play, when second and third tier clubs are especially prone to financial problems?

From the opening of the international conference ‘Challenges in football’, co-organised by Play the Game from the 20-21 June, it was clear that not only financial misconduct in many professional football clubs is not the only big challenge for the game. UEFA’s attempt to tame the finances by regulation is also a huge task.

At the conference keynote speaker Professor Stefan Szymanski questioned UEFA’s newly introduced concept of Financial Fair Play despite some understanding of the political motives behind it.

From 2013 UEFA will demand break-even in all football clubs participating in the European tournaments apart from small clubs with incomes/expenses under 5 million Euros. Other clubs are in principle only allowed a yearly deficit of 5 million Euros on the football activities – although in the beginning UEFA will be accepting margins up to 45 million Euros, giving the clubs time to adapt.

Szymanski targeted the break-even rule speaking at Aarhus University in Denmark: “My personal view is that it is very sensible for UEFA to agree on rules on solvency – I think that has to be welcomed. But I do think it is important to start to think what solvency means here.”

Too late and not fair
According to Stefan Szymanski such a system often spots the financial problems too late – when the clubs are already in deep trouble. Furthermore, the demand of break-even is an imprecise instrument to measure insolvency: Clubs can have accumulated reserves; they can expect future surpluses; they may be safe as a part of a larger company, or the deficit could simply be covered by wealthy owners.

“Some say that the contribution from an owner, who puts in his own private cash, is more unfair than the contribution from a corporate sponsor. Why?” asked Szymanski, who does not see a big ‘systemic’ risk to football coming from club-owning sheiks or oligarchs by ‘tempting’ other clubs to overspend.

“No one is putting a gun to their heads saying they have to spend this much money. The clubs are choosing to try and compete. The systemic risk is coming from below where the clubs from beneath are pushing themselves beyond their limits in order to be competitive.”

Szymanski thinks the lack of addressing the financial problems in the smaller clubs is a significant weakness of the UEFA concept. But UEFA’s general ambitions of a more rational and long term viable football business are also blurry and could be challenged from many sides including the European Court that may see parts of the Financial Fair Play concept as a breach of the EU treaty and its principles of competition.

“Regulation is about competition structures so you have to be specific about what kinds of things you are going to constrain people to do and not do. And a general requirement to be ‘rational’ seems to be something that is almost non-enforceable. So I think there are some question marks about these objectives and the way they are stated – and my suspicion is that in the longer term, UEFA will have to tighten these, maybe drop some of them or else face significant legal challenges.”

“It’s not easy”
At the conference Stephanie Leach from UEFA Club Licensing & Financial Fair Play acknowledged that there are still many uncertainties over how the new rules will work – and may not work – when they come into effect in 2013.

“It’s not easy. It’s challenging. But we are trying to try to create long term stability. You see teams gambling because they know this white knight will show up,” Leach said pointing out a list of practical challenges like club owners looking for accounting loopholes, withholding information or even fighting back at courts or by political means.

“Clubs might start a popular campaign and try to generate a popular support against the new rules or take a challenge via the EU. And if you have Real Madrid, Barcelona and Manchester City saying ‘we are not going to listening to your rules’, it would put us in very precarious situation,” she said.

“Some might fight back. And I think we will see this coming our way soon. Some also ask – like fans – if UEFA will apply strong sanctions and what the sanctions are. At the moment the sanctions aren’t defined,” said Stephanie Leach mentioning fines as an example of a sanction that may not make sense if the club is already in a financial difficulty, just as throwing out a club in the middle of UEFA’s competitions would also create problems.

“So we have to think of clever ways to apply the rules and effective sanctions,“ she concluded.

Leach thinks that other problems like irresponsible smaller clubs going for promotion or avoiding relegation, could be addressed by national federations taking responsibility in regulating their local leagues.

On the plus side the Financial Fair Play could, if it turns out to be successful, make football more attractive to serious investors and deter those who may use the club as toys or even as a cover for criminal activities like money laundering.

“We want people to invest in the game – long term investments, not just in wages. With the Financial Fair Play, we try to encourage this.”
Better than nothing…
According to other oesearchers and stakeholders outside UEFA, the new UEFA system may be the best try despite its possible flaws and many uncertainties.

new survey among European football fans from the University of Chemnitz in Germany indicates that there is a broad support of regulation and financial governance among the fans. But at the same time the fans express concern regarding UEFA’s ability to apply the new rules for Financial Fair Play strictly.  

The fans’ perceptions of how the football clubs are being governed are growing in importance, said Antonia Hagemann, Head of European Development from Supporters Direct. Supporters Direct is an organisation helping fans take ownership in their football clubs by setting up ‘supporters’ trusts’.

According to Supporters Direct, fans possess a resource for the clubs and the clubs can gain a lot from taking the opinion of the fans into greater consideration and involving them at the organisational level. New rules in UEFA require the clubs playing in the European tournaments to have a Supporter Liaison Officer that can serve as the voice of the supporters, adding to the fan involvement.

Sean Hamil from Birkbeck Sport Business Centre, argued that the alternative to a successful outcome of UEFA’s initiative with Financial Fair Play could be privatisation, whereby club owners will avoid financial turbulence by making American inspired closed leagues.

“That will be a disaster for all other stakeholders in European football. For example, you wouldn’t have national team competitions. (...) The magical nature of football would be gone,” Sean Hamil said.

The conference ‘Challenges for football’ took place at Aarhus University in Denmark 20–21 June 2011 gathering a wide range of expert and sport administrators to discuss some of the burning issues of the game – from financial instability to new agendas like health policies making their way into football and the adoption of new technologies in the game. The conference was organised by the Danish Institute for Sports Studies, Play the Game, Department for Sport Science at Aarhus University, UPDATE at the Danish School of Media and Journalism, and Sport Aarhus Events.

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