PtG Article 05.10.2011

On the eve of Financial Fair Play, 55 percent of clubs post a loss

UEFA revealed fresh details on the woeful state of European club football to Play the Game ahead of the introduction of the new Financial Fair Play measure that aims to curb the game’s endemic losses.

Earlier this year at Soccerex, UEFA’s head of club licensing, Andrea Traverso, revealed that the annual review of Europe’s top clubs was expected to show losses of €1.8 billion in 2010 – up from €1.2 billion in 2009.

Speaking at Play the Game, UEFA’s benchmarking manager Sefton Perry did not confirm that figure but admitted that the 2010 losses will be “worse again”, and he revealed that accounts for one in 10 clubs produced comments from their auditors that the club was a ‘going concern’.

Mr Perry also revealed that of the 650 clubs in the annual report, 230 suffered a drop in attendances of five percent or more, and although 130 clubs saw a rise in attendances, the overall picture was “slightly negative.”

Clubs continued to drive revenue up with 2010 expected to show an increase in turnover of between 5 percent and 10 percent. However, only 45 percent of the clubs in the annual review broke even. The remaining 55 percent posted a loss.

“Incomes have tripled over the last 13 years but it’s not about income, it’s about controlling costs,” said Mr Perry. “Financial Fair Play (FFP) is not an answer to all these problems but we think it will help.”

31 clubs do not meet current criteria

UEFA has already written to a number of major clubs about the introduction of FFP, which will not cover clubs with an annual turnover of less than €5 million.

According to Perry, 31 clubs from places including Bulgaria, Greece and Spain have already been excluded from the Champions League or Europa League for failing to meet the current UEFA club licensing criteria, and he said that the European body would confront clubs trying to evade the introduction of FFP.

“We are not scared of the legal ramifications, nothing difficult is easy,” he added.

Stefan Szymanski, an academic from the University of Michigan and the co-author of Soccernomics, responded by claiming that football remains a resilient business with 68 insolvencies at clubs in the top four divisions in England since 1982. Only two clubs had been killed off: Aldershot and Maidstone.

“Football is a far more stable business than any other on earth,” claimed Mr Szymanski. “This is because when a club goes under, the creditors don’t want the club to fail.”

He went on to brand this as “immoral” and said that the owners of failing clubs who took advantage of creditors’ affection for a club were effectively “stealing.”

A club in three senses

John Beech, head of Sport and Tourism at Coventry University, challenged Szymanski’s claim that football was stable, showing that 58 clubs have been involved in 71 insolvency events since 1991 with some clubs insolvent on three occasions.

“Football is serially unstable,” said Mr Beech, who also offered a different view of what constituted a club. He said that a club existed in three senses: the club as viewed by the fans, the club as a business, and the club as represented by the team on the pitch.

“You need to keep all three elements distinct when analysing football,” said Beech, who cited the failure of English club Accrington Stanley, a founder member of the Football League that quit the competition in 1961. “

When fans chanted ‘Save our Stanley’ they really meant ‘Save our board of directors,’ said Beech, who added that this situation remained the same today.

FFP may end benefactor model

Although Perry admitted that FFP may not have an impact in the lower echelons of competitions like the English Football League, he pointed out that other UEFA members, such as Cyprus and Turkey, are already introducing FFP at domestic level.

He confessed that the introduction of FFP is unlikely to change the upper echelons of European football, where the top 10 clubs turned over double the amount of revenue earned by the next 10 sides, but the panel agreed that FFP would produce real change in the long-term.

Mr Beech argued that FFP would eventually end the benefactor model that is increasingly prevalent in the UK with the ownership of Chelsea by Roman Abramovich and Manchester City by Sheikh Mansour.

Another panel member, Christian Müller, chief financial officer of the DFB, argued that the current restricted ownership and rigid licensing of the Bundesliga, including a need to prove positive liquidity before each season in order to get a license, placed German clubs in a far better position to meet the challenges of FFP.

“I expect a slow but stable expansion of FFP across Europe,” said Mr Müller. “I expect a change in England, Italy and Spain and a better performance [on the pitch] by the Bundesliga clubs.”

Download the UEFA Club licensing and financial fair play regulations here