WHAT IS FINANCIAL FAIR PLAY?

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Financial Fair Play (FFP) has made the headlines once again and I have been asked by many of you to explain what it actually is. Soccer is very different to most sports as there is no salary cap. There is no set figure which dictates how much money a club can spend on transfer fees and wages. The absence of a salary cap has seen transfer fees and player’s wages rise exponentially. From Neymar’s $262 million-dollar transfer to PSG, to elite players earning more than $450,000 dollars a week; the amount of money that is being spent in soccer is outrageous.

Big spenders, big winners

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Across Europe’s biggest leagues, those who have spent the most money have been the most successful. For example, in Spain the biggest spenders have dominated La Liga. The last time a team other than Barcelona, Real Madrid or Atletico Madrid won the league was 17 years ago.

The same has happened in England where the biggest spenders rule the Premier League. These sides are Manchester United, Manchester City, Chelsea, Arsenal, Liverpool and Tottenham Hotspurs. The English first division was rebranded as the Premier League in 1992 and members of the “top 6”, except for Liverpool and Tottenham Hotspurs, have won the Premier League 24 times. There have been 26 Premier League seasons.

Right across Europe, the richest clubs are dominating their respective leagues. Juventus are on the brink of wining their 8th Serie A in a row, in France PSG are on the verge of winning their 6th consecutive Ligue 1 and in Germany Bayern Munich have a real chance of winning their 7th league title in a row. The big spenders are the big winners.

These clubs can buy the best players and pay them the highest wages; which means that their sides are always stronger than the rest of the league. Smaller clubs, within their respective leagues, have no means of competing. The fact that the major leagues in Europe are always won by a select few teams, and in some cases exclusively by one team, demonstrates the unfair advantages that Europe’s elite sides enjoy. The financial advantages that are enjoyed by Europe’s elite sides have enabled them to dominate their respective domestic leagues.

Financial Fair Play (FFP)

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UEFA, the governing body for European soccer, have introduced Financial Fair Play as a means of “leveling the playing field.” Essentially, Financial Fair Play means that European clubs must balance their books. Clubs can only spend money that they have generated. UEFA claim that they introduced Financial Fair Play as a means of bringing parity to European soccer; whilst also ensuring the financial integrity of soccer clubs. Financial Fair Play is a measure which aims to stop clubs from jeopardizing their futures by outspending their means.

Criticisms

There are a variety of philosophical and practical criticisms that are levelled at UEFA and their legislation of Financial Fair Play. The philosophical arguments against Financial Fair Play is that the market, i.e. European soccer, should dictate the spending power of clubs. Unsurprisingly, many of the individuals who echo these sentiments are those who are connected to Europe’s biggest sides. From this viewpoint, sides should be allowed to govern their own finances without interference from UEFA. Think of free market capitalism where this is next to no state intervention; this is the model that Europe’s biggest sides would rather pursue.

The practical criticisms of Financial Fair Play are that the biggest cubs are still able to spend the most money. Financial Fair Play stipulates that you can only spend what you generate but the biggest clubs are the ones who generate the largest funds. Therefore, the biggest sides still have a financial advantage over the smaller sides.

These dissenters claim that Financial Fair Play restricts the clubs that are a tier below the elite sides and prevents them from “taking the next step” in their development. As these sides do not generate the same level of funds as the elite sides in Europe, it means that they cannot spend the necessary funds needed to break into that elite tier. Financial Fair Play is seen as a mechanism that enables the “big-club status-quo” in European soccer to continue.

Sanctions

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When a club is found guilty of breaking Financial Fair Play there are a variety of sanctions that UEFA can implement. These range from fines to bans from participating in UEFA sanctioned tournaments, i.e. the Champions League and the Europa League, but UEFA have favored small fines over any other form of punishment.

Fines have proven to be an ineffective deterrent as UEFA have rarely sanctioned fines of a significant value. For example, AFC Bournemouth had to pay a fine of $6.2 million dollars for breaking Financial Fair Play. Such small fines will not deter clubs from breaking Financial Fair Play and if UEFA want to be taken seriously then they must sanction graver punishments.

Player Amortization

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Soccer clubs are run like some of the best businesses in the world. These clubs have an army of accountants who enable them to ease the pressures of Financial Fair Play. Just as accountants help businesses pay the least amount of Corporation Tax possible, soccer clubs have hired accountants that help them manipulate Financial Fair Play.

The table below, on face value, does not make sense. The amount that Robinho and Di Maria were purchased for is way higher than the fee that they were sold for. But, their transfers were cited as profits by their respective clubs and this is done via player amortization.

To make amortization easier to understand I will make up a transfer scenario which involves simple numbers.

  1. Player X signs for $40 million dollars on a 4-year contract.
  2. The annual amortization is $10 million dollars per year over the 4-year period
  3. After two years player X was sold, leaving a value of $20 million dollars on the club’s accounts ($10 million per year)
  4. Player X was sold for $30 million dollars
  5. ($30 million minus $20 million) ÷ (the two years left of player X’s contract) = $5 million dollars per year
  6. Club now shows a profit on player X of $5 million per year

There are other ways in which clubs can manipulate Financial Fair Play but player amortization is the most common method. Financial Fair Play limits how much a club can spend per year and player amortization allows clubs to alter their respective net-spends. This manipulation takes place as clubs are able to turn their losses into profits. By increasing their profits, and reducing their losses, clubs are able to improve their net-spend and increase the amount of money that they are able to spend.

Financial Fair Play makes little sense to me. In my view, it ensures that the elite clubs remain in dominant positions. Elite sides generate the most money so they are also able to spend the most money. Essentially, Financial Fair Play maintains the status-quo and inhibits the smaller sides in European soccer from becoming elite. If UEFA really wanted parity and genuinely cared for the financial integrity of clubs then they would introduce a hard salary cap. But, of course, UEFA and soccer’s most powerful clubs would never let that happen.

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