UEFA Financial Fair Play Regulations

November 2016 Ali Sami Er

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Football"s economic growth, astronomical transfer fees, and neglected youth development seem to be considered not only by us but also the UEFA. Thus, the implementation of Financial Fair Play (“FFP”) Rules started in the 2014/15 season, two years after a long preparation phase. With the investigations, the financial tables and indebtedness of the clubs in the 2011/12, 2012/13, 2013/14 seasons were checked and the expenditures of Turkey’s big four clubs came under the radar of the UEFA.

FFP Rules

The criteria sought in these investigations, briefly, as follows:

The clubs may spend up to €5 million more than they earn per assessment period (aforementioned three seasons) (“Permitted Level of Additional Deviation”).

Knowing that many teams are in hugely indebted, to soften this stiff transition, and to ensure that the clubs gradually establish a balanced budget by the 2018/19 season, the UEFA determined restrictedly these variation limits as:

€45m for assessment periods 2013/14 and 2014/15
€30m for assessment periods 2015/16, 2016/17 and 2017/18.

These variation limits are acceptable only if it is entirely covered by a direct contribution from the club owner(s) and/or a related party. Investments in stadiums, training facilities, youth development and women’s football and all such costs are excluded from the break-even calculation. In result of such Rules,

the clubs will not spend more than their income and will catch the point where the total income and the total outcome of the club are equal (at a Break-Even Point),
budget deficits will be closed (Balanced Budget),
instead of overspending the money for astronomical transfer fees, financially strong and debt-free clubs will serve the development and continuity of football (Continuity),
expenditures made to improve the clubs and their infrastructure that are not recorded as expenses are encouraged because such investments do not affect the Balanced Budget.

Enforcements In Case of Violation of the Rules

In order to ensure the implementation of the FFP Rules, the UEFA established the independent Club Financial Control Body (“CFCB”), which has both Investigatory and Adjudicatory Chambers, in 2012. The CFCB"s Investigatory Chamber examines the financial reports and indebtedness of the clubs, and may offer settlement agreements if the clubs are committed to reduce expenses and debts. When these measures become inadequate, the relevant clubs may be brought to the Adjudicatory Chamber. As a result of the examinations of the Adjudicatory Chamber, disciplinary measures set forth, below, may be imposed against the club[1]:

Warning
Reprimand
Fine
Deduction of points
Withholding of revenues from a UEFA competition
Prohibition on registering new players in UEFA competitions
Restriction on the number of players that a club may register for participation in UEFA competitions, including a financial limit on the overall aggregate cost of the employee benefits expenses of players registered on the A-list for the purposes of UEFA club competitions
Disqualification from competitions in progress and/or exclusion from future competitions
Withdrawal of a title or award

These measures usually are imposed because of overdue payments, and the failure to comply with Break-Even rule.

While the FFP Rules are often criticized by the public since the fines are not harsh on the financially strong clubs; but rather destructive for small ones, the UEFA argues that the long-term benefits of this system will be great for European football.

Situation in Turkey

Many clubs from Turkey also executed settlement agreements with the CFCB because they did not meet the FFP criteria. These agreements are usually made for a period of 3 years and the development of the clubs are checked on a regular basis by the CFCB. If changes, such as a new president or a new administration, projects that will increase the income of the club etc., ensure the club"s Balanced Budget, the club may be saved harmless from such measures. For instance, Trabzonspor is able to pursue the settlement process for the duration of agreement in result of its revenues from the hydroelectric power plant.

Unlike Beşiktaş, Fenerbahçe and Trabzonspor; Galatasaray did not comply with the executed settlement agreement and continued to increase its expenses. In this regard, Galatasaray was excluded from participating in the next UEFA club competition for one season, within a period of two years. The aforementioned agreement was signed between Galatasaray and the CFCB on 16 May 2014. Although Galatasaray"s incomes increased, it was unable to balance its budget; therefore, the Adjudicatory Chamber of the CFCB announced the disqualification penalty on 2 March 2016. Although the decisions taken by the Chamber may be appealed at the Court of Sports Arbitration (“CAS”), the CAS rejected the appeal filed by Galatasaray[2].

Future of FFP Rules

The FFP Rules are highly discussed in both the sports and the economic world. In particular, the anti-competition effects of these rules are criticized; for example, a challenge brought by football players’ agent, Daniel Striani, and fan groups linked to Manchester City and Paris Saint-Germain against the UEFA’s FFP Rules in 2013. The claimants argued that these rules did not comply with the EU Competition Law because the FFP Rules may:

restrict investment in a club by no longer allowing them to operate at a loss
lock in the power of the already wealthy clubs that have losses supported by a wealthy owner
cause reductions of the transfer amounts and of the number of players under contract per club, and also the deflationary effect on the level of players’ salaries that may block the competition
affect the ability to earn agent fees from players’ wages and transfer fees[3].

The Court of First Instance in Belgium imposed an interim order blocking the FFP Rules, and referred the case brought by several claimants to the European Court of Justice (“ECJ”)[4]. The UEFA appealed the decision, and the ECJ rejected the case against the UEFA, and decided on the continuation of implementing the FFP Rules[5].

In the joint statement issued by the European Commission and the UEFA in 2012, it was declared that the principles underlying the FFP could serve, with adaptations, as an effective model for other sports[6]. Today, the aim is to bring similar rules in other sports branches, aside from football to ensure that the clubs have Balanced Budgets and continuous sports activities. In this respect, in the Euroleague Bylaws[7], the FFP Rules were also issued and, in the last period, a transfer ban was imposed on Galatasaray in the basketball branch for 1 month as a result of not complying with these rules[8].

Conclusion

Although the debate concerning the FFP Rules is still ongoing, the European Commission, the European Court of Justice, and the UEFA have reached a consensus that these rules will provide sustainability of sports in Europe. The clubs are being monitored by the CFCB, and the continued monitoring of the clubs, despite the measures and the fines, is indicative of the seriousness of the rules. As the FFP rules gain a considerable awareness also in other sports branches, the sport clubs must be carefully managed in every respect.

References

Please see: http://www.uefa.com/community/news/newsid=2064391.html (access date: 06.12.2016).

Please see: http://www.tas-cas.org/fileadmin/user_upload/Media_Release_4492.pdf (access date: 06.12.2016).

Please see: https://www.theguardian.com/football/2013/may/06/agent-legal-threat-uefa-financial-fair-play (access date: 06.12.2016).

Please see: http://www.bbc.com/sport/football/33240826 (access date: 06.12.2016).

Please see: https://www.theguardian.com/football/2015/jul/22/eu-supreme-court-rejects-ffp-challenge-uefa (access date: 06.12.2016).

Please see: http://ec.europa.eu/competition/sectors/sports/joint_statement_en.pdf (access date: 06.12.2016).

Please see: http://www.euroleague.net/rs/79tbcueu9ady8xkb/84bd1f8d-134d-42a0-a8ee-cd688d29aaa2/0d5/filename/2016-17-euroleague-bylaws-book-15-sept-2016.pdf (access date: 06.12.2016).

Please see:http://www.euroleague.net/news/i/7e5mwarnmpewiy7u/euroleague-basketball-finance-panel-opens-adjudicatory-proceeding-against-galatasaray (access date: 06.12.2016).

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