The Impact of UEFA’s Financial Fair Play on certain key (financial) aspects of Football Clubs


Master's Thesis, 2017

78 Pages, Grade: 1,7


Excerpt

Table of Content

List of Abbreviations

List of Tables / Figures

1. Introduction
1.1 Motivation and Results
1.2 Procedure

2. Literature Review
2.1 Utility maximization vs. Profit maximization
2.2 Investor motives
2.3 Attractiveness of the sport

3. Financial Fair Play
3.1 Organizational entities within UEFA dealing with FFP
3.2 Origin and main objectives
3.3 Framework
3.4 The Financial Fair Play Concept in literature

4. Analysis
4.1 Methodology and Data
4.2 Key Aspects of Football clubs
4.2.1 Financial Aspects
4.2.1.1 Development of Revenues
4.2.1.2 Development of Expenses
4.2.1.2.1 Transfer spending
4.2.1.2.2 Salary Development
4.2.2 Infrastructure Investments
4.2.3 Sportive Aspects
4.3 Monitoring procedure and past FFP disciplinary measures

5. Interpretation of the results and Critical Discussion
5.1 Financial Aspects
5.2 Relevant Revenues
5.3 Relevant Expenses
5.4 Excludable Items
5.5 Monitoring procedure
5.6 Sportive Success
5.7 Alternative forms of regulation

6. Concluding Remarks
6.1 Limitations
6.2 Summary
6.3 Outlook

Bibliography

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Tables / Figures

Table 1: Monitoring Periods and Deviation Levels

Table 2: Relevant Elements for the calculation of the Break-Even Requirement

Table 3: Investment in Fixed Assets

Table 4: Appearances UCL Semi-Final since 2009/10

Table 5: Appearances UEL Semi-Final since 2009/10

Table 6: Overview of the settlements between UEFA and the non-compliant clubs

Figure 1: Organizational Structure of UEFA

Figure 2: Meta data of the analysis

Figure 3: Financial Performance European clubs (€ m)

Figure 4: Capital structure European clubs (€ bn)

Figure 5: Equity Injections TOP 5 leagues (€ m)

Figure 6: Per game attendance TOP 5 leagues in 2015

Figure 7: Aggregated revenue European clubs (€ bn)

Figure 8: Revenues Money League clubs (€ m)

Figure 9: Growth per Revenue Stream of European clubs FY 2009-15

Figure 10: Average revenues per stream Money League clubs (€ m)

Figure 11: Extreme value revenues per stream Money League clubs (€ m)

Figure 12: Average revenue split Money League clubs

Figure 13: Average revenue split European clubs

Figure 14: Extreme value revenue split Money League clubs

Figure 15: Revenue split TOP5 Leagues FY 2015

Figure 16: Cost Development European clubs (%-of Revenue)

Figure 17: Average Operating Costs TOP 5 leagues (€ m)

Figure 18: Transfer Spending European Clubs (€ m)

Figure 19: Transfer spending proportions of overall

Figure 20: Average Transfer spending TOP 5 leagues (€ m)

Figure 21: Transfer spending Money League Clubs (€ m)

Figure 22: TOP 5 Transfers per season (€ m)

Figure 23: European Club salaries (€ bn)

Figure 24: Average salaries TOP 5 Leagues (€ m)

Figure 25: European Club Salaries (No.)

Figure 26: Average wage bill TOP 5 leagues clustered after position (€ m)

Figure 27: German Club’s Investment in Youth Academies (€ m)

Figure 28: Average Player Age TOP Leagues

Figure 29: Overview achievement of objectives of FFP

1. Introduction

1.1 Motivation and Results

In recent years, European club football has extended influence well beyond the traditional realms of sport. Nowadays clubs have both economic and social importance within their communities. Football clubs have grown and continue to grow rapidly, in revenue, in financial opportunity and in diversity of impact upon society.

However, certain economic developments, namely huge rises in salary levels and transfer costs within and between the larger clubs, with associated and concurrent financial losses for many smaller clubs, have raised concerns at the Union des Associations Européennes de Football (UEFA) about the long-term sustainability of European club football in its current form.

Thus, UEFA came up with a new regulation for its club competitions with which clubs must comply if they wish to participate. Financial Fair Play (FFP) is intended to solve many of the problems that have been identified and to help improve the financial health of individual clubs, as well as the sustainability of the whole system. Nevertheless, FFP is widely controversial - both within the football family and among academics.

The recent transfer period has once more shown the interrelations and the series of reactions that such an exchange activity in European club football can cause in the current situation. With the transfer of Neymar for reported €222 million from FC Barcelona to Paris Saint-Germain (PSG), a cascade of other occurrences has been triggered. The need for Barcelona to replace Neymar with an adequate player caused the strike of another player (Ousmane Dembélé) at his current club, because he wanted to push the club to permit his transfer to Barcelona. Also, Philippe Coutinho, a player of Liverpool F.C., was an aspirant to the job, but his employer did not approve his transfer. If Coutinho had been transferred to Barcelona, then Liverpool itself would have needed to acquire a new player as replacement (cf Borussia Dortmund and Dembélé).

After all that tangle, a second player, Kilian Mbappé, transferred from AS Monaco to PSG. Not only did PSG use a dubious structure[1] to enable the Neymar transfer, but also, they decided to loan Mbappé first for one season and buy him afterwards in the transfer period before the 2018/19 season to ensure the fulfillment of the Break-Even (BE)- requirement.

For many other clubs, these major transfer activities of PSG have left a nasty taste. Many have argued that with these events, PSG could never break-even, since not only the transfer fee still has to be accounted for in PSG’s books due to related-party transactions, but also the salary of around €90 million annually (Neymar receive s a net salary of €30 million) plus value added tax on the transfer fee, plus money and commission for his advisor have to be included in the BE-calculation. Therefore, these clubs demanded that UEFA takes a close look and review PSG’s BE-results closely and impose sharp sanctions on PSG in case of non-compliance to the FFP regulation.

This occurrence has stirred up a lot of attention and this thesis explores and exposes the mysterious topic of the FFP regulation. The aim here is to better understand how club ’s activities are restricted under the regulation and enforced in cases of non-compliance. Furthermore, this thesis sheds light on why UEFA came up with regulations in this form and what possible alternative forms the regulation framework could have taken. Additionally, the analysis shows how the relevant elements for the BE-calculation have evolved since the announcement of FFP and whether significant changes are perceptible. On top of this, the author will further investigate just how effective UEFA’s monitoring and sanctioning procedure are for clubs when breaches of FFP regulations occur and whether any improvements in the relevant measures indicators have taken place.

This work shows that FFP has not been able to limit transfer spending or salary inflation in European club football. Moreover, it illustrates how the clubs’ financial situations have improved in recent years. Growing equity through owner’s capital contributions, new money through foreign takeovers as well as rising operating profits, enabled clubs to reduce their debt level and improve their BE-results. With revenue growth exceeding the growth of salary and operating costs, clubs have been able to reduce their losses and more and more clubs report bottom-line profits. Analyzing the different sources of revenue that clubs are obtaining and the relevance of each source over time, it is perceivable that especially the Money League (ML) clubs have been able to increase their income through commercial activities while smaller clubs benefit through collectively bargained broadcasting agreements. By enforcing FFP, UEFA has already excluded a few clubs from European club competitions, imposed monetary fines and squad size restrictions and entered into several settlement agreements with clubs not fulfilling the BE-criterion. However, UEFA lacks transparency about the monitoring process as they do not publish any information about different assessments of the BE- calculation and never state the explicit BE-results that clubs under settlement have realized.

1.2 Procedure

The thesis is structured as follows :

In Chapter 2 a brief overview of important key differences of football clubs compared to businesses in other industries will be given, which is important to further understand the reasons and difficulties behind setting a regulation in European club football to achieve the desired outcomes.

In Chapter 3, the general structure of UEFA will be illustrated, particularly focusing on the bodies dealing with the monitoring of the Club licensing and Financial Fair Play Regulation (CLFFPR). Thereafter, it will be stated what the main reasons and key objectives for the implementation of FFP have been. Also, the framework itself will be outlined in greater detail. Additionally, a closer look will be taken upon already existing theoretical literature about the FFP and its (possible) impacts.

Chapter 4 provides an analysis of selected key elements that are deemed to be affected due to the new regulation (e.g. transfer spending and infrastructure investments), because they are relevant elements for the BE-calculation within European club football. Particularly, a detailed look into the existing revenue streams and expenses in the past and the development of these will be conducted as well as the capital structure changes and the potential effects on competitive balance.

Next, the monitoring procedure and sanctions UEFA has taken to enforce the new regulation will be further outlined to get a better understanding of the seriousness UEFA displays with respect to FFP. Subsequently, a critical discussion of the results and possible alternative forms of regulation (as taken in North American sports) will be presented in chapter 5.

Chapter 6 examines the limitations of this thesis, gives a brief summary over the analysis conducted and elaborates potential fields of research for the future.

2. Literature Review

2.1 Utility maximization vs. Profit maximization

Unlike companies in almost every other industry, football clubs do not only seek to maximize financial performance (i.e. profit-maximization), but instead also to maximize utility, i.e. win-maximizing probability (Sloane, 1971). Profit-maximizing clubs tend to collude together in order to reduce competition (e.g. closed-league system in Northern America). On the contrary, win-maximizing clubs have completely different incentives for their spending behavior compared to profit-maximizers, as they are spending everything they receive to increase the probability of winning (higher talent demand / salary levels, more unequal talent distribution) and thus avoid relegation (and decreasing future revenues) (Késenne, 2006). Whereas, for example profit-maximizers’ incentive to spend for talent is diminished by revenue sharing or other restrictions (Garcia-del-Barrio & Szymanski, 2009).

The differentiation of profit-maximizing and win-probability maximizing clubs in practice is not as distinctive as academic literature might point out, so that there is always a trade-off between sportive success and financial performance for football clubs. They try to solve this by getting the best possible players on the pitch within their respective budget constraints. Furthermore, the current revenue distribution within most European leagues incentivizes a phenomenon which is referred to as the “rat race” in existing literature (Ackerlof 1976; Franck, 1995). The reward mechanisms in the leagues provides clubs with the incentive to overspend (in terms of player salaries and transfer fees) at the beginning of a season in order to finish in a better league position (Müller, et al., 2012). A better league position (or simply no relegation into a lower league) leads to (more) revenue (e.g. revenue distribution within a league and participation in European club competitions) that should cover the spending of the beginning of the season. On top of that, short-term pressure from media, fans and sponsors in order to gain prestige and success is intensifying the challenging situation of managers (Vöpel, 2011).

However, the specifics of football leagues tables, positions cannot be shared, (Müller, et al., 2012), implies that if one team is able to improve their position in the league table compared to the previous season, then another team needs to finish worse off (Dietl, et al., 2008). Considering the incentives for finishing higher in the league table or the threat of relegation at the beginning of the season, every manager faces the decision- making process within the squad compilation. Some teams might invest beyond their financial means which albeit does not turn out to lead to the desired top position. This might be the implication of several factors.

First of all, football is a sport with high uncertainty of final results. Furthermore, the injury of an important player of a team (for which the club might has spent a lot of money) can influence a team’s performance considerably. Additionally, there are several other factors that influence a player’s performance on the pitch that cannot be anticipated in advance (e.g. lack of motivation, mental problems) (Kuper & Szymanski, 2009). These factors put managers of football clubs in precarious situations concerning the risk of the squad composition and potential transfers. Coming back to the rat race as mentioned before, this leads to managers bidding for players, potentially putting a club into a difficult financial situation if their overspending rationale does not turn out well in reality. Questionable incentivizing (rat race) and poor management (Wilson, et al., 2013) are therefore the main cause for the huge indebtedness of European football clubs (Késenne, 2006).

2.2 Investor motives

Another reason for taking riskier strategies while pursuing the squad composition and deciding which players to take is the existence of so called “sugar-daddies” (Franck & Lang, 2014; Franck, 2014; Lang, et al., 2011; Preuss, et al., 2014; Madden, 2014; Sass, 2016). Sugar-daddies are high net worth individuals that inject a lot of money into football clubs with different motives for it. Some do it to get more access to the public sphere (Halo-effect) by improving their own image or to increase sales and brand values for their core businesses (Leach & Szymanski, 2015). Silvio Berlusconi, the former Italian prime minister and owner of AC Milan, is a well-known example for this kind of investor. Others are primarily interested in sportive success and consider their engagement more as some sort of hobby (Madden, 2014). This type of investor is often investing more into the club than he benefits from cross-selling or the investment itself. The benefactors engage e.g. as owner or president of the club with the objective of increasing the market size (revenue potential) or success of the club (Lang, et al., 2011).

This kind of engagement is driven by several motives, e.g. the aim for social acceptance / prestige, personal amusement, empire building or money laundering[2] (Franck, 2010). Sugar-daddies tend to invest in clubs that already have a large market-size as this facilitates their achievement of prestige. This circumstance is called the glory hunter phenomenon which means that clubs that are already successful attract more spectators which leads to larger market size and therefore more revenues. This in turn leads to futures success and even further increases in market size (Sass, 2016).

The positive effect of a sugar-daddy investor for clubs and fans is the money to attract favored players and improve the team’s overall playing quality (Madden, 2015). With this in mind, it is obvious that managers of sugar-daddy clubs are incentivized to overspend in the rat race for the best players in order to achieve sportive success as this would lead to increased popularity of the investor and maximizes their utility. Sugar-daddy clubs are not afraid of paying huge amounts of money to acquire the best players in an economy where talent is limited (you cannot replace one good player with two average players, because only eleven players are allowed on the pitch). This leads to a salary bubble that is not sustainable without money from the outside (Franck, 2014). Nevertheless, the problem for other clubs that arises with the existence of sugar- daddies is that transfer fees and salaries for players increase drastically.

However, the high spending will only turn into popularity of the investor, if the sportive performance catches up with the ambitions. Therefore, sugar-daddies will bail-out the club in times of financial difficulties, if the sportive success fails to appear, as they do not want their investments to be perceived as failure. From a welfare perspective, the shutdown of a club could have negative spillover effects for the local economy as there will be a general level of unhappiness, because fans and supporters lose their joint object of identification and additionally employees of the club become unemployed and supplier bills may remain unpaid (Franck & Lang, 2014). This in turn can lead to severe implications for the local economy and many more jobs could be indirectly influenced through a financially struggling football club, e.g. suppliers, local public transport.

Losing money through their engagement in football can be rational, because there is a trade-off between bailout costs and different positive spillovers generated through the ownership of the club (Franck, 2014).

In order to compete with sugar-daddy-clubs for the best players, other clubs are forced to overspend and may get into financial difficulties (Sass, 2016). Since these clubs do not have a benefactor that covers financial losses if the sportive success fails to appear the risk of bankruptcy and financial distress for this clubs rises (Müller et al., 2012). The hazard of this situation is that financial problems of one club may lead to negative externalities to others (clubs, sponsors, communities) (Milgrom & Roberts, 1992). As the clubs are highly depended and interconnected to each other - comparable to the banking industry - due to the joint product and emerging receivables and liabilities due to transfers, the distress of a club may lead to a systemic problem, because transfer fees and salaries cannot be paid anymore (Lago, et al., 2006). In this respect, there is another similarity to the banking sector as Franck & Lang (2014) and Preuss et al. (2014) point out. They identify the too-big-to-fail phenomenon also for football. They argue that if a club is sufficiently large, it may be optimal to bail the club out from a welfare perspective.

Furthermore, Franck (2014) contended that clubs knowing they will probably be bailed out have no incentive to improve management and in that respect, they are only soft budget constrained as used to be the case in Spanish football[3].

Thus, UEFA had to act and regulate the financial situation of football clubs, in a sense that they incentivize good management behavior again to prevent clubs needing a bail­out by their local communities, governments, sugar-daddies or other associated stakeholders in the first place to prevent the local economy from potential spillover effects of financially struggling clubs.

2.3 Attractiveness of the sport

The assessment of the right measures of regulation for the afore-mentioned problems is difficult. Therefore, the football industry’s specifications will be further analyzed to better understand what key elements have to be considered in undertaking new regulation measures.

In a business environment firms tend to seek a monopoly in their industry to maximize their financial means. For sporting teams, a monopoly would not lead to increasing profits to the maximum, because the peculiarity of sport and its economics is that teams (or individual sport professionals, e.g. boxers) depend on each other. Teams are competitors in a sporting sense, but not necessarily economically (Peeters & Szymanski, 2014), because football is a product jointly created by teams facing each other in a match (production activity) to entertain the public (Morrow, 2003). Vöpel (2011) describes this phenomenon as an “associative competition” to show the inherent conflict between sporting merit on the one hand, but commercial dependence on the other.

The concept of competitive balance in team sports (Rottenberg, 1956) is vital since it creates an uncertainty of the outcome that provides spectators with higher entertainment value (Késenne, 2007) and keeps competitions attractive to fans and maintain the popularity of the sport. Goosens (2006) explains the peculiar economics of professional sports and the importance of having an opponent on a similar performance level (or at least not outperforming too much) on the profit-making ability due to the dependency of the teams. She argues that the higher the competitive balance within a sports contest, the more attraction it will generate.

Neale (1964) describes this effect with the Louis-Schmeling paradox[4]. He points out that the economic effect of sports does not only affect the sport itself but moreover a lot of industries that want to benefit from its popularity. Namely all the firms that provide access for interested people to the match or their results (e.g. broadcasting firms or newspapers). For that reason, every sport has a “natural monopoly” (Neale, 1964) for its coverage and should therefore try to maintain attractiveness and popularity. Knowles et al. (1992) confirm Neale’s proposition by showing empirical evidence for the importance of uncertainty about the outcome of a sporting contest on the creation of revenue.

However, Szymanski (2001) figured out in his empirical work that stadium attendance is attributable to more than only one factor. Hence, he concluded that competitive balance is a main factor to attract uncommitted fans for a sporting contest, however the huge number of committed fans are watching a football game, because they have been loyal to that club for a long time, makes it impossible to attribute the overall interest only to outcome uncertainty and therefore competitive balance.

Furthermore, Szymanski et al. (2002) worked out that to generate interest and attract spectators, only the competition itself has to be close (race for the first place of the table), independently if the same teams are dominating most of the other teams in the long run. This finding is consistent with Vöpel (2013) who argues that due to the reward system of the positional competition sporting merit leads to a self-sustaining spiral of success in the future which developed the dominance of some teams over others in the long-term (e.g. FC Barcelona, Real Madrid, FC Bayern München).

Comparing the popularity and size of the broadcasting deal(s) of the English Premier League to other big European leagues, it appears that there is indeed a connection between attractiveness of a league and competitive balance. With a different league champion every season since the 2008/09 season, the competition within the league made it impossible for one club to win back to back. (Economist, 2017; Transfermarkt, 2017)

Irrespective of how important competitive balance and uncertainty of the outcome affect the attractiveness and interest of people in the game, the revenue generated through broadcasting, merchandise or gate receipts is a crucial component for every football organization and is becoming even more important under the FFP regulation.

3. Financial Fair Play

3.1 Organizational entities within UEFA dealing with FFP

UEFA is the overarching association in European club football. It represents 55 national European football associations and is the governing body within European club football. It serves and acts within its core objectives which can be summarized as, firstly, always to bear the interests of European football stakeholders in mind, and secondly, to ensure the integrity of the game itself. UEFA shall also be neutral with regards to religion, gender, race and politics (UEFA, 2014).

To fulfill its objectives UEFA can implement new rules or measures or make agreements and take decisions to support and safeguard the main purpose, to ensure the overall well-being of the game (UEFA, 2017a). UEFA acts according to its eleven key values that are football first, pyramid structure and subsidiarity, unity and leadership, good governance and autonomy, grassroots of football and solidarity, youth protection and education, sporting integrity, financial fair play and regularity of competitions, national teams and clubs, respect and the European sports model and specificity of sport (UEFA, 2009a). Therefore, the organization has been set up in the structure outlined in Figure 1. This thesis will mainly deal with the Organs for the Administration of Justice, as this is the respective organ to monitor and supervise the FFP regulation.

Abbildung in dieser Leseprobe nicht enthalten

The Organs for the Administration of Justice are the disciplinary bodies of UEFA which consist of the Ethics and Disciplinary Body and the Appeals Body, ethics and disciplinary inspectors and the Club Financial Control Body (CFCB).

Members of the CFCB are elected by the Executive Committee (consisting of the president of UEFA and 16 other members of which at least one has to be a female and two are elected by the European Club Association (ECA)). The CFCB consists of a chairman, two vice-chairmen and a determined number of other members by the Executive Committee. Members within the CFCB are elected for a term of four years and can be re-elected subsequent terms. To ensure independency and neutrality of the CFCB, the members are not allowed to be affiliated with any other UEFA body or any organ or body of a membership association at the same time (UEFA, 2015a). The CFCB makes decisions about the application of the CLFFPR as set by the Executive Committee (UEFA, 2017b). The CFCB decides, whether or not, a club is fulfilling the required criteria or the FFP-requirements to compete within UEFA club competitions and may also impose disciplinary measures in the event of non-fulfillment (UEFA, 2015a).

Within the CFCB there are two separated chambers: The Investigatory Chamber (monitoring and investigation stage) and the Adjudicatory Chamber (judgement stage) (UEFA, 2017c). The CFCB Investigatory Chamber operates either on own initiative or upon request. Their work consists of collecting facts and relevant evidence to dismiss an investigation, conclude a settlement with the defendant, impose disciplinary measures on the defendant or refer the case to the Adjudicatory Chamber (UEFA, 2017d). For the latter case, the Investigatory Chamber appoints a reporting investigator who provides a summary about the gathered facts and evidence, a detailed report about possible breaches and a proposal with regards to the final decision of the case (UEFA, 2015a). The Adjudicatory Chamber decides on investigation cases referred to by the Investigatory Chamber as mentioned above, the CFCB chairman or on request of a directly affected party (UEFA, 2017e). The decisions made by the Adjudicatory Chamber have to be made with simple majority while at least three members have to be present. In case of a split vote the Chairman has the decisive vote. Decisions can be either to dismiss the case, accept or reject a club’s admission to UEFA club competitions, impose disciplinary measures or uphold, reject or modify the decision made by the CFCB Chief investigator (UEFA, 2015a). Disciplinary measures include a wide range from warnings and fines over withholdings of revenue from UEFA club competitions to restrictions on the numbers of players to register for participation in club competitions and an exclusion from future competitions (UEFA, 2015a). Final Decisions of the CFCB will be enforced by the UEFA administration and can only be appealed by the Court of Arbitration for Sports on request of an affected party to the ruling of the CFCB (UEFA, 2015a).

3.2 Origin and main objectives

In their Sustainability Study of European Football, A.T. Kearney (2010) argues that if football clubs were evaluated as businesses, leagues in Spain, Italy and England would not be far from bankruptcy. Due to lacking financial checks within their national licensing systems, they have not been monitoring the financial sustainability of their respective clubs.

UEFA in its role as overarching European football association has the duty to limit potential spillover effects of football clubs or leagues that are financially struggling to others and consider the systemic environment of European football (Lago, et al., 2006). UEFA did not only have to find ways to overcome this situation, but also deal with the challenge being to serve key stakeholders, namely the ECA, the European Professional Football Leagues and the player’s Union Federation of International Football players (also known as FIFpro) (Schubert, 2014). UEFA’s monopolistic competitions were under pressure as the ECA threatened to create their own “super league” (Independent, 1998) and also strict regulations concerning player salaries or transfer spending could have ended in the player’s union (FIFpro) protesting or problems complying with EU law.

In 1999, UEFA decided to introduce a new club licensing system for the teams competing in the European club competitions which was imposed first in the season 2004/05. UEFA set the guidelines of the licensing system, whereas they were awarded by the respective national associations. The licensing criteria contained rules concerning organizational (infrastructure, key personnel), legal and financial issues (mainly concerning no overdue payables to players and other clubs) (Szymanski, 2014).

Over the next years, the emerging trend of sugar-daddies (Peeters & Szymanski, 2012) that made huge cash injections into several football clubs (e.g. FC Chelsea, Manchester

City, PSG) further unbalanced the financial equilibrium within the leagues and led to increasing expenses for salaries and transfer fees. Especially the fact, that their football- related revenue could partially not cover the expenses (notably the salaries of the players) seemed unhealthy and threatened the sustainability of the system if these investors opted out. In particular, UEFA was concerned that the trend of rising salaries could lead to smaller, financially not well-positioned clubs to overspend their budgets in order to compete (Sass, 2016). This contagion, the arising dissatisfaction of the football community and the fans with the unequal distribution of money in football and the increasing power of investors led to some people arguing that competition may be distorted through this form of financial doping (Olsson, 2011).

With a record high of net debt[5] for financial year (FY) ending in 2009 (UEFA, 2010) and after several clubs failed to pay their liabilities to other clubs, employees and/or social/tax authorities due to illiquidity, UEFA firstly introduced the new FFP and club licensing procedure in May 2010 which was updated to its current format in 2012 and 2015. To better fulfill the new requirements with the assessment of the new CLFFPR, the UEFA Executive Committee agreed to the formation of the CFCB in June 2012 as it was necessary to replace the prevailing Club Financial Control Panel with a more powerful entity (Preuss, et al., 2014). Therefore, as already outlined in chapter 3.1, the CFCB became part of the Organ for the Administration of Justice which allows the CFCB to impose disciplinary sanctions (UEFA, 2009b).

The main objectives of the new CLFFPR whose initial concept was unanimously approved by the Executive Committee in September 2009 (UEFA, 2009b) are the promotion and improvement of standards of all aspects in European club football and the importance of training for young players within their clubs, ensuring an appropriate level of management and organization, to guarantee suitable, well-equipped and safe facilities for players, spectators and media representatives, protecting the integrity and effortless operation of the European club competitions and enabling of benchmarking for clubs in basically every criteria throughout Europe.

Furthermore, according to the CLFFPR (UEFA, 2015b), UEFA especially aims,

a) to improve the economic and financial capability of the clubs, increasing their transparency and credibility;
b) to place the necessary importance on the protection of creditors and to ensure that clubs settle their liabilities with employees, social/tax authorities and other clubs punctually;
c) to introduce more discipline and rationality in club footballfinances;
d) to encourage clubs to operate on the basis of their own revenues;
e) to encourage responsible spending for the long-term benefit of football;
f) to protect the long-term viability and sustainability of European club football.

3.3 Framework

Unless stated otherwise, the following content in this sub-chapter is based on the CLFFPR (UEFA, 2015b). The CLFFPR in its current format (2015 Edition) by UEFA, firstly addresses the responsibilities, organizational administration and the core procedure including sanctions of the licensors (national associations) and the license applicants in Part II. In Articles 17 and 23 of the CLFFPR, UEFA addresses the sporting criteria, followed by the criteria about the infrastructure in Articles 24-26, the personnel and administrative criteria in Articles 27-42, legal criteria in Articles 43-46 and financial criteria in Articles 46bis-52.

For the purpose of this thesis, the further remarks will focus on the club monitoring regulation as stated in Part Ш of the CLFPPR which is commonly known as FFP. It consists of two key components (monitoring requirements) that clubs have to comply with, namely the

- BE-requirement (Art. 58-64; Annex X)

- Other monitoring requirements, i.e. no overdue payables to football clubs, employees and social/tax authorities (Art. 65-66bis)

Clubs with relevant income/expenses below €5 million are exempt from the BE- requirement as stated in Art. 57 paragraph 2. Also, according to paragraph 4 of the same article, reporting periods that exceed or fall short of 12 months are allowed with the threshold level of €5 million being adjusted accordingly (e.g. a report period of 6

months would have a threshold level of €2.5 million). Currencies other than Euro will be converted to Euro with the average exchange rate over the reporting period as published by the European Central Bank (Art.57, paragraph 3).

Abbildung in dieser Leseprobe nicht enthalten

In order to comply with the BE-requirement, it is necessary to calculate the BE-result for every single reporting period using the following definition: the difference between relevant income and relevant expenses. The final assessment is then to be made by considering the aggregated sum of the 3 preceding reporting period results that are covered by the monitoring period. To guarantee a smooth transition between the old licensing system and the new FFP regulations UEFA allows the teams an acceptable deviation of €5 million per monitoring period and a deviation exceeding €5 million up to €30 million if it is entirely covered[6] by the owners / related parties in all respects and without any conditions attached as shown in Table 1.

[...]


[1] Neymar obtained €300 million through Qatar Sports Investment for his engagement as ambassador of the FIFA world cup 2022 in Qatar to pay his transfer fee (in Spain the players have to pay their fee themselves) (Anon., 2017)

[2] As defined by (Interpol, 2017) as " any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources". Football clubs are vulnerable to this kind of activities as they lack professional business conduct of management and organizational inability to track the sources of funds. Also, sophisticated shareholder structures as well as the substantial amount of cash transactions and the size of the market itself make the football industry attractive for money laundering activities.

[3] According to Van Rompuy (2012) Spanish clubs owed the state more than €1.3 billion in taxes and social security as of September 2012.

[4] Neale (1964) argues that in order to earn more money to maximize profits former heavy-weight champion Joe Louis had to find a contender of similar strength (Max Schmeling) to draw interest in his fights. If there had been a monopoly, Louis would have had no one to fight against and therefore didn’t earn any money.

[5] UEFA defines net debt as the result of bank-overdrafts, bank and other loans, related-party loans and transfer payables deducted by the transfer receivables and the cash balance (UEFA, 2017)

[6] Annex X Section E (UEFA, 2015b) further defines the meaning of the word covered as a contribution by equity partners or related parties that have been received by the reporting entity. This includes share capital increases, donations (unconditional gifts) and income transactions (difference between the actual income within a reporting period and the fair value as recognized in the BE-calculation).

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Details

Title
The Impact of UEFA’s Financial Fair Play on certain key (financial) aspects of Football Clubs
College
Frankfurt School of Finance & Management
Grade
1,7
Author
Year
2017
Pages
78
Catalog Number
V381197
ISBN (eBook)
9783668597358
ISBN (Book)
9783668597365
File size
1359 KB
Language
English
Tags
UEFA, Financial Fairplay, Soccer, Football
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David Uhrhan (Author), 2017, The Impact of UEFA’s Financial Fair Play on certain key (financial) aspects of Football Clubs, Munich, GRIN Verlag, https://www.grin.com/document/381197

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Title: The Impact of UEFA’s Financial Fair Play on certain key (financial) aspects of Football Clubs



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