What are the UEFA Financial Fair Play Proposals and what affect will they have on football clubs?

The Financing of Football Clubs in the FA Premier League

The way many of the football clubs are financed in the Football Association Premier League is currently a worrying aspect for the governing bodies in control of the sport of football. Following some high profile club takeovers in the last 7 years or so some of which have greatly increased the wealth of clubs some of which have plunged clubs into debt there is a statistic which has remained the same – these clubs are making huge losses every season.

Ability to spend big on players

For certain FA Premier League football clubs who have been taken over by an extremely wealthy businessman they have been able to spend as much money as they wish on players regardless of the financial loss that the club makes each and every season. Due to the vast sums of money owned by the owner of the club it is immaterial if he makes a loss as the main priority for them is to achieve success on the pitch.

Why is this a problem for the footballing world?

The huge amounts of loss being made by football clubs is a worrying issue for the footballing world due to the following reasons:

  • The financial instability of the clubs

  • The reduction of the level playing field

The financial instability of the clubs

If a club were to continue to keep making a loss each and every season then they would become an extremely unstable financial entity. If this were any other economic activity rather than sport the business simply would not be able to function. If for any reason anything was to happen to the owner or if he wished to sell the club it would be extremely difficult to sell due to the huge amounts of debt.

This huge financial outlay by certain football clubs without the requirement of balancing the books has led to many clubs suffering huge financial difficulties with some even going into administration.

The reduction of the level playing field

If certain clubs are able to spend vast sums of money without the requirement of balancing their books it is viewed by many as putting them at a competitive advantage to the smaller clubs without the same scale of investment who have to balance their books and who are only able to purchase players following the sale of other players.

The validity of the arguments

The reduction of the level playing field is a topic of hot debate in the football world as many feel that any rules to restrict spending in this manner would simply be prejudicing clubs who have huge investment simply because they have money. Accordingly the financial stability of clubs is an issue which everyone agrees on as no one wishes to see clubs go into administration.

What are the UEFA Financial Fair Play Rules?

The European Governing Body of Football – UEFA – has set down proposals to combat the problem of financial instability of football clubs.

As UEFA is the body which operates and regulates Europe’s premier football competition – the UEFA Champions League – it has proposed that only clubs that are financially stable will be able to play in the competition.

What is meant by clubs which are financially stable?

For a club to be regarded as financially stable for the purpose or the financial fair play proposals they must be able to show that they have balanced their books – i.e. that they will not be able to spend more money that they generate.

Does this apply to all football clubs?

UEFA initially proposed that the requirement to be financially stable would only apply to clubs which have revenues greater than €50million.

However, many of the English clubs felt that this requirement would disproportionately affect them so in consultation with these clubs UEFA has now scrapped this threshold. Consequently the requirement will apply to all clubs.

When will this come into play?

The proposals will come into play at the beginning of the 2012-13 football season.

How will this be monitored?

UEFA has created the Club Financial Control Panel which will be made up of financial experts which will oversee the adherence to the policies across the 53 UEFA Member Associations.

Will this have an effect on the money which the clubs can spend on training facilities and youth development?

The development of young and home grown footballers is a key initiative of UEFA, but restricting the spending of clubs seems to be in direct opposition to this. For example if a club can only spend what it has made in income then they may regard buying a player as a better instant fix than spending money on their youth academy and training facilities to produce more long term benefits.

As a consequence money spent on training facilities and youth development is expressly exempted from the new UEFA proposals. There is a requirement, however, that the money must come from club equity rather than from loans.

Have these proposals been met with agreement?

The European Club Association (ECA) is the body which represents the European Football Clubs across the 53 UEFA member associations and they have been the body which has signed the agreement with UEFA.

The feeling from the ECA is that if many clubs are currently losing up to €100million a year then in the near future there will be a huge problem in relation to the financing of many clubs. Football clubs in Europe generate huge sums of money but currently are spending more than ever before, many feel that this is a position which simply cannot continue. With the money currently being made in European football it is felt that the clubs have enough time before the regulations come into effect to get their houses in order.