UEFA’S New Financial Fair Play Rules – Good Or Bad?

No real Arsenal news of substance to comment on today so I thought I’d blog on the new UEFA Financial Fair Play rules approved by its executive committee late last week. They’ll be phased in over the next three seasons from 2010/11 taking full effect for the 2015/16 season. 

Let’s start with what they don’t do. They don’t prohibit debt. Nor do they do much to promote financial “equality of arms” between the financial giants of the game (which, although you wouldn’t think it from the comments of some Gooners, includes us) and the rest. 

What they will do is curb constant unsustainable spending on player salaries and transfer fees. Over the next two years all clubs that want to obtain or keep their UEFA club licence to play in the Champions League or Europa League will need to keep detailed audited accounts. The first key date in the new regulations in the accounting period ending in 2012. For us this will be 31 May 2012. All clubs will have their accounts monitored by a UEFA club financial control panel chaired by former Belgian prime minister Jean-Luc Dehaene. 

I’ll do a more detailed blog when the full final version of the regulations is published but essentially clubs will be sanctioned if their spending on recurring running costs like salaries, transfer fees, ground maintenance/rental, taxes, repayment of loans and so on doesn’t equate to income. 

There will be some excluded items upon which a club may incur a deficit funded by a benefactor or benefactors. Principally these will be investment in stadia, youth development and community schemes, BUT these must be funded either by equity, donations or other beneficial funding. If debt is incurred then the repayment falls as a cost on the club’s profit and loss account. To take a simple example, a loan being paid off at £20 million a year would show as a cost. If the club was bringing in £100 million at the gate, from broadcasting and commercial income like sponsorship it would have £80 million left to spend on salaries, transfers and all other running costs. 

The only way such a charge wouldn’t be made on the profit and loss account would be if the youth development, stadium or community investment was made in the form of a gift or equity (new shares). This is why Roman Abramovich has converted his loans to Chelsea into shares. Chelsea wouldn’t be able to come close to breaking even if the hundreds of millions of pounds he’s pumped in were still showing as loans. 

How the regulations will effect financial behaviour over the medium and long term is an open question. The tendency in other sports has been to try and “game” financial curbs such as salary caps. 

Down in Australia the Melbourne Storm, who won the national rugby league title there for the last two seasons have been stripped on their titles and heavily sanctioned for breaching the National Rugby League’s salary cap. They kept two sets of books. The real figures and those they showed the NRL’s auditors. They got caught “at it” and have paid the price. 

France and Germany have had similar regulations to those currently being introduced by UEFA for its competitions for many years. It hasn’t stopped some clubs trying to get around them but it has curbed the more extreme cases of financial lunacy that saw Saint-Étienne, one of France’s traditional football powerhouses, being relegated to the second division for a while before rising from the financial ashes. In the midst of their first relegation the club chairman spent several months inside. St Pauli of Hamburg in Germany also lost their professional licence and were relegated to the semi-professional regionalised third division, only returning to the Bundesliga for the coming season 2010/11 after many seasons in the lower tiers.

It’s been fashionable to have a go at Michel Platini in this country. This appears to be mainly connected with him being, well, you know, French. There is a deeply Francophobic strain in this country which I”ve never really understood. France may not be everybody’s cup of cafe au lait but it does get some things right. Big projects there tend to get built on time and on budget, public transport, short and long distance is plentiful, reasonably priced and efficient. They have what most independent observers say is the world’s best healthcare in terms of accessibility and affordability (at least from the punter’s point of view). The food and wine is great. Lots to like for me. Not for many apparently.  For what it’s worth I think Platini’s  instincts on this issue are right. He’s been shrewdly advised and has been bright enough to take that advice. The financial Mad Hatter’s Tea Party simply can’t go on. From a partisan point of view I think these regulations will help Arsenal with our model of financial self-sustainability. 

Keep the faith! 

vic@arsenalinsider.com

Vic Crescit

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