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Welcome to Issue #5 of Your Weekend Beer. Your Weekend Beer is a weekend newsletter that hits your inbox every Sunday. We are a community that helps you make sense of the business world of football - with a pint of Beer.
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Friends,
On 10th July 2020, the Club Financial Control Body of the UEFA entered into a Settlement Agreement with French Football Club Lille OSC for FFP violations for the 2019-20 monitoring period. The Settlement Agreement does not come as a surprise, honestly. Lille has been struggling financially for quite some time now.
In 2017, Spanish-Luxembourg businessman and investor Gerard Lopez bought 95% of stakes in the club through his parent company L-Holding in an €80m deal. Along with Lopez came Marc Ingla - Lille’s new Director-General. Together, these two had big ambitions for Lille OSC.
The acquisition of the club has not been smooth sailing for Lopez. For instance, questions have been raised regarding the €140m debt arrangement between Lopez and Elliot Management- the $38.2bn activist hedge fund founded by US billionaire Paul Singer. In an informal setting, Lopez had admitted that the money invested into Lille would come from one of his companies in the British Virgin Islands - a country known for its favorable tax regime.
Despite saving up on taxes, Lopez and Lille have struggled financially. In December 2017, Lille was banned from recruiting players in the 2018 January window. They were also required to come up with €25m in April 2018 - failing which the club would be relegated to Ligue 2 irrespective of their on-pitch performances.
After the ban was announced, Lopez raised a €140m loan from Elliot Management which was to be repaid by August 2021. Thankfully for Lille fans, the club did not get relegated but it was mighty close. It wasn’t the greatest of starts to Lopez’s tenure at the club. However, it would be unfair to pin Lille’s financial troubles on Lopez alone.
Double Jeopardy
In 1990, the management of professional French football clubs was entrusted with a body known as the DNCG. The DNCG inspects the financial accounts of all clubs, and, since 2002, clubs’ financial data are openly published. The DNCG’s main official tasks are to audit clubs’ financial accounts, supervise their bookkeeping, detect instances of misreporting, and assess the clubs’ financial situation.
The main object of the DNCG is to ensure that clubs have sufficient financial resources to sustain themselves throughout the season. To this effect, the DNCG categorizes the clubs into red and black - clubs in the red zone are financially unstable while the ones in black are stable.
In order to convert the red-zone clubs into black ones, the DNCG first sits down with the clubs and gives advice, and recommendations with regard to urgent policy measures to be taken by the club’s management. If the fiscal deficit does not improve, sanctions are imposed on the clubs. The DNCG can prohibit the recruitment of new players, impose fines and even relegate a club to a lower division.
The French football system operates on a model that a club must be able to call on funding from its shareholders in circumstances in which its operating sources are not sufficient. In this context, it is worth noting the difference between the DNCG and the FFP. The DNCG operates on clubs attaining solvency while the FFP requires clubs to be profitable.
Here is where things get interesting. French Football clubs, as you can see, are audited twice - once by the DNCG and then by the UEFA FFP.
When in France, do as the French do
Up until the 2016-17 season, the Ligue 1 was the poorest of the Big Five Leagues in terms of average stadium attendance and broadcasting revenue. Which is ironic because the TV Rights account for the lion’s share of the league’s finances.
Lower sporting performance and lower revenue did not, however, correspond to lower-wage payrolls. With foreign investment pouring into Ligue 1, wages and transfer fees began rising exponentially. So here is the conundrum - Broadcasting and stadium revenues are the lowest of the Big 5, yet the wages and transfer fees are exponentially rising.
Expenditure is on the rise - revenue not so much. The DNCG, as pointed out earlier, looks into the club’s solvency. They need to know whether the clubs’ shareholders can bail them out in case things go south. So when Lopez took on debt from Singer after the ban, it probably translated to saying that Lille and Lopez can clear their dues.
In fact, this probably was the case. Since 2018, Lille’s finances have somewhat stabilized. In June 2018, Lille’s debt was €250m, dropping down to €128.5m a year later. In the March 11th Report by the DNCG on the 2018-19 season, Lille had approximately €66.587m in losses.
This renewed financial stability was rewarded by the DNCG.
At the start of the 2018-19 season, the DNCG was overseeing Lille’s wage bill and transfer allowances. Having been satisfied with the Club’s progress, by the end of May, DNCG no longer subjected their scrutiny over Lille’s wage and transfer allowances.
Though posting losses worth €66m, the club made a net profit worth €127,000 following the sales of Thiago Mendes and Youssouf Kone to Lyon and Rafael Leao to AC Milan by July 31st, 2019. Commercial income has also been on the rise for Lille.
Lille has definitely come a long way. In the 2016-17 season, Lille had the worst wages to turnover ratio at a whopping 106%. At the same time, Lille’s wage roll was in the top 5 in Ligue 1. In the 2016-17 season, Lille had the second-worst financial record behind Marseille with losses upward of €40million. Lille also had the second-most debt in the league after Lyon with approximately €100 million in debt by the end of the 2016-17 season.
Since then, Lille has slowly got its finances in order. Although there is still a long way to go for the French club. For now, Lille and Lopez have to comply with the terms of the UEFA CFCB Settlement Agreement till the 2023-24 season.
Until then...
Did You Know? 🤔
Brazil's first-ever official match was against Exeter City in 1914??
Quiz 🧠
Q: Who is the all-time top goalscorer in the Brazilian League?
Send in your answers by replying to us.
Now time for last week’s answers:
Q: Which footballer is the only player to have played for Czechoslovakia, Hungary, and Spain - making him the only footballer to have played for three FIFA-recognized countries?
A: Laszlo Kubala
Today’s Quote 😎
"Rome wasn't built in a day... But then again I wasn't on that particular job" - Brian Clough
What Else Are We Reading 📚
-Trading platform Plus500 has signed as the new main sponsor of Italian Serie A outfit Atalanta, paying a club-record fee for the front-of-shirt rights.
- A quite splendid essay on the business of football.
-Gender equality in sport still has a long way to go.
-The KPMG Football Benchmark Report on uncommon faces in the Champions League.
-A beautiful essay on how a former binman became a Ligue 1 Legend.
Strike Of The Day ⚽
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