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Welcome to Issue #4 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,
The 2011 UEFA Benchmarking Report revealed that clubs were struggling to remain financially stable in the last 5 years. Take for example Valencia FC. Due to a combination of bad management decisions and overspending on players, the Spanish club owed approximately €547 million in the 2009/10 season.
By 2011, 63% of clubs in the top tiers had an operating loss of €388 million in the 2011 Financial Year. In light of such financial instability surrounding clubs, the UEFA approved the UEFA Club Licensing and Financial Fair Play Regulations (CLFFPR) which came into effect from 2012.
There are two main parts to FFP - (a) The clubs’ transfer and employee payments must not be overdue (b) Clubs will have to break even which would be assessed for the first time in the 2013-14 season.
Put simply, if a club wants to participate in a UEFA hosted Competition, it better follow the FFP Guidelines.
Before we get to the nitty-gritty of it, a quick word about break-even obligations from my previous essay.
“The algebraic sum of relevant income and relevant expenses is the break-even result. If you want to calculate over the entire monitoring period, you merely add the break-even results of each reporting period, at which point a positive number will result in a surplus aggregate break-even result and a negative number will result in a deficit aggregate break-even result.
The acceptable deficit under the UEFA regime is €5 million. It can be extended up to €30 million if the excess spending is entirely covered by contributions from equity participants or Related Parties”.
Now that we have gotten that out of the way, let’s continue...
The UEFA Club Control Financial Body (CFCB) is the body responsible for ensuring that clubs abide by their break-even obligations. The CFCB has two chambers- the Investigatory Chamber and the Adjudicatory Chamber. Both these chambers answer to the CFCB chairman.
The Investigatory Chamber monitors clubs and investigates potential violations of FFP. The Adjudicatory Chamber, on the other hand, oversees the judgment stage of any proceedings. The CFCB Chief Investigator heads the Investigatory Chamber while the CFCB Chairman heads the Adjudicatory Chamber.
In the recent Manchester City case, it was the Investigatory Chamber that inquired into the alleged FFP violations against the club. The decision to ban the club from the Champions League for two seasons was given by, you guessed it - the Adjudicatory Chamber. As you might have noticed, appeals from the decisions of the Adjudicatory Chamber lie to the Court of Arbitration for Sport - as Manchester City did.
If the CFCB finds any club to be in violation of the FFP, the CFCB has been given powers to impose sanctions on the club. They can do a whole host of things like imposing fines or deducting points. They also have the power to withhold revenue payable through UEFA Competitions and even prohibit the registration of new players.
For instance, in the settlement agreement reached between the CFCB and FC Porto, the club had to forfeit €700,000 of their winnings from their participation in the 2016/17 Champions League. The club also had to reduce the number of registered players for the Champions League for each year of the monitoring period.
However, UEFA has to consider a whole host of factors before it decides to impose sanctions on a club. For instance, factors such as improving financial trends and the impact of exchange rates, play an important part in whether or not a club faces sanctions for violating its break-even obligations.
Clubs were initially permitted to lose up to €45 million between the 2011/12 and 2013/14 season. The number fell to €30 million between the 2014/15 and 2017/18 season. After the 2017/18 season, clubs are required to break even with an acceptable deviation of €5 million.
Annex X of the CLFFPR is the blueprint for football clubs, laying down what is considered to be expenses and what is not. For example, the cost of sales, employee benefits expenses, player acquisition costs are all calculated towards the break-even calculation. On the other hand, youth development, stadium infrastructure, and community development do not count towards expenses for the break-even calculation.
The rationale behind the FFP is to ensure that clubs do not spend more than they earn. But some clubs have found ways to circumvent the FFP Guidelines. For instance, UEFA called into question revenue received from related parties under the €200 million sponsorship agreement between PSG and the Qatar Tourism Authority. You can read an essay on the PSG controversy here.
These transactions are certainly dampening the spirit of the FFP. In fact, managers like Jose Mourinho and Jurgen Klopp share the sentiment that the FFP needs change.
In law, there is something we call legislative intent. Put simply, it is the “why” behind enacting any piece of legislation. The “why” for the UEFA FFP is certainly commendable.
Its execution, however, is a different story…
Did You Know? 🤔
The semi-final of the 1968 Euros, between Italy and the Soviet Union, was decided by a coin toss because penalties weren't used in the competition back then.
Quiz 🧠
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?
Send in your answers by replying to us.
Now time for last week’s answers:
Q: Which footballer had a clause in his contract when he signed for Sunderland banning him from traveling into space?
A: Stefan Schwarz signed for Sunderland in 1999. His contract contained a clause banning him from traveling into space.
Today’s Quote 😎
Former Danish Manager Ebbe Skovdahl on statistics:
Statistics is like a short skirt. It gives some good ideas, but hides the most important.
What Else Are We Reading 📚
🤝 Leeds United cash in on promotion with a record-breaking shirt sponsorship with global betting company SBOTOP, following a new 5-year kit deal with Adidas.
💪 The FA and BT have launched a new entry-level FA Playmaker Course to boost volunteers in the grassroots game.
🧐 Five Potential scenarios for sports Post-COVID.
⚽ Football Leaks: The Paper Players of Cyprus.
💰 Ben Marlow on investment opportunities in the Serie A.
Strike Of The Day ⚽
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