Financial Fair Play-an overview.

Financial fair play - an overview.

Since the turn of the century football finances have been spiralling out of control and 5 years ago a number of the top club owners voiced their concerns to UEFA president Michel Platini. The outcome was the instigation of FFP (Financial Fair Play) which all the major European clubs agreed to in principle and a time scale was agreed upon to allow clubs to get their house in order.

When you consider the latest figures available (from 2010), revealed that over half of Europe’s top division clubs lost money with total losses rising to €1.6 billion and debts standing at €8.4 billion it was obvious that something had to be done to stop European football imploding.

FFP has been introduced to improve the economic and financial capabilities of the clubs by increasing their transparency and credibility and to protect creditors by ensuring that clubs settle their debts in a punctual manner to players, social/tax authorities and most importantly to other clubs. It is hoped that the resultant greater discipline in finances will encourage responsible spending for the long-term benefit of football, which will in turn ensure the long-term viability and sustainability of European club football.The aim is that that FFP will regulate football finances at the major clubs to a large degree as clubs will have financial constraints imposed on them and any club that fails to comply with the new regulations will be faced with the sanction of expulsion from the ultimate cash cow,namely the Champions league. Last year’s winners Champion league winners Chelsea pocketed the not insignificant sum of £49 million and even if a team fails to win a single game in the knock out stage they still pocket over £10 million.

Given the looming threat, it is somewhat strange to see that Chelsea, who have struggled to reach self-sustainability (the latest accounts showed a loss of £71, before the latest spending splurge), have committed almost £100 million in the latest transfer window and the common view is that clubs such as Chelsea, PSG and Zenit St Peterburg are showing scant regard for FFP, but are they jeopardising their chances of making the break even?

Clubs do not actually have to break-even in the early years of FFP to meet the UEFA target and the first season that clubs will be monitored is 2013/14, taking into account losses made in the two preceding years. Wealthy owners will be allowed to absorb aggregate losses of up to €45 million (£36 million) over those two years as long as they are able to cover the deficit by making equity contributions; if they are unable to do so, then the ceiling is significantly lower at just €5 million (£4 million). In the cases of the above named clubs they all have wealthy proprietors who are willing to cover the losses and it gives them far more room to manoeuvre.

Furthermore, there are two major adjustments that need to be made to a club’s accounts. The first is the removal of any exceptional items from 2010/11, as they should not re-occur (by definition) although exceptional costs will be included in the break-even calculation. The 2nd major adjustment relates to expenses incurred for “healthy” investment, such as improving the stadium, training facilities or youth academy, which would lead to losses in the short-term, but will be beneficial for the club in the long-term. Indeed UEFA regulations have allowed the clubs a good deal of manoeuvrability, transfer fees for instance will be amortized over the length of the contract, so if a player has been signed for £30 million on a five year contract the amortised figure for the current year will be £6 million rather than the much more damaging £30 million fee.

I’ll be looking at how FFP will affect the major clubs in Europe, how much of an impact it will have and whether fans should be worried.

Expulsions.

Do you think UEFA will carry out their threats to exclude clubs that fail to comply.

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