UEFA’s recent decision to withhold prize money from 23 European clubs in the name of the FFP due to the clubs bad debt and unpaid taxes will not solve financial problems. The list of clubs includes Atletico Madrid, Sporting Lisbon and Malaga. Of the sides on the list only Malaga are ‘new money’ and in their case their owner appears to have lost interest and plunged the club into financial crisis, prompting wholesale play sales from the club. The reason these clubs were punished was not because they are backed by sugar daddies but because of ‘overdue payables towards other clubs, and/or towards employees or social/tax authorities existed in 23 cases.” Essentially they owed over clubs money for transfers of players as well as owing money in taxation.
These clubs are not the problem. They are clubs that are living outside of their means, smaller sides trying to keep up with the big boys and resultantly over spending. These are not side’s bank rolled by sugar daddies (except the uninterested Malaga) that are signing the biggest names and ‘buying success.’ This is the first of what will be a continued attack on football finance by the governing bodies but it demonstrates how the FFP can have the opposite effect than intended.
The FFP in brief
The FFP is intended to bring down the spending of clubs, which is widely seen as out of control. The FFP are being enforced this year for a three season preliminary period where clubs finances will be assessed. If clubs do not meet the criteria the punishment would be a refusal to be granted the UEFA Club License and thus exclusion from UEFA competitions.
The approved plan will force clubs which compete in European competitions to try and spend only what they earn. In order to make this new regulation realistic for all clubs, Uefa have allowed clubs to post losses. For the first three years of the campaign (2012-2015), clubs will be set a loss limit of €45 million and this limit will be reduced further to €30 million thereafter. Though these are extremely restricted to what a lot of clubs currently produce, it does show the flexibility of the new scheme.
Big clubs flouting the rules
We have already seen examples of big clubs flouting the rules to avoid being hurt by the FFP. City almost outrageously signed a £300 million deal to rename their stadium the ‘Etihad Stadium’ (The airline being owned by the brother of Man City owner Sheikh Mansour).This deal appears to have been allowed to stand by FIFA and thus demonstrates ways to maneouvar around the regulation. A further example being a theme park planned by Real Madrid in Dubai as well as a recent deal signed by Chelsea with Gazprom, the company who bought out Roman Abramovich’s shares in Sibneft. Again a tenuous link. The point being that smaller clubs like Atletico Madrid or Sporting Lisbon who lack financial muscle and international connections could not pull off such moves to flout the rules and thus are punished. Of course clubs need to live within their means or risk ending up like Portsmouth or Rangers, but not at the expense of becoming completely uncompetitive. The risk of these rules is that sides like Atletico will have to sell off their prized assets such as Falcao to pay off these debts, selling to a rival who has more financial muscle.
Old money benefits
It is well known that Manchester United have huge debts, reportedly around £439 million. However this will not impact on them under the FFP, as debt is different to net revenue made by the club. United, as a global brand, is still incredibly profitable and have recently recorded record turnover of £175 million. With United’s incredibly high turnover and global brand they are in a very strong position for when the FFP comes in. Their recent shirt sponsorship deal with Chevrolet for example is reported to be worth near £50 million a year, a record. Further to this the club recently signed a lucrative deal to have their training ground kit sponsored by DHL. Their financial muscle seems to know no bounds. Such high turnover means the club can buy the best players, if anything they would be more competitive with the FFP as new money clubs like City or Chelsea could not compete with them in the transfer market.
The same is true of Real Madrid, another huge global brand. Real Madrid are according to Deloitte’s football revenue league table the most profitable club in the World in terms of revenue with 479.5 million Euro’s for the 2010/11 season, around 100 million Euro’s more than third placed United made. The result of such huge revenue is that for the financial year ending 2010 Real Madrid only spent around 45%of turnover on wages, to put this into perspective the average for Premier League clubs is around 68%.
This is not to say that Madrid don’t offer huge wages but the fact of the matter is with such a huge turnover they can afford to offer massive wages as well as comfortably working within the FFP rules as things stand. Swiss Ramble has comprehensively covered the topic and ascertained that Real Madrid are only increasing in profitability, as confirmed by the Deloitte study. Swiss Ramble notes that Real Madrid’s net profit for the 2010 season was 31 million Euro’s which clearly puts them within the FFP framework which is losses of 45 million Euros. The aforementioned planned resort is a way for Real Madrid to raise revenue outside of football, despite the fact that Madrid don’t appear to need any help meeting FFP. The reason for this ‘crass’ move is to increase the clubs revenue further and consolidate their position at the top of the Deloitte money league. Madrid, like United would just be able to have a monopoly on the best talent and could even hold clubs to ransom as a monopoly buyer of players if the rules were implemented strictly.
Bayern Munich’s finances are relatively healthy having recorded pre-tax net profits for the past six seasons, something that very few teams can boast in the modern game. Bayern Munich also rank 4th in Deloitte’s money league with revenue of 321.4 million Euros’.
In this regard one would expect Bayern to be completely unfazed by the FFP rules and in fact they could be strengthened by them as it will make them more competitive in player signings with sides like City or Chelsea who traditionally spend a lot despite recording huge net losses. Further to this Financial Fair Play will likely drive player wages and transfers down somewhat due to the constraints it will put on big spenders such as the aforementioned City and Chelsea which will benefit Bayern in the long run.
The significance for the Bundesliga is that it will place constraints on smaller sides that have big aspirations. The club with the next highest revenue in the Bundesliga is Shalke who make 202.4 million Euro’s, significantly less than Bayern. However even recently Bayern have spent more on players and did not win the league last season, so one would hope things remain competitive.
What in theory we would see then is Bayern dominate the Bundesliga uncontested and Madrid and Manchester United dominate La Liga and the Premier League respectively, these clubs have spent big in the past prior to regulation and would only stand to benefit from this. Other teams such as Arsenal who run a tight financial model would benefit but even then Manchester United’s brand dwarfs Arsenal’s and so does their finance.
This is a view echoed by Mourinho who feels the traditionally bigger clubs will dominate football unchallenged. Smaller clubs need to spend beyond their means to compete, which is unfortunately a necessary evil of the modern game. Run the risk of becoming like Rangers/Portsmouth or do not compete anywhere near the top. Thus the FFP will maintain the status quo regardless of how strictly they are enforced. Enforced harshly we will see traditional powerhouses dominate, enforced leniently and we’ll see the same clubs like City, Chelsea, Barca etc dominate whilst smaller aspiring clubs are punished for over spending. UEFA need to find a balance between preventing clubs from bankruptcy whilst helping them remain competitive, or risk maintaining the status-quo that they so badly wish to overcome.
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