Will football clubs play fair financially?

Story highlights

Europe's leading clubs in countdown to meet Financial Fair Play rules

The 2011-12 season is the first to count towards new regulations

EPL clubs Manchester City and Chelsea considered most at threat

UEFA can throw clubs out of Champions League who do not comply

CNN  — 

Europe’s leading football clubs face a race against time to comply with new rules that limit the amount they can spend – and the consequences for breaking these targets will be significant.

The region’s governing body UEFA has acted because most teams are living beyond their means, racking up big debts in order to fund massive player transfers and salaries.

While larger clubs thrive because of huge revenues and – increasingly – extremely wealthy owners, smaller sides are finding it harder and harder to survive.

UEFA’s Financial Fair Play (FFP) rules apply now but will come fully into force in 2014. They give the ruling body sweeping powers, including exclusion from the lucrative Champions League – entry into which provides substantial financial rewards.

Big annual losses posted by big-spending English teams Manchester City and Chelsea and European champions Barcelona mean that the continent’s top clubs will come under severe scrutiny.

FFP skeptics claim that when it comes to the crunch, the elite teams will be spared serious punishments, but according to journalist David Conn, a leading authority on the new rules, they are very much mistaken.

“You have to ask yourself why UEFA introduced FFP when they were under no pressure to do it?” Conn, who writes for British newspaper the Guardian, told CNN.

“Why would they do it, then then lose all credibility if they don’t enforce it?”

UEFA’s head of licensing Andrea Traverso is in no doubt that his organization has the powers and the willingness to act.

“We will be able to enforce the rule because we believe they are sufficiently well-structured to be implemented right across the European leagues,” he told CNN.

But UEFA’s latest report, published in January, shows the extent of the problem. Losses incurred by leading clubs in 2010 rose by 36% from the year before to €1.6 billion ($2 billion). Some 56% of top-flight teams made losses.

“This trend needs to be reversed very quickly,” UEFA’s general secretary Gianni Infantino said in a covering report.

What is Financial Fair Play?

An examination of the FFP rules shows that UEFA’s warnings need to be taken seriously.

It has started auditing club’s financial statements for this season, with a two-year lead in for the start of the 2013-14 season when FFP kicks in.

During this first period, clubs will be allowed to make what Traverso terms an “acceptable deviation” of €45 million ($65 million) in losses.

For the three-year period from 2015, the limit will be €30 million ($39.1 million) total in losses and from 2018 the annual losses must be kept below €10.5 million ($13.73 million)

The definition of what is covered by the FFP regulations also provides an important caveat.

Clubs only need to account for “football-related expenditure.” This covers what they spend on transfers and salaries against commercially generated revenues such as sponsorships and TV income. Investment on a stadium, training facilities or youth development is exempt.

But clubs looking to circumvent the rules by having lavish sponsorship deals from a benefactor may have to think twice.

The sponsorship deal by Manchester City’s Abu Dhabi owners, struck with the gulf state’s national airline Etihad Airways, is under investigation by UEFA, claims Conn.

The club and the airline have a £400 million ($628 million) partnership, but the influential Council of Europe described this as an “improper transaction” in a report it has sent to UEFA.

The Council of Europe also highlighted Real Madrid’s sale of the club’s training ground to the city for more than €400 million ($523 million) as another example which might breach FFP rules.

Which clubs are most under threat?

Traverso would not name names when asked which teams do not meet the FFP requirements. “We do not single out individual clubs,” he told CNN.

But UEFA’s own report said that “13 clubs would not have passed the test if requirements for 2013-14 were imposed immediately,” including several from England.

While clubs’ incomes increased between 2009 and 2010, it did not offset their higher expenses. Player wages continued to increase, while income from transfer fees fell, according to UEFA.

Conn said that Manchester City and Chelsea were most in danger, of the leading English Premier League clubs.

City posted a record loss of £194.9 million ($306 million) in the third year of ownership by Sheikh Mansour bin Zayed al-Nahyan.

“Chelsea in particular have a problem if they do not qualify for the Champions League over the next few seasons,” said Conn.

The London side’s financial results for the 2010-2011 season show a loss of £67.7 million ($106 million) – with £28 million ($43.9 million) relating to the replacement of manager Carlo Ancelotti with Andre Villas-Boas.

Given billionaire owner Roman Abramovich’s recent sacking of Villas-Boas less than a season into his three-year contract, it is unlikely those figures will improve for 2011-12 when FFP begins to bite.

But Conn believes that reigning EPL champions Manchester United – because of their massive commercial revenues and the restructuring of their debt – can rest easy for now along with Arsenal and Tottenham Hotspur.

United’s financial results for the year ending June 2011 showed a headline pre-tax profit of £29.7 million ($46.6 million) and reductions in the debt which the Glazer family leveraged to take control of the club in 2005.

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