Financial fair play (FFP) overhaul and expected impact of the new rules: revealing details

Financial fair play actually lost force in the summer of 2020, when UEFA approved reliefs due to the pandemic. The rules were softened to the maximum – almost any club losses could be written off as a consequences of the covid. But even as the world adapted to the virus, the FFP did not return in its previous form. 

The official reason for reformatting the financial rules is the new reality after the pandemic.

“No one could have predicted that we would face the greatest test for football, sport and society in our time. However, thanks to nearly a decade of adherence to financial fair play, European football could hardly have been in better financial state before this emergency. The pandemic has seriously disrupted the entire football ecosystem: professional, amateur and youth. We are now operating in a new financial reality, and it is clear that our current financial fair play rules need to be adapted and updated.”

UEFA President Alexander Ceferin explained last spring. 

But it’s too naive to assume that it’s just about the pandemic. Ceferin has never talked about it openly, but after the Super League threat, the tone of his conversation with the top clubs has changed. 

“We have to unite in the face of this shameful and talky Super League. I hope this was just an episode. We don’t want to go through that again. We have to stay united, move toward normalcy. We have to be role models in football. We have to be together. We have to bring the whole football family together.”  

he said in September.

The new FFP should be seen as a step toward that unity. In order not to lose the top clubs, they need comfortable rules. And that’s what came out of it.

FFP 2.0 has not yet been officially introduced, but insiders have provided us with information about the upcoming changes. Here’s the key about the future rules:

• The reform will be implemented this summer in “adaptive-trial mode” until 2024, after which there will be a three-year cycle of the new FFP – 2024-2027. This probably means that UEFA will conduct its first serious checks in 5 years. 

• The threshold of losses covered by the owner will be increased – from 30 to 60 million euros over three years.

The existing limit of the club’s loss over a three-year period is 5 million euros. But everyone has already forgotten about this mark, as it is possible to go into deficit for 30 million euros, if the costs are covered by the owner or a company associated with him. 

In calculating the loss they ignore the costs of stadiums, training facilities, development of youth and women’s football.

Now clubs can go even deeper into deficit – a clear indicator that the rules have become softer.

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• For transfers, wages and agency fees it will be possible to spend only a certain percentage of the turnover. How much – is still unknown.

All of these costs are already taken into account when calculating the FFP. What kind of additional control we are talking about – it is not clear yet.

Now, for example, in the rules there is a limit of negative transfer balance of 100 million euros per transfer window, as well as expenses on salaries of no more than 70% of total income (as a reason for additional control).

But the insight that a club can spend on salaries and transfers a certain percentage of turnover (we are talking about all money income, not to be confused with profits), refreshes the theory of salary ceilings.

This approach was supposed to completely replace the existing FFP, but this is only part of the future rules. It is still unclear whether UEFA will introduce the previously discussed luxury tax. Its basic principle: if a club exceeds the established transfer and salary limits, it will simply pay to UEFA a certain fixed amount (50-100% of the violation was discussed).

Another possible advantage for the clubs of the oligarchs – no threat of being banned and removed from the tournament, you just have to pay UEFA.

• Will tighten control over the equity of clubs. When the “negative equity” (when in the reporting period, the financial liabilities exceed assets), the club will need to improve their performance by 10% annually. A little later we will consider this in more detail.

The purpose of the changes is understandable – own assets must cover possible losses, so that the club is not drowning in debt.

Equity in simple words is the difference between assets (property and finances) and liabilities (debts), which is very important for the evaluation of solvency. It can be negative when the amount of liabilities exceeds the amount of assets. This is not only a red flag for investors, but also for UEFA – the indicator has long been used to assess breakeven. Now, if the difference between assets and liabilities is negative, UEFA will require an annual increase in the indicator by at least 10%. What sanctions there will be in case of non-compliance is still a question.

But this rule may untie the hands of rich clubs. Perhaps they will be allowed to improve their equity capital through direct investment of owners outside the FFP limits, just to prevent the negative performance. But the nuances that we will see in the final version of the reforms are very important here.

• Clubs will be told how much they can spend in a particular season, so as not to fall under the sanctions at the end of the three-year period. For this they will need to report on their activities more quickly than now.

Now clubs submit reports for the previous year until April 30 (before the pandemic – until March 31) of the current year. UEFA processes the information of the previous year in conjunction with two others. That is, in 2020 you have to submit reports for 2019, but they consider it in aggregate with 2017 and 2018. 

Bureaucratic peculiarities sometimes led to clubs finding out about irregularities a year to a year and a half after spending. In real time, it was hard to calculate how much you could afford not to get punished. Now they’re going to try to fix that.

Under the new rules, clubs will report right during the season, it’s not yet clear how exactly – perhaps quarterly.

It sounds progressive, but will UEFA have enough resources to monitor clubs online?

Most likely, this is only part of the changes, some of the formulations are still very streamlined, but some conclusions can be made. 

We can say that so far these are not new rules, but a point-by-point easing of the existing limits.

“Let me be clear: that [repealing the FFP] is not going to happen. We need to correct some of the injustices that financial fair play can indirectly lead to in the current circumstances.”

Ceferin said last spring. 

PSG boss and president of the Association of European Clubs (ECA), Nasser Al-Khelaifi, is considered the main mastermind of the reforms.

Therefore, it is not difficult to guess in whose interests the FFP is being renewed.

PSG and Man City have suffered more than others from the attention of UEFA. In 2014, both clubs were first sanctioned for violations of the FFP, receiving fines, a reduction in their bid for the Champions League and a temporary transfer ban. 

They were later suspected of artificially inflating sponsorship contracts as a way of circumventing the FFP.

After the joint Der Spiegel/Football Leaks investigation, City got away with serious sanctions through the Court of Arbitration for Sport (CAS) because the statute of limitations (five years) had expired on almost all cases. The club was only fined for not cooperating with UEFA and obstructing the investigation.

PSG took advantage of the sluggishness of football officials after buying Neymar Jr and Kylian Mbappé for more than $400 million – after the first strange decision in favor of the Parisians (it is believed that the club was greatly helped by the investigator, former Belgian Prime Minister Yves Leterme) UEFA simply did not have time to send the case for review within the 10 days set. And when it did, City stopped the process via CAS – pointing out the violation of time limits.

Now there will probably be fewer court wars. The main message of the new rules is to “increase financial stability.” In simple terms, this means loosening the cap on direct investment from owners. The stability of clubs will depend even more on the thickness of the bosses’ wallets.

UEFA can be criticized for being compliant, but there was hardly a choice here. Either compromise or the Super League. 

• The FFP has been in existence for 10 years, how has it performed during that time?

In 2009, the net loss of European clubs amounted to 1.6 billion euros (in 2008 – 1.3 billion). On average, clubs spent 64% of income on player salaries, but at the same time in 78 clubs salaries exceeded income. At the same time, a little earlier, almost infinite money came to European football for the first time – in August 2008, Sheikh Mansour bought the City.

The reaction to this was the launch of financial fair play in 2011. Clubs had to live within their means and on a level playing field.

In 2019, European football had a net loss of 125 million euros (down 92% from 2009) after the first consecutive years of overall profitability in 2017 and 2018. Thus, by the numbers, the FFP action should be considered a success.

But then came the covid – clubs lost more than 7 billion euros of planned revenues in two years due to empty stadiums and other disruptions of business activities. It was then that UEFA effectively suspended the FFP because it was impossible to comply. Although some clubs quickly dealt with the consequences (perhaps only on paper). For example, City, after an abnormal minus of £126 million in the 2019/2020 season, proudly announced in their last report that they were back in the black the following season.
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