Wednesday, September 5, 2012

UEFA's FFP Regulations - Play To Win

So the transfer window is finally over after the customary twists and turns and, as always, has raised some intriguing questions. Perhaps most perplexing is the decision of previously big spending Manchester City to slam on the brakes (by their own recent standards) much to the disappointment of manager Roberto Mancini. On the fairly safe assumption that this is not due to Sheikh Mansour struggling for cash, the culprit is likely to be UEFA’s Financial Fair Play (FFP) regulations, a particularly delicate issue for the blue side of Manchester.

Given that looming threat, it is equally puzzling to see that Chelsea, who have had their own problems in reaching self-sustainability, have once again started to splash the cash, laying out £32 million on the supremely talented Eden Hazard and £25 million on the precocious Oscar – all in apparent blithe disregard of FFP. It therefore might be interesting to revisit these rules in an attempt to understand clubs’ behaviour in the new era of tighter financial regulation. Will they have a profound impact on the face of European football or merely act as a “speed bump”, as predicted by Premier League chief executive Richard Scudamore?

At its simplest FFP is trying to encourage clubs to live within their means, i.e. not spend more money than they earn. This is UEFA’s response to the poor financial health of many clubs, as evidenced by their most recent benchmarking report, which revealed that in 2010 over half of Europe’s top division clubs lost money with total losses surging 30% to €1.6 billion and debts standing at €8.4 billion. Many clubs have experienced liquidity shortfalls, leading to delayed payments to other clubs, employees and tax authorities.

"Eden Hazard - everything counts"

Gianni Infantino, UEFA’s general secretary, described this as “really the last wake-up call.” He added, “There was a great risk of crisis, of the bubble bursting. You can see from the losses and the debts that the situation is not healthy and we cannot go on like this. We had to do something and financial fair play is the way we designed it.” UEFA’s president, Michel Platini, is even more evangelical, considering FFP “vital for football’s future.”

The aim is to introduce more discipline within club finances, encourage responsible spending and investment and to curb the excesses and individual gambling on success, which has brought many clubs into financial difficulties.

While Infantino conceded that over-spending “may be sustainable for a single club, it may be considered to have a negative impact on the European club football system as a whole.” He explained, “The problem is that all clubs try to compete. A few of the biggest can afford it, but the vast majority cannot. They bid for players they cannot afford, then borrow or receive money from their owners, but this is not sustainable, because only a few can win.” In other words, the richest clubs drive up players’ salaries and transfer costs, forcing smaller clubs to over-stretch their budgets to compete.

We’ll explore the moral issues surrounding FFP later, but let’s first look at how it will work in practice. The first point to note is that clubs do not actually have to break-even in the early years of FFP to meet the target, thanks to the concept of “acceptable deviations”, which is one way UEFA has attempted to facilitate the move towards a sustainable model.

The first season that UEFA will start monitoring clubs is 2013/14, but this will take into account losses made in the two preceding years, namely 2011/12 and 2012/13. Wealthy owners will be allowed to absorb aggregate losses of €45 million (£36 million), initially over those two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions. The maximum permitted loss then falls to €30 million (£24 million) from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount).

This approach was explained by Infantino, “You can have losses for one year, because perhaps you had one bad season and you did not qualify (for Europe). So we are looking at losses over a multi-year basis. So one year you can make a loss, but not over three years.” This makes sense, though some clubs might simply make operating losses every year and get within the break-even target by hefty player sales in one year.

UEFA’s willingness to give the clubs every chance to meet FFP is also seen by the decision to have only two years in the first monitoring period, as this means that the annual average loss can be higher than future monitoring periods.

"Santi Cazorla - you don't have to spend big"

It is important to note that these are the acceptable deviations only if the owner is willing and able to put money in. If not (as is the case for many clubs), then they are significantly lower at just €5 million (£4 million). For the likes of Abramovich and Mansour, this will obviously not be an issue, but their ability to cover large deficits will be much reduced, as noted by Infantino, “I wouldn’t say the era is dead, but I would say what is over is the sugar daddy who can put hundreds of millions into the clubs. This will no longer be possible.”

Note that the rules do not actually force a club to become profitable. All that UEFA are saying is that clubs will not be allowed to compete in their competitions (Champions League and Europa League) if they do not break-even, but clubs making losses could continue to compete in their domestic league. The first sanctions for clubs not fulfilling the break-even requirement can be taken during the 2013/14 season and the first possible exclusions relating to break-even breaches would be for 2014/15 season.

OK, that’s the theory, so what’s the current state of play for the leading English clubs?

The last published accounts available are those for the 2010/11 season, in other words the one before the first season included in the FFP calculation. Nevertheless, this should still give us a strong indication of how close clubs are to meeting the FFP target.

Taking those clubs that qualified for Europe this season as our examples, four clubs made a pre-tax profit (Newcastle £33 million, Manchester United £30 million, Arsenal £15 million and Tottenham £402,000), while three clubs reported large losses (Manchester City £197 million, Chelsea £67 million and Liverpool £49 million). So, on first glance, those three face a severe challenge to get their finances in order to meet FFP.

However, there are two major adjustments that need to be made to a club’s statutory accounts to get to UEFA’s break-even template: (a) remove any exceptional items from 2010/11, as they should not re-occur (by definition); (b) exclude expenses incurred for “healthy” investment, such as improving the stadium, training facilities or academy, which would lead to losses in the short-term, but will be beneficial for the club in the long-term.

Let’s be very clear here: so-called exceptional costs will be included in the break-even calculation, but it is unlikely that they will be at similar high levels to 2010/11, when clubs could take the opportunity to clean house in the last accounts not to be included for FFP.

This was a significant factor for all three clubs that reported large losses with Liverpool booking £59 million (mainly writing-off stadium development expenses), Chelsea £42 million (largely management compensation paid to the sacked Carlo Ancelotti and the cost of buying-out AndrĂ© Villas-Boas from Porto) and Manchester City £34 million (mostly writing-down the remaining book value of certain players).

Excluding exceptional items, Liverpool would have reported a £10 million profit, while the losses at Chelsea and Manchester City would have come down to £26 million and £163 million respectively, so things would already look better for them in a “normal” year (though Chelsea’s manager pay-offs have been a fairly regular occurrence and the 2011/12 figures will again be hit, this time by AVB’s departure).

Next, there can be significant costs excluded for the FFP calculation, which is best illustrated by looking at Arsenal’s accounts. The costs of building the Emirates stadium are deducted, namely the depreciation charge on the tangible fixed assets of £12 million and possibly interest on the bonds of £14 million (though the latter is a bit questionable, now that the asset has been constructed). In addition, they will be able to deduct costs on youth and community development. Unfortunately, these are not separately identified in club accounts, but we can estimate £10 million and £2 million respectively for these activities. So, in total Arsenal’s relevant expenses for the FFP break-even calculation will be around £39 million lower than the published accounts.

However, Arsenal will presumably also have to exclude the £13 million profit from their property development business, as revenue and expenses from non-football activities are not relevant for FFP - unless it is allowed, because it is "in close proximity to the club's stadium". In our calculations, we shall adopt a conservative approach and exclude it.

Not all interest expenses can be excluded, e.g. Manchester United’s annual £40-45 million is taken into consideration, as their debt was incurred to help finance the Glazer’s leveraged takeover, as opposed to positive investment in the club. Incidentally, if the club ever pays dividends to their owners, these would also be included. Fortunately for United, these hefty interest payments are more than covered by their huge operating profits.

After all these adjustments, most of the English clubs look to be well placed for FFP. Even Chelsea’s FFP loss has come down to only £8 million, which is well within the acceptable deviations and helps explain why they felt that they could continue spending in this summer’s transfer window, especially as their income will be boosted by more revenue from their Champions League triumph.

The only club that looks vulnerable is Manchester City, whose loss for FFP is still a frightening £142 million. Indeed, the club’s sporting director Brian Marwood admitted, “We’ve got a huge amount of work ahead of us to make sure we are sustainable.” They will benefit from rapid revenue growth, both in terms of distributions from the Champions League and (especially) new commercial deals, but the chances are that their losses will still be well beyond UEFA’s limits in the short-term.

"Roberto Mancini - it's not about the money, money, money"

However, a safety net might be provided by yet another exemption in the FFP rules, whereby UEFA will not apply sanctions, if: (a) the club is reporting a positive trend in the annual break-even results; (b) the aggregate break-even deficit is only due to the annual 2011/12 break-even deficit, which is in itself due to player contracts signed before 1 June 2010 (thus excluding wages for the likes of Carlos Tevez, Gareth Barry, Vincent Kompany, Joleon Lescott and Kolo Toure). Even that might not be enough, though UEFA will surely take note of City’s £100 million investment in their academy, plus their relative restraint in the transfer market this summer.

The other point that should be highlighted is the potential importance of profits on player sales to a club’s accounts, e.g. Liverpool’s 2010/11 figures were boosted by £43 million (mainly Fernando Torres to Chelsea) and Newcastle’s by £37 million (largely Andy Carroll to Liverpool). Excluding these sales, Liverpool’s FFP result would actually have been a £20 million deficit, so it’s not quite plain sailing for them.

By the way, Arsenal’s FFP figures for 2011/12 and 2012/13 should be hugely positive, thanks to major profitable sales of Cesc Fabregas, Samir Nasri, Robin Van Persie and Alex Song. This has been a key element of Arsenal’s self-sustaining strategy in recent years.

Of course, Manchester City are by no means the only major club that face a major challenge to meet FFP (though you might think so from the media) with the leading Italian clubs also having much to do, especially Milan, Inter and Juventus, whose last reported losses averaged more than £70 million (before FFP adjustments). Indeed, Milan vice-president Adriano Galliani admitted, “FFP hurts Italy. There will no longer be patrons that can intervene. Until now people like Berlusconi and Moratti would be able to support us, but with the fair play it will no longer be possible.”

This helps explain much of this summer’s activity in Serie A, especially at Milan, who have effectively been forced to sell Zlatan Ibrahimovic and Thiago Silva to the nouveaux riches at Paris Saint-Germain, while spending very little on replacements. Clearly, there are other factors here, not least the economic crisis in Italy and Fininvest’s own financial difficulties, but FFP certainly played a part in this strategy. In addition, it provides a rationale for Inter selling a 15% stake in the club to China Railway for €75 million, as this will help fund a new stadium with these costs being excluded for the purposes of FFP.

"Robin Van Persie - jumping someone else's train"

At the other side of the spectrum, clubs like Real Madrid and Bayern Munich will have absolutely no problems with FFP, as they are consistently profitable year-after-year. Bayern have been well-known supporters of FFP, but even Jose Mourinho has commented on the likely impact, “The club produces its money by itself, so Real Madrid will be in a much better position when FFP comes.” Barcelona’s figures are a bit more up and down, but they recently announced record profits of €49 million for 2011/12, so they’re also looking good.

The stated objective of UEFA’s regulations is, “to introduce more discipline and rationality in club finances and to decrease pressure on players’ salaries and transfer fees” and it is true that there has been a general reduction in transfer spending in European football, particularly Italy and Spain.

However, the £490 million spent by Premier League clubs on transfers in this summer is actually slightly higher than last summer and second only to the £500 million record outlay in 2008. Of course, it is arguable that this expenditure would have been higher without the presence of FFP, but what does seem clear is that some clubs have opted to try to increase revenue rather than cut costs – a classic example of the economic law of unintended consequences.

Thus, most leading clubs have managed to substantially grow their revenue since UEFA approved the FFP concept in September 2009, e.g. the revenue at Barcelona, Real Madrid and Manchester United rose £76 million, £71 million and £53 million respectively, though the 76% increase in Manchester City’s revenue from £87 million to £153 million is perhaps even more striking (with much more to come).

Let’s look at how clubs have grown (and will hope to grow) their revenue streams in future.

The main driver of higher revenue in England has been the Premier League television deal. For an individual club, this is partly down to its own success on the pitch, but is far more due to the ever-increasing amounts negotiated centrally.

This is because the distribution methodology is fairly equitable with the top club (Manchester City) receiving around £60.6 million, while the fourth club (Tottenham) gets £57.4 million, just £3.2 million less. You will see that the lion’s share of the money is allocated equally to each club, meaning 50% of the domestic rights (£13.8 million in 2011/12) and 100% of the overseas rights (£18.8 million), with merit payments (25% of domestic rights) only worth £757,000 per place in the league table and facility fees (25% of domestic rights) fairly similar, based on the number of times each club is broadcast live.

What has really helped clubs’ top line is the Premier League’s ability to secure top dollar deals for its TV rights, as once again shown with the amazing £3 billion Premier League deal for domestic rights for the 2014-16 three-year cycle, representing an increase of 64%. If we assume (conservatively) that overseas rights rise by 40%, that would mean that the total annual TV deal from 2014 would be worth £1.7 billion compared to the current £1.1 billion.

Under current allocation rules, that would imply an additional £30 million revenue a season for the leading English clubs, not only strengthening their ability to compete with overseas clubs, especially Madrid and Barcelona, who benefit from massive individual TV deals, but also providing a significant boost in their FFP challenge in the future – assuming that they don’t simply pass all the extra money into the players’ bank accounts.

With revenue from the Premier League much of a muchness for the leading English clubs, the importance of finishing in the top four and qualifying for the Champions League is very evident. Although it may not be a huge percentage of a club’s total revenue, it is clearly a significant competitive advantage.

The Europa League is small compensation financially, as can be seen by the sums received in last year’s campaign, where Stoke City’s €3.5 million (the highest for an English club) was considerably lower than the sums received by the Champions League entrants: Chelsea €60 million, Manchester United €35 million, Arsenal €28 million and Manchester City €27 million.

This is the great dilemma for clubs like Manchester City. For their commercial strategy to work, they absolutely have to be playing in the Champions League, but the expenditure required to get there places them at great risk of failing UEFA’s regulations. It’s a vicious circle, made worse by the possibility of exclusion from Europe’s flagship tournament, which would then make it even more difficult to meet the FFP target, as the club would lose at least £25 million revenue.

In terms of match day revenue, here are a number of ways of increasing revenue, the best of which is to be successful, which should result in more games played, due to cup runs, Champions League, etc. A somewhat less palatable tool has been for clubs to raise ticket prices, though the current economic climate means that this has slowed right down this season with prices frozen at Arsenal, Chelsea, Liverpool and Manchester United. Championship side Derby County has even introduced demand based pricing services for single match tickets for the 2012/13 season.

Of course, a real quantum leap in match day revenue can only be achieved via stadium expansion or building a new stadium. This can be very clearly seen with Arsenal’s revenue rising by nearly £50 million a season since they moved from Highbury to the Emirates. It’s not just the higher capacity, but also many more premium customers and indeed higher prices. The Glazers’ willingness to raise ticket prices plus the completion of the upper quadrants at Old Trafford (and, yes, more of the “prawn sandwich” brigade) has also helped Manchester United to substantially increase their match day revenue to well over £100 million.

This has resulted in United and Arsenal both earning much more than their peers per game: £3.7 million and £3.3 million compared to Chelsea £2.5 million, Tottenham £1.6 million and Liverpool £1.5 million. This explains why all of those clubs have been looking at stadium moves for some time, though their struggles have highlighted how difficult this is. On the bright side, if they found the right site, any costs associated with a move could be excluded for FFP – though there would then be the small matter of actually finding the money to finance the project.

Another interesting factor here is that the FFP regulations explicitly include membership fees within relevant income, which is a major benefit to clubs like Barcelona and Real Madrid, who take in around £20 million a year from their members. Arguably, this is a form of capital injection from the club’s owners, so should not be treated as relevant revenue, but UEFA have decided that this is different from one large payment from a wealthy owner.

Traditionally English clubs have not focused much on the commercial side of operations, as they have been able to sit back and rely on the TV money, but that has been changing. Many have made great strides recently, most notably Manchester United who have broken the £100 million barrier, but they are still left in the shade by their continental peers, especially Bayern Munich £161 million, Real Madrid £156 million and Barcelona £141 million.

Nevertheless, there has been a significant increase in the value of shirt sponsorship deals in England with Liverpool and Manchester City both going from £7.5 million deals to £20 million with Standard Chartered and Etihad respectively. Tottenham have introduced an innovative split of their shirt sponsorship between software company Autonomy (now Aurasma, one of their products) for the Premier League and asset management group Investec for all cup competitions worth a total of £12.5 million, much better than the previous £8.5 million deal with Mansion.

However, United are still undoubtedly the daddy when it comes to sponsorship deals. They switched to Aon from AIG in 2010/11, increasing the annual value from £14 million to £20 million, but have recently announced a truly spectacular deal with Chevrolet. Not only will this rise to an astonishing £45 million ($70 million) in 2014/15, but the sponsor will also actually pay them £11 million in each of the previous two seasons – while Aon are still the sponsors. Amazing stuff, but this is the club that has racked up numerous secondary sponsors and persuaded DHL to pay £10 million a season to sponsor their training kit.

Even the noble Barcelona have been forced to take shirt sponsorship, switching from the unpaid UNICEF to a very lucrative £24 million a year with the Qatar Foundation. Other clubs have also been keen to get in on the act with Newcastle’s £10 million Virgin Money deal being £7.5 million higher than Northern Rock and Sunderland’s barely credible £20 million Invest in Africa deal being just the £19 million more than the previous Tombola deal.

All of this is leaving Arsenal way behind the rest with a measly £5.5 million Emirates deal, a legacy of a deal that helped finance the stadium construction. There will no doubt be a major increase in 2014 when the deal runs out, but you can’t help thinking that the club’s commercial team should have done more, especially when you compare their tiny revenue growth to United’s.

"John W Henry - FFP's No. 1 fan?"

Similarly, clubs have done well in improving their kit supplier deals, e.g. Liverpool’s £25 million kit deal with Warrior is more than twice the amount received from Adidas and is about the same level as Manchester United, Real Madrid and Barcelona. United themselves are in discussions to extend their deal with Nike, looking for an increase of at least £10 million a season.

Merchandising, retail, hospitality and overseas tours can all swell the coffers, but the Holy Grail for football clubs is stadium naming rights. The only club that has (reportedly) inked such a deal for a meaningful sum is Manchester City, as an element of their long-term Etihad sponsorship, while clubs like Chelsea have to date failed to secure a deal, despite many years of searching.

Many have expressed scepticism over City’s Etihad deal, including Liverpool’s owner John W Henry, who asked, “How much was the losing bid?” and Arsenal manager Arsene Wenger, “If FFP is to have a chance, the sponsorship has to be at the market price. It cannot be doubled, tripled or quadrupled, because that means it is better we don’t do it and leave everybody free.”

UEFA tackle such deals by assessing whether they represent “fair value” and then deducting any excess (not the entire agreement) from the club’s income for the purposes of the FFP break-even calculation. Given the rate of change of such sponsorship deals, my view is that they are unlikely to exclude this deal.

"Arsene Wenger makes his point"

If they do, the lawyers will be out in force, asking UEFA to also look at other clubs, such as Chelsea’s sponsorship deal with Russian energy company Gazprom, who bought Roman Abramovich’s stake in Sibneft in 2005. Questions could even be asked of squeaky-clean Bayern Munich, where two of the most prominent sponsors, Adidas and Audi, each own around 10% of the club.

Clearly, any egregious attempts to get round the regulations, such as an owner buying £200 million of replica shirts or paying £50 million for a super-VIP executive box, will be thrown out, but, as we have seen, there is still scope for some serious revenue improvement in commercial operations.

There have been some interesting developments that clubs may use to boost revenue, such as Real Madrid’s $1 billion resort island in the United Arab Emirates and Trabzonspor’s plan to build a hydroelectric power station. On the face of it, any revenue from such activities would have to be excluded from FFP, as “it is clearly and exclusively not related to the activities, locations or brand of the football club.” However, the same clause does confusingly allow the inclusion of revenue from non-football operations if those operations are “clearly using the name/brand of a club as part of their operations” with no reference to location. Another one for the lawyers.

UEFA’s hope, of course, was that FFP would act as a soft wage cap, though there has been little sign of this up to now at the leading English clubs, especially Manchester City where wages have surged from £36 million to £174 million in just four years, resulting in a wages to turnover ratio of 114%. As well as recruiting new players, the wage bill is under pressure from better deals for current players (to avoid sales on a Bosman) and bonus payments (which can sometimes end up costing more than the additional revenue from success on the pitch).

Some clubs have spent a lot of time trying to reduce their wage bill by offloading deadwood, but this is easier said than done, given the high wages they tend to be on, leading to cut-price sales or elaborate loan deals where much of the wages are subsidised (raising more questions in terms of FFP).

Although English clubs have high wage bills, they are not actually the highest in Europe, an “honour” that belongs to Barcelona and Real Madrid. A root cause of the Italian clubs’ problems with FFP can be seen with the bloated wage bills at Milan and Inter, hence the release of so many experienced (expensive) players in the last two seasons. However, it is difficult to compare across countries because of differing tax rates, which mean that clubs in England and Italy have to pay higher gross salaries for their players to receive the same net salary.

Given the prevalence of third party ownership in many countries, there is a risk that a club’s overall wage bill could be massaged by a sponsor paying part of a player’s package. This is addressed in the FFP guidelines, but it might not be totally straightforward for UEFA to identify any such arrangements.

The impact of transfer fees on a club’s accounts is not easy to understand for many non-accountants, as the full expense is not booked immediately, but instead is written-down (amortised) evenly over the length of the player’s contract. The reasoning is that the player is an asset, but could potentially leave for nothing at the end of his contract on a Bosman, when the value would be zero. So, if a club like Chelsea signs a £40 million player on a four-year contract, the annual amortisation is £10 million, i.e. £40 million divided by four years. Incidentally, the accounting treatment is the same regardless of when the cash payment is made (all up front or in stages).

In this way, a club’s accounts will not show the full extent of major transfer activity immediately, though it will be reflected in growing player amortisation. This can be seen very clearly with Chelsea, where amortisation rocketed from £21 million to a peak of £83 million after Abramovich’s initial burst of expenditure, but then fell to £40 million after the taps were closed. Manchester City’s 2010/11 amortisation was £84 million, but they would hope that this would fall after their recent parsimony.

It stands to reason that wealthier clubs can reduce their annual amortisation by signing players on longer contracts, but this can also be achieved by extending player contracts. For example, if our £40 million player were to extend his contract after the first two years of his initial four-year contract by a further two years, the remaining £20 million valuation in the books would then be amortised by the new four years remaining (original two plus extended two), leading to annual amortisation falling from £10 million to £5 million.

The impact of third party ownership should not be underestimated here, as it enables clubs in many countries, notably Portugal and Spain, to acquire players at a fraction of their total cost. This places Premier League (and Ligue 1) clubs at a disadvantage, as they have outlawed this practice, so they have lobbied UEFA to adjust the FFP rules to take this into consideration. Apparently, they have agreed, but it is not clear how this will work in practice.

Returning to the intricacies of player trading, it is also important to note how clubs report profit on player sales, which is essentially sales proceeds less any remaining value in the accounts. This means that a club can potentially book an accounting profit on sale even when the cash value of the sale is less than the original price paid, e.g. if our £40 million player is sold after three years for £15 million, then the cash loss would be £25 million, but the accounting profit would be £5 million, as the club has already booked £30 million of amortisation.

Up to now, this has surely only interested accountants, but it’s become very relevant for FFP. Furthermore, any players developed through a club’s academy have zero value in the accounts, so any sales proceeds represent pure profit.

There are other angles addressed by the new regulations. For example, many clubs these days have an intricate inter-company structure and there were fears that a club might argue that the football club itself was profitable, while large expenses such as interest payments were paid out of a different company. Clearly, that does not make sense to any reasonable man and UEFA have caught that one, “If the licence applicant is controlled by a parent or has control of any subsidiary, then consolidated financial statements must be prepared and submitted to the licensor as if the entities were a single company.”

"Our finances are special"

On the other hand, the exclusion of non-football operations might benefit clubs like Barcelona, as they would presumably deduct the losses made on other sports, such as basketball, handball and hockey, which amounted to around €40 million in 2010/11.

Clearly, the introduction of FFP will not be without difficulties with Platini himself admitting, “It is not easy, because we have different financial system in England, France and Germany.” Just one example is the £167 million paid by the Premier League in parachute payments, solidarity payments and football development, which might be treated as £8 million of (allowable) charitable deductions for each club if they were not top-sliced from central payments.

Although the FFP regulations explicitly state that adverse movements in exchange rates will be taken into account, it is not explained how this will work. This is important for English clubs, as the weakening of the Euro means that any Sterling losses will be higher in Euro terms than when the rules were first drafted.

While the majority of clubs are in favour of FFP’s attempts to tackle football’s economic woes, there is a concern that far from making football fairer, all this initiative will achieve is to make permanent the domination of the existing big clubs: survival of the fattest, if you will. The argument goes that those clubs that already enjoy large revenue (like Real Madrid, Barcelona, Manchester United and Bayern Munich) will continue to flourish, while any challengers will no longer be able to spend big in a bid to catch up.

In almost any business, you have to invest before the revenues start flowing and in football this means brining in new players and paying high wages in a bid to reach the lucrative Champions League. Critics have asked whether there really is any difference between contributions from wealthy owners and corporate sponsors. This is one of the reasons why the Premier League has reservations with chief executive Richard Scudamore saying that he was opposed to any limits being set on the ability of owners such as Sheikh Mansour to invest money in their clubs.

In any case, UEFA have now announced a sliding scale of sanctions for clubs that breach FFP rules, which works like this: a warning, fine, points deduction, withholding of prize money, preventing clubs from registering players for UEFA competitions and ultimately a ban. This implies that a ban is the last resort, but UEFA has recently banned two Turkish clubs, Bursaspor and Besiktas (suspended), AEK Athens and the Hungarian club Gyori for FFP breaches. These decisions were backed by the Court of Arbitration for Sport (CAS).

"Qu'est-ce que c'est, ce FFP?"

UEFA were also given some comfort by the European Commission’s confirmation that there is consistency between FFP and EU State Aid policy, though this has not been fully tested in the courts. There is still plenty of scope for a powerful club to pursue a competition law case, if it was banned

Some have questioned whether the regulators will have the bite to go with their bark. Expelling teams from the Champions League works fine on paper, but would UEFA really risk damaging their main cash cow? If, for example, they banned Manchester City, Milan, Inter, PSG and Juventus, they would risk killing the goose that lays their golden egg and increase the prospects of a European Super League.

Indeed, key proponents of FFP have expressed doubts over UEFA’s willingness to act, such as John W Henry, “The question remains as to how serious UEFA is regarding this. It appears that there are a couple of large English clubs that are sending a strong message that they aren’t taking them seriously.” Even Arsene Wenger admitted, “UEFA want to create a situation where clubs with deficits cannot play in the Champions League, but I question whether they will be able to force it through.”

"Hulk hears of an incredible deal"

That said, UEFA’s credibility would be severely compromised if a major club that was in breach of the rules was not effectively punished. Listening to public pronouncements, they have consistently said that this will not be the case. Only last week, Platini was unequivocal, “We are never going back on Financial Fair Play. I want the clubs to spend the money they have, not the money they don’t have. We will be enforcing these rules.”

It’s certainly an interesting challenge for UEFA, not least with the arrival on the scene of big-spending Paris Saint-Germain and Zenit St Petersburg (who this week splashed £64 million on the Brazilian striker Hulk and the Belgian midfielder Axel Witsel), but, as we have seen, they have cleverly built a fair bit of leeway into their regulations (and sanctions), so the vast majority of clubs should be just fine with FFP, particularly those in England.