Financial Fair Play (FFP) makes up part of an extensive set of criteria clubs must comply with in order to be licensed to take part in Uefa’s club competitions, primarily the Champions League and Europa League.
FFP regulations were agreed in September 2009 with Uefa declaring they had the following principle objectives:
• to introduce more discipline and rationality in club football finances
• to decrease pressure on salaries and transfer fees and limit inflationary effect
• to encourage clubs to compete with(in) their revenues
• to encourage long-term investments in the youth sector and infrastructure
• to protect the long-term viability of European club football
• to ensure clubs settle their liabilities on a timely basis
Central to the FFP regulations is an obligation for clubs over a fixed period of time to achieve a break-even figure when expenditure is measured against income from football-related activities.
Included in the relevant income are revenue from gate receipts, broadcasting rights, sponsorship and advertising deals plus profit made from the transfer of players.
Included in the relevant expenditure are the cost of transferring players in, salaries and employee benefits expenses and other operating expenses.
Not included in expenses are expenditure on youth development activities, community development activities and development of infrastructure such as stadiums or training grounds. A club can spend limitless amounts on these with no risk of failure to comply with FFP.
There is an implementation period for the FFP regulations which began the summer of 2011, with the criteria that must be met altering during the implementation period.
The first season when a club could fail to be licensed to take part in European competition due to FFP is 2013/14.
For the 2013/14 season, Uefa will assess club accounts for the previous two seasons (this is known as the monitoring period). A club will only be allowed to fall below break even for the 2011/12 and 2012/13 seasons combined by 45 million euro.
For the 2014/15 season, the same 45 million euro deviation below break even will be allowed for a licence to be granted but this time the monitoring period over which the figure will be calculated is three seasons rather than two – the seasons being 2011/12, 2012/13 and 2013/14.
For the 2015/16 season the figure drops to a 30 million euro deficit allowed. The monitoring period is again the previous three seasons combined, in this case 2012/13, 2013/14 and 2014/15.
The 30 million euro figure stays in place until 2018. The deviation amount for the 2018/19 season has yet to be set but it will be reduced from 30 million euro. That is therefore the first season when clubs might have to break even with no leeway given in order to comply with FFP.
If a club reported a surplus over break even for the monitoring period prior to the one under immediate consideration then that surplus figure can count towards the latest calculation. Profits made in the recent past can help towards complying with FFP.
There is a further stipulation on the 45 or 30 million euro deviations. For those amounts to be allowable they must be made up by equity investments over the relevant monitoring period. For example for the 2013/14 season, an owner of a club can invest up to 45 million euro over the previous two seasons in exchange for more shares in the club. However if the investment is merely in the form of a loan to the club then only a 5 million euro deviation from break even is allowed over the monitoring period. The allowable figure remains at 5 million rather than 45 or 30 million euro for the subsequent monitoring periods too if it continues to be in the form of loans.
In the early stages of the implementation period, there are provisions for a club not to suffer sanctions for exceeding the acceptable deviation from break even if it reports a positive trend in the annual break-even results, and if the deficit is only due to contracts with players that were in place prior to 1 June 2010.
These provisions only apply to the first two monitoring periods, which are for licence applications for the 2013/14 and 2014/15 seasons.
Rules are in place to guard against the figure for revenue coming into a club being artificially increased by abnormally large transactions from a related party.
For instance Uefa would not allow any additional amount above what is consider a ‘fair value’ for a sponsorship deal to count towards the FFP break-even calculation should the deal be with a company related to the club.
Another example in which an estimated fair value would come into play is the sale of corporate hospitality tickets, and/or use of an executive box, by a club to a related party.
A further requirement of FFP is a club must have no overdue amounts owed to football clubs, employees or tax authorities.
A Club Financial Control Panel has been set up to monitor and ensure clubs adhere to the FFP requirements.
uefa has indicated that sanctions other than refusing a licence to play in European competition may be considered for clubs failing to comply with FFP but that the refusal of a licence is definitely a possibility.