Friday, September 14, 2012

Financial Fair Play: why it had to happen

No-one said that Financial Fair Play (FFP) was perfect. Even Michel Platini, the UEFA President behind the long-touted new standards, accepts his brainchild has some serious flaws. But in these days of the paradoxical austerity boom, European football clubs are going to have to take responsibility for their collective bottom lines.  FFP had to happen.

A slight shift towards prudence by some clubs – for example Newcastle United or AC Milan – has been balanced by remarkable spending by others. Nothing prompts wasteful extravagance like owning a football club. According to UEFA, almost seventy percent of all European top-flight clubs are losing money. Platini's regulations resolve to save clubs from themselves.

At its simplest, FFP penalises clubs who spend more than they earn. Opponents to the plan suggest this will keep the big clubs powerful and the small ones insignificant; they may have a point. However, it will also minimise the wealthy benefactor model made so famous by Chelsea, Manchester City and now Paris Saint-Germain.

Clubs are already beginning to implement the necessary changes. Whether UEFA enforces their laws is still to be seen.

While even Platini should accept the FFP legislation is imperfect, the overall ramifications of the legistlation should somewhat control spiralling wage-bills. The percentage of overall revenue spent on player wages by top-tier European clubs is simply bad business practice.

Within the past two years, American sport has seen lockouts in the NFL and NBA. A similar impasse has been reached between NHL owners and players. In all three cases, the warring parties struggle(d) to agree on a collective bargaining agreement (CBA) which splits revenue fairly between players and owners.

The graphic below charts the revenue split between players and owners in each of the four major US sports and compares it to top-flight European football clubs. The contrast is stark. Baseballers receive about 57% of their pie – as do hockey players under the current CBA – while NFL and NBA players' shares decreased to around 50% with their last CBA. (Given the habit owners have of “winning” these negotiations, the figures below come from the owners' last offer rather than the current iteration of the CBA which will certainly change).

And this chart doesn't even take into account transfer fees that are paid on top of wages! Even accounting for cross-continental differences, the average 13-20% extra that top division European footballers earn makes them the obvious outlier. What makes this startling is that the player/owner revenue sharing scheme now in operation in Europe isn't codified but voluntary – owners don't pay this lofty percentage out of legal compulsion.

No matter how different the sports, American owners like the Glazers, Stan Kroenke and Fenway Sports Group operate teams on both sides of the Atlantic. This means that there is a basis for comparison, if not for drawing fully-fleshed-out conclusions.  It's obvious that running a business and not accumulating debt - let alone making a profit - when you pay 70% of your income to employees is hard to do.

Because of the continental ramifications of employing a salary cap, an system index-linked to revenue was the most feasible way that UEFA could harness undisciplined spending.  FFP is not perfect, has loopholes aplenty and it won't necessarily address the lack of competitive balance across Europe's top four leagues. Hopefully, these refinements will come.


  1. Financial Fair play did have to happen, trouble is what also has to happen is that UEFA enforce it. Football administrators don't exactly have a great record with keeping promises. Already see that Manchester City are making application for relief from the rules...really a club oppressed.

    1. Absolutely. As much as the players deserve high salaries and a significant portion of the pie, it behoves the game to ensure a minimum of failing clubs.

      The temptation would be to to enforce FFP by implementing it across the entire spectrum of UEFA's remit: ie. banning Real Madrid, PSG, Chelsea, Man City, Barcelona and other clubs who fail to measure up. However, in so doing, these clubs would probably set up a rival league which would take focus away from the Champions' League.

      It's a tricksy path, and one which needs to be navigated before even attempting. But hopefully it will be worthwhile.