Lawyers with football club clients should not underestimate the tough new financial controls regime
Football clubs that splash the cash and then go bust let down their fans and their employees. Financial controls that prevent this from happening are good and necessary.
The Premier League has recently followed the lead of Uefa and published proposals for more financial control over clubs. These include sustainability regulations and shorter term cost-control measures. The former mean that if a club makes an aggregate loss of over £105m in the next three seasons it can suffer a points deduction. A club that makes a loss up to the limit will be subject to a tighter regulatory regime. Losses of over £5m in any given year must be guaranteed against the owner’s assets.
Under the short-term measures, clubs will be restricted in the amount of Premier League Central Funds they can use to increase wage costs. The limit is £4m per season for clubs with a wage bill in excess of £52m .
Compliance with Uefa’s Club Licensing and Financial Fair Play Regulations (FFPRs) is one of the criteria for being granted a licence to play in Uefa competitions such as the Champions League. The most stringent element of FFPRs is the ‘break-even requirement’ that prevents clubs consistently operating at a loss while delving into owners’ pockets to sign and keep top players.
Clubs are required to at least break even on aggregate over a three-year period, with a maximum deficit of €5m (£4.3m) or, if covered by an equity injection, a larger ‘allowable’ deficit of €45m.
Uefa’s views on sustainability do not accommodate anything like the £105m allowable loss proposed by the Premier League. In fact, the allowable deficit will be reduced to €30m by the 2015/16 season and an even lower figure by 2018/19.
The break-even calculation is the difference between a club’s relevant income and expenses for the year aggregated with the break-even calculations from the two previous financial years. Relevant income includes gate receipts, broadcasting rights, sponsorship and sales of player registrations. Any transactions with related parties must be recorded at fair value. Relevant expenses include player salaries, transfers and dividends but exclude expenditure on infrastructure and youth development.
The break-even requirement is ameliorated by transitional provisions and allowing clubs to include any surplus from the two seasons prior to the monitoring period.
There has been speculation that a club that shows a positive trend in its results, even if it is in deficit, may avoid Uefa’s wrath. However, there are no guarantees of leniency – the FFPRs merely state that: “an improving trend in the annual break-even results will be viewed more favourably than a worsening trend.”
So what can Uefa do if a club fails to meet the requirements? Well, it can withhold revenues from Uefa competitions, exclude clubs and withdraw titles or awards.
Uefa has made its intentions clear and lawyers should not underestimate the potential effect of the FFPRs on their clients.
Of the 591 clubs that applied for a licence for 2011/12, 101 were rejected for failing to comply with FFPRs. No licence means no revenue from Uefa competitions, and no revenue means less scope for player signings.
Mary Pritchard, Slaughter and May associate, assisted with this article