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Module 4: Football - Key developments in Financial Fair Play

Posted on 17 May 2022

During this live session, Partner Simon Leaf was joined by Kieran Maguire (Academic, Broadcaster and Author of The Price of Football), and leading sports counsel and financial fair play expert, Nick de Marco QC (Barrister - Blackstone Chambers) where they discussed the key developments in the financial management of football clubs in the UK and around Europe including:

  • the economic controls on Spanish clubs
  • the introduction of salary caps
  • how PSG could afford to buy Lionel Messi
  • whether clubs can buy their way out of FFP.

We also received insight from football business experts Dr André Soldner, Gianluca Cambareri and Ángel Juárez.

Mishcon de Reya
It’s business.  But it’s personal.
Sports Law Academy 21/22
Module 4: Football – Key Developments in Financial Fair Play

Partner, Simon Leaf was joined by Kieran Maguire (Academic, Broadcaster and Author of The Price of Football), and leading sports counsel and financial fair play expert, Nick de Marco QC (Barrister - Blackstone Chambers) and football business experts Dr André Soldner, Gianluca Cambareri and Ángel Juárez.
Simon Leaf, Partner, Mishcon de Reya

A very warm and sporting welcome to this our latest edition in our Sports Law Academy series.  Tonight we are going to be looking at the key developments in the Financial Regulation of football and we will be hearing from some esteemed guests and also from guests joining from, from around the world as well, from Italy, Spain and from Germany.  Let’s set the scene a little bit.  The present regulations or more precisely the enforcement of those regulations has been controversial since they were introduced over a decade ago now, they’ve caused great debate from the boardroom to the bar.  Those that oppose the rules on the one hand will say that they, they just reinforce the existing hierarchy, they distort the free market and they are an example of outsiders trying to meddle with the, with the beautiful game.  On the other hand those in favour will, will point to the fact that these regulations have actually limited the number of clubs that have disappeared over the years and they have actually encouraged clubs to live within their means.  I am pleased to introduce you to a number of speakers; Nick is consistently ranked as one of the leading Barristers in sports law, he was featured on the Lawyers Hot 100 List in 2021 and is very much the go-to Barrister for disputes in football.  Kieran is a British academic author and broadcaster.  Kieran wrote The Price of Football book and also co-hosts the podcast of the same name which reached a quarter of a million downloads within its first five months.  Joining via Zoom for the first half of the session we have André Soldner from BluePort Legal in Germany and Angel Juárez from Juárez Veciana in Spain.  Gianluca Cambareri from Tonnuci in Italy.   Welcome everybody to the Sports Law Academy this evening.  So before we hear from our international guests, Charlie Wright, a trainee in our team with an update on some of the more recent developments.
Charlie Wright, Trainee, Mishcon de Reya

The new regulations, also known as the Financial Sustainability Regulations are set out in three separate pillars.  The no overdue payables rule, the football earnings rule and lastly, the squad cost rule.  Under the no overdue payables rule all amounts that are payable to other football clubs, employees, tax authorities and UAFA itself that are currently due at the end of the relevant licence period must be settled within 15 days.  Consequently if the club has payments which become overdue for more than 90 days the UAFA Club Financial Control Body or the CFCB may consider this an aggravating factor and take further actions.  Under the football earnings rule the current break even and financial stability requirements are strengthened in that a clubs costs of relevant investments so infrastructure, youth development must now be covered with existing equity or contributions rather than a debt.  On the other hand though the acceptable deviation for this figure has also increased from 30 million Euros to 60 million Euros over a 3 year period.  This can also be increased by a further 10 million Euros for each reporting period in which the club demonstrates good financial health.  Finally, under the squad costs rule which is perhaps gone with the most publicity, wages on playing and coaching staff, transfer costs and agent’s fees are to be limited to 70% of club revenues each year.  This rule will be implemented on a gradual basis with the percentage standing at 90% for the 23 and 24 season, 80% on the 24 and 25 season and finally the target 70% in the 25 and 26 season.  UAFA stated that this rule will help limit the market inflation of wages and transfer costs of players.  Breaches to the new Financial Sustainability Rules will be sanctioned by the CFCD and the squad cost rule sanctions particularly will be progressive so based on the severity of the breach and the number of breaches committed over a period of 4 years.  Clubs will be on the receiving end of increasing fines, point deductions and even potential expulsions for repeat or serious breaches to the regulations.  There are also provisions for ad hoc punishments like suspension of specific players during assessment years or even reduction of squad sizes.  Whether these latter sanctions which may be argued adversely affect individual players are actually enforce is yet to be seen.  We are going to turn now to our international guests, I am keen to kind of ask you how the FFP regime in Germany compares to the present UAFA regime?

André Soldner, BluePort Legal

The system aims mainly at securing an organised and functioning competition year thus stability of competition within always only the next season so a level playing field or alike is not such a main aim.

Charlie Wright, Trainee, Mishcon de Reya

Obviously last summer the La Liga Cost Controls were, were really kind of bought into the world’s attention really with everything that went on with F C Barcelona and Messi, and, and Hel it would be good to understand from you a little bit more about those rules themselves?

Angel Juárez, Juárez Veciana

Yes, certainly a strong emphasis is put on what we call the salary cap rules.  This is a process that starts usually around 31st May the issue is that if the revenues that you are budgeting are based on the contract the legal will normally allow you to put on, on that line of the budget the revenues that are agreed in the agreement.  If there are bonus payments in those agreements then the validation committee will have to agree with you as to what is a realistic assumption as to what bonuses would this be.

Charlie Wright, Trainee, Mishcon de Reya

You know really I am interested Gianluca to hear more about the position in Italy and Italian clubs in light of the fact that my understanding is that only five of the clubs, of the clubs that compete in Syria own their own stadiums and I am just keen to know how much of a hindrance is that to those clubs to meet the kind of FFP regulations that UAFA set.

Gianluca Cambareri, Tonnuci

Mostly of the stadium 99% of the stadium are owned by the municipalities in Italy and on lease of the clubs.  It means that rather than being an asset to exploit 7 days per week, 365 days per year it costs and obviously the possibility not to benefit of this kind of revenue is a bigger gap especially for the big clubs who have to compete with the other clubs in premier league or in La Liga or of the Bundesliga when they own their own stadium and they increase the revenues also for their other not sports activities connected to the exploitation of these, of these assets.

Charlie Wright, Trainee, Mishcon de Reya

We’ve got this announcement, we’ve had this announcement yesterday from the Government suggesting they are going to implement all ten of Tracey Crouch’s proposals.  I want to start with Kieran and given that premier league clubs have already agreed to share 16% of their revenue, so that amounts to about 1.6 billion over the next 3 years, are premier league clubs right to fear the proposals and isn’t there a danger that we’re, we’re effectively kind of killing the golden goose here?

Kieran Magier, Academic, Broadcaster and Author of The Price of Football

Trying to come up with a model which allocates money to discourage clubs from over spending is nigh on impossible so you can understand it from the perspective of the premier league clubs in terms of parachute payments, Rick Perry of the EFL describes them as an evil ignoring the fact that the EFL itself has parachute payments which I find somewhat paradoxical.  My view having spoken to chief executives of clubs who have been relegated and also chief executives of clubs in the bottom six, in the bottom eight of the premier league, they say how can we recruit a player in the January transfer window if we say you have to have a compulsory 80% pay cut and in order to achieve break even, even if we re-distributed a quarter of the, of the TB monies from the premier league to the EFL in order to break even in the championship you would have to have 80% pay cut clauses embedded into contracts.  The players won’t come so therefore you, you end up with a less competition premier league.  So I can understand it from the premier league’s perspective, those people that want to have greater redistribution want a more competitive EFL championship but a less competitive premier league.  Now that is killing the goose because what drives revenue in the first place is, is the clubs in the premier league and also we have to acknowledge that it is the big clubs, it is Manchester United and Chelsea and Liverpool, it’s not small clubs like Crystal Palace.

Charlie Wright, Trainee, Mishcon de Reya

When we had the conversation last year and you know, an independent regulator was potentially on the cards I think you said you were probably just on the side of opposing an independent regulator.  We now see that we are going to have an independent regulator, I was just wondering if your, your views have changed and what your kind of general reaction is to the, the announcement yesterday.

Nick de Marco QC, Barrister, Blackstone Chambers

From a sort of purist legal point of view there is a lot to be said for an independent regulator.  The idea that football clubs make their own rules up and then you have things like financial fair play or the owners and directors test where the clubs who make those rules are trying to restrain their competitors so for example the Newcastle case I did a number of clubs didn’t want the Saudi public investment fund to buy Newcastle because they didn’t want Newcastle to compete with them and they then put pressure on the premier league as the regulator which is owned by those clubs to try and prevent that take over and so there is a problem with, as is often described, marking your own homework with, with the clubs who are competing with each other then setting the rules and enforcing the rules so, so abstractly and from a point of view of principle there is a lot to be said for an independent regulator.  On the other hand the premier league is probably one of this country’s most successful businesses and exports and hearing our international colleagues with all due respect to them, it is the best league in Europe, it is the most successful football league in the world.  Do we really want to change it, changing things because from a purist idea it makes sense but in a business way it doesn’t.

Charlie Wright, Trainee, Mishcon de Reya

Right let’s open it up to the people in the room.  I’ve got one just at the front here.

Attendee

Partly in relation to fans and tickets and how Roman Abramovich paid for a season ticket, I know that Sheffield Wednesday had Club 1867 where Chansiri offered fans a multi-year season ticket if they reached the premier league so if Sheffield Wednesday got promoted the season ticket would become active from that stage, would that be a way in which revenue could be increased by offering incentives in the future when a club gets to the premier league and attains those riches?

Nick de Marco QC, Barrister, Blackstone Chambers

What we have there is something called the Accrual Principle in accounting where you spread revenue over the period of which the club is going to benefit from it and we also have something called Contingent Assets.  You only can show contingent assets if the outcome is virtually certain and with no disrespect to Sheffield Wednesday, the chances of them being virtually certain of achieving promotion to the premier league are remote so I think Mr Chansiri’s approach there was very much a cash flow issue rather than a financial fair play or profitability and sustainability issue.  My understanding is that they sold four tickets of the multi-year season tickets of which two went to people with the surname Chansiri.

Charlie Wright, Trainee, Mishcon de Reya

Okay I am going to look at some of the questions that have come in on Zoom, so Kieran as a keen listener to the podcast and peripherally being involved, I am intrigued by your view about Mel Morris and why you shouldn’t be able to cease investing at a time he chooses, he made a significant investment, some may say a gamble in his home town team and has lost over 170 million pounds.  Why shouldn’t he be permitted to decide enough is enough?

Kieran Magier, Academic, Broadcaster and Author of The Price of Football

Well he is permitted to decide enough is enough by putting the club into administration, that’s, that is his right.  I think the view taken by Derby fans is that Derby County Football Club is a community asset, it does have history and heritage.  It is central to the people who, who fell in love with the club at age of 6 or 7 and will support Derby County until they die.  Turning off the taps is something which you are allowed to do as an owner so he’s… what he’s done is, is perfectly within the rules.  I have no issue with that whatsoever.  From a football fan’s perspective there’s… it’s horrible you know, to see something which is so central to your life which has given you shared memories and experiences of like no other.  You then have, we have, we have brand loyalty in football which we do not have in existence, you know, as much as I, as I love my IPhone, if Samsung came along to me and said we are going to give you a Galaxy 13 for free, I’d switch.  If Crystal Palace came along to me as a Brighton Hove Albion fan and said, Kieran we’re going to offer you a free season ticket for Crystal Palace until the day you die, no.  So, so it’s that.  Derby County fans cannot go and support Chesterfield or Burton Albion or Nottingham Forest and I think if, if Mr Morris wants to do that, that’s perfectly within the rules but he should have been up front with people in advance.

Nick de Marco QC, Barrister, Blackstone Chambers

Can I, can I say a word in Mel’s defence.  I have acted for both Mel and Mike Ashley for many… for a long period and both of them have been controversial amongst the fans of their club who are very good and loyal fans, both for opposite reasons.  Mike Ashley because he ran the club to be sustainable and to make a profit and Mel because he invested a lot of his own money in the club for success and fans were happy when he was doing it and it looked like they might go up but unhappy when he stopped doing it and wanted something more sustainable and the reality is however rich you are, if you are someone like Mel Morris and you are losing 5 million pounds a month keeping Derby County afloat, and you are doing everything to try and bring in new investors and there is nothing more you can do, at a certain point you are going to have to stop off the tap, turn off the tap because the tap isn’t going to go on forever. 

Charlie Wright, Trainee, Mishcon de Reya

For now I want to say thank you very much to our, to our panel both in the room and on line as well and thank you everyone else for joining us today.  Thank you.

 

Sports Law Academy 21/22
Module 4: Football – Key Developments in Financial Fair Play

Mishcon de Reya
It’s business.  But it’s personal.


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