Desktop version

Home arrow Law

Financial Fair Play

Financial Fair Play (FFP) is a relatively recent addition to the pattern of governance applicable to football in Europe. UEFA’s Executive Committee committed itself to the idea in 2009, and the system has been shaped and put into practice beginning in 2011. It is contained in UEFA’s Financial Fair Play Regulations.95 UEFA describes it as ‘about improving the overall financial health of European club football’.'[1] The overall intent of FFP is to impose a break-even requirement. Clubs must not spend more than they earn over a defined period. Beginning in season 2013—14 the acquisition of the licence which a football club requires to play in UEFA’s European club competitions involves account being taken of the club’s compliance with the demands of FFP.

There is not the slightest doubt that these rules will keep accountants and lawyers as engaged as ordinary fans. Their detailed application is forbiddingly difficult. It is in the hands of the UEFA Club Financial Control Body. Annex X of the Regulations deals directly with ‘Calculation of the Break-Even Result’. It seeks to exercise control over transactions above or below ‘fair value’, but there are obvious objections to such quantification. Consider, for example, the case of an owner who pays what is criticized as an inflated sum for sponsorship rights at his or her club. Is this a way artificially to increase revenue to disguise over-spending? Such ruses are not unknown elsewhere in EU law[2] and they have counterparts elsewhere in sports law and practice too9[3] [4] but nowhere are they easy to define and police. Disputes are certain: disputes have already emerged. However, the overall aim of FFP is helpfully captured as an attack on financial doping, as part of an attempt to align sporting success more closely with skill and judgment rather than access to vast sums of investors’ ready cash.

Clubs that have qualified for UEFA competitions are assessed by the Club Financial Control Body (CFCB) to ensure compliance with the requirements of the scheme. The CFCB, which is divided into an investigative and an adjudicative chamber, is empowered to take measures and impose sanctions. Decisions are published.99 Available sanctions range from a mere warning through more formal interventions including a fine or a restriction on the number of players that a club may register for participation in UEFA competitions, all the way to exclusion from future competitions or even withdrawal of a title or award. But the system also embraces rehabilitation, and the CFCB commonly comes to an agreement with a club whereby it will commit to a path that targets compliance with the break-even requirement. Such settlements, which typically involve a financial contribution made by the club and an agreed monitoring process, negate the need to proceed to the adjudicative stage of the process. So, for example, leading English club Hull City agreed in 2015 to a programme designed to bring it into line with FFP, including also a payment of €200,000 to UEFA.[5] In early 2016 it was announced that the terms of the settlement had been met and the process brought to a conclusion.101

Sanctions for violation of the FFP Regulations, though not automatic, are potentially severe, especially where the possibility of limited access to or even exclusion from the immensely lucrative competitions run by UEFA arises. So, for example, for the season 2014—15 Manchester City’s past violations of FFP led to it being subject to a spending cap and a reduction in the size of the squad it was allowed to select for Champions League matches. The club chose not to contest the penalty.102 The Spanish club Malaga, quarter finalist in the 2012—13 Champions League, was banned from European football altogether for season 2013—14 because of violation of the FFP rules. It had overspent. Malaga appealed against the sanction, but it was upheld by the CAS.103 A fine of €300,000 was also imposed and upheld, all of which doubtless hinders the ability of Malaga to restructure its finances. In its ruling, the CAS refused to allow the consequences of the overdue sums under Spanish tax law to have any relevance. Instead it insisted on the need to adopt a uniform approach applicable in international club competitions which is not affected by the club’s domicile. This is a strong assertion of the independence of the lex sportiva and the need for its even transnational application. A similar fate befell the Turkish club Galatasaray: in 2014 it had agreed a route back to financial stability with the CFCB104 but in 2016 it was decided that the club had failed to fulfil its promises and so the Adjudicatory Chamber excluded it from European club competition for one season.105 Galatasaray brought the matter before the CAS, but, like Malaga, it had no joy. Its appeal, which included a challenge to the compatibility of FFP with EU law, was dismissed.w6

CAS rulings are arbitrations and they are subject to the Swiss Federal Act on Private International Law. As explained in Chapter 2, the only recourse for appeal is to the Swiss Federal Tribunal. It is strongly protective of the finality of arbitration and therefore it rarely intervenes in the CAS’s affairs. Chapter 2 explains that it did so exceptionally in Matuzalem, which concerned an order for compensation backed by a suspension from playing as a result of a player’s termination of contract in breach of FIFA’s Transfer Regulations.107 The Swiss court in Matuzalem took the view that an open-ended ban of the type that the player was facing constituted a severe infringement of the player’s individual rights which was sufficient to overcome its normal reluctance to interfere with arbitral rulings. It is not inconceivable that the Swiss court could intervene similarly where a club’s position is prejudiced as a result of sanctions inspired by breach of FFP. However, it is not likely. A sanctioned club is after all still eligible to play in its national league, which provides the majority of fixtures during a season.

It is likely that challenge to findings associated with FFP, both concerning breach and consequent sanctions, will in the first instance be contained within the FFP’s own decision-making structures and then channelled to the CAS. But challenge to measures taken pursuant to FFP is not capable of being contained unconditionally within the lex sportiva. Chapter 2 has explained how the contractual exclusivity claimed by sports-related arbitration has its limits, and how EU law in particular is relatively quick to crack it open because of its designation of internal market law as public policy.[6] [7] [8] A challenge to FFP rooted in EU law would be readily advanced before a national court, triggering a reference to the Court of Justice.

The legal status of FFP under EU law is intriguingly uncertain.™9 In fact, it is arguable that FFP is another instance where sport’s concern to act is legitimate, because there are problems to be addressed which do not arise to the same degree or at all in other sectors, but where the means used are not justifiable. Most of all the objection is that FFP loads burdens on employees. FFP is a horizontal restraint on competition struck between football clubs backed by the framework and sanctioning power of UEFA. It is vulnerable to challenge as a violation of EU law.

The motivations behind FFP are listed in Article 2(2) of the Regulations and they are helpfully summarized on UEFA’s own websited™ The version on the website declares they aim 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 longterm 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.

The suspicion is that FFP’s noble discourse of rationality in financing is a camouflage for an anti-competitive agreement which is designed to limit spending by all employers in the sector in order to maximize profits. Remarkably and surprisingly that suspicion is converted into an explicit confession by UEFA’s own website. Most of all the stated aim ‘to decrease pressure on salaries’ simply screams illegality: employers clubbing together to fix prices (paid to labour) is as pernicious an anti-competitive arrangement as can be imagined. This aim is missing from Article 2(2) of the Regulations themselves.

FFP is a horizontal agreement between suppliers (of sports services: clubs) which includes commitments to restrain spending (inter alia, on players’ wages).[9] [10] [11] [12] [13] It is also strengthened by vertical restraints (in the form of licensing requirements) enforced by UEFA, the governing body. It is a restriction on competition (to acquire players’ services) which has the effect of depressing the levels of remuneration payable to players; and, judged by the website if not by the terms of the Regulations themselves, it has that object too.112 That sets alarm bells ringing. It is the province of Article 101 TFEU.

Moreover, the effect of the rules is to protect already well-established clubs from potential new market entrants capable of providing fresh competition. Under FFP clubs that are already ‘financially doped’ are walling off their territory from those who would wish to improve by resorting to financial doping in future. Put less tendentiously, FFP consolidates the advantages in the market of current incumbents.

Can FFP be saved as a matter of EU law?

In Albany International the Court accepted that restriction of competition is inherent in collective agreements between organizations representing employers and workers, but that the social policy objectives pursued by such agreements would be seriously undermined if management and labour were subject to Article 101 TFEU when seeking jointly to adopt measures to improve conditions of work and employ- ment.113 This contextual approach is dictated by a concern to prevent the Treaty competition rules damaging other objectives set by the Treaties.n4 It serves to grant autonomy to the process of negotiation of collective agreements unaffected by EU competition law. It is, however, limited in scope. Both key elements—collective action and improvement of conditions of work—are missing from FFP. FFP is a horizontal agreement and is designed to address the club owners’ financial interests. So the ‘Albany exception’ cannot help UEFA if it is asked to defend FFP.

More generally, EU competition law accepts that effects that are restrictive of competition may not lead to condemnation pursuant to Article 101 TFEU where those effects are inherent in the pursuit of recognized and justified objectives. This admittedly rough-edged ‘exception’ was developed by the Court most conspicuously in Wouters115 and it was relied on in the sporting context by the Court in its treatment of anti-doping in Meca-Medina and Majcen v Commission, in which Wouters is explicitly cited.[14] This ruling was examined in depth in Chapter 5 and it has re-emerged several times since in this book: as explained in Chapter 7, it is central to understanding how review in the light of EU internal market law is sensitive to the particular context in which the impugned practices occur. Anti-doping was treated as a restriction of competition, but not one incompatible with EU law, because it was justified by a legitimate objective, and it is inherent in the organization and proper conduct of competitive sport.

FFP is not a rule that is necessary for the conduct of sporting activity or of itself an inherent ingredient of sport. Football has survived without it for a long time. But there is in principle room to justify it on the basis that its effects, which are restrictive of competition, are inherent in the pursuit of legitimate objectives—not simply to decrease pressure on salaries but also to improve the economic and financial capability of the clubs, to introduce more discipline and rationality in club football finances, to encourage clubs to operate on the basis of their own revenues, to encourage responsible spending for the long-term benefit of football, and so on.

The best argument in favour of FFP is that it is a response to the over-spending and consequent chronic indebtedness of clubs.

In a ‘normal’ industry this would be disciplined by bankruptcy. A company that over-stretches vanishes, leaving the field clear for more prudent operators. In football, by contrast, it is inconceivable that famous clubs with a huge fanbase and immense cultural resonance should be consigned to oblivion in this way. Sport is special—and this, arguably, justifies stronger ex ante controls to prevent financial irresponsibility than would be tolerated in ‘normal’ industries, given that the ex post sanction of bankruptcy is unacceptable in football. UEFA and the clubs would therefore present FFP’s effects, which are restrictive of competition (in the market for players), as inherent in the pursuit of legitimate objectives associated with the long-term stabilization of an industry that is notoriously prey to competitive over-spending.

But the argument needs nuance. In truth FFP cannot be defended as a means to prevent historic but financially reckless football clubs vanishing, because the sport already has other less restrictive means in place to address the problem of financial irrationality.

Traditional clubs with a century and more of history do not vanish because of the crash of bankruptcy. Football copes with such problems thanks to the separation between the corporate entity—which is extinguished by bankruptcy—and the club registered with the relevant national association—which lives on and typically retains a place in the League and, though typically acquired by and controlled by a new company, retains too the affection of a fanbase that is attached to club not company. Some Leagues in Europe attach penalties to a club that has undergone such a background change of corporate identity consequent on financial irresponsibility, by, for example, deducting points or even imposing relegation on the club. This happened in the case of Glasgow Rangers, which—after well-publicized financial problems leading the company in 2012 to enter administration and subsequently to undergo liquidation—was forced to restart season 2012—13 at the lowest tier of professional football in Scotland, three Divisions below its previous home in the top Division, which it had inhabited since the League’s formation as long ago as 1890. A new company acquired assets from the administrators of the liquidated company and proceeded to steer Rangers back to the top tier in 2016, but the identity of the club, including its fanbase, history, and honours, lived on.[15] [16] Several English clubs have in recent years been placed into administration pursuant to the corporate rescue procedures established by the Insolvency Act 1986,n8 and since 2004 this has normally led to a deduction of points—though strictly it is the company that is placed into administration and the club that is docked points. The key point is that there may be a change in corporate form but the club does not vanish. True, bankruptcy may have a severe detrimental effect on players at the club concerned, but FFP is at best an indirect method of addressing that problem, which UEFA could address more directly and appropriately by a salary guarantee fund. So football already has in place a viable system for preventing its grand and traditional names disappearing, and FFP cannot be justified by the perceived need to bring clubs back from the brink of corporate bankruptcy. That is, sport can deal and has dealt with matters addressed by FFP because of the well-understood separation of club and company.

The properly focused argument in favour of FFP therefore lies in its role in preventing financially doped clubs from winning championships that they would not win were they constrained to match their spending to income. In this sense FFP aims at the prevention of distortion of competition.!!® in the absence of FFP, reckless over-spending distorts the nature of the sporting competition itself as well as inducing other clubs to join the ‘arms race’ of profligacy. The ex post sanction of bankruptcy for the company and sporting sanctions such as relegation for the club does not take away, nor in an effective way deter, the attraction of over-spending that will put silverware in the club’s trophy room and honours on its historical record at the expense of more prudent competitors. Portsmouth FC was a member of the English Premier League in 2010 but, after financial collapse consequent on long-term over-spending and entry into administration, it was by 2013 playing in the lowest of the four tiers of the English professional game. But this did not deprive it of the FA Cup it had won in 2008 nor of its UEFA Cup participation in season 2008—09. Even though the FFP scheme envisages the exceptional possibility of withdrawing a title from an offending club00 this in no way adequately compensates the runner-up club that was denied the chance to lift silverware in front of its celebrating fans, just as being awarded an Olympic gold medal years after the event as a result of doping sanctions imposed on a disgraced rival is small consolation. So FFP, as an ex ante control based on expenditure control and licensing, is aimed at securing the integrity of club football competitions.

The Commission appears inclined to take this favourable attitude towards the compatibility of FFP with EU law. In answer to a Parliamentary Question in August 2010, Commissioner Barnier declared that the rationale of FFP ‘seems to be in accordance with one of the objectives of the EU’s action in the field of sport, namely with the promotion of fairness in sporting competitions (Article 165 TFEU)’, although he added that ‘any measure taken in this framework has to respect the EU’s Internal Market and competition rules’.01 It is significant in the developing of EU sports law to see Article 165’s embrace of sport as an EU competence used to frame the explanation. It is, however, thin. Presumably ‘fairness’ is an allusion to FFP’s suggested aim to rein in clubs that are dependent on ‘financial dopers’ and instead to protect competition based on the breakeven requirement. But one should question whose ‘fairness’ is being protected. It seems to be that of the clubs with access to most income accrued through their football activities at the expense of those clubs seeking new routes to prominence, for FFP enshrines the advantages of those clubs that have climbed the ladder one way or another in the past, potentially thanks to financial doping, while refusing access to the ladder to new entrants. Put another way, from this perspective, FFP does not contribute to competitive balance—it enshrines competitive imbalance. After all, Article 165 lauds not only ‘fairness’ but also ‘openness’ in sporting competitions: FFP discourages openness. It seems, however, that the Commission is eager to find reasons not to interfere with FFP. This was confirmed in 2012 when a ‘Joint Statement’ by Commissioner Almunia and Michel Platini, then the President of UEFA, declared that FFP’s ‘break even’ rule is based on sound economic principle and added that its objectives are consistent with EU state aid policy.122 The Statement claims that both FFP and the Treaty state aid rules, found in Articles 107 to 109 TFEU, aim for a ‘level playing field’ on which is preserved ‘fair competition’. This comparison is something of a stretch: the state aid rules control public authorities intervening in the market to grant a selective advantage to particular operators, whereas FFP, by contrast, concerns internal and formally private arrangements struck by the clubs and UEFA to cover the whole sector in the same way. The ‘Joint Statement’ is not legally binding, but [17] [18] [19]

the fact of its generation and the (not entirely convincing) reasoning which it contains reveals that UEFA and the big football clubs have done a very successful job in getting close to the Commission and persuading it to work harmoniously

with them.

In summary, the compatibility of FFP with EU law is on a knife-edge. It restricts competition on wages to the detriment of players; it consolidates the advantages of the existing powerful clubs at the expense of new entrants into the higher echelons of the sport. But it serves to protect the integrity of the competition by stopping wildly irresponsible spending from achieving short-term success on the field to the detriment of those clubs which have taken a longer-term and more realistic view of their spending potential.

Expertise in matters of sports governance belongs firmly with governing bodies and not with the Court or the Commission, and FFP is probably best defended as falling within the margin of appreciation properly claimed by sports governing bodies. This was examined in Chapter 7.4. Sports governing bodies should argue that the large measure of discretion allowed to both the Member States and to the EU’s political institutions in making complex assessments about matters of socioeconomic importance should be extended to private actors, such as sports bodies, in circumstances where the Court lacks the expertise and the Treaties lack the relevant guiding principles required to make a detailed assessment of choices made. In particular, the argument would be that FFP deserves to be tested to determine the extent to which it improves financial rationality. It has correctly been observed that much would depend on the empirical evidence that could be presented in support of FFP, and that the evidence is mixed.[20] [21] [22] And one might add that the insertion of a genuine social dialogue should enhance the width of the margin of appreciation allowed to sports governing bodies. FFP would and should be more likely to survive if structured around a more inclusive participatory framework of dialogue and rule-making, in order to distance it from the whiff of a horizontal restrictive practice struck between and for the advantage of employers (clubs). UEFA is sensitive to this dimension: its own FFP website claims that ‘The concept has also been supported by the entire football family’.04

Whether any party has a sufficient incentive to challenge FFP raises another set of questions again. The already dominant clubs in Europe are content with the arrangements—indeed they provoked their adoption. Other less fortunate clubs are likely to be deterred from taking legal action by UEFA’s sanctioning power, enforced through their national associations. The Commission is therefore the most appropriate actor, but, as explained, the clubs and UEFA have shrewdly stayed close to the Commission in the negotiation of FFP. Daniel Striani, a players’ agent, complained to the Commission that FFP violates EU competition law, but in late 2014 it declared that it would not take the matter any further,m which led UEFA to comment that it was ‘very pleased’.[23] [24] [25] This reaction was entirely unsurprising yet serves as a helpful reminder that relations between UEFA and the Commission are far more convivial than in the past. Private challenge to the compatibility of FFP with EU law always remains possible despite inaction on the part of the Commission, as Bosman (the case) reminds us, even if the eventual outcome may not be happy, as Bosman (the man) reminds us.07 In fact the Commission’s stated reason for declining to help Striani was that it was open to him to pursue the matter at national level. He did so, and in early 2015 provoked a preliminary reference to Luxembourg by a court in Brussels, but in Striani v UEFA, URBSFA the Court of Justice treated the reference as inadmissible for want of clarity and detail.08 The Court’s ruling is brutally critical of the national court’s inadequately presented questions, but further and better framed litigation by Striani or other interested parties in future cannot be ruled out.

  • [1] accessed 29 November 2016.
  • [2] Public authorities commonly try to evade the Treaty’s state aid rules by arguing that they arebehaving no differently from a normal private market investor: such claims need to be checked, see egCommission Notice on the definition of a State Aid [2016] OJ C262/1, section 4.2, and for success indeploying this argument in a sporting context, see Case COMP/ SA.41613 Aid to Dutch football clubPSV Dec 2016/1849 [2016] OJ L282/75.
  • [3] See eg the salary cap in rugby accessed 29November 2016.
  • [4] accessed29 November 2016.
  • [5] i°° accessed 29 November 2016.i°i accessed 29 November 2016.
  • [6] Especially Case C-126/97 Eco Swiss China Time Ltd v Benetton International NV [1999] ECRI-3055; see Ch 2.2.7.
  • [7] See, taking the view the arrangements are lawful, C Davies, ‘Labour Market Controls andSport in the Light of UEFA’s Financial Fair Play Regulations’ [2012] ECLR 435; A Mestre, ‘TheStriani Case: UEFA’s Break-Even Rule and EU Law’ July 2013 World Sports Law Report 3; that theyare probably lawful, C Flanagan, ‘A Tricky European Fixture: An Assessment of UEFA’s FinancialFair Play Regulations and their Compatibility with EU Law’ (2013) 13 Intl Sports LJ 148; that theymay be unlawful, S Bastianon, ‘The Striani Challenge to UEFA Financial Fair Play. A New Era afterBosman or Just a Washout?’ (2015) 11 Competition Law Review 7; that they are unlawful, T Peetersand S Szymanski, ‘Vertical Restraints in Soccer: Financial Fair Play in the English Premier League’,Department of Economics, University of Antwerp (2012) accessed 29 November 2016; N Petit, ‘Fair Play Financier ou Oligopoleague de clubsrentiers?: Elements d’analyse en droit europeen de la concurrence’ (2014) accessed 29 November 2016; V Kaplan, ‘UEFA FinancialFairplay Regulations and European Union Antitrust Complications’ (2015) 29 Emory InternationalLaw Review 799.
  • [8] accessed 29November 2016.
  • [9] The significance of this is underestimated in Galatasaray (n 106) see especially para 76.
  • [10] So it is reported that in the English Premier League, which introduced its own FFP rules in2013, players’ pay increased in season 2013—14 by 5.5% while overall income rose by 22%: ‘PremierLeague Clubs Turn Loss into Profit as Fair Play Rules Kick In’ The Guardian (London, 29 April 2015).More rigorous analysis would be required to support a legal inquiry, but it is striking to a competition lawyer how open those involved are about the aims of FFP: the same article quotes the owner ofStoke City as saying: ‘In previous years, every time the money came in, before you could blink it hadall gone in players’ wages ... I didn’t believe we could continue being the world’s richest league whileall losing money.’
  • [11] из CaseC-67/96 Albany International [1999] ECR I-5751, paras 59—64.
  • [12] 114 See Whish and Bailey (n 43) ch 1.36. For criticism at the time, see R van den Bergh andP Camesasca, ‘Irreconcilable Principles? The Court of Justice Exempts Collective Labour Agreementsfrom the Wrath of Antitrust’ (2000) 25 EL Rev 492.
  • [13] Wouters (n 20).
  • [14] Meca-Medina (n 3) para 42.
  • [15] Some Glasgow Celtic fans disagree. Nowhere is sport more ‘special’ than in the West of Scotlandand nowhere are the associated virtues and the vices more visible.
  • [16] See S Szymanski, ‘Long-term and Short-term Causes of Insolvency and English Football’ inP Rodriguez, S Kesenne, and R Koning (eds), The Economics of Competitive Sports (Edward Elgar 2015) ch 5. 11® This—strong—argument plays an important part in the CAS Panel finding in Galatasaray(n 106) that FFP complies with EU law; see paras 76—79, which include explicit reliance on Wouters(n 20).
  • [17] The Procedural Rules, Art 29 accessed 29 November 2016.
  • [18] E-4628/10. accessed 29 November 2016. Similarly, Financial Fair Play in Football: Answergiven by Ms Vassilou on behalf of the Commission, E-004268/13 [2014] OJ C33E/131.
  • [19] IP/12/264, 21 March 2012. The statement is at accessed 29 November 2016.
  • [20] Especially C Flanagan (n 109). m See n 110.
  • [21] 125 AT40105
  • [22] accessed 29 November 2016. See Bastianon (n 109).
  • [23] ‘Uefa defeats legal challenge to financial fair play rules’, The Guardian (London, 20 May 2014)accessed 29 November 2016.
  • [24] Ch 4. 128 Case C-299/15 Order of16 July 2015. See Bastianon (n 109).
  • [25] 129 accessed 29 November 2016.
 
Source
< Prev   CONTENTS   Source   Next >

Related topics