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The Dispute of Financial Fair Play in European Soccer

By Maximilian Querci

"The Beautiful Game" known as soccer has evolved over the past century from a recreational sport to matches being played in astounding stadiums and observed worldwide. Today, soccer clubs dominate lists of the most valuable franchises in the world, Manchester United is at the top, valued at $2.32 billion. The soccer market is progressively expanding. Soccer's appeal in North America has reached an all time high. As result, monetary figures for players are constantly reaching new heights. Record transfer fees are constantly being broken with each transfer season. However, with this influx of money, there are concerns about how exactly teams are able to make such high-profile purchases while complying with the fair and competitive nature of the sport. The Union of European Football Associations (UEFA) has taken a stance against the increased spending with the implementation of the Financial Fair Play Rules ("the Rules"), bywhich all European Union (EU) soccer clubs must abide.

The Rules were created to curb overspending by EU soccer clubs in order to insure their own financial stability. The Rules were implemented to stop what UEFA General Secretary Gianni Infantino referred to as "greed, reckless spending and financial insanity within European football." (Richard Conway, UEFA Investigates 76 clubs over Financial Fair Play, ((Feb. 29,2014), http://www.bbc.com/sport/0/football/26390770) The Rules put into effect a "break-even" requirement where a club's expenses must not exceed its income and a club must not record losses of more than €45 million over a three-year period.( Ed Thompson, Financial Fair Play, (Feb. 29,2014), http://www.financialfairplay.co.uk/financial-fair-play-explained.php) Failure to meet the "break-even" requirement may lead to serious fines, player transfer bans, or even possible denial of a license to compete in UEFA competitions, namely the Champions League and Europa League tournaments, which generate high revenues for its participants. (Are UEFA's Financial Fair Play Rules headed for an early bath?, Taylor Wessing LLP (Feb. 29, 2014), https://www.taylorwessing.com/news-insights/details/are-uefa-s-financial-fair-play-rules-headed-for-an-early-bath-2013-12-18.html).

According to Infantino, 41 clubs have been excluded from European Competition, and five have been excluded in the current season for failing to meet the strict criteria since 2009. (Joe Wright, Financial Fair Play Is Working Insists UEFA, (Feb. 28, 2014), http://www.goal.com/en-us/news/1956/europe/2013/08/08/4174569/financial-fair-play-is-working-insists-uefa?ICID=AR_RS_1) Yet many in the game feel this is not enough.

International law firm Taylor Wessing LLP serves as advisor on competition law and free movement rules. The firm reports that the Rules resemble similar salary cap programs in place in North American sports leagues, but do differ in some respect. Salary caps in American leagues place limitations on how much money a club may spend on the wages of individual players and total wage expenditures. (Taylor Wessing LLP., https://www.taylorwessing.com (Feb. 29, 2014)) The purpose of a salary cap is to promote protection of a competitive balance by limiting the amount of money a team can pay its players in salary. Yet representatives from smaller EU clubs criticize the Rules for promoting the opposite, as the Rules do not curb or limit player transfer fees or the salaries clubs pay their players. They only require teams to meet the "break-even" provisions, which many of the richer clubs have no problem doing, especially with the backing of wealthy owners and investors.

The limitations on spending established by the Rules unfortunately make it difficult for financially inferior clubs to challenge against powerhouse teams who "bought their success" prior to the implementation of the Rules. This is why many opponents of the Rules claim that they may "institutionalize the competitive imbalance that currently exists," because they do not really directly attack the problem. Id. Infantino has insisted, however, that the Rules were not created to isolate clubs. He claims that the Rules are about financial sustainability, which will lead to a more competitive and economically sound region of soccer, as prominent teams cannot "break the bank" to bring in top talent without regard to accumulating large amounts of debt. (Enis Koylu, FFP Not Out to Isolate Clubs, Say UEFA, (Feb. 28, 2014), http://www.goal.com/en us/news/1956/europe/2014/03/03/4659515/ffp-not-out-to-isolate-clubs-says-uefa?ICID=HP_BN_8)

Another notable complaint, made by a prominent agent, is that the Rules breach fundamental EU laws on competition and free movement. The complaint also alleges that the Rules may reduce high profile big-money transfers in the EU. As a result this will make it more difficult for European agents to earn commissions from player transfers. (Taylor Wessing LLP., https://www.taylorwessing.com (Feb. 29, 2014)) The most important issue stemming from the complaint is the risk that the Rules may violate European laws. The complaint asserts that the Rules contravene the EU Treaty principles protecting the free movement of workers (reduction in the number of player transfers), capital (reduction in club investment amounts), and services (reduction in sports agents abilities to generate revenue through transfers). (Id.) The Rules also have been alleged to be in breach of Article 101 of the EU Treaty, constituting anti-competitive agreements between competing firms to reduce their spending and investing to pre-determined levels. Anti-competitive agreements may be permitted as long as the restriction constitutes a pursuit towards a legitimate aim, and the restriction must be no more restrictive than is required to achieve that aim. (Id.)

Unfortunately for UEFA, there are doubts as to whether the Rules could satisfy such a standard. While protecting the financial stability of European soccer would be considered a legitimate aim, there are other less restrictive approaches UEFA could adopt in place of the Rules. One example is revising the revenue sharing model, where smaller EU clubs could have a greater proportion of broadcasting and sponsorship revenues allocated to them, which could aid financial stability amongst all clubs. Another alternative could be to adapt a salary cap system like American professional sports leagues. However, this could lead to a hampering of transfer activity and potential earnings, which would raise similar concerns to those present with the Rules. (Id.)

Vice President of the European Commission and Commissioner for Competition, Joaquin Almunia, has already given his full support for the Rules, despite the legitimate concerns. However, the Commission has still set a goal of responding to any claims within four months of receipt. If the Commission gives an inadequate response, any aggrieved club or agent could try an alternative process, mainly by bringing an action in a domestic court. This may prove a viable option because the domestic courts of EU member countries are obliged to apply the provisions of the EU Treaty and may deem certain rules unenforceable. (Taylor Wessing LLP., https://www.taylorwessing.com (Feb. 29, 2014))

UEFA announced in February that currently in the 2013/2014 season, 76 clubs are being investigated for possible breaches of the Rules. Surprisingly, soccer conglomerates such as Chelsea F.C. and Real Madrid C.F., both of whom are known for their over spending habits, are not on the list. Real Madrid made world history this year by having the biggest transfer signing to date with Gareth Bale's €100 million transfer fee from Tottenham Hotspurs. Infantino asserts that while such a signing does raise questions with regards to compliance with the Rules, Real Madrid is matching its expenses in revenues annually, and thus is in compliance with the break-even requirement. Chelsea has a different source of its funds and its ability to spend; it is due to its billionaire owner Roman Abramovich constantly injecting money into his team. Thus, keeping debt low and matching expenses is not an issue for Chelsea. Many smaller clubs see this as loophole and unfair advantage.

Smaller teams further question whether clubs like Real Madrid and Chelsea are actually adhering to the Rules, because it appears unlikely that a purchase of a single player for €100 million can be made without incurring debt. This also calls into question whether the Rules are beneficial in promoting financial fairplay in any regard. Yet despite the criticism, clubs are being investigated. For example, a new financial powerhouse, A.S. Monaco F.C. of France, has recently seen an enormous spike in its spending on players with new ownership. "Questions have been asked as to how Monaco, with its modest crowds, pulls off big-money transfers and salaries for stars like Radamel Falcao, Joao Moutinho and James Rodriguez without overstepping UEFA's 45 million euro deficit limit." (Kris Voakes, A political and legal minefield awaits the continent's best sides this summer as FFP laws finally kick in. But will members of the elite really be ousted from the UCL?, (Feb. 29, 2014), http://www.goal.com/en-us/news/86/italy/2014/02/16/4623745 /champions-league-in-the-courtroom-how-europes-biggest-clubs?ICID=SP_FT_2)

After the investigations are thoroughly conducted, actions will be brought against any teams who have breached the Rules. Clubs will have the right to appeal decisions against them to the Court of Arbitration for Sport, who will then make judgments between July and mid-August of 2014. At the beginning of the 2014/2015 season, UEFA shall have the right to exclude non-complying teams from both the Champions League and Europa League. (Richard Conway, http://www.bbc.com (Feb. 29,2014)) With the passion that surrounds the beautiful game today, such exclusion would not only be a disappointment to any club, but a sword in the heart of its fans.

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This page contains a single entry from the blog posted on April 3, 2014 9:16 PM.

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