Against the backdrop of an ever-transparent sporting world, the rise of social media and the global growth of the beautiful game, almost every day is filled with heated debate and unsettling uncertainty around the governance of football. From the financial peril of clubs becoming insolvent and the rise of Billionaire-backed consortiums within new ownership models, to the failed creation of the European Super League and multiple football clubs under the interrogation light of financial investigations, there has never been a better time to add some clarity to the existing system of footballing governance in Europe, more specifically, England.
In this, the first of a four part series of articles, we aim to shed some light on the Financial Fair Play Regulations (FFP) rules implemented by UEFA, as well as the Profitability and Sustainability Rules of the Premier League. Not only has there ever been more of a reason to add clarity around the subject, but a conscious knowledge of the working cogs within the English footballing machine will eventually give rise to new statutory measures affecting all stakeholders, including the beloved fans of the beautiful game.
History of FFP
The Premier League, English Football League, FIFA and UEFA all have their own set of regulations governing club finances, which fall under an umbrella term of FFP.
The official FFP are a set of regulations established by UEFA to prevent professional football clubs spending more than they earn in the pursuit of success, and in doing so not putting themselves into financial difficulty which might threaten their long-term survival.
They were agreed to in September 2009 and implementation took place at the outset of the 2011–12 football season.
A 2009 UEFA review showed that more than half of the 655 European clubs incurred a loss over the previous year, and although a small proportion were able to sustain heavy losses year-on-year as a result of the wealth of their owners, at least 20% of clubs surveyed were believed to be in actual financial peril.
A report by Deloitte indicated that total debt among the 20 Premier League clubs for the year 2008–09 was around £3.1 billion. For example, between 2005 and 2010, West Ham United recorded an aggregate net loss of £90.2 million.
This is due to the fact that owners are generally over optimistic about their management abilities and vision for a club. The common belief that there is a clear correlation between squad wages and points won means there is a natural tendency to borrow in the pursuit of success, although not all teams can by definition be successful. Financial investment at this scale has backfired in the Premier League before, as explored in the case of Leeds United.
At the turn of the millennium, Leeds United were a gargantuan sporting institution, cementing themselves as one of the beating hearts of first division football in England. They had just recorded five consecutive top-five Premier League finishes and they were Champions League semi-finalists in 2001. Leeds were a powerhouse, but their modern structure seemed to be built on sand and collapsed in spectacular style.
Between 1998 and 2002, while chasing Premier League success and Champions League glory, Leeds spent £88 million on transfers and only received £24 million for their outgoing players, a £64 million operating shortfall.
That’s doesn’t sound like a lot in today's market but without the wealth in today's game, or an owner with incredibly deep pockets, Leeds was gambling on future performances to finance their expenditure.
Embroiled in fantastical notions that debt finance measures would enable them to become a European powerhouse, Leeds were taking out loans for the full cost of transfers, to be paid back with high interest rates over the course of the player’s contract. After securing a Champions League spot in 2000, the gamble appeared to have paid off and so they went even bigger. Their brazen strategy now involved restructuring this debt so that only 50% would be paid back over the course of a player's contract, with the remaining 50% paid in one lump sum at the end. Then, in Autumn 2001, Leeds negotiated a huge £60m loan from three lenders and secured it against the matchday revenue from future season tickets.
When a Champions League place again evaded them in 2002, the game was up. That summer, their net debt stood at £82m. The only option was to sell players, beginning with the most valuable asset at the club, Rio Ferdinand, who went to Manchester United for £30m.
An asset stripped Leeds quickly began sliding down the Premier League table and after the 2003-2004 season they were relegated to the Championship. The financial effects continued, and with one game to go in the 2006–07 season, the club voluntarily entered administration, incurring a 10-point league penalty, resulting in relegation to League One, the first time the club had ever been in the third tier of English football. Subsequent breaches of financial rules in the summer nearly resulted in the club being expelled from the Football League altogether, although they were ultimately re-admitted with a 15-point penalty to apply to the 2007–08 season.
In part 2, we’ll examine the rules and regulations of FFP when they first came into force at the outset of the 2011-2012 season and the way these interacted with the Premier League’s own stance on Profitability and Sustainability.
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