Having highlighted the nuances of UEFA's FFP position, as well as the Premier League's own rules on profitability and sustainability in Part 1 & Part 2 of this series, it’s worth taking a look at some of the sanctions and punishments capable of being implemented against clubs, when charges of breaching those rules have been upheld.
On Monday 6 February 2023, platforms across both the mainstream and social media were saturated with news that the Premier League had charged Manchester City with over a hundred breaches of financial rules, following a four-year investigation. The charges also included allegations relating to false accounting. Meanwhile, City’s rivals were left dreaming of sanctions, including points deductions, to add yet further spice to this year's Premier League title race.
What made this news less surprising, was the fact that the club had been previously subject to an investigation and sanctions, having been fined and handed a two-year ban by UEFA in 2020. A detailed look at the charges pertaining to Manchester City's alleged rules breaches can be found in one of our recent pieces linked below.
https://disputeresolution.howardkennedy.com/post/102i74a/citizens-in-the-spotlight-manchester-city-vs-the-premier-league-in-an-early-mond
UEFA can apply a wide range of possible financial and sporting punishments against clubs found to have breached their FFP rules. These include:
- A formal written warning;
- Fines and compensatory payments;
- Points deductions from current or future seasons;
- Withheld or reduced revenue from a UEFA competition, such as the Champions League;
- Prohibition from registering new players for UEFA competitions, such as the Europa League;
- Disqualification from competitions; and / or
- Exclusion from future competitions.
A recent example of the implementation of these sanctions came in January 2023, where the Italian Football Federation (FIGC) imposed a 15-point deduction against Serie A giants Juventus within the 2022/23 season. This punishment came as a result of Juventus being found guilty of a series of financial irregularities in relation to previous transfer deals. In addition, reports on 2 September 2022 suggested that there were another 9 clubs who were to be sanctioned by UEFA, including Paris Saint Germain, AS Roma, Inter Milan and Olympique de Marseille.
The Premier League also have their own list of sanctions, listed in Rule W.51 of the Premier League Handbook (the Handbook), including:
- Reprimands;
- Compensatory payments to the league and its affiliates;
- Denying registration of players;
- Ordering clubs to replay matches;
- Points deductions;
- Suspension from the league;
- Expulsion from the league;
- Compensatory payments to other clubs; and / or
- Any other order as the league deems fit, such as transfer bans across various windows.
In the case of the charges brought against Manchester City, the club were able to successfully appeal UEFA's decision in 2020 through the Court of Arbitration for Sport (CAS) where certain of the charges brought by UEFA were found to have been brought out of time as per the relevant rules, and some of the punishments applied in respect of the balance were held to be excessive. However, under Premier League rules these time limits don’t apply. And an appeal to CAS would not be allowed. This is because Article 57(3)(c) of the FIFA Statutes will only allow member associations and leagues (such as the Premier League in this case) to implement rules whereby the appeals procedure is made to an independent and duly constituted arbitration tribunal, rather than CAS. In addition, Manchester City would be able to request a review of any decision under Section X of the Handbook, which may then result in arbitration proceedings.
Circumventions – Amortisation
A popular myth in the financial footballing world is the idea of net spend, which has not only been debunked, but highlighted as an inappropriate metric in terms of measuring the financial performance of a football club. Essentially, net spend refers to the numerical value between a simple purchase and sale of a player. For example, Arsenal secured the services of a promising young midfielder in Matteo Guendouzi for €8 million from FC Lorient and consequently sold the player to Marseille for €11 million. Net spend would appear to account for a surplus profit of €3 million in terms of the player's value. However and in reality, this is simply not the case. Clubs find themselves in the limelight when it comes to the payment of high transfer fees, as expectations of performance rise. However, these figures are often quoted in net, without much or anything being said about the actual yearly spend or contract length which can increase the overall cost substantially. Conversely, Nicholas Pepe's record transfer from Lille to Arsenal in 2019 for a reported fee of £72 million was frequently met with recycled and negative notions of net spend, not least due to inconsistent performances by the player on the pitch.
In the early 2000's, and especially since the introduction of FFP, the accounting concept of amortisation has became a widely used numerical tool pervading itself via the medium of financial statements. The idea is to treat players as pure assets, incorporating accounting rules such as depreciation and cost spreading. From a bookkeeping perspective, this involves spreading the cost of a player (both the transfer fee and wages) across the term of their contract, instead of having to pay the entirety of the transfer fee upfront and so treat this as an immediate expense.
Below we take a detailed look at the transfer of Angel Di Maria and how Manchester United, despite selling the player for a lower aggregate value than he was acquired at, were able to record a significant profit on his sale to Paris Saint Germain.
Angel Di Maria - Manchester United in 2014 |
|
Transfer Fee (Debit) | £59,700,000 |
Sale | £44,000,000 |
Net Spend (without wages) | -£15,700,000 |
|
|
Amortisation concept |
|
Transfer Fee | £59,700,000 |
Contract duration (yrs) | 5.00 |
Cost per annum | £11,940,000 |
Base salary per annum | £14,500,000 |
Total player cost per annum | £26,440,000 |
|
|
Sale to Paris Saint Germain in 2015 |
|
Transfer Fee (Credit) | £44,000,000 |
Initial Transfer Cost (Debit) | £59,700,000 |
Net | -£15,700,000 |
|
|
Including Amortisation |
|
Cost actually paid (1 year only) | £11,940,000 |
Remaining transfer fee (debit) if player remained at MUFC | £47,760,000 |
Transfer Fee (Credit) | £44,000,000 |
Loss on accounts | -£3,760,000 |
Player cost recovered | £26,440,000 |
Profit | £22,680,000 |
We start by analysing the costs above using the concept of net spend. Manchester United purchased Di Maria for a reported fee of £59.7 million in 2014. The player only remained at the club for a season, before being sold to Paris Saint Germain in 2015 for a reported fee of £44 million. Simple mathematics would tell us that Manchester United made a loss of £15.7 million.
However, when acquiring the services of Di Maria, Manchester United elected to spread the cost of the transfer fee (as well as his reported wages of £14,500,000 per annum) across the length of a 5-year contract. Therefore, the annual cost of the transfer fee equated to £11.93 million per year, which when coupled with Di Maria's annual wage cost came to a total annual spending of £26.44 million (i.e., the total annual cost of the player). Not only does this equate to merely 44.3% of the transfer fee but it served as a crucial platform in the context of profit in the following season.
Manchester United reportedly sold Di Maria to PSG in 2015 for a fee of £44 million. Unlike the cost of a purchase, the receipt of funds from selling a player is not generally recognised as an incremental yearly payment, so can be recorded as a totality on the income statement. Manchester United only paid £11.94 million, having kept the player at the club for one year, with £47.76 million to be paid across the next 4 years of what would have been the remainder of Di Maria's contract (not including his wages). The sales fee of £44 million was then used to offset this remainder, resulting in a net loss of just £3.76 million, which when balanced with the total recovered cost of the player (£26.44 million), showed a sizeable profit of £22.68 million.
Fast forward to an unprecedented 2022/23 season, we can look at the concept of amortisation on cost accounting, within the context of a partial squad. Despite the high valuations and transfer fees paid, it is clear that the recruitment at certain clubs has been handled with great accounting skill as broken down below.
Players signed in 2022/23 |
Unreported - Assumed yearly wages |
Player | Reported Transfer Fee | Contract length (yrs) | Amortised Transfer Fee (p.a.) | Wages (p.a.) | Total Cost (p.a.) |
Raheem Sterling | £47,500,000.00 | 5 | £9,500,000.00 | £18,200,000.00 | £27,700,000.00 |
Kalidou Koulibaly | £33,000,000.00 | 4 | £8,250,000.00 | £15,600,000.00 | £23,850,000.00 |
Gabriel Slonina | £8,000,000.00 | 1 | £8,000,000.00 | £2,132,000.00 | £10,132,000.00 |
Carney Chukwuemeka | £20,000,000.00 | 6 | £3,333,333.33 | £5,200,000.00 | £8,533,333.33 |
Marc Cucurella | £57,500,000.00 | 6 | £9,583,333.33 | £5,720,000.00 | £15,303,333.33 |
Cesare Casadei | £13,300,000.00 | 6 | £2,216,666.67 | £1,000,000.00 | £3,216,666.67 |
Wesley Fofana | £70,000,000.00 | 7 | £10,000,000.00 | £11,960,000.00 | £21,960,000.00 |
Pierre-Emerick Aubameyang | £10,300,000.00 | 2 | £5,150,000.00 | £8,840,000.00 | £13,990,000.00 |
Denis Zakaria (loan fee) | £2,700,000.00 | 1 | £2,700,000.00 | £2,704,000.00 | £5,404,000.00 |
David Datro Fofana | £10,600,000.00 | 6 | £1,766,666.67 | £1,000,000.00 | £2,766,666.67 |
Benoit Badiashile | £33,700,000.00 | 8 | £4,212,500.00 | £4,836,000.00 | £9,048,500.00 |
Andrey Santos | £11,100,000.00 | 5 | £2,220,000.00 | £1,000,000.00 | £3,220,000.00 |
Joao Felix (loan fee) | £9,700,000.00 | 1 | £9,700,000.00 | £5,772,000.00 | £15,472,000.00 |
Mykhailo Mudryk | £62,000,000.00 | 8 | £7,750,000.00 | £5,096,000.00 | £12,846,000.00 |
Noni Madueke | £30,000,000.00 | 8 | £3,750,000.00 | £1,000,000.00 | £4,750,000.00 |
Malo Gusto | £26,750,000.00 | 8 | £3,343,750.00 | £1,000,000.00 | £4,343,750.00 |
Enzo Fernandez | £107,800,000.00 | 9 | £11,977,777.78 | £9,672,000.00 | £21,649,777.78 |
Total | £553,950,000.00 | - | £103,454,027.78 | £100,732,000.00 | £204,186,027.78 |
Following the January transfer window, however, UEFA are in the process of closing this particular loophole, by ensuring that contracts cannot extend beyond five years. It remains to be seen how Premier League clubs will adapt their accountancy methods in the future.
In the final part of our series, we’ll reflect on how the rules have bedded in, as well as proposed future changes to FFP. There are various ongoing measures to be implemented by UEFA and the Premier League in years to come, so we’ll break down how things might play out.
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