What is Financial Fair Play and How Does it Work?

By WherestheMatch Team

What is Financial Fair Play and How Does it Work?

A phrase that’s been flying around pretty often in the footballing world as of late – financial fair play, a set of regulations created to encourage sustainability and competition in the worlds’ top divisions. FFP applies to all clubs under the UEFA umbrella even though individual leagues such as the Premier League and La Liga have their own variations of the rules to go alongside the European standard. Asking all the clubs within a competition to play by the same financial rules seems a pretty fair proposition, but one that a great many don’t abide by; you don’t have to look very far to find a club in blatant disregard of the spending caps. With potential benefits that far outweigh the repercussions, it’s not difficult to see why many wealthy clubs ignore financial fair play to net themselves a tidy profit.

The Rules of Financial Fair Play

First implemented in the 2011-12 season, financial fair play has had plenty of time to bed in, even though several clubs including PSG, Manchester City, Manchester United, and Barcelona all being caught out in the last decade. They were punished on account of breaking FFP’s main core principle – don’t spend more than you earn (or at least more than you are projected to earn in the immediate future). Clubs have three years to balance the books leveraging income via matchday sales, broadcasting revenue, advertising, players sales, prize money and finance against total expenditures through transfers, employee wages, finance costs, and dividends. UEFA rules dictate that clubs can take a hit on €60 million over these three years before they’re in breach of FFP, while Premier League clubs can register a loss of up to £105 million. However, it’s up to the owners to offset this deficit needing to provide £90 million in cash injections to cover this value.

Having conducted research into the financial wellbeing of clubs across Europe’s top leagues, UEFA discovered that over 50% were losing money and that 20%, (those without access to wealthy ownership) were in serious danger of bankruptcy. In order to remain competitive, small and medium-sized clubs were crippling themselves financially – making it very clear to UEFA that failure to impose financial regulations would place a great many clubs in a precarious position.

Breaching Financial Fair Play

There are a series of repercussions that can be levied at a club in breach of financial fair play, The below are in ascending order of severity:

• Warning – for relatively negligible sums, a club is given a slap on the wrist with a warning not to make the same mistake.
• Fines – the most common punishment, what better way is there to discipline a club for losing money than to take more of their money?  
• Point deductions – Juventus, Wigan, Reading. What do they all have in common? They broke financial fair play in the 2022-23 season and were docked points as a result.
• Reduction in UEFA competition revenue – Clubs earn a great deal in revenue from top European competition such as the Champions League and Europa League, they may see this revenue restricted based on the severity of their breach.
• Unable to register new players in UEFA competitions – cheating to buy players may lead to those same players being ineligible to partake in UEFA competitions.
• Restrictions in UEFA competition squad sizes – severe breaches may lead to clubs being limited on the sizes of their squads, making it difficult to register new signings and giving them a competitive disadvantage.
• Disqualification from active competition – clubs may be removed from active competitions while partaking should FFP flag something very serious.
• Exclusion from future competitions – the most severe punishment that can be given is exclusion from future UEFA competitions, the duration of the ban may vary.

Generally, there are two types of clubs that breach financial fair play. Firstly, you have those with hundreds of millions in disposable income who want to assert themselves as a top club by spending ridiculous amounts of money on new players. A fine isn’t a big deal to these clubs and they’re happy to pay out several million in reparations if this can help propel them up the table. Since FFP tends to be quite lenient toward larger clubs on account of wanting to protect relationships with directors and ownership, it takes a pretty substantial breach to land them anything more severe than a (comparatively) small fine and carefully-worded telling off. On the other hand, those that are truly affected by FFP are those that – not always through fault of their own – are collapsing under the weight of their own finances.  Championship team Reading are a perfect example of this with the club being handed two sets of six-point deductions between 2021 and 2023 having been unable to offset the inflated player wages that came as a part of a promotion push in the late 2010s. Unsteady financial footing combined with updated political restrictions preventing their ownership from funnelling investment from their China-based assets have meant that the cash injection that was so urgently needed to fall within financial fair play would never come. Reading haven’t spent any money on transfer or loan fees since 2020, and have managed to halve their wage bill since the start of the 2019-20 season by offloading many of their best players, however, this hasn’t been enough and their six-point deduction in the 2022-23 season landed them squarely in the relation zone. They would go on to drop into the third division of English football come the end of the season.

How Do Clubs Get Around Financial Fair Play?

A major shortcoming of financial fair play is that the regulations can be quite easily exploited, both PSG and Manchester City have used sponsorship from ownership-affiliated businesses to artificially inflate year-on-year revenue as a way around FFP. PSG signed a lucrative contract with the Qatar Tourism Authority in 2013 thought to provide the club with a yearly income of €200 million. Both the Qatar Tourism Authority and Qatar Sports Investments (the company through which PSG were purchased in June 2011) are state-owned companies under the stewardship of the Emir of Qatar, meaning that they are essentially funnelling money from one of their investments to another under the guise of sponsorship. Naturally, they argue that these are separate entities and that the ridiculously overvalued contract is a legitimate source of income. While proving foul play has been challenging for the regulator, they have succeeded in devaluing the contract which led to PSG overshooting the FFP registered losses for the 2013-14 season. A couple of years later, on the back of purchasing Neymar and Mbappe for an estimated combined transfer fee of €400 million, a second investigation was launched and the contract was devalued further to an estimated €58 million – almost a quarter of what it was worth when first signed. Since then, PSG have attempted to diversify their sponsorship deals with the introduction of several American and French brands to their portfolio alongside a wider breadth of Qatari state-affiliated businesses.

A savvy transfer strategy can also help clubs dodge financial fair play. Chelsea themselves have made use of a procedure called amortisation, whereby a long-term contract splits the transfer fee into several smaller sections to lessen impact on FFP allocations. The longer the contract, the more sections the fee is split into; start handing out 5+ year contracts and suddenly you’ve got a lot more time to balance the books. Loan-to-buy deals are also great for this and can help shift a purchase into a separate FFP window while still being able to sign the player. By combining these strategies clubs are able to enjoy far greater financial freedom without worry of encroaching on financial fair play.

Is Financial Fair Play an Outdated Concept?

Before considering whether or not FFP is a necessity in football, it’s important to state that financial fair play actually has very little do with ‘fair play’. As has always been the case – clubs that see investment from their wealthy owners see growth while those that don’t are forced to find other ways to stay competitive. Financial fair play doesn’t level the playing field between these clubs, it just attempts to curb some of the more extreme spending to stop state-run clubs from splashing hundreds of millions every transfer window – even though the effectiveness of this is debatable. From a sustainability perspective, financial fair play is vital and has been very effective in stopping clubs from self-destructing, even though it has tended to be pretty harsh on the smaller clubs that aren’t able to make use of a cash injection to propel themselves to safety.

With sports such as football becoming increasingly financially lucrative, regulations such as financial fair play are required to safeguard clubs’ best interests. The ideas behind FFP are good ones, but there’s no doubt that they are in severe need of updating to properly crack down on the clubs that are taking advantage of loopholes to gain a competitive advantage.