The following is as good a plain explanation as I have seen, taken from Liverpool supporting Paul Tomkins Blog. If you follow the link you will see an extended analysis of Liverpool’s position which is very inetersing – if like me you like that sort of thing:• UEFA Financial Fair Play. A phrase that has been used in recent times by even the most lay of football fans. But what is it? And does it matter for LFC? This article attempts to keep things extremely simple but at the same time demystify UFFP and explain how it impacts Liverpool Football Club.
Our principal owner, John W Henry, has given 2 interviews to The Guardian where he has talked definitively about FSG’s approach to ownership and UFFP. First of all in November 2010:
Henry said UEFA’s impending financial fair play rules, which will be introduced in 2012-13 and eventually require clubs to break even on football operations, had been a key factor in persuading NESV [now FSG] to buy the club. He said they would leave Liverpool much better-placed to compete with such clubs as Manchester City and Chelsea: “They are operating under the current rules. The rules are going to change.”
Then in an extended interview in February 2011:
“The big question is just how effective the financial fair-play rules are going to be. Perhaps some clubs support the concept in order to limit the spending of other clubs, while implementing activities specifically designed to evade the rules they publicly support. We can only hope that UEFA has the ability and determination to enforce what they have proposed.”
“We’ve always spent money we’ve generated rather than deficit-spending and that will be the case in Liverpool…it’s up to us to generate enough revenue to be successful over the long term. We have not and will not deviate from that.”
“We intend to get younger, deeper and play positive football…our goal in Liverpool is to create the kind of stability that the Red Sox enjoy. We are committed to building for the long term.”
So there we have it straight from the horse’s mouth. Not only do FSG embrace UFFP but they’re already planning to exploit it. However John Henry is right to raise the one big unknown about UFFP: how strictly will the rules be enforced? In a nutshell, if a club wants to compete in UEFA competitions it needs to be granted a UEFA license. The UEFA licensing system is already in operation. In recent times the highest profile club to have been denied a license is Real Mallorca who were unable to take their place in the Europa League (UEFA say a total of 27 clubs have been refused a license over the years). For 2011-12, 3 clubs have been refused a licence, including FC Timisoara for next season Champions League. UFFP is simply a complicated extension to the UEFA licensing system. So in theory a team in breach could be denied entry to the Champions League group stage and the £25m minimum that comes with it.
There are a lot of cynics and sceptics who think that UFFP will come to nothing and when push comes to shove UEFA will not stand up to the big boys. There’s also been a lot of ignorant discussion about loopholes in the regulations and scenarios that will never be allowed like the £100m half time pie for Sheikh Mansour or the £250m Chelsea sponsorship deal with Sibneft. However a lot of the concern is valid but is not in scope for this article because it’s too early to tell how possible any workarounds for clubs are. Instead my starting assumption is: can any owner or chief executive of a major club accept the risk of UEFA strictly implementing the UFFP regulations? i.e. will any club be brazen enough to spend with impunity and carry on regardless? Or will in fact all clubs come in line to some degree?
Why are UEFA doing this?
Despite the game being more popular than ever and with more money than ever, UEFA say that:
o 37% of clubs are in negative equity (their debts are more than their assets)
o the total income of all European clubs is 11.7bn EUR but the total costs are 12.9bn EUR
o no less than 7.4bn EUR of total costs are players wages
o The average club in Europe spends 64% of its income on player wages
o 73 clubs spend more than 100% of their revenue on player wages (note in 09/10 this included Manchester City)
UEFA want to start forcing clubs to live within their means, almost to save the clubs from themselves. It’s also no coincidence that the momentum behind UFFP grew during the global credit crunch that had been caused by too many people spending too much money today in the over-optimistic hope that they would have more money in the future and be able to pay it off later.
How Do The Rules Work?
All terms used in this section are defined in great detail in the UFFP regulations
Break Even Result = Relevant Income - Relevant Expenses
Deviation = SUM of BREAK EVEN RESULTS for each year in ACCOUNTING PERIOD
What is “Relevant Income”?
In a nutshell:
Revenue + Profit From Player Trading (Revenue is income from media, matchday and commercial)
NB: Profit from player trading is NOT as most football fans see profit on trading – more later
(There are a host of caveats and clarifications in the detail)
What is “Relevant Expenses”?
In a nutshell:
All Staff Wages + Cost Of Transfers + “Other Costs” (e.g. finance costs)
NB: “Other Costs” EXCLUDES the costs of youth/academy programmes, community programmes and stadium development [technical note from Graeme Riley - this also includes interest on the development, which can be capitalised and amortised, rather than immediately expensed].
This is because UEFA wants clubs to plan for the future by investing in these things rather than spending all their money on players wages.
The “Cost of Transfers” will be covered when later on when I talk about AMORTISATION. Understanding this as well as the profit from player trading is absolutely essential if you want to realise how FSG are likely to exploit UFFP.
What Are The Rules?
UFFP has “Accounting Periods” that are aligned to the UEFA licensing cycle and came into effect on 1st June 2011. The first “accounting period” is 2 years, 1st June 2011 to 31st May 2013. The niceties regarding exchange rates have been ignored for this article.
For each year in UFFP, a club’s “Break Even Result” is allowed to be up to a 5m EUR loss. This is known as “acceptable deviation”. Clubs are allowed to make bigger losses for “Accounting Periods” but only if their owners invest more of their own cash into the club to cover the loss.
For the first 2 year accounting period, clubs are allowed a maximum “acceptable deviation” of 45m EUR but owners will be tasked with finding up to an extra 35m EUR in cash to cover losses. The grey areas will start with aggregate losses >45m EUR and at what point UEFA will draw the line. The general feeling is that clubs who are significantly reducing their losses year on year will still be given a ‘pass’ (Annex XI of the regulations)
The first impact on licensing decisions will be in place for the 2014/15 season (i.e. the first time a club may be denied entry to the CL is 2014/15). Things get gradually stricter from that point on. The 2nd accounting period extends the 1st by a year license (i.e. to May 31st 2014) and from this point 3 years’ worth of accounts are required to be submitted in order to gain a license. However, acceptable deviation STILL an aggregate 45m EUR. Then there’s a rolling 3 year accounting period where acceptable deviation reduces to 30m EUR and finally to less than 30m EUR in 2018/19.
The rest is Liverpool based, but interesting nonetheless.
http://tomkinstimes.com/2011/06/fair-play-for-fenway/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheTomkinsTimes+%28The+Tomkins+Times%29
