Poor little rich kids: capitalising on the football industry

How UEFA’s Financial Fair Play rules fail to curb the spiralling spending/debt culture of football clubs

platini_plakat1IN SOME ways, English football is a handy analogy for England itself. It makes great play of its long history and quaint traditions. It conquered the world, only for the world to learn how to beat it at its own game. And then rich foreigners turned up and bought all the best bits.

The latest installment of a league that has run since 1888, with a couple of brief pauses for world wars, concluded with Manchester City crowned champions. Victory will have come at a huge cost. City once defined themselves as the home of Manchester’s real football fans, in contrast to the gloryhunters drawn to support United, their more glitzy neighbours. Then in 2008, a team that had been languishing in the third tier of English football less than a decade before, with little chance of competing for league honours, was bought by Sheikh Mansour, a member of Abu Dhabi’s ruling family. Backed by the emirate, Mr Mansour has since invested £1 billion ($1.7 billion) to turn the club into the best in the land. Wisely, it spends significantly more on wages than any other club in England. As research this week by The Economist shows, on-field success is highly correlated with the amount a club pays its players. City spent £233m on wages in the year to May 2013, £100m more than Liverpool, who finished second in the Premiership.

It is similar throughout the European leagues. In France, Paris Saint-Germain (PSG), the runaway leaders in Ligue 1, also have Middle Eastern benefactors who have spent heavily to ensure the championship. In Germany, Bayern Munich, by far and away the richest club in the Bundesliga, finished on top. In Italy, Juventus, the club with the highest wage bill, according to La Gazetto dello Sport, sit atop Serie A. Indeed, of the big five European leagues, only in Spain is a club that does not spend the most on wages primed to win. Atlético Madrid clinching la Liga, the first time since 2004 that a club other than the two big spenders, Real Madrid and Barcelona, has prevailed.

The increasing tendency for clubs to buy success worries UEFA, the body that governs the European game. It has introduced a new set of rules called Financial Fair Play (FFP), under which clubs must move towards breaking even. UEFA hopes this will mitigate against multi-billionaires and sovereign funds buying teams and distorting competition. It also thinks it might prevent clubs with shallower pockets living beyond their means in order to challenge them.

This week, UEFA will announce the result of its audit of clubs’ finances. Reports suggest nine teams have failed the FFP test, including Manchester City and PSG. As part of the transition to break-even, clubs were permitted to lose up to €45m ($63m) during the 2011-12 and 2012-13 seasons. Player sales, matchday revenue, commercial deals and television money all count as revenue; injections of capital from owners do not.

Both Manchester City and PSG have received hefty sponsorship from organisations linked to their backers. City were paid £350m for 10 years’ sponsorship by Etihad, Abu Dhabi’s flag carrier. PSG, meanwhile, are receiving €200m a year from the Qatar Tourism Authority. Such deals are allowed under FFP, as long as the clubs can prove the amount they receive is at the market rate. It seems that UEFA’s auditors have concluded they were not.

Sanctions against the two clubs are likely to include a hefty fine—possibly as much as €60m over three years—and a cap on the wages they can pay. They may also be forced to enter only a limited squad into next season’s Champions League competition. Teams may currently register a squad of 25 players, including eight that are homegrown. City and PSG might be allowed only 21, including those eight. This will mean leaving some expensive assets out of the squad.

Michel Platini, UEFA’s president, has suggested he does not expect any club to be barred from European competition altogether next season, the ultimate sanction that is open to it. Critics say that, for such munificent owners, big fines are a small price to pay to ensure on-field success. Reduced squads may be a nuisance but, with an array of talent to choose from, it will not be crippling. Indeed, some may conclude the gamble of frontloading spending to ensure entrance into the Champions League, with all the financial benefits that entails, has been worth it. When clubs really can only spend what they earn, those that secure entry will be difficult to dislodge. In 2012-13, Manchester City did not even manage to make it past the first stages of the competition, yet still received nearly €30m for their failure. Juventus received €65m just for reaching the quarter finals—mostly in television revenue.

UEFA president Michel Platini insists the move to impose financial fair play sanctions against Manchester City is an historic moment for football – even if the club are furious at the punishment. City will have a heavy fine, a reduced Champions League squad and a limit on transfer spending for next season, while Paris St Germain have been given the same sanctions.

Original: http://www.economist.com/blogs/gametheory/2014/05/football-spending

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s