User:Mplevey/The Introduction of "Financial Fair Play" in Football

From Wikiversity
Jump to: navigation, search

UEFA’s new Financial Fair Play (FFP) policy has implications with regards to the business, politics and commodification of football. FFP encourages clubs to be self-sufficient by utilising income revenues it produces to compete, rather than income sourced from owners or debtors. There is little doubt that FFP is a positive step for the financial landscape of football, particularly the minimization of debt. But the initiative has already resulted in the further commodification of club assets, which has the potential to spiral out of control as club finances are pushed to the limit.

Essentially infrastructure funding and youth development are the only forms of direct investment allowable by club owners under FFP, making club growth a long-term project. Such development will positively impact the sport and community from local, national, and international perspectives.

The current inequality of revenue between top and bottom clubs may ultimately prove to be a fundamental flaw in UEFA’s plan, and prove a major stumbling block in closing the competitive gap that is so evident at present. The equal distribution of TV rights money by European leagues would go a long way to achieving this, further validating FFP.

It remains to be seen whether FFP is successful in bridging the competitive gap in football, or if instead the status quo is more strongly enforced.Football is a financial merry-go-round. More competitive leagues will result in a better quality football product, which attracts more people to the game and more money to the leagues and clubs. Thus it is UEFA’s vested interest to make football in Europe as competitive as possible, and Financial Fair Play could be a great way to start.

Introduction[edit]

In September 2009, the Executive Committee[1] of UEFA[2], the governing body for football in Europe, approved a radical concept that would protect the well-being of the sport in Europe (UEFA website, 2010). This concept, named Financial Fair Play[3] (or FFP), is heralded by UEFA as a necessary and crucial measure for the future of football.

As indicated by UEFA (UEFA Financial Fair Play, 2010), FFP aims to:

  • introduce more rationality and discipline regarding club finances;
  • limit inflationary effect and decrease pressure on transfer fees and salaries;
  • encourage clubs to compete using their own income revenues;
  • encourage long-term investments in the both infrastructure and youth development;
  • ensure clubs settle their liabilities on a timely basis;
  • protect the long-term viability of European club football.

Taking full effect in 2013, FFP and its objectives are dedicated to creating a more stable financial landscape within European Football. This initiative has implications for the business, politics, and commodification of football, and will impact on the local, national, and international perspectives of all European nations.

Financial Fair Play: Business and Politics in Play[edit]

The impact of FFP on the business of football clubs[edit]

UEFA insist that FFP exists to discourage clubs from reckless or indulgent spending on transfer fees and player wages, while deterring club owners from injecting large amounts of cash into club affairs (Scuffham, 2011[4]). Adhering to these strict financial rules has obvious implications for the way football clubs are run as a business.

No longer will clubs have the freedom to spend exuberant amounts of cash on transfer fees and salaries to obtain and retain players as they wish. And if they do so they will have to balance the book within their own means. This means that clubs will rely on income sources such as TV rights, ticket sales, sponsorship, commercial deals, merchandising, and competition prize money, rather than being financed by owners.

Simply put, under FFP football clubs will become effectively self-sufficient resulting in more financial stability, as the use of debt will no longer be an operational option.

Does FFP limit the potential financial growth of football clubs?[edit]

Essentially FFP will at first limit, and eventually eradicate, the huge amounts of debt that have been so prevalent in club football over the last decade. Clubs, as mentioned, will instead rely on the income that they bring in. This however, raises the question of growth, how are clubs able to progress if they can only spend what they earn?

Clubs would have to maximise income avenues such as sponsorship, merchandising, and ticketing. The problem with this is obvious, not all clubs have equal resources, fan bases, or commercial opportunities. For example; Club A has one-tenth of the fan base (merchandising) and a stadium half the size (ticketing) compared to Club B who are in the same league. This results in Club A having much less capability to attract sponsorship money than Club B, hence there is simply no chance of closing the gap between the clubs. Clubs will be forced to come up new and creative ways to increase their income.

It seems that the immediate answer to this question would be that the status quo or club pecking order would remain relatively unchanged under FFP rules, making it very difficult for clubs to become more successful.

Could FFP be a political vehicle in disguise?[edit]

Although UEFA clams to have the games best intrests in mind, there is a view, a misconception perhaps, that UEFA has a hidden agenda regarding the introduction of FFP. This view originates from the previously discussed question of progress and financial growth.

As highlighted by Cunliffe (2011[5]), there is concern that FFP will only serve to augment the status quo in club football. Meaning the rich clubs are likely to stay rich and the not so rich will find it even harder to close the gap, as UEFA and certain other political powers perhaps, prefer to be the case. There are some (Murphy, 2011[6]) who see no problem with this, and argue that a club’s status and resources should reflect its fan base and ultimately success.

Because FFP does not dictate the distribution of League income, namely the sale of TV rights, larger clubs still stand to make more money from these deals (Veysey, 2011[7]). If it were enforced that such league income must be shared by clubs in equal amounts, then there would surely be less disparity between them making a league more competitive.

It remains to be seen whether or not FFP is a legitimate attempt by UEFA to bridge the gap between the haves and have-nots, or a ploy to keep the club status quo of and ensure the rich stay rich.

Potential Effects of Financial Fair Play on the Commodification of Football[edit]

Will FFP accelerate the commodification of football?[edit]

FFP is widely regarded as “step in the right direction” (Fink 2011[8], Murphy 2011, Veysey 2011), and view as an adequate strategy preventing debt from becoming the norm in football business. However Clubs will be forced to push the limits of their existing sources of income allowable under FFP regulations in order to be competitive. Once clubs have pushed the limits of these avenues discussed by Scuffham (2011), they may seek out new sources of revenue, possibly by the further commodification of club assets.

FFP is not yet in full effect, but still some clubs have already moved to strike highly lucrative new sponsorship deals in preparation for FFP. The two most notable of these being Manchester United and the new four year deal with DHL worth £40 million (Gibson, 2011[9]), and Manchester City selling the naming rights of the stadium they rent as part of a new sponsorship arrangement with Etihad Airways worth in the reign of £400 million over ten years (Taylor, 2011[10]).

The effect of FFP on clubs outside of UEFA’s European competitions[edit]

All clubs, even those outside UEFA’s two European competions, the Champions League and Europa League, will have to comply with FFP rules to be eligible for a UEFA club licence (Veysey, 2011). Most major domestic leagues in Europe have voted to enforce UEFA’s initiative, meaning that clubs in those competitions will have to acquire the licence by meeting the requirements of FFP (Murphy, 2011). As Versey (2011) acknowledges, it won’t be long until all 660 top division clubs across 53 European countries will have to comply with FFP to gain a UEFA Licence.

For the commodification of football, FFP will not alter the current trickle down effect that is so evident within domestic leagues. In the long run this may have a negative affect as the already wealthy more popular clubs will still receive a much larger slice of the TV rights deals negotiated by the leagues. Some clubs are even free to negotiate their own TV deals. Lowe (2011[11]) discusses Spain’s La Liga, pointing out that super clubs Real Madrid and Barcelona stand to make €135m during the 2011-2012 season on domestic TV rights alone. The next closest is Valencia with €48m, with clubs at the foot of the table set to make less than a tenth of the top two. Similar situations are present in nearly every other top European league.

The disparity in distribution of TV money, which is essentially League income, is alarming. However it is not within UEFA’s power to demand equality in such matters, the distribution of TV income is the responsibility of individual Leagues or in some cases teams. Despite this FFP will inadvertently make such TV revenue even more crucial to a club’s livelihood, and unless changes are made to the distibustion of this revenue, can only result in making the competitive gap even wider.

Given the current football climate, FFP will make it a more competitive market when it comes to securing long term sponsorship deals and other commodification opportunities.

How far will the commodification of football go?[edit]

One wonders what could be next in line for the commodification of football. Could it be possible that we see the full commodification of a club brand in Europe, with naming rights going to the highest bidder? An existing example of this is the New York Red Bulls[12] who play in the America’s MLS[13] (Jensen et al, 2008[14]). How long until we see clubs adopt a corporate identity such as, for example, Northern Rock Newcastle United, or Sporting Bet Wolves in the EPL[15]?

This would surely be a step too far in the commodification of football, and would undermine club history and tradition. But it would be difficult to say whether fans of a club would be opposed to such a deal if it subsequently save their beloved team from relegation for example.

Such extreme commodification may be considered as selling the clubs soul, but as the gap between the “haves” and the “have nots” continues to grow, and financial pressures increase, FFP may unintentionally drive some clubs to such ends.

Potential Impacts of Financial Fair Play at Local, National, and International Levels for European Nations[edit]

The introduction of FFP has the potential to have a very positive effect at a local and national level for all European nations. Club owners will be more frequently investing in more lasting contributions to the club, rather than funding the team itself. The funding of club resources and initiatives such as community development, club infrastructure, and youth development are allowable exceptions of expenditure under FFP regulations (Veysey, 2011).

FFP has the potential to make a positive impact on a local level, with club initiated community development programs resulting in improving community relations and local recognition. This may encourage the community to get behind their local team, and even attract new fans from the local area. Youth development programs will also contribute to the local community, by providing promising young local players a platform for success.

Expenditure in development might not have an immediate impact on team success, and therefore have a low appeal for owners, but there are evident rewards for those that do engage in such long-term projects. For example, the owner of Club A wants to put money into the club to try and close the competitive gap between Club B. Unless the club was profitable, and the profit was used to strengthen the team, injection of money directly into the team would ultimately result in a breach of FFP (Cunliffe, 2011). However, the owner would be allowed to fund a new stadium that dramatically increases the clubs ticketing income, which in turn can be put into the team.

Similarly if club owners wish to improve the performances of the team, then they can invest in upgraded training facilities, medical facilities that treat injuries, sports science facilities that prevent injuries, or perhaps even staff.

On a national level this would be very positive, as the new club infrastructure would serve to strengthen the sport, and provide the nation with bigger and better stadiums and sporting facilities. Also increased youth development funding would pave the way for a stronger national leagues and National Team.

This development would also have an impact on an International level, as it steadily increases the quality of football and the league in each European nation. Thus making both of UEFA’s European competitions and International Football much more competitive.

It must be noted however, that not all clubs would have the means to fund such development, or perhaps the club owners would not be willing to do so. Many larger European Clubs already possess very good infrastructure and youth development programs and the deep pockets of many owners should allow for continual development in these areas. It is the smaller clubs which struggle to stay competitive that may find it difficult to fund such club development, unless they had a club owner who was willing to cover the cost.

Conclusion[edit]

This article has examined the implications of UEFA’s Financial Fair Play policy, with regards to the business, politics and commodification of football. There is little doubt that FFP is a positive step for the financial landscape of football, particularly the minimization of debt. But the initiative has already resulted in the further commodification of club assets, which has the potential to spiral out of control as club finances are pushed to the limit.

The current inequality of revenue between top and bottom clubs may ultimately prove to be a fundamental flaw in UEFA’s plan, and prove a major stumbling block in closing the competitive gap that is so evident at present. The equal distribution of TV rights money by European leagues would go a long way to achieving this, further validating FFP.

Essentially infrastructure funding and youth development are the only forms of direct investment allowable by club owners under FFP, making club growth a long-term project. Such development will positively impact the sport and community from local, national, and international perspectives.

It remains to be seen whether FFP is successful in bridging the competitive gap in football, or if instead the status quo is more strongly enforced.

Presentation[edit]

The Introduction of Financial Fair Play in Football - Part 1 of 2

The Introduction of Financial Fair Play in Football - Part 2 of 2

References[edit]

  1. UEFA. 2011. UEFA Executive Comittee. Retrieved from UEFA website:http://www.uefa.com/uefa/aboutuefa/organisation/executivecommittee/index.html
  2. UEFA. 2011. Home Page. Retrieved from UEFA website: http://www.uefa.com/uefa/index.html
  3. UEFA. 2011. Financial Fair Play. Retrieved from UEFA website: http://www.uefa.com/uefa/footballfirst/protectingthegame/financialfairplay/index.html
  4. Scuffham, M. 2011. Factbox: UEFA's Financial Fair Play rules in a nutshell.Yahoo News. Reuters. Friday, Aug 12, 2011
  5. Cunliffe, R. 2011. Implications of UEFA Financial Fair Play Rules for FA Premiership. Sports: Your sports blog. Monday, 31st of October, 2011
  6. Murphy, B. 2011. Financial fair play could not come sooner. TheRoar.com.au. 14 Jun 2011.
  7. Veysey, W. 2011. What is Financial Fair Play and how will Uefa enforce it on the likes of Chelsea, Manchester City and Barcelona? Goal.com, 11 May 2011.
  8. Fink, J. 2011. Time for some moral fair play in the world of football finance. jessefink.com.au. 29 August 2011.
  9. Gibson, O. 2011. Manchester United complete £40m training kit sponsorship deal with DHL. The Guardian, Guardian.co.uk. Monday 22 August 2011.
  10. Taylor, D. Manchester City bank record £400m sponsorship deal with Etihad Airways. Guardian.co.uk, Friday 8 July 2011.
  11. Lowe, S. 2011. Barcelona and Real in La Liga of their own with the rest nowhere. Guardian.co.uk, Wednesday September 7 2011
  12. New York Red Bulls. 2011. Home page. Retrieved from New York Red Bulls website: http://www.newyorkredbulls.com/
  13. Major League Soccer (MLS). 2011. Home Page. Retrieved from MLS website: http://www.mlssoccer.com/
  14. Jensen, R. Ph.D. & Weston, Dr. S. & Wang, Dr. Y. 2008. How Do Fans React When Sports Teams Are Named After Corporations? The Sport Journal. United States Sports Academy. Volume 11 number 1.
  15. Barclays Premier League. 2011. Home page. Retrieved from Barclays Premier League website: http://www.premierleague.com/page/Home