Back in 2009, UEFA rolled out the much-needed Financial Fair Play Regulations (FFP), with a view to prevent professional football clubs from spending more than they earn.
The ultimate aim of these regulations was to safeguard the existence of football clubs by preventing them from folding over due to uncontrollable debt. The FFP Regulations were implemented with effect from the 2011-2012 season and provided for sanctions of various degrees to be taken against those clubs who exceed spending over a period of several seasons within a set budgetary framework.
Whilst the regulations were seen to be effective in principle, over time, together with the continued globalisation and commercialisation of the football industry, in reality, these rules were soon deemed to be ineffective, especially following the high-profile case concerning Manchester City, which severely undermined the seriousness of such regulations.
With the passage of time from when the rules were first introduced, together with the severe disruptions caused by the COVID-19 pandemic, UEFA went back to the drawing board and consulted with a wide range of bodies, including national associations, European leagues, FIFPro, supporters, the European Commission, the European Parliament and the Council of Europe.
Following such consultation, UEFA rolled out the Club Licensing and Financial Sustainability Regulations (CLFS) in 2010, replacing the previous FFP Regulations.
Although introduced in 2010, these regulations only came into force with effect from June 2022, with a gradual three-year implementation period in place to allow clubs the necessary time to adapt to these new rules.
In a similar fashion to the FFP, the CLFS obliges all clubs to be stable, solvent, and keep their costs under control. UEFA’s main objection to these new rules is financial sustainability, as implied in the name itself of the regulations.
The package of new measures includes ways to encourage football clubs to build equity and invest in infrastructure and youth development for their long-term benefit.
The new rules have three distinct pillars; the no overdue payables rule, the football earnings rule, and the squad cost rule. The changes in the no overdue payments rule will promote the protection of creditors, ensure better solvency, and protect the integrity of competitions.
All payables to football clubs, employees, social/tax authorities, and UEFA due by June 30, September 30 and December 31 during the licence season must be settled by a club by July 15, October 15, and January 15 respectively.
In case a club has payments that have been overdue for more than 90 days, the UEFA Club Financial Control Body will consider this as an aggravating factor (i.e. potentially punishable by a heftier penalty, whether financial or in terms of eligible participation in UEFA European competitions).
The new stability requirements are an evolution of the existing break-even requirements.
To ease the implementation for clubs, the calculation of football earnings is similar to the calculation of the break-even result.
Changes to the calculation of acceptable deviation encourage equity contributions rather than debt. The requirements are strengthened in that a club’s costs of relevant investments (infrastructure, youth development, etc.) must now be covered with existing equity or contributions.
The acceptable deviation has increased from €30 million over three years to €60 million over three years. The acceptable deviation can be further increased above €60 million by up to €10 million for each reporting period in the monitoring period for clubs showing good financial health.
The new regulations will see clubs subject to squad cost controls for the first time.
The cost control rule restricts spending on player and coach wages, transfers, and agent fees to 70% of club revenues (the gradual implementation will see the percentage at 90% in 2023/2024, 80% in 2024/2025, and 70% in 2025/2026).
This requirement provides a direct measure between squad costs and income to encourage more performance-related costs and to limit the market inflation of wages and transfer costs of players.
Decision-making during the licence season will place a greater emphasis on up-to-date financial information, including the summer transfer window, before any UEFA club competitions commence.
One key feature of the new regulations is that the reframed reporting periods will allow UEFA to identify breaches as they occur.
Breaches to the regulations will be sanctioned by the Club Financial Control Body (CFCB) according to a catalogue of sanctions listed in the CFCB procedural regulations.
The overdue payable sanctions have been strengthened, while the football earnings requirements include the possibility of settlement agreements. The squad cost rule sanctions will be progressive based on the severity of the breach and number of breaches committed over a period of four years.
It is only a matter of time to know whether the new regulations will satisfactory meet the expectations of many.
UEFA must ensure that any shortcomings are swiftly addressed to ensure that the rules remain relevant and clubs do not exceed their spending limit.
Dr Robert Dingli is a Senior Associate at Dingli & Dingli Law Firm and specializes in sports law
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