top of page
  • baptistedefontenay

The economics behind the Financial Fair Play

My comment:

I enjoy this article because it brings together two of my passions: football and economics. This type of article - using economics in unexpected ways - reminds me of the book Economics is Everywhere by Daniel S. Hamermesh.

Although I am a football passionate, I learnt a lot of things from this article and I am sure you will do too. By the way, you might enjoy this article even if you are not a football fan.

I believe that describing the economics of football is very complicated. Indeed, a key assumption used in most economic analyses is that economic actors are rational and take profit-maximizing decisions. Nevertheless, football actors' primary goal is not always to maximize profits, making these actors irrational. For example, the main objective of the Qatar when investing in the PSG football team is to promote the "Qatar brand" rather than make direct economic profits from the activities of the club.

This article attempts to deconstruct the myth that exists around Financial Fair Play. It highlights the negative impacts of the Financial Fair Play on the financial and sporting equity of European football.

About the author: Paul Chatry is a passionate about the sports industry, its actors, its paradoxes and its stakes. Paul would like to work in this industry next year, in a marketing agency, a federation or a brand.

I. Contextualisation and presentation of the Financial Fair Play (FPF).

The first words one hears when discussing the subject are generally “it prevents the big European clubs from spending hundreds of millions on the transfer market”. Yes, this is in part true, but it is not really the objective of the FFP (more on that later).

In reality, the FFP has not prevented the transfers of Neymar, Mbappé, Hazard, Coutinho, Joao Felix, Griezmann, or even Lukaku and Grealish more recently, with transfer payments exceeding 100 million euros for all the players mentioned. It is therefore difficult to understand what the FFP really is, how it works and what is at stake.

To do so, we have to go back to the end of the 2000s. In 2010, Michel Platini, president of UEFA for three years, made an alarming observation about the financial health of European clubs. “Many football clubs, including some of the most prestigious ones, have encountered serious financial difficulties, which have led to a further increase in the overall losses of first division clubs,” he announced in the introduction to the benchmarking report on the clubs’ financial year in 2010. At that time, more than half (56%) of Europe’s 734 first division’s clubs were making financial losses in the previous financial year. The sum of these clubs’ balance sheets amounted to a loss of around €1650 million. Even more alarming, 1 in 8 clubs are likely to be “unable to continue their commercial activity over the next 12 months” according to UEFA.

These disastrous figures have been getting worse since the early 2000s and there is no sign of improvement as the owners of the big clubs become more willing to spend huge sums on transfers. For example, between 2008 and 2010, Manchester City, freshly bought by Sheikh Mansour, had a transfer balance of -€287 million. These respective balances were -€268 million for Florentino Pérez’s Real Madrid and -€187 million for FC Barcelona over the same period.

Against the backdrop of the global financial crisis, UEFA was not going to let these imbalances go unchecked. How did it do so? This is where FFP came in: “The unanimous consensus that has formed in the football family around the concept of financial fair play is set to play a key role in tackling the financial distress that other clubs are likely to suffer in the future. Keeping costs under control and maintaining them at a sustainable level is and will remain the main challenge for clubs,” said Platini.

The main objective of the FFP is therefore to fight against the poor financial health of clubs. In addition to this, there is a list of complementary objectives in line with the main objective, namely:

  • To improve the economic and financial performance of clubs and to enhance their transparency and credibility

  • To give due importance to the protection of creditors and to ensure that clubs pay their debts to staff, social and tax authorities and other clubs on time.

  • To introduce more discipline and rationality into club finances.

  • To encourage clubs to operate on the basis of their own income.

  • To promote responsible investment in the long-term interests of football.

  • To protect the long-term viability and sustainability of European club football.

In practice, how did UEFA wish to achieve these aspirations?

II. The FFP rules

The FFP rules have undergone several changes (2012, 2015 and 2018). We will therefore detail the most recent version of these.

If we had to summarise them in one sentence, it would be: clubs cannot spend more than they earn (the famous “break-even” rule).

Each year UEFA reports on the last three ‘monitoring periods’. For example, the monitoring period assessed in the 2018/19 season covers the reporting periods ending in 2018 (reporting period T), 2017 (reporting period T-1) and 2016 (reporting period T-2).

Specifically, over this three-year period, a club must not show losses of more than €5 million, i.e. the club’s expenses must not exceed its income by more than €5 million over a three-year period. This €5 million is the ‘acceptable gap’, which can be as much as €30 million if the excess is fully covered by the club’s shareholders.

The main revenues taken into account in this calculation are :

  • Ticketing revenue

  • Sponsorship and advertising revenues

  • Revenue from broadcasting rights

  • Income from commercial activities (sale of shirts and merchandise, refreshment stands, etc.)

  • Solidarity payments and bonuses from UEFA (e.g. bonuses received following the Champions League)

  • Income from the sale of player registrations (income from the sale of players)

  • Surplus from the disposal of property, plant and equipment (e.g. sale of the training centre).

The main expenses are :

  • Material costs (cost of sports equipment, catering etc.)

  • Staff benefits (salaries, match bonuses, company cars etc.)

  • Player registration costs (costs related to the acquisition of players)

  • Financial charges and dividends

These expenses notably do not include:

  • Expenditure on development activities in the junior sector

  • Expenditure on community development activities (e.g. costs of promoting anti-racism)

  • Expenditure on activities related to women’s football

  • Non-cash debits/expenses (e.g. depreciation of stocks)

  • Financial charges directly attributable to the construction and/or substantial modification of tangible assets (e.g. construction of a new stadium).

  • Expenditure from non-football operations not related to the club

  • It should be noted that expenditure that can be considered as more sound and long-term (for the youth and women’s sections in particular) is not included in this calculation, which fully meets the objective of “responsible” investment announced by UEFA.

If a club breaks the FFP rules, there are sanctions which they face. Here is the list, from the mildest to the most severe :

  • The warning

  • The reprimand

  • The fine

  • The deduction of points

  • The withholding of revenue from a UEFA competition

  • The ban on entering new players in UEFA competitions

  • The restriction of the number of players a club may enter for participation in UEFA competitions

  • The exclusion from current and/or future competitions

  • The withdrawal of a title or merit

III. The myth of Financial Fair Play

There is a certain myth surrounding the FFP which is that it is intended to make European football more ‘fair’, both financially and in terms of sport‘s performance.

This myth is not a reality for two main reasons. Firstly, it was simply not created and designed to fulfil this objective.

Secondly, in reality, and contrary to what one might think, its rules and their application produce the opposite effect. This is what we will analyse in this section.

Obviously, the FFP makes it impossible to inject hundreds of millions of euros to compensate for the losses of clubs. Indeed, these almost unlimited additions do not logically fit into the clubs’ revenue box. Henceforth, clubs must manipulate the two levers at their disposal, which are expenditure and revenue. The biggest clubs no longer have (in theory) the “joker” that allowed them to spend without counting the cost. With the FFP, it is therefore harder for a very rich club to spend huge amounts on transfers. As a result, one might think that the FFP reduces inequalities between European clubs.

However, in reality, the FFP has reinforced the financial dominance of a dozen clubs on the continent.

Firstly, the rule of expenditure based on revenue contributes to widening these differences between clubs.

As long as a club posts, at worst, losses of less than 30 million over three years, there is nothing to prevent it from spending hundreds of millions on the transfer market as long as it compensates for this with significant revenues. Big clubs are more attractive than medium-sized clubs in the eyes of sponsors, TV broadcasters and even football fans. They, therefore, generate more revenue from TV rights or sponsorship contracts and can spend more money, while remaining within the rules of the FFP. This virtuous circle is ‘protected’ by the FPS, which prevents clubs with lower revenues from entering it. UEFA is not opposed to this and is clear on its position: “There were already great differences in wealth between clubs and countries in Europe long before the introduction of Financial Fair Play and without any connection to it. The objective of Financial Fair Play is not to level out the size and wealth of clubs”.

The lack of sanctions against the biggest clubs (or at least the weak sanctions taken against them when they do not respect the FFP) also reinforces this financial oligopoly.

For example, in recent years several “big” clubs have escaped severe sanctions for not respecting the FFP. The two most striking examples are Paris-Saint-Germain and Manchester City. For example, since 2012, PSG has transgressed the FFP on numerous occasions, almost always escaping sanctions. In the case of the overvaluation of the sponsorship contract with QTA (Qatar Tourism Authority; PSG is accused of having inflated the price of this contract), PSG initially reached a curious agreement with UEFA officials to avoid being sanctioned. Then, a few years later, the club was finally condemned by UEFA, before winning an appeal before the CAS (Court of Arbitration for Sport). The scenario has been the same for Manchester City, which recently had its ban on participation in the Champions League overturned by CAS. These decisions highlight the gap between the rich and the rest of the clubs.

Furthermore, FFP restricts limits the incentives for individuals to invest in clubs as a club can no longer grow in a short space of time.

Without the ability for new investors to inject money into clubs quickly, it is increasingly unlikely that new, highly ambitious projects (in the style of PSG or Manchester City) will see the light of day. Indeed, as the French National Assembly’s report points out, the FFP “implies a strategy of gradual build-up of clubs wishing to reach the European elite. However, in today’s football, and at a time of media immediacy, it is not certain that this logic, which is relevant in the long term, corresponds to the expectations of international investors, who are concerned with notoriety and results in the short and medium-term.

As Philippe Diallo, director of the UCPF (the Union des Clubs Professionnels de Football is an employers’ association representing French football clubs with professional status) explains, the FFP “can tend to freeze positions by preventing new investors from quickly becoming competitive at the highest level”.

Bernard Caïazzo, president of Première Ligue (union of first division clubs in France), goes even further. According to him, the FFP “serves above all to prevent new entrants from tickling the ankles of well-established clubs, such as Real, Barça, Bayern or Juve, which operate in an aristocratic system that should not be fooled”. This is exactly what a report by the French National Assembly predicted in 2013, one year after the FFP came into force. This report already announced at the time that it was to be feared that “the big European clubs only support the FFP to better hinder new entrants wishing to invest in smaller clubs to compete with them”.

Finally, if the new clubs’ investments are limited, so are their revenues. The report emphasises how a club’s brand only grows with successful national and European campaigns. This naturally takes time and again runs counter to the short-term results desired by potential new investors. We are clearly heading for a shortage of new investors in the European market, which only serves to consolidate the so-called financial oligopoly.

This oligopoly is not only financial: it is becoming a sporting performance oligopoly.

Since 2012, only fifteen different clubs have reached the semi-finals of the Champions League. Some clubs such as Real Madrid or Bayern Munich have even made it 80% of the time, which further accentuates the over-domination of the competition by certain clubs. In comparison, during the period 2000-2010, twenty different clubs reached this stage of the competition, which confirms the gradual takeover of the competition by a dozen clubs during the 2010s. The same is true within domestic leagues, where PSG (France), Juventus (Italy) and Bayern (Germany) have won the championship almost every year for the past ten years. In Spain and England, the picture is more nuanced, but we are still witnessing the domination of three clubs (Real Madrid, Barcelona and Atlético in Spain; Man City, Chelsea and Liverpool in England) over the same period.

It is difficult to know to what extent this phenomenon is a direct consequence of the introduction of the FFP, but one thing is certain: the FFP has not reduced sporting inequalities. “We wanted to make it an object of sporting balance. On this aspect, it has had no effect”, Philippe Diallo sums up perfectly.

Where a domination of the best competitors is a natural thing in any sport (the big 3 in tennis for example), what seems to be the problem is the cause of this domination. Indeed, it is clear that it is the financial domination of the clubs that allows them this sporting domination, and this is where the FFP can be a problem. As seen above, the richest clubs are those that generate the most revenue. Yet, as UEFA points out in the 2018 benchmarking report, the ten clubs with the highest revenue all, without exception, reached the knockout stage of the Champions League in 2017-2018. It seems that we have reached the peak of this link between financial wealth and sporting results.

And this is precisely where the paradox of the FFP lies. The public opinion sees the FFP in a positive light because it would seem that this system is synonymous with improved equity. In reality, we are in the presence of a double oligopoly, both financial and sporting.

IV. Conclusion

Ten years on, what can be said about the FFP?

On the face of it, the FFP has fulfilled its main mission: to clean up the finances of European clubs. Thus, in 2019 (the last period analysed before the impact of Covid), all the figures are flattering for UEFA and European clubs. According to UEFA’s 2019 benchmarking report, the overall revenue of European top-flight clubs has increased from 14 billion in 2012 to 21 billion in 2019, an increase of 50%. If we look at the sources of revenue, the same is true. Indeed, since 2009, UEFA bonuses have increased by 245%, TV rights revenue by 114%, sponsor revenue by 73% and ticketing revenue by 26%. More globally, while the sum of European clubs’ financial balance sheets amounted to around €1650 million in losses in 2010, this figure rises to €140 million in profits in 2018.

But has the FPS really succeeded in creating a healthier and more stable financial environment? Certainly, by forcing clubs to respect financial equilibrium, the FFP has forced clubs to maximise their commercial activity and revenues in order to offset their expenses. Indeed, one might think that without the FFP, clubs might not have done so (at least not to this extent) as they could have continued to inject millions to make up for their losses without having to worry about possible sanctions.

However, are we not in the presence of a bubble on the verge of bursting? Indeed, the inflation of salaries, transfers, TV rights and ticket prices form a real inflationary spiral that could burst at any moment (Bouigue and Rondeau, 2017), which the FFP cannot control in its current state.

The question is then what direction UEFA wants to take European football. Due to all of the negative effects on fairness analysed above, it is likely that this progressive ‘filtering’ of the European elite will continue until only a dominance of seven/eight mega-rich clubs is reached.Is this trend necessarily bad?

Everyone will make their own judgement, but given the extent of the negative reaction of European club fans to the announcement of the Superleague this year, one can anticipate that the path that European football is taking will not please the fans.

Bonus: European football: an economic market like any other?

Our analysis of the functioning of the FFP naturally leads us to a more global reflection on the functioning of the European football market and its players. Indeed, through all its weaknesses, the FFP has highlighted how difficult the football market is to regulate. Should it then be considered as any traditional economic market in order to survive? Here are some thoughts.

Some actors would like it to be, using the argument of long-term returns, which is a reality in any market. As Bernard Caïazzo explains, “companies accept to lose a lot of money for years, before making a lot afterwards. Amazon is an example of this. If we had applied financial fair play to Amazon, it would not have been able to continue working. According to him, “any investor” could “decide to put money in to compete with each other”.

On the other hand, some experts argue the opposite, pointing to the special nature of the football market. Indeed, profitability is not necessarily the objective of European clubs: sporting success comes first most of the time, which is the main cause of over-investment (Vöpel 2011). With only one Champions League winner per year, there are many losers, which is similar to a famous economic concept: the ‘rat race’. According to this theory, when individuals compete directly for the same prize (which does not increase no matter how much effort the competitors put in), the system will inevitably break down. The parallel with European football is quite striking: several clubs compete for the same prize (the Champions League) by investing more and more without the final prize changing. The lack of barriers to investment becomes problematic as it could theoretically lead to a collapse of the European football market.

Paul Chatry


bottom of page