This is an article I wrote for the FT which appeared in yesterday’s edition. They kindly gave me permission to reproduce it here.
This will be the last year of European football as we know it. The “open” system by which the sport has long operated is now coming to an end, and will quickly become a “closed” American-style system.
This is all down to Financial Fair Play, the new regulatory system adopted by Uefa, European football’s governing body, which will bite next year. Instead of just tallying goals scored and conceded, fans will have to learn complicated rules about “break-even” and club licensing to work out who their opponents will be. Sporting merit will no longer be the sole criterion for success in competition.
But this openness has also caused financial chaos. The last time anyone said that English football’s finances were healthy was the 1950s, when the players’ pay was capped at £20 a week and less than half of the population had a television. The same is true across Europe, where many clubs have fallen into cycles of extravagant spending, temporary success followed by financial disaster, retrenchment, frequent changes of ownership and the injection of new money.
Uefa tells us that in 2011, 63 per cent of clubs in Europe’s top divisions were reporting an operating loss and 55 per cent reported a net loss overall; 38 per cent reported negative net equity, and 16 per cent of club accounts contained a qualification expressed by the auditors as to the financial viability of the company. This is despite the fact that club revenues have grown at an annual rate of 5.6 per cent in the past five years.
So Uefa’s controls require clubs to break even, or face sanctions that could include exclusion from their lucrative competitions. But the regulations are complex and offer opportunities for litigation by disgruntled clubs. The rules will lack credibility if too many big clubs fail to meet the criteria early on. Will they all be barred? And what of the biggest names? Would any self-respecting fan want Barcelona or Real Madrid excluded?
Even so, this all brings Europe a little closer to the US, whose leading sports leagues have developed hugely successful championships based on a shifting bargain among franchise owners. Rules for sharing revenues and limiting player pay are designed to maintain a competitive balance between teams. Entry is strictly limited – buying into the National Football League or Major League Baseball will cost you upwards of $1bn today – and the rewards of this exclusivity are also huge. The leagues mostly give the fans what they want, and profit royally.
Europe is not there yet. Uefa has studiously denied that maintaining competitive balance between clubs is an object of FFP. Its plan, it says, is not to make sure that humble Crystal Palace has a chance to compete at the top of the English Premier League against Manchester United. And for good reason: the new rules are actually likely to ossify European competition and limit the potential for big clubs of today to be challenged.
Similar regulations are creeping in at national level. England’s Premier League now has a rule limiting wage bill rises to £4m a year for clubs already spending more than £52m. Of the league’s 20 clubs, 14 spend at or below this level, while the “big six” spend more than £100m – there are no plausible mechanisms for the smaller clubs ever to close this gap and compete.
But such ossification is a first step to a closed system – for which there are advantages. Well-matched teams are usually more attractive to watch than David and Goliath contests, however much we like fairy tales. There is more chance to see the biggest stars play each other in a closed system, and more potential for investment, whether in player training, stadiums or broadcasting.
But this is not football’s tradition. The open system of promotion and relegation has a romantic appeal, and makes for an intensity of competition US leagues sometimes lack. Moreover, financial chaos may have caused owners to lose money but almost never leads to the demise of clubs. As a system, the open model has been stable and attractive largely because of the gyrations of the individual clubs. It also limits the capacity of wealthy owners to leach large profits out of the game: no one is safe from competition.
It is ironic that Uefa, and many of those who lobby on behalf of fans, see the US system as anathema but seem to be doing everything possible to ensure its adoption. The Premier League welcomed another American owner last month, bringing the total to six, all of whom understand the two systems very well and are fully committed to the new regulation. They, at least, know where they are heading.
Great piece.
Impossible to ever know of course, but it would be really interesting to see which historical player transfers would have fallen foul of FFP if it had been put in place 20 years earlier, say. It would provide people with some perspective. Maradona to Napoli springs to mind as a transfer that would not have been permitted, although that’s just speculation. I guess for every Maradona to Napoli there is a Denilson to Real Betis, however. As you have previously said, is it really fair to implement FFP now, yet let PSG spend like crazy just before the regulations come into effect?
Do you feel the closed system will revolutionise talent acquisition for clubs?
Interesting question. The hope is that it will generate greater incentives to develop home grown talent. I wonder if it might not lead to the development of something similar to the major/minor league relationships in baseball. Ownership may not be feasible, but it is possible that the contractual relationships will get much tighter.
Real Madrid and Barcelona already have B Teams playing in the lower leagues and in England there are far more younger players at smaller Premiership and Championship clubs.
It’ll be interesting to see what the EU has to say about the effective creation of a cartel by the big clubs. The EU has already forced clubs to release player registrations at the end of a player’s contract (it used to be that when your contract ended you still couldn’t move clubs as your existing club still held your registration with the local Governing Body (FA)). I’m not sure that having UEFA setting transfer fees and wages is compatible with the free movement of employees (players) within the EU.
For my mind the Champions League is a league almost closed. If you look the statistics since the new system of de Champions League you can see that you don’t have surprise. It always the same top clubs in the final round despite the fact that the UEFA tried to open the competition. You are right when you say that the FPF favorise the big clubs and i think that the FPF could freeze the domination of the top 10.
But the rules of FPF are subject to intepretation and the PSG case with his new contract with the tourism authority of Qatar will be a good test of the flexibility of the system. We should have the answer in the next weeks.
I’ve been arguing that the design of FFP is to keep the status quo of European looking like it is for the next 50 odd years. Wealthy entrepreneurs & families realized that investing in teams like Man Utd, Bayern, Barca, Real Madrid, AC Milan, Inter Milan is too costly an exercise. Better off buying a smaller team and pumping money into it and challenge the traditional big teams. According to market caps of the top teams in the world now…probably Borussia Dortmund makes sense to be the next takeover target. Another Sheikh can buy it and give J.Klopp an injection of $400m like the Qatari family has done with PSG. Then FFP falls flat on its face…
I laugh at Uefa and Platini as teams in his own country are the one’s planning to give Uefa the biggest headache.
How much truth is the about Monaco planning to fight Uefa on the FFP ruling?
Maybe Monaco will fight it, or maybe do a deal. But don’t assume that UEFA will fail- they have been working on this for four years and have looked at all the angles- they know it will be difficult, but they are prepared, and many of the people who work there believe they can make this work. Expect the unexpected.