Over the past decade or so Manchester City Football Club has risen to the top of the sport in England (though this year Liverpool fans might beg to disagree). This has been on the back of injections of huge amounts of cash from City's owners, or to be more specific the Abu Dhabi United Group, an investment vehicle that is owned by Sheikh Mansour bin Ziyad al-Nahyan, the brother of the ruler of the UAE. One British newspaper reported that they have spent a staggering £1.5 billion on 278 players in the past 10 years which is extraordinary levels of spending by soccer standards. Along the way, they have ruffled a number of feathers particularly amongst the pre-existing elite clubs. Few commentators would pretend that football finance is in any routine sense of the word 'normal' and a number of clubs have been exposed to the serious risk of financial failure because of what some would say have been extremely reckless financial policies in the past. As a result, new regulations were implemented with effect from the 2011-12 football season which attempted to ensure that football clubs were living within their means. They are known as the UEFA Financial Fair Play regulations or FFP for short. They require that clubs, taking several successive seasons into account, do not have an excess of expenditure over income. Clubs that fail to do so can be fined and ultimately banned from European competitions, the latter in particular having an enormous potential financial impact. Manchester City were found by UEFA to have breached the rules and were banned from European competition for the next two seasons, a decision that industry experts suggest could have cost them £200 million. City appealed that decision and it was recently announced that this appeal had been upheld.
This is a major blow for FFP and follows another recent setback for UEFA when Paris Saint Germain, another club that has received large injections of cash in the last decade, also had a decision against it overturned. The body overturning UEFA's decision is an independent one, namely the Court of Arbitration for Sport (CAS). Given the fact that CAS has now on two recent occasions upheld appeals against UEFA's decisions it suggests that the latter really needs to look at its processes and uncover what exactly is going wrong with them. In City's case, CAS found that some of the charges against the club were time-barred and others were not backed up by sufficient evidence. City did not get off scot-free and were fined 10m euros for failing to cooperate with UEFA's investigation but against a potential loss of £200 million plus reputational damage thrown in that probably seems a very small price to pay.
The longer-term question is where does this leave FFP itself? The system has certainly had its critics. These will include those who suggest that it protects the status quo in that those who were already rich before FFP came in are protected and conversely penalises those who have had the good fortune to attract new investment. Opponents of this view would counter-claim that the 'new money' encourages clubs to be reckless and engage in what has been called 'financial doping'. They might also assert that in some cases the money is 'dodgy'; a recent case involving Wigan Athletic in England's Championship (i.e. Second Division) saw the company be bought up one month and go into administration the next. Stories even appeared in the press that suggested that the club was bought in an attempt to deliberately get it relegated as part of a betting scam. The club has indeed just been relegated because of the 12-point deduction that they have suffered for going into administration but are appealing against the decision to penalise them by docking points.
All this suggests that things are far from well and that despite the best intentions of FFP there are still many problems to resolve. It is not even clear that the system is best designed to achieve the objectives of improved financial sustainability; it appears to some a little weird that Manchester City, who allegedly broke the rules, show a net cash position on their latest set of accounts of £64 million which is a very healthy position whilst their arch-rivals, Manchester United (who haven't been found to have broken any FFP rules) have the largest net debt position of any European club at £429 million (as at 31 March 2020). This suggests to some that the metrics of FFP are all wrong and that a much better measure would be one based on some kind of salary cap. A few months ago that would have seemed an impossibly hard sell but that position has possibly changed as Covid has hugely impacted on the TV revenues available to clubs. Perhaps this is a story about the pandemic after all.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.