UEFA to call time on loss-making clubs

January 27, 2010

MALTA/Half Europe’s leading professional clubs are losing money, according to UEFA, and the forthcoming Financial Fair Play initiative will be a concerted attempt to tackle the problem.

The new financial framework will mean that from the 2013-14 season, clubs must break even or face the threat of exclusion from European club competition.

UEFA general secretary Gianni Infantino outlined the situation in a telephone interview with Mike Collett, our chief soccer correspondent, and myself. Here is what he said:

REUTERS: Can you explain what Finanical Fair Play is exactly?

UEFA: Essentially it is not a difficult thing. The main reason for financial fair play is that it is a tool to help improve the long-term stability and the financial health of European club football. It should help the clubs live within the revenues that they generate and one important element of this is that this whole concept was agreed last August in Monaco by all the stakeholders: the clubs, the leagues, the players unions and the national associations, they are all behind this concept.

This was approved by the Executive Committee and now we are in the middle of elaborating the rules. By ‘we’ its not just UEFA, but also external experts, members of the Club Financial Control Panel, in a broad consultation process.

REUTERS: The owners of the clubs are also in favour of this? Michel Platini has said that the owners of the big clubs have approached him.

UEFA: Absolutely. Reading some of the things recently I am puzzled, because this is very much a joint project from the beginning. Some of the club owners have said to Michel Platini “help us”. So it is not something that UEFA is imposing against English clubs or whatever, it’s not the case.

The whole media echo to some extent — not only in England but also across Europe — has contained so many inaccuracies.

We are doing this after very detailed research which we will publish next month. A report has analysed 650 clubs all over Europe, and it shows that around 50 per cent of those clubs are making losses every year — and 20 per cent are making huge losses — every year. Huge losses mean more than 20 per cent of their revenue. It also shows of these 650 clubs more than one third are spending 70 per cent or more of their income on salaries only — which is worrying.

The other element, which is again worrying, is that last season, revenues in in European football generally went up by 10 per cent which is very positive. But, on the other side, the increased costs — basically on the players’ salaries — have gone up 18 per cent.

So these are all trends that are worrying and which are saying to us, ‘we were right’ and by ‘we’ I mean the all the stakeholders had to take some action and move in the direction of Financial Fair Play.”

REUTERS: Are you then looking at the possibility of putting some sort of limit on the percentage of revenue the clubs can spend on salaries?

UEFA: No, there will be some indicators, but the limit would be the break-even rule. You could spend 80 per cent on salaries, if the rest of your costs are 20 per cent, travel costs, for example, everything. But if your other costs are higher then the salaries have to go down. As a kind of indicator 60-65 per cent for example, you should be in the green zone; if you are not there, then we might have to look a bit closer — this would be the task of the Clubs Financial Control Panel to evaluate.

REUTERS: But this would just be an indicator? There would be no intention of imposing a salary cap? If a club makes one billion euros a year you are happy if they spend a billion euros a year?

UEFA: Yes, because that is healthy. It is unhealthy if they spend more than their revenue.

REUTERS: If so many of these top clubs are making such big losses, are you worried there could be some kind of cataclysmic collapse of a number of clubs over a short period of time?  Could the landscape of the top leagues change because of the knock-on effect of all these clubs making losses?

UEFA: I would not paint such a cataclysmic picture because football has always shown there can be solutions but having said that, we are seriously worried to see these trends. The clubs themselves are worried, the Leagues are worried. But these are the reasons that pushed us to take the decision to do something … and what is healthier and what can bring a more sustainable model than saying you cannot actually spend more than the revenues that you generate.

One could say if a club goes bust “who cares?” but we care. We care for that club and all the other clubs who would have problems because that club has gone and not paid them and then there is a spiral.

REUTERS: What is the situation regarding clubs being in debt? Will they be banned from European competition when the new rules come in?

UEFA: If they owe money to other clubs or if they owe money to their players and non-playing staff and they are not paying what they should be paying, then that would be a reason to take a sanction. But the sanction would not necessarily be a ban in the first instance. We are still formalising the rules. So it is a bit premature to say this.

But this is only one thing. There are other elements to the rule like the “break-even” element which means that for the 2013-14 season, that clubs must basically break even. The rules are being written now and hopefully will be ready in the summer. But break-even basically means of course, the revenues that you generate you can spend but not more. You cannot have losses.

Now to define losses. You can have losses for one year, because perhaps you had one bad season, and you did not qualify. So we are looking at losses over a “multi-year” basis, for example over three years. So one year you can make a loss, but not over three years. So this is also a distinction — and this has been wrongly reported — because we are not speaking about debts. We are speaking about losses.

Debt, per se, is not necessarily a bad thing. The problem with the debt is the cost of the debt, for example the interest you have to pay, and this can create a loss. We are focusing on the losses.

But we are also also saying losses can be admitted, if the money is invested for long-term purposes — developing a youth academy for example or infrastructure. This of course can lead to a loss in the short-term, but in the long-term it will be beneficial for the club, help increase the revenues. So it is not true to say that if a club is in debt it will be banned from Eureopean competition.

REUTERS: Are you worried that European football is in a real financial crisis at the moment?

UEFA: I think is is still a solveable problem. I don’t think its a crisis yet, but it will become a crisis if nothing is done. So it is interesting that since the time we agreed on all of this, a lot of these issues have come to light, which means that perhaps we were not so wrong in proposing these rules. If nothing is done, it will become serious.

REUTERS: When Cristiano Ronaldo joined Real Madrid there was an expression from UEFA that the amount of money involved was worrying in some ways. From your point of view, seeing as Real Madrid generates so much cash, in some ways it isn’t a problem if Real Madrid chose to spend 80 million pounds on one player.

UEFA: Of course if a club like Real Madrid, or any other club generates the necessary amount to spend 80 million then of course they can do it.

REUTERS: The President has often said that clubs in debt who carry on buying players they cannot really afford, are, in effect, “cheating.” Will the FFP stop this ?

UEFA: This is certainly one of the key objectives — to decrease the pressure on players salaries and transfer fees and to limit the inflationary effect. Everyone with normal common sense, would not engage in something they cannot afford. Sometimes, and especially in football, emotions come in and people act in an irrational way, but if you have a rule, which helps you to stay within some boundaries then of course you should respect the rule and this sort of inflationary effect will stop.

REUTERS: How do you think fans are being affected, knowing that the money they are spending to watch their team, is perhaps not being invested by the club in new players, or improving the stadium, or youth development, but, as in the case of Manchester United, money is being paid in interest, going out of the game?

UEFA: From a fan’s point of view is what important is that the club wins. So we see with Manchester United, especially on the sporting side, no-one can say anything against them because they have been so successful. And on the administrative side someone like David Gill is a top personality and the club is very well managed.

So even though they have to pay these huge interest payments, and even though they sold Ronaldo, they are still top of the league, and they are still at the top in the Champions League. So Manchester United know how to regulate their business. They also know how to win for the fans.

REUTERS: Does a part of you regret that UEFA did not do this before? This wasn’t done 10 years ago? Could UEFA have helped some clubs and Leagues if this was done 10 years ago?

UEFA: “I think now is the right time to do it. The circumstances were right now. The fact there was a financial crisis, helped as well in arguing that this was the right thing to do — to get everyone on board as much as possible. We are not in a crisis now, the situation is solveable and now is the right time to act.”

PHOTO: UEFA President Michel Platini gestures during a news conference after arriving at Malta International Airport, outside Valletta, January 26, 2010. The UEFA executive committee is meeting on the Mediterranean island on Thursday and Friday. REUTERS/Darrin Zammit Lupi

2 comments

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When Roman Abramovich made Chelsea virtually debt-free last month by converting 340 million pounds of interest-free loans owed him by the club into equity, many said Chelsea was putting itself ahead of UEFA’s financial fair play plans.
But some bloggers raised doubts Abramovich was instead trying to make his club more attractive to potential buyers. And they added other top clubs might come into line.
Chelsea were quick to quash fans’ concerns by saying the Russian’s move “demonstrates the continuing commitment from the shareholder to the group”. Is selling an unfair way to save a club?

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clubs that want to avoid this will no doubt find a financial loop hole in order to offset percentage variance against revenue (profit) and spending. I don’t see that it will control the huge amounts spent on transfer fees and wages for the likes of Man city for example which in turn will only go to perpetuate Uefa’s initial concerns.Where there is money to be made there are answers to questions…

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