Written by: Sechaba Ntsiu
While a lot of people, including football commentators, journalists, and fans, have a clear understanding of the existence of the financial fair play regulations that operate to govern spending within football, it often seems like many of those groups of people do not know enough about how the regulations work in practice. With that in mind, this article will focus on providing a brief insight into the different regulatory systems that govern the spending of football clubs that compete in England, as well as providing a brief insight into some possible future financial fair play changes.
What is Financial Fair Play?
Financial fair play is a broad phrase that refers to rules that have been put in place by several regulatory regimes in order to govern the ways in which football clubs spend money. Contrary to popular belief, financial fair play rules were never put in place to try and level the playing field between competing football clubs. Rather, the rules, which were originally conceived in 2009 by UEFA, were created to try and ensure financial discipline and sustainability in football. In other words, the main aim of financial fair play as a whole is to ensure survivability by trying to make sure that a football club’s level of spending is closely matched by the income earned by that club – i.e. to try and ensure that a club breaks even.
The Regulatory Systems
There are three different financial fair play systems that can apply to football clubs in England.
UEFA Financial Fair Play Regulations
When commentators, journalists, or fans refer to financial fair play regulations, they are often referring to the UEFA financial fair play regime. This is perhaps the most well-known system of regulations as UEFA club competitions garner the most exposure and commentary on the world stage.
The UEFA financial fair play regulations only apply to clubs who compete in UEFA competitions. In other words, from an English perspective, only clubs who qualify for the UEFA Champions League, UEFA Europa League, and the newly formed UEFA Europa Conference League, will need to ensure that they satisfy the UEFA financial fair play regulations.
The UEFA financial fair play regulations apply to spending taking place in the current season (2021/2022 at the time of writing), the previous season (2020/2021), and the season before that (2019/2020). In practice, what this means is that the aggregate spend over those three years is subtracted from a club’s aggregate income in that period, in order to determine if the club made a loss, a profit, or if it broke even, with the latter two options being viewed positively from UEFA’s perspective. While the aim of financial fair play is try and ensure that at a minimum clubs break even with their spending, in practice the system offers a sense of flexibility, which in itself might be viewed as encouraging unsustainable spending. Under the UEFA system, football clubs are permitted to lose up to €5million over the three year period. This acceptable deviation can be further extended up to €30million over the same period if the excess difference is paid for by money poured into the club by its owner(s) in exchange for a further level of equity (i.e. shares) in that club.
With the above in consideration, it is important to note that the UEFA financial fair play regulations only apply to money spent in specified ways. For example, the regulations apply to finances spent on football transfers, employee benefits (including the wages of football players and other employees), and shareholder dividends, and they apply to revenues from money streams including matchday income, broadcast income, advertising income, and prize winning income. The regulations do not apply to finances spent in other ways, including finances spent on training facilities, women’s football, and a club’s stadium.
The Premier League Profitability and Sustainability Rules
The Premier League adopts a similar approach to the UEFA financial fair play system in that it reviews club spending over a three year period.
Where the two regulatory systems differ is that the Premier League prohibits clubs from losing more than £15million over that period. However, as with the UEFA system, the Premier League allows club owners to inject funds into their clubs over the three year period, which in turn allows for a club to lose up to £105million over that period.
Similar to the UEFA model, the Premier League system allows for clubs to spend finances on aspects such as women’s football and youth development, without those funds being regarded as impacted by the profitability and sustainability rules.
The English Football League Profitability and Sustainability Rules
The English Football League (‘EFL’) is a football competition structure that encompasses the EFL Championship, the EFL League One, and the EFL League Two.
The EFL’s rules are very similar to the rules noted above in that they apply over a three year period, and they also allow finances to be spent on certain aspects and projects without those funds being regarded as impacted by the EFL’s profitability and sustainability regime.
Club’s competing in the EFL are prohibited from losing more than £15million over the three year period. This number can be extended to £39million provided that any losses over the £15million are covered by secured financing.
Possible Future Changes
It has recently been reported that UEFA is considering making significant changes to its financial fair play system, including mulling the introduction of a salary cap and luxury tax combination. In terms of the salary cap, reports note that UEFA has placed consideration in introducing a hard salary cap, whereby clubs competing in UEFA competitions would be required to ensure that the total sum spent on salaries falls under a fixed number, while also considering a softer option in a soft salary cap, whereby clubs would be required to ensure that the total sum spent on salaries falls under a number determined by a percentage of their revenues. Regardless of the salary cap option selected, UEFA would require any club that exceeds its salary cap to pay a sum of money (i.e. a luxury tax) of around 100 – 200 per cent of the sum above the salary cap number into a communal pot, which UEFA would then distribute to other teams in its competitions.
While UEFA will hopefully provide an update on its plans for changing its financial fair play system in the near future, it seems that the Premier League and EFL have no intention of changing their current structure. With that being said, if UEFA finds success in introducing changes to its system, the Premier League and EFL might follow suit.