While Financial Fair Play regulations have come in for their fair share of justified criticism, FFP’s full implementation five years ago may have built the foundation that will allow football as we know it to survive the COVID shutdown crisis.
Looking backwards to today
Before the implementation of FFP, football across Europe was in a financial mess. A multitude of teams stood on defective financial foundations, and a significant group was on the verge of financial extinction with no white knights in site. The numbers were frightening: of the 665 clubs that UEFA studied more than half had incurred a loss in a previous year and only a small proportion had owners who could inject capital to make up the difference.
Twenty percent of all clubs were deemed to be in financial peril. Many clubs had run up unsustainable debts, and a significant number were in a negative equity position. Teams in the Premier League and La Liga had, at times, even failed to pay their players. While teams in Germany and France were generally more solvent and sustainable, the cautionary tales of Dortmund and 1860 Berlin were not far in the rear view mirror.
Now simply ask yourself what the carnage would have looked like if the current shutdown had been inflicted on that pre-FFP financial setup. The number of clubs that would have effectively ceased to exist would have been large.
The fact is that five years of forced rational financial practises put many clubs in a far stronger position to face the current crisis. Love it or hate it on the competitive side, FFP will be key to surviving this shutdown.
Just how significant is the crisis?
Without knowing how long the present shutdown will last and when fans will return to matches, it is very difficult to assess how serious the blow to the professional game will be. One of the big indicators and the key to survival for weaker first-division clubs is that they complete the current season.
If the current seasons is not completed, the amount of money the Premier League and the Bundesliga will have to repay or not receive in television revenue alone would top €750 fifty million for each league. That does not even touch upon lost matchday revenue and other sources that the clubs were banking on to meet their obligations.
Some clubs have already given UEFA and other clubs notice that if the current shutdown continues they will be unable to meet pending transfer payment obligations. In the world of football finance, failing to meet transfer payment obligations is considered the second-worst sin, second only to failing to meet payroll of players and staff.
According to people in positions of power, the very existence of some Bundesliga teams is at stake if the season is not finished. Max Eberl, sporting director of Borussia Mönchengladbach, said:
For the next few weeks and months we have to realise that only a continuation of the Bundesliga games — without spectators — will allow many clubs to survive economically.
The importance of ghost games has also been emphasized by German Football League (DFL) CEO Christian Seifert, who has said that hundred of thousands of jobs are at stake and that not finishing the season will have dire consequences:
If you reject Geisterspiele now, you don’t have to discuss whether the first league will be played next season with 18 or 20 clubs, because there would no longer be 20 clubs.
Former Bayern Munich president Uli Hoeness has joined the chorus of gloom stating that he believes that the economic damage brought about by the shutdown will bring an end to hundred million euro transfer fees, although one might wonder if this is based on his philosophy rather than the hard numbers.
And if the threat to the top two levels of German football is severe, it is even more significant elsewhere. The English Championship is a financial dumpster fire waiting to be ignited. The teams there are saddled with debt, and several have recently sold their stadiums to be compliant with their own version of FFP, the Profitability and Sustainability Regulations. They are also a league much more dependent on gates than many others. The English Championship sees the third highest total attendance of any league in Europe, but with much lower television revenue they are heavily reliant on those gate receipts. If one factors in the near suicidal wages paid by teams desperate to rise to the EPL, you have a near perfect recipe for a complete financial meltdown.
Loosening the reins
Clearly, financial regulations need to be relaxed in order for teams to survive the current crisis. But how can this be done in a way that meets Karl-Heinz Rummenigge’s goal that teams and individuals with large amounts of cash cannot take advantage of the crisis to steal players and manipulate the market?
FFP regulations have already begun to be modified to help out the struggling teams. The regulations call for all debt payments to be up to date by March 31, and as a first step this has been extended to the end of April. But money is only one part of the solution to the problem. The second variable is time. Instead of simply allowing teams to inject more cash to meet standards, they can be given more time to do so without significantly diluting those standards in a way that impacts competitiveness.
Currently FFP compliance is calculated not annually, but on a three year basis. This term could be extended to four years or longer in order to address the current problem (I have long been an advocate for a six year cycle). Such an extension would have a moderating effect on the downturn in regulatory compliance terms. Alternatively, for one cycle the equation could be changed to the best three years out of four: 2020 would inevitably be the year dropped, or a separate standard could be set for 2020 as a crisis year, with standards returning to normal in 2021. There are plenty of options available.
UEFA has also temporarily suspended FFP compliance as a pre-condition for licensing for the upcoming season, allowing leagues maximum flexibility as to when (and if) they will restart their schedules and commence the next season.
While FFP has two “force majeure” clauses that allow regulators to make exceptions for individual teams, these are not the right tools to tackle this problem. Individualized solutions would only lead to an accounting, competitive, and legal nightmare. A unified solution is required. This will probably be on the table at the UEFA stakeholders’ conference call, in addition to player contract lengths and transfer windows.
While FFP’s design should need only fine adjustments to be a help rather than a hindrance during this crisis, regulations in other places will need to be entirely tossed aside or undergo major surgery if those leagues are to survive. For instance the Profit and Sustainability Regulations impose an automatic transfer ban on any team that requests its players take a wage deferral, let alone a wage cut. Unless this regulation is dropped, the entire Championship will likely collapse.
While there are many reasons to dislike FFP, we can be thankful that has made teams better prepared to face this crisis. Deftly handled, it can be a significant part of the solution to moving forward through the economic crisis football is now facing.