Kylian Mbappe’s mega-signing by French soccer club PSG has exposed a loophole in European soccer’s Financial Fair Play (FFP) rules. FFP rules regulate clubs from spending more than they earn, but PSG avoided sanctions by signing Mbappe on loan. UEFA has been fine-tuning the FFP rules, but they still do little to reduce financial inequality between clubs.
One of the hottest topics in European soccer in the last decade has been the contract of French soccer player Kylian Mbappe with French professional soccer club Paris Saint-Germain (PSG). On August 31, 2017, Mbappe, who had been linked to several big clubs, officially joined the club. According to the club’s announcement, Mbappe’s transfer fee was an astronomical €180 million. With PSG having already spent €220 million on Neymar, many expected sanctions under UEFA’s Financial Fair Play (FFP) rules, but the club’s rather crude way of avoiding punishment has led many in the game to publicly criticize the limitations of the FFP rules, saying that there is no way to curb the extreme skyrocketing of star players’ transfer fees. So, what is the FFP rule, and what are its problems? With these questions in mind, let’s take a look at the FFP rule.
First, what is the FFP Rule? FFP stands for Financial Fair Play, and it’s a UEFA sanctioned system that ensures that soccer clubs’ financial expenditures don’t exceed their revenues. Clubs that violate this rule are banned from competing in UEFA-organized competitions. UEFA-organized competitions, such as the UEFA EURO and UEFA Champions League, are popular around the world and have huge financial and prestige implications for soccer clubs. The FFP rule is a regulation that prevents clubs from spending more than their revenues and restricts owners from spending too much of their own money through the strong sanction of being banned from competitions.
The FFP rule was first introduced by then UEFA president Michel Platini to prevent clubs from going bankrupt due to excessive investment. A prime example is the English soccer club Leeds United. Leeds United entered the Premier League, England’s top division, in the 1989-90 season and finished third in the league in 1999-2000, qualifying for Europe’s premier cup competition, the Champions League. The club then reached the quarterfinals of the Champions League, marking a golden age for the club, but this brief moment of glory soon turned into a nightmare. Leeds United’s players demanded higher weekly wages as they won league and cup competitions, and the owner was forced to dip into his personal wealth and take out a bank loan to meet their demands. Despite this, the club failed to qualify for the Champions League the following season, meaning they missed out on big broadcast rights income. Eventually, the rapidly mounting amount of money owed pushed the club to the brink of bankruptcy, and they began a downward spiral, selling off players for pennies on the dollar. This is where the phrase “the Leeds years” comes from, referring to the once promising days. Leeds United’s story highlighted the need to regulate club management, which led UEFA to introduce the FFP rules in 2009. With this rule, UEFA aimed to reduce the deficit, which at the time stood at €1.2 billion, with a focus on ensuring that all clubs were on a stable footing, if not in the black.
While the FFP rule was initially enacted to ensure the financial health of clubs, its meaning has been interpreted in different ways in recent years. Today, the significance of the FFP rule in European soccer can be summarized in five ways. First, it will continue to raise the overall standard of European soccer and ensure that all clubs focus on youth player development and management. With the need to spend in line with revenue, clubs will focus on developing young talent and improving team tactics instead of signing star players, resulting in a level playing field with less disparity between clubs. Second, it ensures that each club has a financial cushion, allowing them to be financially self-sustaining even if they fall on hard times. Third, it encourages clubs to provide safe and properly equipped infrastructure for spectators and media. This helps to increase revenue for the club and is positive for spectators. Fourth, it preserves the integrity and fairness of UEFA club competitions by reducing private capital involvement. Fifth, it allows clubs in Europe to benchmark themselves against each other in terms of financial, sporting, legal, and facilities.
However, the FFP rule has not been without its critics, and to this day, there are still a number of improvements that need to be made. Initially, UEFA introduced the FFP rules without defining them in sufficient detail, leading many in the soccer world to criticize Platini’s campaign for the UEFA presidency as little more than a campaign promise. This was especially true given the fact that most leagues, with the exception of the Premier League in England and the Bundesliga in Germany, were operating in the red, with large revenue disparities between clubs. The lack of detail in the FFP rules also left many loopholes for clubs to circumvent the regulations, most notably in their sponsorship deals. If a club’s owners invested money through their own affiliates, like the sponsors that appear on the jerseys, there was nothing to stop them, and billionaire owners were still able to inject huge amounts of capital into their clubs. It was also argued that the FFP rules didn’t give realistic consideration to clubs that were already running in the red.
As criticism grew, UEFA pushed to revise the FFP rules. First, UEFA officials refined the FFP rule. Initially, the FFP rule simply stated the broad outline of “spending less than revenue,” with little detail. In 2015, UEFA released revised FFP rules, which the soccer world welcomed. The most notable change was the refinement of the allowable deficit, which was capped at €45 million until the 2018-19 season and €30 million after the 2018-19 season, with violators banned from participating in UEFA-organized competitions. These changes were seen as a step in the right direction for clubs that have experienced financial upheaval. Secondly, in the area of affiliate sponsorship agreements, which has been the most criticized, UEFA has stipulated that contracts with entities linked to the club’s owner or local government will be considered insider trading if they exceed 30% of the club’s total turnover. This is an amendment to the rules to prevent excessive capital from being funneled into a club in the name of sponsorship, although it does not prohibit it outright, given the circumstances of clubs that need sponsorship deals.
However, despite these amendments, the FFP rules still have many loopholes and remain controversial. A prime example is the Kylian Mbappe transfer mentioned in the introduction. How did PSG manage to sign Mbappe without being sanctioned by the FFP rules? PSG utilized a loan transfer. While a normal transfer involves paying a transfer fee to buy a player outright, a loan transfer involves renting a player for a period of time. Mbappe’s contract with PSG included a clause that said, “After a one-year loan, if PSG are not relegated, the player will be bought outright for a transfer fee of approximately £166 million. Since PSG is a top-tier French club, it is virtually certain that they will not be relegated, so this clause is effectively saying “we will pay the transfer fee after one year,” and PSG has gotten around the FFP rule, which calculates revenue on a one-year basis.
As you can see, the FFP rule is still necessary, but it is also criticized. However, UEFA has been steadily revising the rules since 2015, and European clubs are slowly starting to adjust their spending to comply with the FFP rule. As it remains an integral part of European soccer, UEFA will need to listen to the various criticisms from the soccer world in order to come up with a more complete set of FFP rules.
