UEFA introduced the FFP rule in response to concerns that reckless spending by soccer owners could drive up player salaries and lead to club bankruptcies. It limits clubs to spending within their means and aims to equalize and stabilize the finances of European soccer by preventing owners from dipping into their coffers. However, its effectiveness is still debated.
What comes to mind when you think of the most popular sport in the world? For most people, soccer is the first thing that comes to mind. European club soccer, in particular, has a huge following around the world, and with it, a huge amount of money flowing to European clubs. For clubs, financial security is crucial because it allows them to buy players from other teams and improve their level. The typical goal of a soccer club is to perform well in multiple competitions, grow its fan base, and increase the club’s revenue.
However, there are some clubs that don’t have these goals in mind, and instead run their teams to fulfill the greed of their owners. In some cases, the owners are so wealthy that they can afford to spend indiscriminately on players in order to have a lavish team, such as Chelsea, Manchester City, and Paris Saint-Germain. In the case of Chelsea, several world stars were brought in on expensive transfers because the owner wanted to own his favorite players, even though the manager hadn’t asked for them. Manchester City, which was mired in the lower half of the Premier League, has spent a lot of money on players after being bought by the Qatari royal family and won the league title. Over the past five years, the club has spent nearly $600 million on transfers, while releasing players has netted the club about $120 million, leaving it with a deficit of about $480 million in player transactions alone. Manchester United and Queens Park Rangers also lost $75 million and $225 million, respectively, on player transfers. While this kind of owner-driven transfer market has the side effect of driving up player prices, the most serious problem arises when the owner’s finances deteriorate rapidly or the owner stops supporting the club for personal reasons. In such cases, the club may not be able to recoup the money spent on player acquisitions, and in the worst case scenario, the club may go bankrupt. In fact, English Premier League club Portsmouth was relegated to the second tier of English soccer after its owner’s wealth led to reckless player acquisitions that bankrupted the club and resulted in disciplinary action from the English Football Association. Málaga of the Spanish Primera Liga also relied on its owner’s wealth to make reckless purchases, but eventually found itself unable to pay its players’ weekly salaries and was forced to sell key players to other teams. A player who cost $60 million was sold for $22.5 million the very next season, even though his performance hadn’t diminished.
To prevent this from happening again, UEFA (the European Football Association) introduced the Financial Fair Play (FFP) regulations on June 1, 2011. According to the FFP rules, each club in Europe must ensure that its spending does not exceed its revenue. Starting with the 2019-20 season, the threshold has been increased to €100 million, meaning that club spending cannot exceed club revenue. In other words, the main goal of the FFP rule is to prevent private money from entering the soccer game. If a club fails to comply with the FFP rules, it will be banned from participating in European competitions.
The benefits of the FFP rule include preventing clubs like Portsmouth from going bankrupt and leveling the financial playing field. Wenger, who managed Arsenal from 1996 to 2018, was a big proponent of the FFP rule, as he led the Gunners to the top of the league every year and actually made a profit on player purchases and sales over the past five years. This is quite an accomplishment considering the deficits that other top teams in the league have in player acquisitions. From Wenger’s point of view, being able to keep his team in the top tier of the league while making a profit on player transfers, he is a strong proponent of the FFP rule because it will make his team more competitive if other teams are forced to buy fewer players in order to avoid the same financial deficit. This position is consistent with that of other small and medium-sized clubs. The FFP rule has been welcomed by many as a way to level the playing field through financial equalization.
However, some have questioned the effectiveness of the FFP rule. The FFP rule aims not only to keep clubs in the black in terms of player transfers, but also to prevent owners’ personal wealth from being injected into their clubs. The main source of income for clubs is money received from companies through advertising sponsorship deals, and the idea is that if an owner signs a sponsorship deal for his team, the club’s finances will eventually be in the black, no matter how much money they lose on player transfers. Sponsorship deals are official income for the club, so the FFP rules don’t apply to them. Also, even if there were teams that were in fact in violation of the FFP rules, it’s doubtful that it would be possible to restrict their participation in European competitions. Teams that spend a lot of money on players usually have a lot of fans, and if they were restricted from participating in the competition, the competition would become less popular and UEFA, the organizing body, would suffer financial losses. This has led some to question whether the FFP rule could be implemented in practice.
Despite these doubts, the implementation of the FFP rule hasn’t hurt European soccer. Sure, some wealthy owners may be unhappy with it, but the financial stability of the game as a whole is more important than their grievances.
