UEFA Sanctions Clubs for Debt and Financial Fair Play: Update

Financial Fair Play Website

UEFA recently withheld prize money from a number of clubs who had qualified for UEFA competitions, but had overdue debts. Daniel Geey, an Associate with Field Fisher Waterhouse LLP, explains how these sanctions fit in with UEFA’s Club Licensing and Financial Fair Play regulations.

Introduction

Financial Fair Play (FFP) is entering into mainstream football conversation. At conferences, in newspapers and even in pubs, everyone wants to know the same thing (and has a slight bias depending on their club allegiances!); namely will it work?To answer that question, UEFA's recent press release when it announced it was to temporarily withhold prize money from teams that had overdue debts due (termed over due payables) goes some way to answering some important questions. Before such analysis is undertaken, here is a skeleton overview of the FFP rules.

Brief Background

• As part of its already functioning club licensing system, the break-even part of the FFP rules are to ensure a club, more or less, has to balance its books;

• At its heart is the break-even criteria. Each club that believes it can qualify for next season’s European competitions must, prior to the beginning of that season, apply for a UEFA Club Licence. From the 2013-14 season, the licence stipulations will include adherence to the FFP break-even rules. Until the 2013-14 season, there are no sanctions for breaching the FFP break-even rules;

• The FFP rules promote investment in a club's stadium, training facility infrastructure and youth development schemes by excluding such costs from the break-even calculation;

• UEFA FFP relates only to Champions League and Europa League participation, and not to domestic league participation. It should however be borne in mind that the Football League (FL) has just implemented its own version of FFP for the Championship and the Premier League (PL) is currently discussing various cost saving measures;

• The FFP break-even rules will start to bite from the 2013-14 season. The rules need to be borne in mind however from the 2011-12 season onwards, because the 2011-12 and 2012-13 season accounts are used to determine a club’s licence application in the 2013-14 season;

• Acceptable deviation is the term used to describe break-even. Acceptable deviation allows clubs to pass the FFP rule break-even test without actually breaking even. The acceptable deviation provisions allow a club with some losses over a certain number of seasons to ‘break even’ and therefore pass the FFP regulations.

Recent Developments

FFP is already in action and has allowed UEFA to sanction a number of clubs. As mentioned briefly above, the initial step is for all clubs wanting to play in UEFA competition to submit the required licensing documentation to their national football association (FA). The FA then makes the licensing decision which is then communicated to UEFA. UEFA, through its newly constituted Club Financial Control Body (CFCB) has the power to conduct club audits and ask further questions to ensure that the national FA approval/rejection system is applied correctly. If the Panel believes that the FFP rules have not been correctly applied, it has the disciplinary power to sanction clubs in breach. Bear in mind that FFP applies not only to ensure that clubs break-even, but it covers a wide range of licensing conditions, including requirements to ensure clubs pay their debts in a timely manner.

UEFA's CFCB has the power to sanction clubs for breaches of the FFP rules. Such sanctions include a reprimand, a fine, withholding of prize monies, points deductions, refusal to register players for UEFA competition, reducing a club's permitted squad size, disqualification from competitions in progress and/or exclusion from future competitions.Everyone that I have spoken to at UEFA is consistent in insisting the CFCB will sanction clubs who breach the FFP rules. UEFA’s general secretary, Gianni Infantino, has stated:

“We would bar clubs in breach of the rules from playing in the Champions League or the Europa League. Otherwise, we lose all credibility.”[1]

Sanctions as explained above, will take many forms. It should be stressed that it is far from certain that a club that breaches the FFP regulations will be automatically excluded. Although the above are all possible sanctions, it appears likely from the outset (from the 2013-14 season) that a raft of sanctions will be imposed and not just the harshest sanctions for breaching the rules. This is unless, presumably, there is a blatant flouting of the rules (i.e. someone posting a loss similar to Chelsea’s £140m loss in the 2004/5 season). High profile club sanctions should not be ruled out, but exclusion will certainly be saved for only the most blatant offenders.

UEFA's Press Release

Only recently, UEFA announced that it was to withhold prize money for clubs who had qualified for UEFA competition but who had 'overdue payables' due. It is important to stress that such sanctions are not about breaching the break-even criteria.[2]The withholding of prize monies by UEFA is for breaching the overdue payables provisions of the UEFA licensing regime (i.e. outstanding debts not paid at a particular time to other clubs, employees and social/tax authorities). The overdue payables provisions are part of the wider club licensing and FFP rules that are currently in force.Nonetheless, big clubs have been sanctioned like Atlético Madrid, Málaga, Sporting, Rubin Kazan, Partizan and Fenerbahçe. Many may suggest that this is a show of strength by UEFA - i.e. that it means business by imposing such sanctions. In addition, the Court of Arbitration for Sport (CAS) in the last few months has more or less upheld sanctions imposed by UEFA on Besiktas (a two year exclusion with the second year suspended and a fine), Bursaspor (a one year suspended exclusion and a fine) and Gyori (exclusion for two seasons with the third season suspended and a fine) for breaching the FFP overdue payables rules. The difference is that no exclusions have taken place for breach of the break-even part of the FFP rules yet, because the first monitoring period has not kicked in.At a time when some believed that the licensing regulations were merely window dressing, UEFA is showing that its regulations bite. UEFA has the power to sanction clubs and is sending out a strong message that certain overdue debts will not be tolerated. By comparison, when the break-even requirement comes into force (in 13-14), similar - if not harsher - sanctions, may well be applied.

Conclusion

As you can see, FFP is in force and UEFA is not afraid to sanction clubs accordingly. The most important question however is not whether UEFA will sanction clubs, but what the sanction will be. Clubs that breach the rules by small margins will be less likely to be expelled from UEFA competition. The proportionality or reasonableness of the sanction will then have to be weighted against the severity of the breach. Although that may not sit too well with some, it is likely to be the way that the sanctions will be applied.

[1] See www.guardian.co.uk/football/2010/aug/26/michel-platini-champions-league

[2] See www.uefa.com/uefa/footballfirst/protectingthegame/financialfairplay/news/newsid=1857626.html