New UEFA Rules – It’s a Start… I Guess

Posted: May 28, 2010 by mcdonaldtaf in Business, Finance, Liverpool FC
Tags: ,

The full draft of UEFA’s financial fair play regulations will be available in June. I shall be waiting to download  and work my way through the document with bated breath. In the meantime, what do we know?

Well UEFA will take steps to make sure that football clubs live within their means. Small losses over a three-year period will be acceptable but in the main no club, if it wants to compete in European competition, will be able to spend more than it generates in income. That is the main thrust of the new regulations. So what will this do to our game? Well I suspect it’ll either do very little or it’ll end up affecting the fans yet again; it’ll probably be a mixture of both.

UEFA want clubs to live within their means, potentially bringing the ‘sugar daddy’ era to an end. Clubs will no longer be able to spend more on player acquisitions and wages than it generates in income. That income though includes sponsorship, so the key question is – what protections are in place to stop Abramovich sponsoring his own club for a season to allow additional income to be pushed into the club? But that’s fine some will say at least that is income and not debt on the club, I’ll come back to this with a seemingly preposterous notion in a minute.

I’ve seen very little mention of a football club’s holding company anywhere. The focus appears to be on the club and not the holding company. Just as holding companies came to the fore as a way round FA rule 34 (which restricted the amounts of dividend payments clubs could make) they surely will just become a vehicle to hold the football club’s debt. Now on the plus side, it does mean that if a holding company fails the subsidiary football club should be in ‘good running order’ and therefore more likely to find a new buyer quickly. However, there would still be the upheaval, possible points deduction and resulting worry, as the club in these cases will usually be used as security.

Then there is my preposterous notion, what’s to stop the holding company becoming a club sponsor? So the holding company acquires the debt and then funnels the money into the club, which is security for the debts, as ‘sponsorship income’. One thing is for sure the business brains of this world will have already considered the best way to circumvent whatever rules UEFA imposes. When I say this idea is preposterous I find myself thinking that so much about football these days is. It’ll just fit nicely in there won’t it?

Don’t be too surprised if we also see upward pressure applied to ticket and merchandise pricing as well, especially at clubs in Liverpool and Manchester where grounds can be filled and tickets are lower than in other areas of the country. Well you want success don’t you… here’s the bill. Yes, the fans will again have to pick up the tab.

I just don’t think UEFA’s new rules have enough teeth. Maybe more than the FA (at least UEFA are trying to do something) but nothing good enough, from what I’ve read to date, to actually place football on a firmer footing. What will any regulation body do about the high debts of the country’s two most successful clubs? They seem to be leaving it to the fans. Well I get the sense that the fans are getting to the stage where they’re willing to hit their club’s ‘fat cat’ owners where it hurts. They keep pushing us further and further and at some stage in the future merchandise sales will be hit, ground attendance will fall and their sponsorship and TV money will be in jeopardy.I’ll be sharing my research into Liverpool FC, from earlier in the year, with you all shortly. In the meantime here’s an interesting snippet to think about when you consider our club has to maximise its revenues. 13% of fans have or would stop going to the games and 46% have or would stop buying merchandise. Only 6% would take no action while they were unhappy, and a happy Liverpool fan is hard to find these days!

We may not run the sport or the clubs but ultimately we will be forced to have the final say.

Update 16:13 28/05/10 – Someone tweeted me this which is an excellent blog I have read before. It addresses some of the issues I have addressed above and makes the rules look a lot more comprehensive than I first thought. I’ll continue to reserve judgement till they release the full document mind!

  1. Seanxxp says:

    Yes I agree. It is a start, and will have some impact. I really think we have reached the high water mark in terms of spending for the vast majority of clubs.

    • mcdonaldtaf says:

      I’ve been reading David Conn and it’s amazing how long these things have been going on and how football clubs will always find a way around regulation.

  2. Seanxxp says:

    By the way, Radio 4 did a special episode of The Report on football and debt. Was a few weeks ago though so not sure if it will still be available. I have the file though so could maybe email it, if 12.8 MB isn’t too big for an attachment.

  3. Sam Wanjere says:

    I’m also concerned about such vehicles as Kop Holdings potential of lumping debt on clubs. This is indeed a start, but how good this start is can only be seen a while from now. I wonder if the likes of Man City will be able to have harmonized their finances by 2012.

    Shouldn’t UEFA’s rules have included asking (or commanding) local FA’s to carry out due diligence on potential owners? I’m sure if that was so the likes of G & H would never have “bought” Liverpool.

    It is also true about clubs learning to live within their means, and not spending more than they make – just like humans in real life. However, what I truly wonder is how leagues such as Spain’s get affected. This is a country where the government actively participates or even manages to bail out a near bankrupt club. English clubs have been getting away due to their asset base (thus boosting club value) and income streams which are considerable.

    The concept of salary caps should also be borrowed from the US (and Bundesliga I believe), where club spending is tied to income but guidelines are issued on big spenders in a bid to rein in runaway expenditure on players. This can also make the league competitive and bring in a measure of equity. In cases such as basketball, it might force club management to become innovative and shrewd in player purchases rather than rely on finances to move the club ahead of rivals.

    I commend UEFA for this start, even though I believe it’s long overdue (even late in the case of some clubs). I feel the FA’s have been asleep and cannot be absolved from blame. It’s a start nevertheless.

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