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Financial Fair Play: Can UEFA's regulation change the game?
There has been much discussion about the introduction of UEFA's Financial Fair Play regulations, but how exactly will the new legislation impact football on a practical level?
Earlier this month, Deportivo La Coruña became the latest club to enter administration after failing to reach an agreement with the Spanish tax authorities and revealing that it had debts of nearly €100m. It was another stark reminder of the financial fragility that pervades football today and how quickly a club’s fortunes can turn sour.
Gracing the heights of the game in the early 2000s, Depor claimed the La Liga title in 1999/00 and became a regular feature in the Champions League. Indeed, during the 2000/01 season the club reached the quarter finals of Europe’s premier competition, eventually falling to Leeds United, a club that would ultimately suffer an even more dramatic financial fall.
Spanish Money Worries
Of course, Deportivo are not the only Spanish club to be suffering financially. Eight La Liga teams are now either under or emerging from bankruptcy protection. One of these clubs is Valencia, the team that eventually knocked Leeds out at the semi-final stage of the 2000/01 Champions League.
Under pressure from the authorities, Spanish football has promised to adopt stricter financial controls amid fears of an ‘economic coma’. These regulations include a collective agreement to ensure more equal distribution of the revenues currently monopolised by Barcelona and Real Madrid.
In Deloitte’s recently published Football Money League, these giants of world football ensured a Spanish one-two in earning for the fourth consecutive year, with Real Madrid becoming the first sports club to surpass the €500m revenue threshold over a single twelve-month period. Yet while Real and Barcelona revel in the riches generated by a history of success, others – including Jose Maria Gay de Liebana, Spain’s most prominent football economist – say that Spanish football will “kill itself” within five years unless the landscape changes drastically.
To combat the financial self-destruction that has become all too common in European football, UEFA have introduced their Financial Fair Play (FFP) regulations to force teams to balance their books and live within their means. With financial prudence now (supposedly) a prerequisite of competition, how will these unprecedented regulatory changes affect the game at a practical level?
Investment in Youth
By 2018, clubs are expected to bring their annual losses below £8.8m, but any money spent on youth development, infrastructure and training facilities will be omitted from the calculation. In England, additional measures designed to cultivate more home grown talent include the opening of St George’s Park, the introduction of the Elite Player Performance Plan (EPPP) and the latest television rights deal negotiated by Premier League executives.
Such strategic endeavours should encourage clubs to think more long-term and create an environment that facilitates a more organic approach to the development of talent. However, unless similar patience is afforded to the first team manager (the average tenure of whom is just 1.7 years according to figures from the League Managers Association), how likely is it that managers will be inclined to give youth a chance?
Pay As You Play
Last week, the Liverpool Echo reported that Liverpool have become one of the first clubs to adopt a new approach to player contracts with lower basic salaries and more performance-related bonuses. Managing Director Ian Ayre commented that, “If a player performs, then he will be rewarded…that’s the philosophy of the contracts we are offering and signing.”
Similarly, the Qatar Stars League (QSL), who manage contracts centrally, use Prozone metrics to inform their player remuneration strategy. The success of such innovations will inevitably be dependent on how performance is measured – football often mistakenly focusses on quantity over quality (for example, the distance a player covers in a game is rarely an indicator of effective performance). The more accurate and efficient these measurements are, the more effective these new contractual arrangements will be.
It’s also possible to place a performance-based valuation on a player, but unless such a valuation is adopted centrally by football’s decision-makers then clubs will always be prepared to pay over the odds for a player.
Enhanced Player Trading
Football continues to modernise its approach to player recruitment and the due diligence processes that underpin it. However, sports recruitment is continually challenged by the inherent uniqueness of the industry itself. Sports are unique in that players contracted to clubs are tangible assets. Moreover, they’re depreciating assets who will lose value as they mature past their optimum player age.
With FFP encouraging clubs to generate more revenue (and not just cut back), there will inevitably be a greater focus on ‘asset management’, the process of assessing the best time to sell a player during his talent lifecycle. By better measuring performance levels of players throughout their careers, clubs can make better informed decisions around player trading and be far more efficient in their transfer dealings.
Talent Migration
With FFP only regulating those clubs involved in European competitions, is it possible that we could see a mass exodus from the traditional ‘Big Five’ European leagues?
The rise of the BRICS countries (Brazil, Russia, India, China and South Africa) is changing the dynamics of power in world affairs, and it’s not unthinkable that a similar trend may begin to affect football. In fact, the relative strength of some currencies outside of the EU is arguably already having an impact on player migration.
Alexandre Pato’s recent move back to Brazil – in what are arguably the prime years of his career – is a good example of this shift. Last year Carlos Tevez came close to joining him at Corinthians for £40m and would have benefitted from having to pay a top tax rate of just 27.5%. Players such as Didier Drogba and Nicolas Anelka have already experienced Chinese football, while Russia’s Anzhi Makhachkala reportedly pay Samuel Eto’o €20m per season, making him the highest paid footballer in the world.
In the prevailing economic and regulatory climate, if these trends continue, it could well prove a struggle for European clubs to keep hold of their most talented overseas players in the future.
Competitive Imbalance
Respected economist Stefan Szymanski recently ran a simulation to hypothetically gauge the impact of FFP as if the rules had applied in the 2009/10 season. His conclusion that FFP will do little or nothing to improve the competitive balance among teams, preserving the current hierarchies. With the game becoming increasingly polarised on the field in terms of playing styles, if Szymanski’s simulation is accurate it would seem that the correlation between off-field finances and on-field performance is set to continue.
This may seem obvious, but there are alternative modes of organisation. If we look at the National Football League (NFL), the concept of a dominant champion that wins the Super Bowl over several consecutive seasons has become increasingly alien as the league's playing field continues to level out.
As one NFL official commented in an article by James Lawton, “the whole basis of NFL policy is to create genuine competition and every league regulation is designed to support this proposition…most NFL owners simply wouldn’t understand the possibility that a team could be crowned champions whilst running up losses of over £100m.”
This brings us full circle back to the plight of Deportivo La Coruña. When recently asked about his club’s slide into administration, Augusto César Lendoiro, Depor’s flamboyant owner, said, “None of this would have happened if we hadn’t wanted to win."
Pioneers in Performance Analysis, Prozone is committed to delivering analytical insights that go far beyond the traditional gauges of performance. Pushing the boundaries of what can be done with performance information, we are helping to drive the evolution of football analytics and change the way we look at football data.
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