The UEFA Financial Fair Play (FFP) rules, introduced transitionally on 1st June 2011, are designed to crack down on clubs over-spending, forcing them to limit losses, failing which, European Football’s governing body will have the ability to ban teams from Champions League or Europa League participation.

The aim of the rules is that clubs will move towards breaking even, promoting a level playing field of competition across the top divisions of clubs scattered around Europe.

Clubs shall be permitted maximum losses of 45 million euro in total over the 3 years commencing 1st June 2011. Thereafter, from 2014 – 2017, the permitted losses will be reduced to 30 million euro although it is envisaged that by this time, clubs will have implemented steps towards financial stability and genuine break even.

The recent transfer window was seen as the starting pistol for implementation of FFP and yet top flight teams spent £485 million on transfers on top of the £225 million spent during the January 2011 window, an increase of over 33% on last years spending.  This is despite Manchester United, Chelsea, Liverpool and Manchester City failing to meet FFP requirements at this stage.

It is unsustainable for the current spending rates to continue in light of FFP and it is anticipated that many more loan deals will be completed in future to help balance the books; however, there is room for manoeuvre for the clubs. Player acquisition costs are divided across the length of a player’s contract which still gives big clubs the opportunity of making big money signings; expenditure such as youth development, stadium infrastructure and community development will not count towards FFP; depreciation on tangible fixed assets will also be excluded.

There is also a financial safety net drafted into the FFP rules – if a club misses the break even target, it may still be granted a licence if it can demonstrate a trend of losses improving and that the over-spend is caused by wages of players contracted before June 2010.

Football is not immune to what is going on in the wider community but has demonstrated that it is resistant to it. Arguably, this has partially been down to football being a magnet to billionaires. FFP is likely to improve investment in grass-roots development, curb the continual rise in transfer fees and player wages and promote top flight leagues with a decreased disparity between differing financial positions of clubs which will inevitably lead to more competition on the domestic playing field.

For more information about the new rules or to speak to a sports lawyer about any legal issue, please don’t hesitate to contact us.