UEFA’s new assessment rules come into force next Spring where the accounting periods of 2011-2012 and 2012-2013 will be the first to be assessed under the Financial Fair Play Rules (FFPR). The rationale behind the new rules is that clubs should not be allowed to spend more than they earn. Under the rules, clubs will also be given an acceptable deviation of up to €45 million over the two year period providing it is met by a benefactor.

In addition to this book balancing exercise UEFA is also hoping to indirectly encourage clubs to invest in areas such as youth development and stadia and training facility infrastructure. Championship clubs in England have also adopted a similar set of rules. The reality is that UEFA will be adopting a strict, no nonsense approach but clubs will no doubt find ways to channel their finances and comply with the new regulations.

A preliminary investigation by UEFA over the last 3 years discovered that 46 clubs across Europe would have failed the test which is based on breaking even. Out of the 46 clubs that would have failed the new test, 20 of them made losses of more than the acceptable total of €45 million over the 3 seasons in question. The sanctions for such clubs under the new regulations could be as severe as being banned from competing in European competition. Two English clubs (Manchester City and Chelsea) would have fallen foul had the rules been in place this year.

UEFA representatives have clarified that big spending clubs such as Manchester City and Paris Saint Germain will not be able cheat the financial fair play rules. Both clubs have struck lucrative sponsorship deals with companies closely associated with their owners. Etihad’s sponsorship of Manchester City’s stadium is worth £100 million a year over 4 years. UEFA also plans to rigorously scrutinise Pars Saint Germain’s €200 million a season deal with the Qatar Tourism Authority. The above sponsorship deals will be assessed on a fair value basis and if they are breached by related party transactions, the likely consequence will be the club having the amount deducted from the break even calculations.

The recent UEFA test exercise was based on the 3 seasons between 2008 – 2011, and despite the fact that Chelsea and Manchester City would have failed, the two clubs remain confident of tightening up their budgets and passing when the rules officially come into play. Manchester City recently showed losses of £97.9 million and although; following their Champions victory last season; Chelsea made their first profit under Abramovich they are expected to plunge back into the red again. Clubs ultimately hope to get round the new regulations as contracts with players prior to June 2010, investment in youth facilities and infrastructure development will attract some form of relief. The donation of David Beckham’s salary to charity during his time at PSG will also allow the French club to discount this amount from its assessment calculation.

Despite the potential loopholes, UEFA is keen to adopt a strict approach and avoid being seen as lenient. UEFA has already demonstrated a no nonsense approach in the past by excluding a total of 34 clubs including Malaga and Besiktas from European competition under the existing regulations. It is likely that UEFA will continue to adopt a similar stance under the new rules. Paris Saint Germain and Manchester City’s expert advisors know the full details and implications of the new rules and when they come into force.

The first potential sanctions period for clubs in breach will be 2014-2015. 630 clubs across Europe are subject to the new assessments. A promising aspect is that the gap between revenue and costs at European clubs has started to narrow for the first time since UEFA commenced its compilation of the figures. Recently released figures by UEFA has however illustrated that the clubs competing in European competition this season still have some way to go. The clubs would have had a combined break even deficit of €480 million in 2011.

..