Facing up to financial fair play

As Uefa’s financial fair play rules come into force, they are presenting a major challenge for some of England’s leading teams. Manchester United, just named as the world’s richest club by Forbes magazine, generate too much cash flow to be seriously troubled. Their commercial revenues alone are expected to break thru the £100m barrier this year. Sir Bobby Charlton has made it clear that they will not need to sell the naming rights to their stadium which he portrayed as an essential part of the club’s identity.

Other top clubs have pursued a strategy of keeping within the spirit of the financial fair play regulations in the hope that such prudence will pay off in the longer run, Liverpool and Arsenal being the leading examples. But the cautious strategy pursued by Arsene Wenger and the Arsenal board has attracted increasing criticism from Arsenal fans who have paid 6.5% more for their season tickets this year. They want silverware and they want it soon. This is a make or break season for Arsenal and Wenger.

No great surprise then that Wenger became engaged in a war of words with Mancheste City as it appeared that they might have found a way round the financial fair play regulations. City have concluded a sponsorship deal with Etihad Airways which, while it may not be worth the £400m figure that was reported, certainly exceeds the £100m a year long-term dealing Arsenal concluded with Emirates when they needed the cash to complete the move from Highbury.

More about the Manchester City deal in a moment. But first let’s consider the essentials of the financial fair play rules. I say the essentials because the rules are very complex and much depends on how they are interpreted. But in essence a benefactor like Sheikh Mansour at City will be limited to subsidising the club by €15m a year over the next three years.

This poses a big challenge for City as they made a whopping £121.3m loss in their last set of accounts and the results they are going to report in October could see that figure increase. Their response has been to develop an ‘aggressive’ strategy to increase their commercial income. It has gone up by 400 per cent, although at £32m it is only about a third of what is pulled in at Old Trafford.

Hence the deal with Etihad Airways which covers naming the stadium, kit sponsorship and the building of new academy facilities, all in principle legitimate sources of income under the fair play rules. Etihad are also considering building a call centre on the City ‘campus’ which would bring much needed employment to a deprived area of East Manchester. Wenger, however, portrays it as a ruse to get round the fair play rules and make them a dead letter, an argument that City has robustly dismissed as ill founded.

Uefa are alert to the possibility that clubs may conclude deals that boost their commercial income through sponsors linked to their owners and refer to a test of ‘market value’ that will be applied by their Financial Control Panel. Quite what this amounts to remains to be seen but presumably they would make comparisons with clubs of a similar size across Europe.

Having set up these rules, Uefa will look very foolish to say the least if they are not applied, although there are all sorts of face saving get out clauses such as losses being on a downward trend. If Uefa exclude too many clubs from the Champions League, the sporting and commercial value of the competition would be undermined.

But there is an incentive to make an example of at least one club and not one of the really top clubs like Real Madrid. What better possibility than Manchester City? Admittedly, another possible candidate is Chelsea who have failed to progress towards their break even target.

Manchester City are at pains to stress that Etihad Airways are legally separate from their owner. But this is quite a complex matter given the way in which the ruling family of Abu Dhabi organizes its affairs.

Nevertheless, any decision made by Uefa to exclude Manchester City would be open to legal challenge. Uefa would have to show that they had applied their rules fairly and consistently to different clubs and on the basis of appropriate criteria and evidence.

A bigger issue is the relationship of these rules to EU competition law. Uefa says that it is trying to level the playing field, but in fact their intervention may freeze the status quo with the same clubs sitting on top of the pile. Up until now it has been possible for a benefactor to intervene and revitalise a flagging club. Manchester City is a case in point, having at last won silverware in the form of the FA Cup this year. Fulham is another club that has been enabled to punch above its weight and has arguably contributed to the diversity and appeal of the Premier League.

So what would the stance of the European courts be? Much would depend on the specific case. However, the whole attitude of the EU institutions towards football was the theme of the recent EU and Sport conference in Nottingham where I presented on the Premier League.

You can find reports on the key papers on www.footballeconomy.com. However, what was evident is that there has been something of a change of outlook since the specific character of sport was recognised in the Lisbon Treaty. The courts seem to be willing to give more leeway to the governing bodies of sports to impose their own regulations, although it is a ‘supervised autonomy’ and does not mean that the provisions of competition law can be ignored.

Sports lawyers were out in force at the conference and their services will no doubt be called on over the next few years as the provisions of the financial fair play rules are tested in the courts.