Financial Fair Play

Financial Fair Play - the future of football

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 Will Manchester City pass the FFP test? 17 May 2012

Following the dramatic events at the Etihad, I have received lots of interest from people asking the same question: “Will City pass the Financial Fair Play test?”  To answer this question you need to make a large number of assumptions about the club’s footballing and financial performance.  The assumptions that I have used are outlined in the Notes section but in summary they include the following main assumptions:

• City continue their success and win the Premier League, FA Cup and reach the Champions League final next year

• City continue their extraordinary 25% year-on-year growth in Commercial income (topping £100m in 2012/13)

• City make no major sales or purchases next season (this prediction is probably unlikely but it provides a base to work from).

As with all projections, there are huge number of variables and each one is open to challenge.  However the club accountants will also be wresting with many of the same predictions regarding, League position, Champions League performance, and even the Euro exchange rate.

 My projection has City failing the FFP test for the first Monitoring Period by £63.5m. See also the technical note below under heading Annex X1 regarding this figure.

I have used a mixture of known information and 'best case' assumptions for the projection.  If I had assumed a less successful season where City only reached the last 16 of the Champions League, did not win the FA Cup, City would be £32m worse off and would fail the FFP test by  £95.5m.

This article continues in two parts - part one  part two

Readers can post comments at the end of the pages - please post comments at the end of part one.

UEFA Financial Fair Play rules explained in 6 minutes

I have uploaded a new video that explains the UEFA FFP rules in just 6 minutes. 

Football Financing in the Premier League 11 May 

Now that all clubs have finally published their accounts for last season (Liverpool being the laggards), UK newspapers are starting to produce their analysis of the finances of the Premier League clubs. 

Matt Scott in the Telegraph produced an in-depth analysis of club accounts, including net transfer spending (something that isn't easily identifiable).  It is highly recommended.

James Lawton in the Independent wrote a very interesting article about the lack of governance in the Premier League and also published a table of club debt, which I have re-ordered and shown below.

There are a few interesting things to notice. For all the jibes directed towards Man City, it is important to recognise that the owner doesn't load debt onto the club (the £41m shown above  appears at the end of the accounting period and the owner will pay-off any underlying debt by buying equity in the club).  Wealthy benefactors such as Abramovic, Ashley (Newcastle) and Al-Fayed (Fulham) have still not yet converted the club debt to equity (a pattern generally repeated at other benefactor clubs).

Falling Euro makes it harder for English clubs to pass FFP test 7 May 2012

UEFA's Financial Fair Play rules spell out how much a club is a able to lose and still comply with the FFP financial requirements.   The figures are all documented in Euros.  Clubs struggling to comply with the rules will have noticed that the falling Euro is making the task much more difficult.

 The chart above shows how much the Euro has fallen since its July 2011 peak. The first and second Monitoring Period limits have fallen by almost £4.5m..

It remains to be seen whether UEFA will be lenient with English clubs who miss the targets because of exchange rate fluctuations.  Premier League clubs could argue that the goalposts have moved since they signed up to the rules.

UEFA might point out that any Premier League clubs buying players from the Eurozone will benefit from lower transfer fees as a result of the Euro's exchange rate slide. There could however be a considerable benefit for any club that has agreed a number of player contracts that are denominated in Euros.

The Bundesliga - a vision of the Premier League future? 2 May 2012

Although this site takes a generally positive view towards UEFA's Financial Fair Play rules, it is important to appreciate that the changes carry some risks for the Premier League.

 Note: the 2011/12 positions are as at today's date and could well change a little by the end of the season. To keep the scale comparable, relegated clubs are shown bumping along the bottom of the graph, rather than in their actual league position.

Note, German points are adjusted for the 4 fewer games in the Bundesliga.

Looking at the League positions of the FA Cup winners and the German cup (the DFB-Pokal), we see that the German cup again provides more variety than in England (especially amongst the winners).  Whereas only one club outside the top 4 has won the FA Cup in England (debt-fuelled Pompey), 3 clubs have achieved this result in Germany.  The runners-up have achieved broadly similar league positions in both Leagues.

 Although this presents a more comforting view of the future, there is one notable differences between the two national leagues; debt. When FFP is fully up and running in the Premier League, a large number of teams will have significant historic debt issues to contend with - this simply  isn't the case in Germany.  There is a risk that the cost of servicing debt may restrict clubs ability to compete  and generate even less variety of league position we currently have in the Premier League.

Fans may be kept in the dark over Football League FFP transfer embargoes 1 May 2012

The newly announced Championship and League 1 & 2 Financial Fair Play rules rely on the use of a 'transfer embargo' as the main sanction for overspending clubs in the Football League.  The first transfer bans for League 1 and 2 clubs under the new rules will commence from the start of next season (2012/13).  However the Football League have confirmed that fans may be kept in the dark about any transfer ban imposed on their team.

Financial Fair Play rules introduced into the Championship 29 April 2012

Championship clubs have voted 21-3 in favour of introducing strict new Financial Fair play rules.  Clubs that overspend will be punished with a Transfer embargo. The details are attached here.

Plans to introduce a model that restricted clubs to spending a percentage of their turnover have been abandoned in favour of 'breakeven' model that restricts the level of losses a club can make.  In the face of practical and legal challenges (outlined in my previous article), the first sanctions will not now be in place until 1 January 2015, in the form of transfer embargoes.

The rules introduce the new 'Fair Play Tax', whereby clubs that overspend will have to pay  'Tax' that will then be shared out amongst the clubs that comply with the rules and remain in the Championship.  The introduction of this tax is dependent approval from the Premier League - gaining their approval is likely to be very difficult.  Reading, Southampton (and Leicester) voted against the proposals - this suggests that PL clubs may well not vote in favour of the Fair Play Tax.   However, this uncertainty only leaves the Fair Play Tax in doubt - all the other rules have been agreed.

Any club relegated from the Premier League will be exempt from the rules for one year - it will then have to comply fully or face a transfer embargo. It is probably this rule that will worry Premier League clubs the most as it makes it more risky for a club to spend heavily in an attempt to 'bounce-back' immediately.  There are a number of exclusions in the new rules, but Premier League clubs will have noticed that the cost of servicing existing debt is not amongst them. Some clubs, such as Aston Villa and Bolton, routinely pay around £5m a season to pay interest on their debt; the new rules will make life in the Championship particularly uncomfortable if the can't escape in the first year after relegation.

Interestingly, any promotion bonuses are exempt from the FFP calculations - we may see clubs structure their wages so that promotion bonuses make up a larger percentage of total pay.

Transfer Bans to be imposed next season in League 1 and League 2 29 April 2012

League 1 and 2 clubs have agreed to continue the Salary Cost Management Protocol (SCMP) and impose transfer embargos on overspending clubs from the start of next season (2012/13).

Scottish Premier League to impose "newco" rules following Rangers collapse 25 April 2012

The fall-out from Rangers financial collapse continues. Scottish Premier League (SPL) clubs will vote on new rules at the end of April that would be applied if a club enters Administration or if it suffers liquidation and is replaced by a new club (or "newco").

In future, any club entering administration would be docked 15 points (or 1/3 of their points at the time of the insolvency event, if that is a greater number of points).

Significantly, any "newco" would also be docked 10 points from the start of the next two seasons and would lose 75% of their SPL payments for the next three seasons.

On top of this, there is the UEFA impact.  UEFA require a club be a going concern, submitting accounts for three seasons before they are given a license to compete. Although Rangers have lobbied UEFA on this issue, it appears that a "newco" would effectively also suffer a three year UEFA ban.

Clubs would also be liable for any fine and/or transfer embargo imposed by SFA - Rangers have been hit by a fine for financial transgressions and had a 12 months transfer embargo imposed.

City's FFP challenges and the implications for UEFA 19 April 2012

There has been a great deal of interest recently in whether Manchester City will pass UEFA's FFP test for the first Monitoring Period. The debate merits an explanation of how the FFP rules will apply to City and the implications for the club.

The first UEFA Monitoring Period covers the two seasons either side of the 2012 Summer Olympics (the 2011/2 and 2012/13 season. Clubs have to report losses below E45m (or £38m) over this two year period (i.e. an average loss of no more than £19m a season).  UEFA has 8 available punishments for a club that doesn't pass the FFP test and any punishment would commence from the 2014/15 season.   Although City lost £196m during the 2010/11 season, we won't know the scale of the loss for the 2011/12 season (i.e. the first season included in the Monitoring Period) until they release their accounts in November 2012.

At first glance, reducing season losses from £196m to £19m might look like an unachievable task for City.  However I should direct readers to the excellent Swiss Ramble blog where he posts a detailed break-down of how City could possibly bring the losses down to just -£14m for the 2011/12 season.  For the 'Swiss Ramble' scenario to work, everything would have to have run in City's favour (including £10m transfer fees that don’t seem to have been achieved this season).  Although it would be a brave (or potentially foolish) person to argue with Swiss Ramble’s figures, for the 2011/12 season there is rather gaping hole for City in respect of the 2012/13 figures (the second year of the first Monitoring Period).  

As Swiss Ramble points out, for the 2011/12 season, the FFP Break Even rules allow clubs to exclude wages for players signed before 1 June 2010. For City this equates to around £53m and is a key factor in the club reducing their debt close to UEFA’s permitted level.   N.B. UEFA’s wage exclusion is so crucial to this debate that I have attached the relevant text from the rules at the foot of the page.

However, this wage exemption only applies for one season only (2011/12). When calculating the deficit figure for the 2012/13 season, all wages must be included, irrespective of when the player was signed. City therefore have to include the £52m wage cost in 2012/13 and, all things being equal, this would push the projected loss up to around £67m for that season (or roughly double the permitted Break Even Deficit for the two combined seasons of the Monitoring period).

It therefore seems almost certain that City cannot meet the FFP requirements for the initial Monitoring Period.   

But “what about the record-breaking Etihad deal?” I hear you cry.  The £40m a year from Etihad will certainly help the club and, in time, could generate significant commercial income. However the receipts from Etihad have been included in Swiss Ramble’s projection and are unlikely to generate material additional income during the first Monitoring Period.

So, with City seemingly set to fail the Financial Fair Play test, we need to consider how UEFA will react.  For most people, the key question is whether UEFA will ban City from UEFA competitions.  Of course, no-one really knows which of their 8 available sanctions UEFA will impose. There are many contributing arguments on either side of the debate - there are factors influencing UEFA to act leniently but also many factors pushing them towards the harshest of punishments. Rather than speculate, I have outlined the main arguments and rationale for both positions: 

UEFA will be lenient because:

• City have fairly modest debts (£43m) and debt is the most important issue in European football.
• Banning a top English Club (potentially the English Champion) would devalue the UEFA competitions.
• There are a number of clubs who look likely to fail the test - if too many are banned, the competition is devalued
• Platini is likely to find life uncomfortable if a number of the top European clubs are banned - City may have safety in numbers and gain new allies with other clubs struggling to comply.
• City's losses are trending in the right direction - UEFA will consider this as a mitigating factor.
• UEFA are keen to phase-in the FFP rules so may be more lenient in the early Monitoring Periods
• UEFA are required apply penalties in a fair and consistent way – it might be hard to exclude one non-compliant club whilst imposing a lesser punishment on another club that fails the test.
• By Excluding a club, the punishment becomes self-fulfilling – a club that doesn’t receive the £25m-£50m of Champions League money is much more likely to fail subsequent Monitoring Periods.

UEFA will react harshly because:

• There is a genuine concern in UEFA over the high levels debt and the amount of losses clubs are making.Platini has staked his reputation on FFP and has too much to lose by backing down. 
• Platini and general secretary Gianni Infantino seem to be giving progressively more stern pronouncements on FFP. Recent statements included " There'll be no backtracking","  and "We (at UEFA) probably won't be popular but we have to do it, otherwise football will be destroyed"
• FFP is supported by most UEFA members.
• FFP is now an embedded part of the UEFA DNA.
• Platini will probably fail to win the FIFA Presidency in 2015, if he abandons FFP as he needs European support
• City look set to miss the Break Even Deficit figure by a significant margin.
• City have not had much success in Europe and a ban would probably not have a huge impact on the competition's credibility.
• City (and Chelsea) are not popular in Europe amongst other clubs.
• The German clubs cannot make losses and are very much oppose to the wealthy benefactor model and City in particular.
• The European Club Association (effectively the Trade Association for the top clubs) is headed by Rummenigge (one of the most outspoken opponents of City who even called for the club to be banned).
• The European Commission (EC) approved the FFP rules (and even said they felt they were a good thing). Any club wishing to challenge the legality of FFP will need to go to the EC.
• This year UEFA has significantly bolstered its legal department to ensure it can beat any legal challenge.
• City are likely to be one of the more serious FFP transgressors, probably standing out from other clubs that fail the test.
• Excluding City would present a fairly easy way for Platini to appear tough and serious on this issue.
• UEFA is required to apply penalties in a fair and consistent way - Exclusion is a penalty that may well  meet this criteria
• England's relationship with world football is far from ideal.

UEFA FFP Wage Exclusion paragraph: Annex XI (page 85)

 UEFA issue clearer FFP explanation 15 April 2012

The full UEFA FFP rules have been criticised as being overly-long and difficult to understand. To overcome this, UEFA have issued a summary guide which they distributed as part of a press pack.  It is recommended reading for anyone wanting to gain a better understanding of Financial Fair play. I have attached a link and have also put this on the FFP Explained page.

 FFP for Championship proving unexpectedly difficult and facing punishment delays 5 April 2

Football League proposals for the introduction of Financial Fair Play rules appear to have run into difficulty and a delay in implementing the rules looks increasingly likely.

In June 2011, the Football League (FL) announced that Financial Fair Play rules would be introduced into the Championship from the 2012/2013 season.  The FL set out a schedule that would have seen the proposals circulated and then ratified at their Quarterly Meeting of all 72 clubs in February.   However, the February date has been missed and clearly things haven't gone according to plan. When contacted, the Football League advised that the FFP proposals "are still being looked-into".  As the rules will need to be circulated, ratified and put in place by the end of July 2012, all the indications are that the implementation will now slip by at least a year.

The Football League faces a number of obstacles and even legal challenges in order to implement the new rules to curb spending.

The initial proposal was for Championship clubs to restrict their spending on wages to 60% of the turnover. Conceptually, this sounds fairly straight-forward.  However the devil is in the detail and some clubs are clearly not happy with the proposals - West Ham let it be known that they were considering a legal challenge as they felt the rules were unfair and would restrict a clubs ability to compete in the Premiership. Perhaps, somewhat missing the point of the FFP rules, it was also reported that West Ham also apparently "fear that transfer fees will fall in the Championship and League 1 and that ambitious clubs will be penalised".

The consultation process faces a number of challenges - one of them has been identifying who to actually consult.  Owing to relegation and promotion, turnover in the Championship is high (25% of teams leave the Championship each season), making it difficult to effectively consult. Potentially, the top half of League 1 and the bottom half of the Premiership should be involved in the consultation process. However this would dilute the input from the existing Championship clubs and, somewhat uncomfortably, allow clubs not in the Championship to have input to the rules of the division.

And then there is the thorny problem of how to punish clubs that break the rules - the initial proposal was for errant clubs to face a transfer ban as a first sanction, with possible points deductions for major offenders. As I outlined in the 4 April article, it will be difficult to impose fair and consistent  sanctions when financial targets that can be missed by one pound or tens of millions of pounds.

However as club accounts are produced retrospectively (i.e. they always relate to the previous season), there are difficulties in using historic figures as a deterrent.  In addition, any club living under a transfer ban for previous high wage-spend in the previous year might find itself shackled to their high-wage-earning players and unable to bring in cheaper replacements.  As an example of how complicated this issue is, it is worth looking at high-flying Championship club Southampton. They recently announced their results for last season (i.e. when in League 1).  They ran a wage-bill of 93% of turnover and lost £11.5m. However, this season they have increased their TV and Commercial income, sold Oxlade-Chamberlain and will probably come fairly close to Break-Even. Southampton also appear to be heading for the Premiership, where seemingly no punishment could be applied.   It would therefore be extremely hard to implement an appropriate and timely punishment system for a club like Southampton based on a rigid formula that could also applied fairly to Championship clubs and clubs relegated from the Premier League. The issue of how to handle clubs relegated from the Premier League highlights other problems, as Sports Lawyer, Daniel Geey explains, " it would be a very brave regulator to sanction clubs for breaching the FFP regulations for accounting periods when they were outside of the Championship".

There is also concern that the timescale for implementation has been too ambitious. Clubs in the Premier League were aware in 2009 that FFP rules were coming (the final rules being issued in 2010).  There is an appreciation that Championship clubs may need a similar time to adjust to the new financial restrictions (especially given the potential complexity of the rules).

It is important to remember that strictly speaking, no FFP rules currently apply, as such, in the Premier League. UEFA's FFP rules only apply to any club wishing to apply for a license to compete in UEFA competitions. Clubs are therefore not obliged to comply. Indeed it is entirely possible that the owners of some clubs will baulk at the rules requiring them to inject equity to cover club losses and may choose to rule themselves out of UEFA competitions.  The UEFA competitions are very much the 'icing on the cake' for Premier League clubs -the situation is entirely different for Championship clubs who face potentially complicated restrictions that will apply to their 'bread and butter' activity.

All this makes it difficult to envisage how the Football League can easily take FFP forward in the Championship. A more straight-forward approach may be called for, perhaps one that simply requires owners to convert losses to equity (or face a points deduction).  This approach would not be an entirely satisfactory solution as it would not address the issues around the wealthy-benefactor model and 'financial doping'. However, this alternative would at least impact on general spending levels and recent events suggest that increasing debt, rather than an excess of owner funds is the more pressing  issue outside the top flight.

Update: This article was used (with full permission) as the source for an article in the Independent on 5 April 

 http://www.danielgeey.com/UserFiles/FootballLeagueClubs.doc

http://www.dailymail.co.uk/sport/football/article-2002021/Football-League-sign-UEFAs-financial-fair-play-system.html

http://www.guardian.co.uk/football/2011/jun/08/championship-financial-fair-play

http://www.telegraph.co.uk/sport/football/teams/west-ham/8974105/West-Ham-considering-legal-moves-against-Football-Leagues-plans-for-financial-fair-play-rules.html

 UEFA publishes their 8 punishments for breaching FFP rules 4 April 2012

At the UEFA conference in Istanbul, UEFA ratified three more disciplinary measures for clubs that breach FFP rules.  As I outlined in my article on 7 Feb, five measures had previously been agreed at the Nyon Conference in January. The full menu of punishments now reads:

 Spending for a Competitive Advantage 1 April 2012

At the Soccerex conference in Manchester, one of football's foremost Administrators, Trever Birch  (with Leeds and Portsmouth on his CV), outlined how  "the Championship is a scene of carnage with clubs pursuing the Holy Grail of promotion, losing between £5 million £10m a year and a third of them spending over 100 per cent of turnover on wages."  Birch had previously explained that the problems at Portsmouth had resulted from the club aiming to gain a 'competitive advantage' by paying high wages.   I thought the attached graph from Cass Business School is relevant here and it shows how Premier League and Championship clubs' wage spend corresponds to league position:

As we would expect, the figures show that, in general terms,  the higher the wages, the higher the likely league position.  Once a club reduces its wage bill then it is less likely to achieve league success.    Interestingly, most 'outliers' are scattered significantly below the line and mainly amongst the clubs that spend less than the average.  These represent the clubs who spend below the average on wages and who suffer relegation-level failure on the pitch. This is interesting if we consider Birch's comments; any club that doesn't keep up with the average spend of their competitors becomes more likely to suffer catastrophic under-performance. This helps to explain the wage-escalation in the Championship and the Premier League; the risk of relegation is greatly reduced once a club pushes their wage-spend above average levels.  The problem with this scenario is that drives up the general level of wages - each year clubs need to spend more just to keep up with the average.

 UEFA close door on legal challenge and talks tough 29 March 2012

Last week was an truly excellent week for Platini and saw him secure approval from the European Commission to the Financial Fair Play rules. Platini has been concerned that any excluded club may challenge the legality of the punishment (hence he recently bolstered his legal dept) (see article from 16 March).  Approval from the European Commission was essential for Platini as he has now closed the door on any legal challenge.  He must have been delighted to see that they didn't just confirm the legality of the FFP regulations but went a step further and said that they supported the rules; "I believe it is essential for football clubs to have a solid financial foundation" said Joaquin Almunia, vice-president of the EC. As the attached article explains, any club wishing to complain about their FFP punishment has to take their grievance to ..... the European Commission.

Platini would have been aware of Commission's intention to approve the FFP rules when he gave his interview to AFP a few days earlier.  The statements from Platini are probably the toughest and most forthright pronouncements on his personal project: 

 " There'll be no backtracking",

 "We (at UEFA) probably won't be popular but we have to do it, otherwise football will be destroyed", 

Platini said he was prepared to be in the firing line if clubs that transgress were banned from European competition but he said the rules were "important for the legitimacy and popularity" of the game

http://www.independent.co.uk/sport/football/news-and-comment/platini-wins-ec-backing-for-financial-fair-play-regulations-7580682.html

http://www.football.co.uk/manchester_city/fair_finance_vital_for_football_-_uefa_s_platini_rss2146563.shtml

Analysis by www.financialfairplay.co.uk reveals the increased ticket price that clubs would need to charge if they were to manage on a 'break-even' basis and if the ticket prices were increased to account for the shortfall.  The study of Premier League finances reveals that fans receive match-day ticket subsidies averaging at £25 per ticket.  Although Man City's place at the top of the subsidy table will surprise few, the level of loss per ticket sold (£161) is somewhat shocking.  Perhaps more surprising are the unsustainable subsidies provided to Aston Villa and Bolton fans (£63 and £49 respectively).

At current levels of club expenditure, the ticket price-rise required by most clubs to reach break-even would obviously be unrealistic - current Premier League tickets are amongst the most expensive in Europe and fans are generally oppose to further real-term price increases.   

Clubs are searching for a competitive advantage through their overspend; they seek the riches of the Champions League and fight to avoid the financial wasteland of relegation.  Football fans are also fairly quick to encourage club owners to increase spending.  Antonov (the disgraced former owner of Portsmouth) pointed to the pressure from fans as key reason for the club's overspend - he explained that ‘it was "simply impossible" for Portsmouth to stay within its means and "satisfy supporters' expectations. Even at Arsenal, Wenger has frequently been urged to 'spend some money' (despite the club's recent profits being fairly modest). However, it is clearly the responsibility of the club management to ensure they resist excessive expenditure and run their clubs in a prudent manner.

It is important to consider the source of the funds for the 'ticket-subsidy'.  At Man City, Sheikh Mansour routinely injects cash to convert losses into equity - consequently the club has debts of £43m.  At Aston Villa, Randy Lerner has similarly converted £133m into shares - however the club also has long-term debts of around £130m owed to Lerner's family trust and has to service £6m in interest payments annually (the equivalent of around 12,000 Season Tickets). Relegation-threatened Bolton Wanders probably look even more precarious - they are £110m in debt, financed by £100m owed to Eddie Davies plus an overdraft facility with Barclays.  The club paid over £5m in interest payments last season (equating to around 10,000 Season tickets).

Ticket sales & Match Day Income) represents just one of the three main income streams for the club (the other two being Media/TV and Commercial income). Of the three, Media/TV income is the most important to all Premier League clubs -  again using Aston Villa as an example, the breakdown of these income stream elements in 2010/11 was, £21m Match Day, £54m Media/TV, £17m Commercial income.   It could therefore be argued that rather than a loss-making club effectively subsidising fans' Match Day tickets, it is, in part, the TV audiences who are benefiting from being able to watch a dazzling array of highly paid talent, whilst paying significantly below the market rate. As a counter-argument, it should be remembered that Sky are very astute and regularly test the market to ensure their packages are priced to maximise income without increasing cancellations. TV Football subscriptions are currently fairly expensive in the UK compared to other leagues -  for example Sky Deutschland offers a package showing every single Bundesliga game live, plus premium movies, for around £28pm (i.e. a lower price than the UK equivalent).

 Spanish Tax debt causes stir in Germany 20 March

Last week, questions were asked in the Spanish parliament about the amount of tax that was owed by Spanish clubs to the government.  The government was forced to admit that it was owed  €752m in back taxes (including €48m owed by Barcelona and €155m owed by Atletico Madrid).  The issue was quickly compounded by the Sports Minister Miguel Cardenel brazenly announcing that they were looking at ways that debt could be written-off.  The reaction from German clubs was fairly stinging: Bild's sports page on Tuesday ran with the headline "Will German taxpayers eventually have to fork out for Messi and Ronaldo?" 

 UEFA boosts legal dept to face FFP challenges 16 March 2012

 The German footballing model 15 March 2012

 Fans heavily subsidised by high-spending clubs 11 Mar 2012 

Chelsea  hit hard by AVB adventure 10 Mar 2012

Under FFP regulations the cost of acquiring a player's contract (i.e. the transfer fee) has to be written off over the life of the contract.  However, the same restriction does not apply to other contracts. The cost of acquiring a manager's contract (eg.  André Villas-Boas) can be written-off immediately as a one-off hit against that year's financial results.  When Chelsea sacked Ancelotti, they decided to write off the cost of paying up his contract AND the cost of the acquiring AVB's contract from Porto in the same financial year. This action resulted in a one-off expense of around £28m in accounts up to the end of the 2010/2011 season. They chose the immediate write-off because FFP monitoring did not commence until the start of the current season; Chelsea must have felt the impact of firing and hiring a new manager would not have an impact on FFP calculations. However, now that AVB has been dismissed, Chelsea are faced with daunting prospect of having to write down the cost of paying up AVB's contract (around £10m) plus the cost of buying-out a new manager's contract during the first year of FFP monitoring. Chelsea lost £71m during the 2010/2011 season and also faced with the expensive task of rebuilding an ageing squad  - this unplanned managerial cost has hit them at the wrong time and meeting the FFP requirements seems to be beyond them.

Sanctions to be ratified on 20-21 March in Istanbul 7 Feb 2012

The bell tolls for Pompey 2 Feb 12

If Michel Platini lies awake at night wondering about the wisdom of pressing ahead with FFP regulations, he might do well to consider events at Portsmouth.

Pompey went in Administration in 2010 having run up debts of around £135m. The club had adopted a wage structure that could only ever be sustained through cash injections from the Gaydamak family. Once the funds dried up, the club found they could not pay the wages and Administration followed.

In a recent interview with Express FM, CEO Lampitt advised that by the time the club came out of Administration, Pompey had managed to get the P&L account to a broadly break-even level.  However, when the club was then acquired by Vladimir Antonov (via a holding company called CSI), the club changed it's financial approach. Clearly not mindful of the lessons of the recent past, Lampitt proceeded to use a £10.5m loan (as oppose to equity) from CSI to boost the playing staff.  Players such as Huseklepp (£1.5m) and Pearce (500k) were purchased.  Within a short period of time, the club had yet again adopted a wage structure that could only be sustained through cash injections form their overseas owner.  When Antonov was arrested (for appropriating his Baltic banks’ customer deposits) Pompey found that once again they could not pay the player wages.  Lampitt points out that his spending was not at the same level as his pilloried predecessor Peter Storrie and that the Football League had also been taken-in by the Antonov’s ‘proof of funds’ documentation.  Although many fans believe he is culpable for their current plight, if the CEO is to be believed, Portsmouth have simply been extraordinarily unlucky.

At the time of writing, Pompey fans fear that the situation is so grave that the club may even by-pass Administration and simply be wound up.  The nightmare at Portsmouth illustrates the danger of ‘light-touch’ governance and will surely give Platini some comfort in his plans for a more prescriptive approach to football financing.

 Rummenigge calls for City to be banned - Mancini takes the bait 6 Dec 2011

 Novel punishment proposed for FFP breaches 26 November 2011

With a UEFA committee due to meet in January to determine the punishment tariff for FFP breaches, an interesting suggestion has been proposed by a blogger at http://www.maracanazo.com/ .  UEFA's previous plan to impose a transfer ban for certain FFP breaches seems to have hit the buffers (due to restraint-of-trade issues and the fact that control of player registrations rests with FIFA and national associations, rather than UEFA).  The enterprising blogger proposes that teams who enter the Group Stage of the Champions League (and Europa League) would be docked points based on the level of FFP overspend. The devil is always in the detail, but with UEFA seemingly having few tools in at their disposal to punish transgressors, we might not have heard the last of this idea.

 UEFA shelves Transfer Ban punishment 24 November 2011

The Telegraph published a significant FFP article which maintains that UEFA have had to withdraw one of the proposed punishments for exceeding the Break Even deficit. The use of a transfer ban was put forward as a favoured punishment at the ECA in September (see article below). However it appears such a ban would fail the EC's restraint-of-trade rules.  This seemingly leaves UEFA with only three options:

1. Levy fines as a punishment (however the irony of being able to buy your way out of the Financial Fair Play requirements will not be lost on many UEFA members).
2. Defer FFP until after Blatter retires from FIFA in 2015 and is replaced by Platini. 
3. Impose UEFA competition bans on the worst FFP transgressors 

Of the three options, UEFA may decide to defer FFP implementation and punishment, citing the Eurozone/recession problems as the reason behind the delay.

http://www.telegraph.co.uk/sport/football/european/8908065/Uefa-shelves-proposals-to-impose-a-transfer-ban-on-clubs-that-breach-its-financial-fair-play-rules.html#disqus_thread

 Media confusion over first Monitoring Period20 November 2011

For another example of how this works go to www.sportingintelligence.com:

http://www.sportingintelligence.com/2010/10/08/qa-on-financial-fair-play-and-the-mountain-man-city-have-to-climb-081005/

 City take downbeat tone on meeting FFP criteria 18 November 2011

  Platini discusses watered down punishments 15 Oct 2011

 Chelsea outline their plan for Financial Fair Play compliance 9 Oct 2011

 FFP catches Sunderland Short 5 Oct 2011

 Chelsea decision long overdue 4 Oct 2011

 Owners asked to dig deep 2 Oct 2011

 How to solve a problem like Carlos 28 Sep 2011

 Inter do not expect to meet FFP requirements 9 Sep 2011

 European Club Association sub-group proposes FFP leniency 8 Sep 2011

 Will the Etihad money be enough for City? 22 Aug 2011 

 Some clubs expected to fail FFP test 17 Aug 2011

 Record Etihad Deal12 Jul 2011

Barcelona sponsorship - from heroes to zeros 19 May 2011