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)
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