Financial Fair Play and the English Pyramid

An actual slide from the 2009 UEFA FFPR proposal powerpoint. Maybe.

You may have heard about the Financial Fair Play Regulations (FFPR). In the works since 2009, the rules are the sword which UEFA’s Michel Platini hopes will slay the dragon of financial excess in the European soccer economy. The legislation requires clubs to be financially break even or profitable without the help of cozy financing schemes (*ahem* ̶R̶o̶m̶a̶n̶  Sheik Mansour) while also maintaining or improving debt levels. The carrots offered to compliant clubs are reduced costs and financial stability, inducements which fall somewhere between an actual carrot and a package of underwear for Christmas. The stick that will compel clubs to fall in line is UEFA’s ability to deny entry to the Super Cup, the Europa League, and the Champions League. The glory and prizes are enough to give credence to Platini’s message: if you want to play at the highest level you will follow the rules.

Some doubt it, some are in denial, and some are depending on it, but FFPR is coming. What may surprise you is exactly where it is coming to and what will happen.

Meanwhile in the Championship…

We probably just saved England…you’re welcome.

In England FFPR was a concern only for those clubs which competed in Europe and those who aspired to take that honor from them. You already know this, but what you may not know is that in April 2012 the Football League caused agents everywhere to simultaneously struggle for air by announcing the adoption of FFPR-like rules for the 3 leagues (Championship, League One and League Two) and 72 clubs under its watch starting in 2012-13. The Football League has opted for a purely financial enforcement mechanism with a tax imposed on non-compliant clubs, including those which have left the Football league through promotion or relegation.

Prior to the announcement the only English clubs subject to FFPR were the group of approximately ten clubs which regularly competed for Champions League and Europa League spots;  the rest of the Premier League and the association clubs were free from financial constraints. The uneven regulation was troubling because of the possibility that rather than reining in spending the rules would just push the financial hijinx to other clubs. The Football League solved this problem by extending the rules to the remaining 72 professional teams, effectively closing off the entire English football pyramid to outsize spending.

What does this ‘Less Pay’ concept mean?

With 82 of the 92 professional clubs (10 EPL, 72 FL) in England subject to FFPR, expenditures are theoretically limited to the income brought in by the top four leagues. Should all go according to plan, clubs and supporters are the winners of FFPR at the expense of players and agents, at least in the short term.

Just found out his commission for the year

FFPR will cause a significant drop in club expenditures and the cuts will be achieved mainly through reduced player wages and smaller transfer fees. A need for a minimum number of players to field a team makes wage and transfer fee deflation (rather than a drop in personnel count) the likely response. Wages for upcoming players will be cut and existing players will see reduced wage growth as clubs readjust their budgets. It is also likely that there will be a push to reduce salaries and move toward pay-as-you-play models where more of a player’s compensation is tied to the matches and competitions played.

The biggest drop is likely to come in transfer fees as clubs pursue the same number of trades but with vastly reduced budgets. There will still be superstar transfers, but agents are going to feel the squeeze as the total value of players traded shrinks. In other words it’s not going to be a good time to be an agent in England unless your name is Kia Joorabchian or Pini Zahavi. Consider this, gross transfer expenditures by the Premier League totalled €639.3m (~£513m) for the 2011/12 season; if expenditures were to drop by 30% agent income would likely drop by at least €9.6m (£7.7m). This figure is likely on the low end as agent income is assumed to be only a 5% commission, with no extras from negotiation of image rights, bonus clauses, etc included. There maybe additional pressure for agents to lower fees as their clients contend with lower incomings of their own.

I’m not a player, agent or Roman Abramovich is this good or bad for me?

Universal adoption of financial regulations throughout the football pyramid is an undeniable positive in financial terms. But is what’s good for the balance sheet also good for the game? The main fear is that the rules will reinforce the status quo by taking away the spending power of aspirational clubs. While this is true in principle, in practice it only hampers the progress of clubs mining for success with market distorting expenditures (*ahem* Sheik Mansour). FFPR is much likelier to reward prudent owners and talented managers than to punish them, and that is something which loyal supporters have deserved for a long time. Hopefully it results in lower ticket prices as well.

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Financial Fair Play and the English Pyramid

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