The Champions League and Financial Fair Play, part II: Malaga, PSG and punishments

UEFA Champions League

Our two-part analysis of the UEFA Champions League and Financial Fair Play continues on Just Football.

In Part I we assessed Financial Fair Play and the ‘safe clubs’ – Bayern, Barcelona and Real MadridWe now take a look at the murkier side of FFP – the clubs under scrutiny from UEFA and the punishments being handed out for bending the rules of the new initiative.

Both Paris-Saint Germain and Malaga lost out narrowly in the quarter-finals of the Champions League. Both teams have invested significant amounts of money in their quest for Champions League success. While the pair might be on UEFA’s Financial Fair Play radar, the future looks vastly different for these two clubs.

PSG

Since the introduction of FFP, much of the talk and controversy has surrounded big spenders PSG. The Qatari owners have spent large sums of money on players like Zlatan Ibrahimovic, Thiago Silva and Javier Pastore with the ultimate aim of bringing European glory to the French capital.

Besides the well documented spending spree by the owners, it is the sponsorship deal signed with the Qatar Tourism Authority (QTA) that has caught everyone’s attention. PSG announced a four-year deal with Qatar Tourism Authority worth an estimated €150m per year, in December 2012.

Firstly, under FFP requirements, all “related party” transactions will be assessed and a fair value applied to the deal. While it is not 100% clear if the deal is with a related party, UEFA have indicated that they will assess the deal.

Secondly and of vital importance is the timing of the deal. The announcement was made in December 2012 and the deal reportedly agreed in December /January 2013. PSG however have included €125 million in revenue from the QTA in their accounts for the year ending June 2012.

It appears PSG have back-dated the agreement and UEFA’s panel of accountants will need to thoroughly scrutinise the recognition of this revenue.

“Although the club hasn’t posted formal accounts for two years they have had to provide figures to the DNCG [the organisation that oversees club accounting on behalf of the Ligue de Football Professionel (LFP)].  The DNCG publishes the account information.” [1]

PSG made a loss of €5.5 million for the year ending June 2012 despite the controversial inclusion of the €125 million revenue figure.

As things stand, UEFA will have their work cut out in assessing PSG’s figures and whether or not they are in accordance with the FFP break-even requirements. “PSG have to respect the rules, they want to respect the rules,” said UEFA’s general secretary Gianni Infantino.

It is also interesting to note the implications of David Beckham donating his salary from PSG to a children’s charity. While many have labelled it a PR move by “Brand Beckham”, PSG stand to gain within FFP as well. Under article 58-2 of the FFP regulations, expenditure “on community development activities” will be exempt from the break-even calculation.

PSG seem to have dodged a bullet with a potential further massive addition to their wage bill, thanks to the very generous David Beckham.

Malaga

As proof that UEFA are serious about enforcing FFP, Malaga have been banned from next season’s European club competition. The ban and an imposed fine are as a result of Malaga failing to settle outstanding debts to other teams, staff and tax authorities.

Like PSG, Malaga is also owned by a Qatari, Sheikh Abdullah Bin Nasser Al-Thani. However, while PSG’s owners have continued to invest money in the team and secure sources of revenue, Malaga’s Qatari owner has inexplicably ceased investing in his team.

Whatever the reasons for the owners sudden disinterest, the uncertainty as well as the punishment handed down by UEFA has thrown Malaga into turmoil. With no European football next season, Malaga faces the possibility of losing their most promising players. On top of that they are unlikely to attract any further big name players.

In what is a double edged sword, the punishment handed out by UEFA will have a severe negative financial impact for Malaga. While FFP advocates profits and reduced debt, the punishment for FFP breaches, results in the exact opposite.

Malaga, who are now seemingly bankrupt and unable to pay certain debts, have been slapped with a further fine by UEFA. More importantly, no European football for Malaga will significant reduce revenue. The Spanish club will earn less television rights income and experience a drop in match day income with no midweek European fixtures.

Malaga finished 4th in La Liga last season – the highest position in the club’s history. Their foray into the Champions League was meant to be the beginning of a new era.

Now after narrowly being eliminated at the quarter-final stage, they are in danger of slumping into complete obscurity. Malaga’s excessive spending has ultimately plunged the club into extreme financial difficulty.

Conclusion

UEFA have taken stringent measures to ensure European football does not plunge into the same financial crisis large parts of the world are currently experiencing. However an ongoing debate persists on whether or not Financial Fair Play is indeed fair and what the impact on football will be.

Sceptics are primarily concerned by the effect on competition by FFP limitations. Will well-established clubs now be protected from competition from non-established clubs with no access to external money?

Even if this may be true the unregulated market (prior to FFP) of football reflects exactly that sort of monopoly.

It comes as no surprise that three of the clubs in the Champions League semi-finals are in the top four in terms of revenue earned and market value. These well-established clubs continue to win, earn more money and grow in prestige while non-established clubs are unable to catch up.

Significantly, as mentioned above with regards to Malaga, the punishment for FFP breaches certainly needs addressing by UEFA. A concept that promotes long term financial sustainability in football is needed.

However, punishing clubs who fail to do this with measures that simply further enhance the chances of bankruptcy and negative growth surely cannot be the answer.

, , , , ,

3 Responses to “The Champions League and Financial Fair Play, part II: Malaga, PSG and punishments”

  1. Jeep
    April 23, 2013 at 9:36 am #

    Very interesting article…in England they tend to deduct league points as punishment for going into administration etc. This resulted in Leeds United being deducted 15 points and ensuring they’ll find it really difficult to get promoted for that season. Although this could thus indirectly result in a cashflow problem when playing in a lower league, it seems to be a better leveller to ensure the benefits they got from overspending is nullified and thus the rest of the league teams will regain the advantage they lost due to one team’s exorbitant spending. Not sure how Uefa/Fifa’s authority structures work, but enforcing a point deduction seems a more reasonable and accurate punishment for the “crime”

  2. Charles
    April 23, 2013 at 5:16 pm #

    Very unfortuante whats happened to Malaga although i do belive they might have a period to appeal and prove some solvency/liquidity. Fully expect all the big spenders like PSG and Man City to find ways around the rules. Very tough for Uefa to monitor this thoroughly all all European clubs.

  3. Claudio Sottoriva
    July 22, 2013 at 3:34 pm #

    Tomorrow (23 July 2013) in Rome, there will be a meeting to speak about the new book about the FFP rules edited Aracne editrice

    http://www.aracneeditrice.it/aracneweb/index.php/catalogo/area/scienze-economiche-e-statistiche/9788854861947-detail.html

    This is the first book about the FFP Rules edited in Italy (2013) and it is written by Paolo Lenzi and Claudio Sottoriva