Every summer, the same match is played off the football pitch, between rumors of an excessive transfer window and respect for financial fair play. This regulation, led by Michel Platini, then president of the Union of European Football Associations (UEFA), was introduced in 2011 in a context of high indebtedness of European first division clubs (7.7 billion euros) to impose a principle: do not spend more than you earn.
All accounting obligations issued by UEFA are valid for a period of three years. Over this period, clubs must not incur a deficit of more than 5 million euros, unless an owner makes up the shortfall within a certain limit, set at 60 million euros since the new regulations adopted in 2022 after the significant losses. due to the health crisis. A cap on “team-related costs” has also been introduced: in 2025, clubs will have to allocate 70% of their revenue to player and coach remuneration, agent commissions and transfer compensation.
The calculation of the balance of finances is carried out on the basis of “decisive revenues” (ticketing, sponsorship, sale of players, broadcasting rights, merchandising) and “decisive expenses” (salaries of players, coaches and other personnel, purchases of players, loan repayments, taxes). Investments related to the development of young players, women’s football and infrastructure are excluded.
Ten years after the introduction of the Financial Fair Play regulations, some teams, particularly in Europe’s top flight, have been able to play with the rule and develop circumvention techniques.
Read the column: Article reserved for our Champions League subscribers: “In the success of Manchester City, there is a part of sporting merit and that of financial doping”
The overvaluation of sponsorship contracts
Financial fair play limits the possibility of bailouts in the event of a deficit. We must therefore rely on revenue, including sponsorship, to be in balance. Even if it means “boosting” these amounts.
In June 2012, a year after its takeover by Qatar Sports Investments, Paris Saint-Germain (PSG) signed a sponsorship contract for five years with the Qatar Tourism Authority (QTA), controlled by the same Qatari emir. The amount, set at 200 million euros annually, according to the “Football Leaks” revealed by Mediapartis much higher than what is practiced in European football, especially since the counterparties are weak: no visibility on the jersey or at the Parc des Princes, only a mention of Qatar in the communication of PSG and participation in a promotional event once a year are required.
Read also: Article reserved for our subscribers After the “Football Leaks”, financial fair play in question
The Club Financial Control Body (ICFC) – responsible for verifying the accounts and sanctioning in the event of non-compliance – had this partnership evaluated by external firms, who estimated that it was not worth more than 3 million euros. euros. In 2014, the lawyer for the investigating chamber considered that the agreement was intended to “bending the rules” financial fair play. “Objectively, no one could defend that the contract was evaluated fairly”comments Jean-François Brocard, lecturer in economics at the University of Limoges. Finally, in 2019, PSG won before the Court of Arbitration for Sport (CAS) for a procedural defect.
Other cases of “financial doping” have come to light, notably at Manchester City, where the club’s owner, Sheikh Mansour, injected 2.7 billion euros after its takeover in 2008 through “bogus sponsorship contracts and various financial shenanigans”, according Mediapart. The English club was fined, the amount of which was negotiated with UEFA. The sanction of suspending the club from all European competition was canceled in 2020 by the CAS.
This decision did not prevent the organizer of the Premier League (the English first division) from launching an independent commission in February to examine alleged violations of financial fair play carried out between 2009 and 2018 by Manchester City.
Also read: Manchester City accused of breaching Premier League financial rules
The use of offshore companies
Another classic circumvention is based on the excesses of financialization: the use of companies registered in tax havens. “Thirty or forty years ago, money went under the table”, recalls Wladimir Andreff, professor emeritus in economics at the University of Paris-I-Panthéon-Sorbonne. Times have changed but the handling remains the same. The club pays part of the player’s income in a legal way, recorded in the accounts, ” but there is another part of the salary which is paid otherwise, by a shell company for the provision of services, for example”.
Read also: Article reserved for our Football Leaks subscribers: image rights at the heart of suspicions of tax evasion
In many cases, this is revenue from the commercial exploitation of a player’s or manager’s image. Between 2009 and 2016, Cristiano Ronaldo, then star of Manchester United then Real Madrid, collected nearly 150 million euros in image rights thanks to companies established in Switzerland and the British Virgin Islands, according to Mediapart.
The world
Special offer
Unlimited access to all our content from €10.995.49/month for 1 year.
Benefit
This financial package, developed by his agent Jorge Mendes, allowed the five-time Ballon d’Or to escape the taxation of his income by the Spanish tax authorities. In 2019, the Portuguese player was fined 3.2 million euros and a two-year prison sentence commuted to a fine of 365,000 euros. The striker had also reached an agreement with the Spanish tax authorities for 18.8 million euros.
Long-term contracts
In football, the permanent contract does not exist – with extremely rare exceptions. “In general, clubs rely on contracts of three or four years. Five years is rare.explains Pierre-Henri Bovis, a lawyer specializing in sports law, in The team.
However, since its acquisition by the American billionaire Todd Boehly in 2022, the English club Chelsea has been chaining long-term recruits: five, six, seven, even eight years. During the 2022-2023 season, the London club invested 611.49 million euros (for less than 68 million euros in sales) on the transfer market, five times more than the previous season.
These long-term contracts, authorized by English law, have the advantage of smoothing expenses from an accounting point of view. “We must separate cash flow and accounting”, recalls Pierre Rondeau, co-director of the Sport Observatory at the Jean-Jaurès Foundation. For example, French striker Christopher Nkunku, bought in June 2023 by Chelsea, cost the club around sixty million euros, but this sum is spread over six years, the duration of his contract. The longer the contract, the lower the annual accounting charge: this is the principle of amortization.
Read also: Article reserved for our subscribers Football: the new Chelsea develops its strategy with hundreds of millions of euros
“The downside is that if the player doesn’t perform well, you’re saddled with high salaries for the next six, seven or even eight years. (…) This can delay the evolution of the club ”tempers the professor of finance and accountancy of the university of Liverpool Kieran Maguire, on SkySports.
The exchange of players with overstated amounts
It is also possible to circumvent the rules of financial fair play with exchanges between clubs. This is the option chosen by FC Barcelona and Juventus of Turin, in June 2020, who exchanged two players: Miralem Pjanic joined the Catalan club for 60 million euros while Arthur Melo left for Italy for 72 million euros. In absolute terms, nothing is forbidden, but the deal is intriguing by the sums that many considered overvalued and by its timing: the formalization of the exchange took place a few hours before the closing of the accounts.
In accounting, the transfer indemnities paid are smoothed over the duration of the contract, according to the amortization rule. But income from a transfer is immediately and fully entered in the accounting year of the current season. By this subtlety, the accounting slate is more flattering than the reality of cash.
Juventus of Turin is accustomed to this type of transaction, especially since the signing in 2018 of Cristiano Ronaldo, which had weighed down the finances of the club (105 million euros in transfer compensation and 30 million euros annually). In October 2021, the prosecutor of the Italian Football Federation opened an investigation into 62 questionable transfers between 2019 and 2021, including 42 involving the Old Lady, concerning possible overvaluations in the value of players exchanged to balance or inflate their accounts. In this case, the Turin club was penalized with a 10-point penalty to be counted from the 2022-2023 season.
Declining accounting quality
Financial fair play was aimed at better financial management. The regulation has mainly led to shortcomings in terms of “ the reliability of financial reporting in an attempt to satisfy the conflicting financial demands of the two dominant stakeholders: supporters [qui désirent des investissements pour augmenter les performances] and the UEFA [qui souhaite des finances équilibrées] »concluded a group of Greek economists in a study published in 2016.
The authors studied the accounting management of 109 European clubs between 2008 and 2014, that is to say before and after the introduction of financial fair play. They note the increase in ‘earnings management’, an accounting method of presenting a company’s revenue in a better light, and demonstrate that the clubs had a less cautious approach in their accounting.
Finally, the researchers claim that the clubs used auditors with lower ratings than the four most reputable audit firms, the “Big Four”. Indeed, the latter (Deloitte, Ernst & Young, KPMG and PwC) “are less likely to compromise on audit procedures and are more likely to avoid excessive risk in audit engagements”.