How financial regulation affects competition across Europe’s big five football leagues

Published 06 June 2014 By: Natalie St Cyr Clarke

Against the backdrop of the scrutiny of football’s finances, UEFA’s Financial Fair Play Regulations (“FFP”) and last year’s all-German Champions League final, Germany’s Bundesliga has been touted as both the “best” league and governance model.
While the two main ideals of a football club are entertainment/on-field success and financial stability, its primary drive will forever be the former. Nonetheless, historically, on-field success has more often than not correlated with the finances of a club.
Given that FFP applies to European competition only, this article will compare relevant domestic financial provisions affecting the “Big 5” leagues, namely England, France, Germany, Italy and Spain. I will seek to assess the impact of these financial regulations on the entertainment value and competitiveness of each league, thus using these as a proxy for “best”.

Club form and ownership 

Italy, France and Spain have “interventionist” national frameworks for sports regulation.1 In France, the Code du Sport requires football clubs to be companies.2
Since 1981, Italian clubs have been joint-stock companies.3 Initially, profits had to be reinvested in sporting activity but this was relaxed in 1996, permitting payment of dividends with surplus treated akin to profits of an ordinary company.4
Following the spiralling debts of football clubs in Spain in the 1980s, most became Sociedades Anónimas Deportivas or Limited Sporting Companies (“SAD”) in 1991.5 The aim of this enforced change was to “establish a model of economic and legal responsibility for clubs that develop professional activities.6 Clubs incurring no debt in the five years from the 1985/86 season were permitted to keep their non-profit form.7 The clubs that remain with socios, or members, are Athletic Club de Bilbao, Barcelona, Club Atlético Osasuna and Real Madrid.
This member association structure was previously obligatory in Germany. Following a decision by the General Assembly of the Deutscher Fußball-Bund (“DFB”) on 24 October 1998 clubs were allowed to outsource their football business to a corporate enterprise. However, 50 per cent plus one share of the voting rights of an established football company must be held by the football club’s member association.8
The exception to the “50+1 rule” is the Lex Leverkusen, which states that third parties holding majority shares may have majority voting rights if they supported the respective football club for more than 20 consecutive years and earlier than 1 January 1999.9 Through this rule, Bayer 04 Leverkusen and VfL Wolfsburg are owned/controlled by Bayer AG and Volkswagen, respectively.
By contrast, clubs in England’s Premier League are not required to have a specific legal form. There is, however, the “owners’ and directors’ test”, which determines whether or not a person should be disqualified from acting as a director of a club and includes such considerations as power to influence the management or administration of another club or football league club.10


Licensing systems exist in all leagues except the Premier League. In place since the Bundesliga’s inception in 1963,11 the Deutsche Fußball Liga (“DFL”) Licensing Committee12 examines each club’s fitness to participate in the league according to, inter alia, certain financial criteria.13 To prove economic performance clubs must submit an application to the Licensing Committee.14
Clubs in France are subject each season to control of their legal and financial situation by the Direction Nationale de Contrôle de Gestion (“DNCG”) to ensure financial capacities are not exceeded. Assessments are based on historical and projected financial data provided by the clubs.15
In Italy, the Federazione Italiana Giuoco Calcio (“FIGC”) acts as football’s licensing body through the Commissione di Vigilanza sulle Società di Calcio Professionistiche (“Co.Vi.Soc.”).16 It is supposed to act independently to ensure that clubs operate to minimum financial standards and ensure financial stability and the FIGC releases a bulletin each season detailing the specific requirements needed to participate in the championship.17
In Spain, clubs must present certain documents and budget projections to the Liga de Fútbol Profesional (“LFP”) in order to be licenced for the season.18 According to the LFP regulations, clubs are not permitted to have outstanding debts to other clubs at the close of the financial year.19

Tax, insolvency and other national laws 

Clubs are subject to the same national regulations as any other incorporated company. The financial governance regimes of each country will not be discussed in detail; generally, countries offer similar corporate laws and restructuring options to protect companies from creditors when in distress. I will therefore only detail provisions where particularly pertinent to football clubs.


A particular feature of restructuring in England is the Football Creditors Rule (“FCR”), which prioritises debts to persons or companies within football, i.e. debts to the football family must be paid off in full, whilst other creditors will most likely receive only a portion of money owed.20
In Spain, clubs in financial difficulty can utilise the Ley Concursal21 to defer payments and stay in business. The law permits clubs to enter into negotiations with creditors to pay back only 50% of the amount owed to creditors over a maximum 5-year period in order to retain company status.22
In 2012, Real Betis were allowed 10 years to pay its debts instead of the maximum five,23 with the judge noting that Betis, as a football club, has a special significance for the economy.24 As unsecured creditors, players will only obtain 50% of wages owed to them from Betis and the other 50% will come from the Guaranteed Wage Fund.
In Italy, the bankruptcy law, legge fallimentare25, has recently become more debtor friendly, having been changed to shift the focus from liquidation to reorganisation with a view of preserving the value of the business.26


Corporate tax 

The general rates themselves do not differ dramatically enough (around 30%) to warrant detailing each one (except in the UK, where the corporate tax rate is 21%).27 However, it is noteworthy that, in Spain, it was revealed that professional football clubs owed around €664m in unpaid taxes. 28 However, this figure did not include the unpaid taxes owed by the four clubs who remain as member associations. The exemption from the SAD transformation also permitted the four clubs to enjoy preferential corporate tax rates of 25% instead of 30%. In December 2013, the European Commission opened investigations into these tax privileges.29 

Income tax

Clubs in Spain previously benefited from the so-called Ley Beckham,30 permitting foreign workers to pay a 24% flat rate tax on income. In 2010, the law was amended to exclude earnings over €600,000 from benefiting. In 2012, the top tax rate for those earning over €300,000 was increased temporarily from 49% to 56%, thus subjecting almost all top-flight footballers to this new rate (NB the top rate of tax varies in each region).31
Elsewhere, rates are roughly the same; England’s top tax rate was reduced to 45% from 50% (effective from April 2013) on income over £150,000.32 The top rate of tax in Germany, which applies to income of more than €250,000, is 45%.33 In Italy, the top rate, applicable to income over €75,000 is 43%.34 
In September 2013, France’s government announced a package of measures including an exceptional tax on remuneration paid by companies; a previous attempt to implement a tax on wealthy individuals of 75% was invalidated by the Constitutional Court in 2012. The new tax of 50%, when added to the uncapped company social charges of about 25%, brings the overall taxation to at least 75%, for which employers will be liable.35
In December 2013, the Constitutional Court upheld this new tax, to be levied on income earned in 2013 and 2014.36 Football clubs threatened to strike in November 2013 but President François Hollande refused to exempt football clubs from the tax.37 

Football-specific Debt reduction measures


At the beginning of 2013, Premier League clubs adopted new domestic financial rules starting the 2013/14 season. The Short Term Cost Control is applicable to clubs with wage bills over £52m, £56m and £60m in 2013/14, 2014/15 and 2015/16, respectively. Increases of more than £4m on the previous season must be due to contractual commitments entered into before 31 January 2013 or costs must be covered by an increase in revenue and/or profits from player transfers.38
Dubbed the “Long-term Sustainability Regulation”, if clubs make losses in excess of £105m aggregated across seasons 2013/14, 2014/15 and 2015/16 it will be considered in breach of the Rules and the Premier League Board must refer it to a specially constituted Commission, who will hear arguments, including those in mitigation, and determine an appropriate punishment.39
Losses between £15m and £105m over the three seasons, will also be subject to tighter financial controls with the club providing Future Financial Information for three seasons and satisfactory evidence of Secure Funding.40 For losses of less than £15m, the Board will have to determine whether clubs can meet their liabilities.41


In July 2011, the General Assembly of the LFP unanimously approved new regulations on the economic control of clubs, which were added as Libro X to the LFP Regulations42 And were ratified by the Comisión Directiva del Consejo Superior de Deportes (“CSD”) on 17 May 2012. The objective, according to article 1 of Libro X, is to “promote the solvency of clubs and SADs of the LFP through the implementation of new parameters of supervision and control...
On 25 April 2012, the Ministry of Education, Culture and Sports, the CSD and LFP signed a protocol establishing a series of additional measures of control aimed at reducing the debt held with public bodies by clubs and SADs.43 On 30 January 2013, a further agreement on debt control was reached, preventing clubs from signing new players if it means the club exceeds its designated budget for the total cost of the squad.44

Effect on competition and entertainment value  

As mentioned in the introduction, success and competition go hand in hand with the finances of the club. Available funds allow for investment in stadium redevelopment, player purchases and wages.
For the 2012/13 season, 12 German clubs (down from 14 in 2011/12) posted a post-tax profit.45 Self-evidently, German teams (in the Bundesliga at least)46 are on the whole financially stable. However, it does not follow that Bundesliga teams have the money available to strengthen squads and attract word-class players. Bundesliga regulations did not prevent Dortmund being twice on the brink of bankruptcy, who in 2004 received a loan from Bayern of €2m to pay players.47
Despite the German league having the much revered 50+1 rule, Bayern are unlike other German clubs. Their nearest football rival and fellow 2013 Champions League finalists, Borussia Dortmund, has wages around a third of Bayern’s.48 Bayern have won 23 titles in 51 Bundesliga seasons, winning in record time this season.49 It also reels in lucrative commercial and sponsorship deals from German blue-chip companies; Adidas and Audi have for a long time been minor shareholders in its parent company.50 In February 2014, the insurance company Allianz acquired a minor stake in Bayern in a deal that is supposedly the largest business transaction in Bundesliga history.51 Only Real Madrid and Barcelona made more in 2012/13, with Bayern’s commercial revenue the highest in Europe.52
Hans-Joachim Watzke, CEO of Dortmund, believes that unless Bundesliga regulations are relaxed to allow more foreign investment, it will take almost a decade for other clubs to reach Bayern’s level; thus, there will be no wholesale German domination of European football.53 Bayern’s success therefore has not been honed by tough domestic competition on the field of play. Unlike other German clubs, Bayern cherry-picks the best talent both at home and abroad.54 It is therefore erroneous to link Bayern’s sustained success (indeed over the last 40 years) to either the 50+1 rule, the relative financial stability of the Bundesliga or the strength of on-field competition.
Similarly, in Spain, two clubs have historically been head and shoulders above the rest, both financially and on the field; their domestic and European success cannot be linked to a competitive or financially robust league. Atlético Madrid’s emergence as a third force in Spain is built on fragile finances. Atlético has crept into the Top 20 of the Deloitte Football Money League saddled with debts of more than €500m; its payroll for players and staff is more than 90% of annual earnings.55 Unless the success of the 2013/14 season is replicated, Atlético will be forced to sell players for funds and the duopoly in Spanish football will remain unchanged.
For this reason, despite Barcelona winning the Champions League three times since 2005 and Real Madrid and Atlético reaching the final of this year’s competition, the global interest in La Liga pales in comparison to the interest in the Premier League. England has six teams in the top 20 of the Deloitte Money League compared to Spain’s three. Consequently, the distribution of domestic and overseas broadcasting revenues cannot be ignored. Traditionally, Spanish football clubs have sold their broadcasting rights individually, whereas the Premier League has engaged in collective selling since its inception in 1992. The somewhat equitable distribution of revenue in the Premier League creates smaller financial disparities,56 enabling a broader range of clubs to acquire more talented players.
It appears the upward trend of interest in the Premier League will continue. Revenues have consistently been the highest out of the big five leagues and have grown significantly with the 70% increase in domestic broadcast revenue;57 however, despite the higher broadcasting revenues in the Premier League, many clubs have consistently posted losses.
As indicated in the introduction, the main purpose of a football club is to provide success and entertainment for supporters. Kuper and Szymanski believe that if a club wants footballing glory its goal should be reasonable solvency, not maximising profits.58 I am of the opinion that financial debt in football is in itself not a problem unless or until reckless and opaque dealings create a situation like Portsmouth’s.59 Whilst Germany’s financial stability is highly commendable, there is little latitude for clubs to increase their competitive edge.
That said, the Premier League’s introduction of domestic FFP, should provide more financial stability. The increased broadcasting revenue of £5.5bn over three years, will give the Premier League a higher spending power whilst addressing the crucial issue of reducing the wage to revenue ratio.60
By contrast, the outlook for Spain and Italy are not as positive as for the Premier League. Despite introducing measures to curb debts, many La Liga clubs have gone through insolvency proceedings;61 Spain’s bankruptcy law, allowing clubs to cut debts in half, and leniency in respect of football clubs’ public liabilities, foster a culture of recklessness, which impacts other clubs. By contrast, the Football Creditors Rule ensures that one club’s demise does not jeopardise the operations of another. Furthermore, the socio structure of Spain’s Barcelona and Real Madrid enables a lack of transparency and therefore more risk of fiscal irresponsibility;62 it is these two clubs that maintain interest in the La Liga as a whole and any threat to the viability of either could irreparably damage the brand.63
In Serie A, the regulations are sound; rather, it is their implementation and the lack of investment in Italian football, including buying new players, that inhibits growth and competition.64 Reflective of Italian corporate culture, family groups play a prominent ownership role, particularly in listed companies through holdings by other nonfinancial or holding companies. Hence, there is little evidence of separation between ownership and control,65 e.g. the Agnelli family (through Exor) owning Juventus. Nevertheless, Massimo Moratti’s sale of a 70% stake in Inter Milan to International Sports Capital, led by Indonesian Erick Thohir, could signify the end of the old family model.
Virtually all Serie A clubs owe money to the tax authorities.66 So prevalent was the culture of tax payment irregularities, Co.Vi.Soc had no option but to turn a blind eye.67 Additionally, Italian football is beset by corruption, violence and racism.68 The most high profile of these corruption scandals is the 2006 Calciopoli match-fixing scandal, leading to Juventus’ relegation to Serie B69 and the violence70 and racism71 both in and out of the stadium are well documented. There have been many instances of financial failure in Italian football, the highest-profile insolvency being Parma in 2004.72 Whilst the regulations do not restrict investment, the culture of lax corporate governance and the associated problems hinder clubs from attracting the very best players.
Moving on to France, Hollande’s effective 75% tax on wages will prevent the vast majority of clubs from funding their competitive aspirations. Like the Premier League, regulations do not impede the benefactor model, a la PSG and Monaco, allowing funding of acquisitions of the best players. France has traditionally been an exporter of players; however, the likes of Yohan Cabaye returning home no doubt has boosted PSGs profile. The effect of this will go one of two ways; either PSG’s possible European success will boost interest in Ligue 1 from both fans and players, or a Bayern-like situation will be created, whereby PSG’s (and possibly Monaco’s) success will not be honed through tough domestic competition but through a superior financial position. Only time will tell.
Despite the above analysis it must be remembered that part of the beauty of sport is there will inevitably be surprises and exceptions, e.g. Steaua Bucuresti in 1986, and Red Star Belgrade in 1991. In other words, having the “best league”, whether this is defined as financial solvency, popular/global appeal, sound infrastructure from grass roots to professional, entertainment, technical ability or international success, will not necessarily equate to on-field success. It is too simplistic to suggest that because (a) Bayern Munich and Dortmund contested last year’s final and (b) their league, with the 50+1 regulation, is run on a sound financial basis, German football will therefore dominate the next five years.
It would be imprudent to base one’s view of which is “best” on the fortunes and performances of a select few clubs. Firstly, the finals of Real Madrid/Valencia (1999/2000), Milan/Juventus (2002/3), and Man United/Chelsea (2007/8) and now Real Madrid/Atlético (2013/14) suggests the occurrence of two competing teams from the same country is not unique since the rule change (in 1992) accepting more than one club from certain countries. Secondly, it would be more helpful to draw conclusions from the strength and consistency of leagues by analysing country of origin for teams reaching the Champions League final; of the last ten finals, eight were from England (four different teams), five from Spain (Barcelona, Real Madrid and Atlético), three from Italy (twice Milan, once Inter), and three from Germany (twice Bayern Munich, once Dortmund).


To summarise, Italy would benefit from rigorous application of its regulations in order to get to grips with corruption and attract investment. Similarly in Spain, the lax application of regulations and laws, in addition to the exploitation of the Ley Concursal, has led to most clubs struggling financially. France, despite having a highly valued production line, does not currently have the tax system in place to keep top players. Germany’s strong application of its rules has created a gulf between one team and the rest of the league. Finally, in England, the clubs are less financially stable than in Germany, but a wide range of clubs are able to finance high transfer fees and wages.
The author will not draw any conclusions as to which league is indeed the best, as any one person’s criteria are highly subjective. However, it can be seen from the preceding discussion that the longevity and sustainability of a league will be determined by the effects of the various regulatory models and the will of the regulators to implement the policies required to achieve financial health.

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Natalie St Cyr Clarke

Natalie St Cyr Clarke

Natalie St Cyr Clarke is Legal Affairs Manager at FIBA (International Basketball Federation) and Co Chair of the Sports Law Subcommittee of the International Bar Association. Natalie is a New York qualified lawyer with numerous years of experience in sports arbitration and dispute resolution, having previously worked for Libra Law in Lausanne, Switzerland.
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