Current UEFA issues: FFP, TV distribution & third party ownership
Published 03 August 2012 By: Daniel Geey
Over the last week, a number of inter-related football regulatory issues have arisen. Some of these major talking points will have significance for how European clubs and national associations continue to engage with UEFA.
UEFA Champions League Broadcast Revenue Growth
It was reported by Matt Scott in a recent Telegraph article that the winners of next season's UEFA Champions League could earn over €100m. That figure is over double the amount that Chelsea will have earned from winning this season's competition (says the Liverpool fan through gritted teeth!).
The interesting point to bear in mind is the substantive advantage, participation in the coming season's Champions League will have on compliance with the UEFA Financial Fair Play Rules (FFPR). For an explanation of the FFPRs click here.
By way of background, UEFA has implemented, as part of its already functioning club licensing system, the FFPRs to ensure a club in the longer term, has to break even. UEFA's overall aim for the FFPRs is for its affiliated football clubs to balance their books, not spend more than they earn and promote investment in their stadia, training facility infrastructure and youth development.
The increased TV revenues from next season, primarily from Champions League participation, may form part of the reason why many clubs have remained bullish in their planning for continued UEFA competition particpation. The best explanation of the distribution of UEFA revenues is provided by the Swiss Ramble post here. But needless to say, the additional revenues from the new UEFA broadcasting deals will appreciably assist with break-even compliance for a number of clubs.
Clubs in certain UEFA territories will also have the added benefit of having larger TV market pools. As the Swiss Ramble states "the total amount available in the pool depends on the size/value of a country's TV market, so the amount allocated to teams in England is more than that given to, say, Spain, as English television generates more revenue." Increased TV revenues available for English clubs may go someway to equalise the individual television sales advantage that Barcelona and Real Madrid currently have over, for example, the more equitable English collective TV deal approach.
The Spanish and English TV deals demonstrate national disparities that can lead to revenue benefits for certain clubs (like for the top two in Spain) for FFPR break even compliance.
Another example of national revenue disparities, which has caused the PL and Ligue 1 authorities to lobby UEFA, relates to the growing practice of individuals or companies owning the economic transfer interests of players. This notion of third party ownership (TPO) continues to polarise debate.
The Financial Fair Play/Third Party Ownership Angle
I wrote a piece with Argentinian sports lawyer Ariel Reck about the FFPR accounting issues of TPO. Very briefly the article stated that PL (and Ligue 1) clubs wanting to participate in UEFA competitions were at a real disadvantage, because clubs who do not play in the PL and Ligue 1 were able to take advantage of alternative third party finance arrangements to purchase players. This may have the effect of reducing transfer costs for non-PL/Ligue 1 clubs, thus making it easier for them to break-even under FFPR.
By way of background, PL, Football League and FA rules prohibit TPO of players. It means that a buying club for any player whose registration is not 100% owned by the selling club, must purchase the economic interest in that player prior to registration with a club playing in the PL or FL. Therefore clubs cannot share the burden with an investor in only purchasing 50% of a player's economic rights.
It is likely that non-PL/Ligue 1 clubs will have a competitive advantage over PL/Ligue 1 clubs wishing to participate in UEFA competition. This is because their transfer expenditure may be reduced as they can share their outlay with companies willing to contribute to the transfer fee. The basic point is that PL/Ligue 1 clubs will have to account for the whole of the transfer fee paid when submitting their accounts to UEFA. Non-PL/Ligue 1 clubs will presumably only have to account for the amount spent in taking, for example, a 50% stake in a player.
A Working Example
Player A is available for transfer for €20 million. PL club Arsenal agrees to pay €20 million for the player but in order to register him, the club must to ensure that all third party economic rights are extinguished prior to registration. The club will therefore have a €20 million liability. Porto, if buying the same player, does not have to ensure that any third party rights are extinguished. Porto may even agree to pay the club for its stake in the player, e.g. €10 million with a third party company retaining their stake in a player. There may also be additional options for the buying club to buy further stakes from the third party owner at designated times for set amounts. Porto's liability would initially be half the amount that Arsenal would be paying for the same player.
In a relatively far reaching recent development UEFA stated it may not permit registration for players who participate in the Champions League and Europa League if such player transfer rights are owned by third party investors.
UEFA general secretary Gianni Infantino has said UEFA "will certainly look into" the possibility of banning third party-owned players from UEFA competitions. "This kind of player ownership is a growing threat".
Such a decision would be controversial especially for a number clubs like Porto whose use of such third party finance is well known. In fact, in their latest published accounts Porto only owned 100% of the total economic transfer rights to five members of their 27 man squad. Some clubs would have trouble fielding a team.
More importantly, it would mean UEFA having to oblige each club to reveal any players whose registrations were not totally owned by the club. This could even be expanded to include a list of the owners of such transfer rights. Such transparency could allow the football family to scruitinise any potential conflicts of interest between those who own the economic rights of a player and those who also own a stake in a football club.
If such a TPO prohibition for UEFA competition was to be enacted, another question for UEFA to consider would be whether the provision would have retrospective effect. If so, many clubs would effectively have to 'buy-back' the registrations of players who they wanted to play in UEFA competition. Many would argue that would be unreasonable for contracts entered into prior to any proposed rule change. If the proposed rule did not have retrospective effect, clubs who had TPO players would still have the benefit of being able to play them in UEFA competition but would not be able to register new players. Such uneven regulation would be far from ideal.
As can be seen, there are a number of interesting and significant issues surrounding FFP compliance and TPO. Whilst FFP compliance will be an ongoing debate well into the first monitoring period (2013-14), the next few months may well determine UEFA's TPO path which is bound to anger at least one of the two opposing TPO camps.
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Daniel is a Partner in the Sport Group.
Daniel’s practice focuses on helping clients in the sports sector, including rights holders, leagues, governing bodies, clubs, agencies, athletes, sports technology companies, broadcasters and financial institutions.