8th April 2022
Why is UEFA changing its financial regulations?
The development, introduction and continued evolution of the club licensing and financial regulations remains one of UEFA’s most ambitious and successful governance projects.
Since the financial regulations for clubs in UEFA competitions were first introduced in June 2010, there has been an extraordinary improvement in the finances of European clubs at all levels. Overdue payables (payables to football clubs, employees, social/tax authorities, and UEFA) have been all but wiped out. Club finances have been turned around: in 2009, net losses across Europe’s top division clubs stood at €1.6 billion. By 2018, that had been transformed to a profit of €140 million.
But COVID-19 has had a negative impact on clubs’ finances given the loss of operating revenues, inflexible wage costs, and a collapse of player transfer profits such that top-division clubs suffered losses of €7 billion.
New improved financial solutions were needed to deal with this new reality, and the reality that the European football industry has evolved since 2010 with greater globalisation and technological innovation.
What are the main aims of the new regulations?
The regulations will ensure that all clubs will have to be stable, solvent, and keep their costs under control. The new regulations stand on their own and the new name of Financial Sustainability easily explains UEFA’s objectives. In drafting the regulations, UEFA consulted with national associations, the European Club Association (ECA), European Leagues, FIFPro, supporters, the European Commission, the European Parliament, and the Council of Europe, and all discussions showed a clear need and case for regulations on financial sustainability.
How will sustainability be achieved?
The package of new measures includes ways to encourage football clubs to build equity and invest in infrastructure and youth development for their long-term benefit. Stronger balance sheets can provide a first line of defence against revenue shortfalls. Closely aligned to the objective of strengthening balance sheets is the need to make a meaningful move towards better cost control.
Solvency and no overdue payables
The new regulations have three distinct pillars: the no overdue payables rule, the football earnings rule, and the squad cost rule.
The changes in the no overdue payments rule will promote the protection of creditors, ensure better solvency, and protect the integrity of competitions.
All payables to football clubs, employees, social/tax authorities, and UEFA due to be settled by 30 June, 30 September and 31 December during the licence season must be settled by a club by 15 July, 15 October, and 15 January respectively.
In case a club has payments that have been overdue for more than 90 days, the UEFA Club Financial Control Body will consider this as an aggravating factor.
Stability and the football earnings rule
The new stability requirements are an evolution of the existing break-even requirements. To ease the implementation for clubs, the calculation of football earnings is similar to the calculation of the break-even result. Changes to the calculation of acceptable deviation encourage equity contributions rather than debt. The requirements are strengthened in that a club’s costs of relevant investments (infrastructure, youth development, etc) must now be covered with existing equity or contributions.
The acceptable deviation has increased from €30 million over three years to €60 million over three years. The acceptable deviation can be further increased above €60 million by up to €10 million for each reporting period in the monitoring period for clubs showing good financial health.
Cost control and the squad cost rule
The new regulations will see clubs subject to squad cost controls for the first time. The cost control rule restricts spending on player and coach wages, transfers, and agent fees to 70% of club revenues. (The gradual implementation will see the percentage at 90% in 2023/2024, 80% in 2024/2025, and 70% in 2025/2026). This requirement provides a direct measure between squad costs and income to encourage more performance-related costs and to limit the market inflation of wages and transfer costs of players.
Decision-making during the licence season will place a greater emphasis on up-to-date financial information, including the summer transfer window before the UEFA club competitions commence.
Is this UEFA softening its stance on club revenues and allowed losses?
Not at all. Clubs which satisfy the football earnings rule will be operating in a financially sustainable way based on their own revenues.
It is also worth noting that the requirement of recording transactions at fair value has been extended, as all transactions will now be recorded at fair value irrespective if they take place with a related party or another party.
What happens to clubs who fail to comply?
One key feature of the new regulations is that the reframed reporting periods will allow UEFA to identify breaches as they occur.
Breaches to the regulations will be sanctioned by the Club Financial Control Body (CFCB) according to a catalogue of sanctions listed in the CFCB procedural regulations.
The overdue payable sanctions have been strengthened, while the football earnings requirements include the possibility of settlement agreements.
The squad cost rule sanctions will be progressive based on the severity of the breach and number of breaches committed over a period of four years.
When will the new rules be introduced?
The new regulations will come into force in June 2022. There will be gradual implementation over three years to allow clubs the necessary time to adapt.
You can view the original publication here.