6.

Football finances
Stephen Morrow

6.1 INTRODUCTION
The substantial increases in income enjoyed by top-­level football clubs in recent years,
coupled with the resultant benefits gained by elite players, have resulted in a mark-
edly increased emphasis on the business of football. Indeed financial performance has
become one of the dominant narratives about football, with regular commentary on
financial success or failure at both league and club level. This chapter begins with an
overview of information available about football finance, identifying academic, pro-
fessional and new media sources. It continues with an analysis of the financial state of
professional football, focusing both on its impressive high-­level revenue figures but also
on financial challenges faced by some of its leagues and clubs. This provides the context
for a discussion on the theoretical case for financial regulation in professional football,
and on financial regulation in practice, specifically the Union of European Football
Associations (UEFA)’s Financial Fair Play (FFP) regulations. The chapter concludes
with a section on political consequences of FFP.

6.2 FOOTBALL FINANCE MATERIAL

Comprehensive annual reviews of football club finances and financial reporting based on
clubs’ published financial statements have been provided for many years by accounting
and consulting firms: Deloitte, concentrating primarily on the English leagues but also
providing an overview of the other main European markets (see, e.g., Deloitte, 2013);
PricewaterhouseCoopers for the Scottish Premier League (SPL) (now the Scottish
Professional Football League Premiership) (see, e.g., PWC, 2012) and more recently for
Italian football (Arel/PWC, 2012). Since 2012 UEFA has published annual benchmark-
ing reports analysing the governance and financial development of club football across
Europe (UEFA, 2013, 2012a, 2011, 2010), while bespoke reports on football finance
and club ownership have been published by organisations as diverse as Christian Aid
(2010), Ernst & Young (2010) and the Financial Action Task Force (2009). There have
also been an increased number of monthly trade publications such as FC Business and
SportBusiness which focus on aspects of football finance and the business of football, as
well as noticeably greater coverage in newspapers and traditional media. The advent of
new media has also strengthened coverage of the topic. Sites such as www.swissramble.
blogspot.com and www.footballeconomy.com provide informative analysis and cover-
age on aspects of football finance, while others such as www.andersred.blogspot.com
and www.rangerstaxcase.wordpress.com have emerged to offer independent commen-
tary on specific football finance issues, in these cases respectively, financial and govern-
ance issues and consequences of the Glazer family’s leveraged takeover of Manchester

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 Football finances  ­81

United and issues arising from a major taxation dispute between the UK’s tax authori-
ties, Her Majesty’s Revenue and Customs (HMRC) and Rangers FC, centring on a puta-
tive tax avoidance scheme.
The academic literature on football finance has also proliferated, reflecting the sport’s
financial development. Unsurprisingly a great deal of this has emerged out of, or comple-
mented, the longer-­established literature on the economics of football (and sport more
generally) (for an overview see, e.g., Dobson and Goddard, 2011; Gerrard, 2006a, 2006b;
Szymanski, 2010; Szymanski and Kuypers, 1999). There is also a considerable overlap
with the developing literature on football governance and ownership structures (see, e.g.,
Dimitropoulos, 2011; Dimitropoulos and Tsagkanos, 2012; Franck, 2010; Gammelsӕter
and Senaux, 2011; Garcia and Rodriguez, 2003; Hamil et al., 2010; Holt, 2007; Hope,
2003; Michie and Oughton, 2005; Senaux, 2011; as well as a number of edited books by
Hamil et al., 1999, 2000, 2001). Stand-­alone books on football finance and accounting
have been written by Morrow, though these focus on earlier stages of football’s finan-
cial development (Morrow, 1999, 2003). The subject has also been the focus of chapters
in edited books (Beech, 2010), while sport finance textbooks also place considerable
emphasis on professional football (Wilson, 2011). Academic papers have been published
on areas including: financial crisis, distress and challenges in the industry (Beech et
al., 2010; Bosca et al., 2008; Dietl and Frank, 2007; IJSF, 2010; JSE, 2006; Storm and
Nielsen, 2012); club objectives (Solberg and Haugen, 2010; Storm, 2011, 2009); new
revenue sources such as naming rights (Crompton and Howard, 2003); securitization
(Burns, 2006; Weston, 2002); benefits of stock market listings (Baur and McKeating,
2011); and financial management (Emery and Weed, 2006; Grundy, 2004). In addition,
an increasing number of papers are emerging around licensing, fair play and regulation
(Carlsson, 2009; Drut and Raballand, 2012; Geey, 2011; Müller et al., 2012), predated
by largely economics-­based papers on regulatory initiatives such as salary caps (Dietl et
al., 2006; Kesenne, 2003).
A smaller number of papers have been published focusing on accounting and dis-
closure issues in football clubs. Papers on accounting for transfer fees and player asset
valuation and recognition are most prominent, having been considered by Amir and
Livne (2005), Morrow (1996, 1997), Risaliti and Verona (2013) and Rowbottom (2002),
with limited interest in related areas such as accounting for intellectual capital (Shareef
and Davey, 2005). Studies on narrative reporting in football clubs have been carried out
by Morrow (2005), focusing on image management in narrative communication in elite
British clubs and its alignment with financial information; on social disclosure in Premier
League clubs (Slack and Shrives, 2008); on financial reporting relevance (Morrow,
2013); on the implications of FFP for financial reporting (Morrow, forthcoming); on
accountability in football, with an emphasis on the Glazer family takeover and owner-
ship of Manchester United (Cooper and Johnston, 2012); on insolvency practice (Cooper
and Joyce, 2013); and on creative accounting in Italian football (Morrow, 2006).

6.3 THE STATE OF THE GAME

The revenue performance of European club football continues to be extremely impres-

sive. The most recent UEFA (European football’s governing body) Benchmarking

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82   Handbook on the economics of professional football

14 000

12 000

10 000

Commercial & other

8 000
Gate receipts
Sponsorship
6 000
Broadcasting

4 000

2 000

0
2007 2008 2009 2010 2011

Source: UEFA (2013).

Figure 6.1 Top division revenues (€m)

Report, compiled as part of that body’s Club Licensing scheme, reported a 3 per cent
increase in club incomes in 2011, reaching a record aggregate level of €13.2 billion (see
Figure 6.1). Over the five-­year period from 2007, club revenue grew at an aggregate rate
of 5.6 per cent per annum, equivalent to 24 per cent over the entire period; this at a time
when the average growth rate in Europe’s economies was 0.5 per cent (UEFA, 2013).
Indeed football income growth outpaced the level of national economic growth in 49 of
UEFA’s 53 national associations (UEFA, 2012a).
The consultants Deloitte (2013) estimate the revenue of the European football market
at €19.4 billion for 2011/12, with close to half of this revenue, €9.3 billion, being generated
by the ‘big five’ leagues in England, France, Germany, Italy and Spain (see Figure 6.2).
The primary driver of this growth has been broadcasting income. Here the FA Premier
League (FAPL) in England has led the way: its recent three-­year domestic rights deal
(2010–2013) was worth £1.782 billion (€2.25 billion), with a further £1.40 billion (€1.76
billion) coming from overseas rights. Yet this income source continues to grow at an
extraordinary rate: the FAPL’s present three-­year domestic rights deal with BSkyB and
BT is worth £3.018 billion (€3.815), a 71 per cent increase on the present deal. To put
this in perspective, the new deal means that the minimum sum the bottom-­placed team
in the 2013/14 FAPL will earn will be £65 million; a sum greater than what the 2011/12
champions Manchester City earned (Sabbagh, 2012). Continued growth in broadcasting
income is apparent in other countries too, most notably Germany where a new domes-
tic rights deal, also effective from 2013/14, is worth €2.5 billion over four seasons; the
annual rights of €628 million representing a 52 per cent increase on the previous deal of
€412 million (EPFL, 2012).
Ostensibly football finance is also a good news story at the level of individual clubs.

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 Football finances  ­83

3000

2500
Other commercial
Sponsorship
2000
Broadcast
Matchday
1500

1000

500

0
England Germany Spain Italy France

Source: Deloitte (2013).

Figure 6.2 Revenue breakdown for European leagues 2011/12 (€m)

According to Forbes Magazine, football clubs dominate the world’s most valuable
sports franchises. Real Madrid is ranked first with a value of $3.3 billion, followed by
Manchester United ($3.17 billion) and Barcelona ($2.6 billion). The New York Yankees
are the most valuable US sports team, with a value of $2.3 billion (Badenhausen, 2013).
Inevitably one narrative which accompanies figures like these is of a vibrant and suc-
cessful industry: see, for example, the comments by the Chief Executive of the Premier
League, Richard Scudamore, that spending during the January 2011 transfer window
demonstrated a game in rude health (BBC Sport, 2011). Yet at the same time, traditional
approaches to measuring and communicating the financial performance of clubs, in
contrast to their revenue generation, present a less positive picture of escalating salary
costs, unsustainable levels of debt, and clubs going out of business or being placed in
corporate rescue situations such as administration (Barajas and Rodríguez, 2010; Beech
et al., 2010; JSE, 2006; Morrow, 2012).
As is well understood, managing the cost base, and in particular the wages and salaries
of players, has long been football’s primary challenge. While the UEFA benchmark report
notes that the percentage of club revenues paid out in salaries and social charges has stabi-
lised at 65 per cent, it also notes that 88 clubs (out of a total of 679) had a ratio greater than
100 per cent (UEFA, 2013). Moreover, five clubs which participated in the 2011/12 group
stages of UEFA’s Europe-­wide club competitions, the Champions’ League or Europa
League, had a ratio greater than 100 per cent (UEFA, 2012a). The consequences of this
are evident in the overall financial performance of European football clubs: 63 per cent of
Europe’s top division clubs reported operating losses; 38 per cent of clubs were in negative
equity positions, where their liabilities exceed their assets; auditors expressed concern as to
the validity of the going concern assumption at one in seven clubs (UEFA, 2013).

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84   Handbook on the economics of professional football

The situation does not look much better when focusing on individual countries. For
example, in Italy – one of the big five European markets – for season 2010/11, a collec-
tive loss of €0.4 billion was reported for the top four divisions on the back of declining
revenues caused by a fall in attendances and gate receipts, and rising costs. Only 19 out
of 107 Italian clubs reported a profit (Arel/PWC, 2012). Such figures prompted a less
sanguine narrative from Italy’s Minister for Regional Affairs, Tourism and Sport, Piero
Gnudi, who observed that: ‘in other areas, with these numbers, we would be talking
about companies close to bankruptcy. The net worth of football is going down dramati-
cally’ (SportBusiness, 2012).
In Spain, 22 clubs have taken advantage of the Ley Concursal, a Bankruptcy Act
introduced in 2004, under which administrators appointed to a club devise a five-­year
economic plan and arrange repayment of their debts, often only 50 per cent of the sum
originally owed (Barajas and Álvarez-­Santullano, 2012; Barajas and Rodríguez, 2010).
Six Spanish La Liga clubs began season 2011/12 in administration (Deloitte, 2012). In
England, Portsmouth, FA Cup winners in 2008 and an FAPL club for seven seasons
until its relegation in 2009/10, went into administration in February 2012; the second
time it had done so in two years. In Scotland, one of European football’s bigger names,
Rangers, winners of the European Cup Winners Cup in 1972, UEFA Cup finalists in
2008 and a club with an average home attendance of 45 000, went into administration in
February 2012 owing £55 million to unsecured creditors, and with a further £79 million
claimed by HMRC largely due to the club’s use of an Employee Benefits Trust (Duff &
Phelps, 2012). A CVA (Company Voluntary Arrangement) could not be agreed with the
club’s creditors and as a result The Rangers Football Club plc was liquidated and a new
Rangers company set up. The new company was denied permission to participate in the
SPL and began season 2012/13 in the Third Division of the Scottish Football League. In
Switzerland, Neuchatel Xamax was declared bankrupt and its owner arrested in respect
of financial mismanagement and fraud. The club’s licence had earlier been revoked by
the Swiss League and the club was forced to drop out of the Swiss Super League mid-­
season (www.swissinfo.ch, 2012).
Financial concerns are not, however, restricted to clubs in weak financial positions.
The use of a leveraged buy-­out (LBO) to acquire Manchester United in 2005 is perhaps
the most obvious example of football financing inducing alarm among many football
stakeholders. In this case the bidder, the Glazer family, borrowed funds to acquire its
majority stake in the club, securing part of the loan against the club’s assets, with the club
itself taking on the debt. The fact that not all of the debt was secured, inevitably resulted
in higher interest rates thereon. The result of the LBO is that a substantial cost of the
acquisition is effectively being met by those who provide cash flow to the organisation:
its supporters, commercial partners and sponsors, and media organisations. The dissat-
isfaction of many of the club’s supporters was compounded further by the club’s subse-
quent flotation on the New York Stock Exchange. This saw the club raise $234 million
through the issue of 16.7 million class A shares, these carrying only one-­tenth of the
voting rights of existing shares in the company and no dividend rights (Mackenzie and
Mackan, 2012). Only half of the proceeds of the issue were used to pay down the club’s
debts, the other half being returned directly to the Glazer family (Ozanian, 2012). Other
governance concerns also emerged from the share issue prospectus and flotation, notably
the setting up of a new holding company in the Cayman Islands, and Manchester United

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 Football finances  ­85

Ltd’s status as an emerging growth company, one consequence of which is that for a five-­
year period it is not required to disclose full financial information (SEC, 2012).
More generally, the paradoxical situation in European football finance – increasing
revenues but declining financial performance and position – has now directly influenced
football policy, most visibly in the introduction by UEFA of Financial Fair Play (FFP)
regulations as part of its Club Licensing scheme (UEFA, 2012b). As the name suggests,
the focus of the FFP regulations is on matters financial, with an emphasis on improv-
ing clubs’ financial management and financial performance. At this particular juncture
the concept of financial fair play is the dominant issue in the business of European
football, and not solely at transnational level. While some countries such as Germany
and the Netherlands have a long history of club licensing and of financial regulation,
interest in countries such as England and Scotland is much more recent. In Scotland,
FFP is one response of the SPL to the administration and liquidation of Rangers; in
the Championship in England it is a response to high levels of debt among clubs in
the Football League pyramid (BBC Sport, 2012). Given its overriding importance, the
remainder of this chapter will focus on UEFA’s transnational FFP regulations. (For a
more detailed critique and review of FFP, see Müller et al., 2012.)

6.4 A RATIONALE FOR REGULATION

As is well understood, the very nature of competitive team sport means that inevitably
there are many more losers than winners. At the same time, elite professional football
leagues tend to employ mechanisms where financial reward, in part at least, is dependent
on playing success, and revenues are increasingly concentrated at the top end of leagues,
for example the rewards associated with qualification for the Champions’ League or
with promotion to the FAPL. These income drivers, coupled on the expenditure side
with the established relationship between spending on player salaries and transfer
fees and sporting success (Deloitte, 2012), encourages clubs or directors to overspend,
with consequences for clubs’ financial performance and positions (Müller et al., 2012;
Vöpel, 2011). This situation is further compounded both by supporters’ expectations
and by ownership structures prevalent in many football clubs, in particular the presence
of wealthy majority owners. Many of these so-­called benefactors are motivated by a
desire for sporting success; seemingly unconcerned or unwilling, in the absence of formal
salary cost regulation of the sort found in other sports, to withstand unsustainable wage
demands from players and their agents. That combination of wealth and behaviour has
the capacity to further distort sporting competition. Were these ordinary businesses
and the consequences of such distortions restricted only to an individual organisation,
any case for regulation would be limited. But the nature of football and football clubs
means that the economic and social consequences extend well beyond a particular club.
Cognisance of the nature of sporting success and its relationship with financial reward
encourages other clubs to respond to and mimic the behaviour of those clubs (or more
accurately those club owners) that can afford to be loss-­making (the benefactor clubs).
This leads to what has been termed an arms race to hire and retain the best talent, con-
tributing to an inflationary spiral in salaries and transfer fees (Andreff, 2007; Barajas and
Rodríguez, 2010; Hamil and Walters, 2010).

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86   Handbook on the economics of professional football

More pertinently, of course, sporting competition necessitates interdependence among

its participants. If a club is unable to fulfil its fixtures and meet its obligations, this has
consequences for other clubs and for the integrity and commercial value of a league itself
(Lago et al., 2006). Events that unfolded in the SPL in 2012 after one of its two major
clubs, Rangers, went initially into administration and then subsequently into liquidation
highlighted interdependence vividly. At the level of an individual club, a contributory
factor in another SPL club, Dunfermline Athletic, being unable to pay its players’ wages
at one point during season 2011/12 was a delay in receiving overdue gate receipts from
Rangers while it was in administration (Barnes, 2012). At the level of the league, the
SPL was obliged to struggle with the consequences of not having Rangers as a member
club. These included: the loss of income to the league and its member clubs arising from
the reduction in numbers of travelling supporters and the anticipated diminution in
the value of its central media deal (due for renewal at the start of season 2012/13 and
dependent on four matches each season between the country’s two largest clubs, Celtic
and Rangers); and the resultant implications for clubs, several of which were already in
a precarious financial position.1
In many ways, major football clubs today are not dissimilar to companies in other
areas of economic activity: major brands with diverse income streams and customers
worldwide. Yet at the same time football clubs, including the very largest, continue to
have characteristics which distinguish them from conventional companies and make
them more akin to social institutions: in particular, the nature and importance of rela-
tionships between stakeholders and their clubs. These arise from the sense of identity
and belonging that some stakeholders, particularly supporters, have in relation to their
clubs (Brown et al., 2006; Brown et al., 2008; Morrow, 1999, 2003); to their customer
loyalty and partisanship (Simmons, 2006); to high levels of stakeholder engagement
and activism (Michie and Oughton, 2005; Morrow, 1999; Vamplew et al., 1998); and
to the enduring relationships between European clubs and geographical communities
(Bale, 2002). They are organisations which often play a prominent and distinct role in
particular communities, both geographical and cultural; organisations which often have
social and political significance.
These characteristics are significant financial assets for football clubs. From a govern-
ance perspective, however, the multifaceted nature of supporters’ relationships with a
club can be challenging. On the one hand there is a risk that this loyalty can be exploited
by some owners. Furthermore, the very centrality of a club to many people’s identity,
coupled with a fear of undermining the institution rather than a club’s owners, means
that market-­based approaches such as exit (that is, withdrawal of financial support) are
rarely used as a means of controlling or disciplining behaviour in a football club. As a
result even in those clubs which have been most spectacularly mismanaged, resulting in
the most negative economic and social consequences, society in the shape of a football
club’s communities often deem the organisation (as distinct from its owners and manag-
ers) as worthy of support at all costs. Hence, in the absence of effective regulation, one
is left with unfettered market control: within the limited constraints of football’s ‘fit and
proper person’ tests, anyone can buy and sell a club, and manage it or mismanage it as
they see fit with very little accountability to a club’s stakeholders. If one accepts that
these organisations are economic in basis but social in nature, then a specific type of
public interest argument can be invoked to support FFP, protecting the interests of an

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individual club’s public(s) – its supporters (wherever located), communities, businesses

and commercial partners – and the wider community of football encompassing other
clubs, leagues and competitions.

6.5 FINANCIAL FAIR PLAY

Introduced in 2003, UEFA’s Club Licensing regulations specify minimum requirements

in five separate categories – sporting, infrastructure, personnel and administrative, legal
and financial – that clubs must meet in order to be licensed to participate in its Europe-­
wide club competitions. Its system was modelled on licensing systems that had been
introduced in domestic leagues, most notably the German Bundesliga (Olsson, 2011).
UEFA devolved the licensing system to its national associations, which in turn could
identify a league governing body as the licensing body. Its intention was that over time
the licensing system would be extended to all clubs participating in a country’s domestic
top-­flight league (Müller et al., 2012), and by 2011, 48 of the 53 member associations
operated a national licensing system (UEFA, 2012a).
Effective from 2013/14 but based on clubs’ financial results from season 2011/12
onwards, FFP requires all clubs which meet a minimum threshold in terms of income
and expenditure (that is, relevant income and relevant expenses of at least €5 million) to
meet various criteria set out in the FFP regulations in order to be licensed to participate
in UEFA’s Europe-­wide club competitions, the Champions’ League and the Europa
League. The aims are set out in Article 2, and paragraph 2 thereof (UEFA, 2012b) is of
most relevance to this chapter (Box 6.1).
Müller et al. (2012) suggest that while much of FFP is concerned with extending the
previous licensing system to ensure the smooth running and integrity of UEFA’s com-
petitions, it also introduced a new fundamental objective of regulatory intervention, the

BOX 6.1 FFP AIMS

[These regulations aim] to achieve financial fair play in UEFA club competi-
tions and in particular:

a) to improve the economic and financial capability of clubs, increasing their trans-
parency and credibility;
b) to place the necessary importance on the protection of creditors and to ensure
that clubs settle their liabilities with players, social/taxation authorities and other
clubs punctually;
c) to introduce more discipline and rationality in club football finances;
d) to encourage clubs to operate on the basis of their own revenues;
e) to encourage responsible spending for the LR benefit of football;
f) to protect the long-­term viability and sustainability of European club football.

Source: UEFA (2012b, Article 2, paragraph 2).

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88   Handbook on the economics of professional football

final objective in the above list. Their paper provides a table which seeks to explain or
classify FFP in terms of:

● fundamental objectives (e.g. Article 2, para. 2f, above);

● instrumental objectives (objectives which have no end in themselves but which
serve to reach a fundamental objective, e.g. Article 2, para. 1d – ‘ensuring the
smooth running and integrity of the competitions’); and
● operational objectives (e.g. Article 2, para. 2d, above).

6.5.1 Financial Fair Play: the Basics

FFP is about encouraging clubs to improve the management of their cost base, achiev-
ing a sustainable balance between income, spending and investments. The key require-
ment is that clubs should report a breakeven position, calculated by comparing relevant
income and costs, over a rolling three-­year (initially two-­year) period. In FFP breakeven
is not an absolute position, but rather one which is subject to ‘an acceptable level of
deviation’. Specifically, in any monitoring period a club can report an aggregate loss
of €5 million, while a further deviation or loss of initially €45 million, but declining to
€30 million, is permitted as long as such excess is fully covered by equity injections from
the club’s owners and/or related parties (Annex X, D). Table 6.1 sets out the breakeven
determination.
In determining breakeven, clubs need only include what are defined as relevant income
and relevant costs: at its simplest, clubs must match football expenditure with football
income (see Article 58 below). So, for example, while expenditure incurred on player
salaries and amortisation of player acquisitions are considered as relevant costs, by con-
trast depreciation of tangible fixed assets, expenditure on youth development or commu-
nity activities and finance costs incurred in the construction of tangible fixed assets may
be excluded from its determination. Similar rules apply to the determination of income:
in broad terms this is income derived from football activities. Income is not treated as
relevant only where it is clearly and exclusively not related to the activities, location or
brand of the football club. Hence facilities such as a hotel or restaurant proximate to a
club’s stadium or training facilities could be classified as relevant income for the pur-
poses of the breakeven calculation (Annex X, Para B.k).
Paragraph 4 of Article 58 (Box 6.2) introduces the concepts of related parties and

Table 6.1 The breakeven determination

Monitoring No. of Years included Acceptable deviation (€m)

period years
t−2 t−1 t Covered Not covered
2013/14 2 NA 2011/12 2012/13 45 5
2014/15 3 2011/12 2012/13 2013/14 45 5
2015/16 3 2012/13 2013/14 2014/15 30 5
2016/17 3 2013/14 2014/15 2015/16 30 5
2017/18 3 2014/15 2015/16 2016/17 30 5
2018/19 3 2015/16 2016/17 2017/18 ,30 5

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 Football finances  ­89

BOX 6.2 ARTICLE 58, PARAGRAPH 4: NOTION OF

RELEVANT INCOME AND EXPENSES
1 Relevant income is defined as revenue from gate receipts, broadcasting rights,
sponsorship and advertising, commercial activities and other operating income,
plus either profit on disposal of player registrations or income from disposal of
player registrations, excess proceeds on disposal of tangible fixed assets and
finance income. It does not include any non-­monetary items or certain income
from non-­football operations.
2 Relevant expenses is defined as cost of sales, employee benefits expenses and
other operating expenses, plus either amortisation or costs of acquiring player
registrations, finance costs and dividends. It does not include development activi-
ties, expenditure on community development activities, any other non-­monetary
items, finance costs directly attributable to the construction of tangible fixed
assets, tax expenses or certain expenses from non-­football operations.
3 Relevant income and expenses must be calculated and reconciled by the licensee
to the annual financial statements and/or underlying accounting records, i.e.
­historic, current or future financial information as appropriate.
4 Relevant income and expenses from related parties must be adjusted to reflect
the fair value of any such transactions.

fair value, concepts which are well established in accounting standards and taxation
legislation. In terms of FFP a person or close member of a person’s family is related to
a reporting entity (club) if that person has control, joint control or influence over the
club, or is a key member of the management team of the club or the club’s parent entity,
whether directly or through another entity. An entity is related to the reporting entity if
the two entities are part of the same group or if they are in some defined way involved
in a joint venture together (Annex 10, E). Fair value is the sum at which an asset could
be exchanged or a liability settled on an arm’s-­length basis assuming knowledgeable and
willing parties (Annex 10, E, 7). Fair value is thus distinct from market value: it is the
sum at which one might reasonably expect an asset to be exchanged or a liability settled
on the basis of prior evidence.
Examples provided of related party transactions which require to be included at fair
value include the sale of sponsorship rights by a club to a related party; the sale of corpo-
rate hospitality tickets, and/or use of an executive box, by a club to a related party; and
any transaction with a related party whereby goods or services are provided to a club.
Under the provisions of Annex X, D, the difference between the income received from a
related party and the fair value recognised in the breakeven calculation can be treated as
an equity contribution from a related party in terms of covering the acceptable deviation
set out in Table 6.1.
Two other requirements add to the flexibility or elasticity of the breakeven concept.
First, there is an opportunity to use breakeven surpluses from the two years immediately
preceding the monitoring period to compensate for any breakeven deficit during the
monitoring period (Article 63, para. 2b); and second, where the breakeven requirement
is not fulfilled, the Club Financial Control Body can consider a number of mitigating
factors as set out in Annex XI. These include the quantum and trend of the breakeven

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result, the projected breakeven result for the year t 1 1, and the licensing applicant’s
budgeting accuracy.
While the breakeven requirement has dominated coverage of FFP, other requirements
in Club Licensing have also now been reinforced, in particular those concerned with
clubs having overdue payables to either their employees, the taxation authorities or to
other clubs. Previously clubs had only to prove that they had no such overdue payables
as at 31 March preceding the licensing season; the licensing decision being based on
activities up until the cut-­off date of 31 December in the year previous. Consequently
there was an opportunity for clubs to engage in cash flow management over a 15-­
month period to the possible detriment of their employees, other clubs and/or the tax
authorities, but without any risk of sanction in terms of the licence award. Under the
new system, this information is also required at 30 June in the year that the UEFA club
competitions commence. Should a club have overdue payables then it is deemed to be in
breach of Indicator 4 (Article 62), meaning that it is then required to demonstrate that
it has no overdue payables as at 30 September (Articles 65, 66), in practice moving clubs
closer to quarterly monitoring.
Moreover if a club’s financial statements include an emphasis of matter or a qualified
audit opinion in respect of the club as a going concern (Indicator 1) or if they demon-
strate a net liabilities position that has deteriorated relative to the prior year compara-
tive figure (Indicator 2), then a club is required to provide future financial information
including a budgeted profit and loss account, budgeted cash flow statement and explana-
tory notes (Articles 52). In addition, where a club’s financial statements show that its
wages and social costs are greater than 70 per cent of its turnover, or where its net debt
exceeds 100 per cent of its turnover, the Club Financial Control Body may ask a club to
submit additional financial information (Article 62).

6.6 FFP IN PRACTICE

The regulations are motivated by financial fairness rather than equality among clubs.
Central to this is the desire that all clubs should align their football-­related expendi-
ture with their football-­related income. While FFP makes no comment on particular
ownership structures, FFP seeks to restrict the behaviour of owners, by limiting their
ability to make good operating losses caused by overspending on player wages through
ex post financial bail-­outs. The emphasis afforded to the breakeven calculation and the
high significance of salary costs in football clubs (and hence within the determination
of breakeven), means that FFP acts as an implicit salary cap. Therefore clubs wishing
to participate in Europe-­wide club competitions are required to plan and control their
player-­related spending. Benefactor investment is not prohibited, however, but is limited
to investment in things such as infrastructure or supporting community activities. In
addition, this motivation to curb wage inflation also explains its focus on related party
transactions, the intention of which is to ensure that these are not used to circumvent
restrictions on financial bail-­outs by owners.
It could be argued that the focus on relevant income and costs and on the alignment
between them is artificial and makes arbitrary judgements about good and bad revenue
and expenditure and about how a business should operate. An alternative interpretation

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 Football finances  ­91

is that FFP is doing no more than emphasising that unless an organisation abides by
certain commonsense financial rules and concepts then it cannot be sustainable without
external financial support. In broad terms FFP’s focus is on the importance of matching:
that recurring expenditure should be matched with recurring income; that longer-­term
investment in assets should be matched with longer-­term funding. So, debt incurred to
build or develop a training facility is ‘good’ as it matches investment with obligation:
matches an asset with its expected future benefits. On the other hand debt incurred to
pay for recurring player salaries or ex post investment to cover losses is ‘bad’ or mis-
matched. In these terms FFP is essentially prescribed financial management for football
clubs; requiring clubs to ensure that they plan, direct, organise, monitor and control their
monetary resources. As the headline figures referred to in the introduction indicate, the
recent history of European football suggests, good financial management is something
many clubs have found difficult or impossible.
One weakness of FFP as currently structured is that it may lead to forms of creative
accounting, for example, clubs seeking to report income from non-­football operations as
relevant income in order avoid the regulatory restrictions (Morrow, forthcoming; Vöpel,
2011). Consider the example in Box 6.3.
In keeping with attitudes towards financial reporting standards (Weetman, 2006),
there is a risk that some clubs may see FFP as a rules-­based approach to regulation,
albeit one operating under some higher-­level principles, with directors and executives
thus seeking to find ways to avoid or evade the rules: a ‘show me a rule that says I can’t
do this’ approach. Moreover, as is accepted in financial reporting as well as in taxation,
rules and definitions for things such as related parties and fair value, however well inten-
tioned, are particularly productive sites for forms of creative accounting (Jones, 2010).
This can be illustrated with another high-­profile example (Box 6.4).
Another weakness is that FFP is primarily an inputs-­based approach to regulation.
Hence, expenditure incurred on, say, community activities or youth development activi-
ties is explicitly assumed to be ‘good’, in the sense that it can be excluded from relevant
costs in determining breakeven. As above, one risk is that it may encourage clubs to

Box 6.3 RELEVANT INCOME

Turkish side Trabzonspor has announced a plan to build a hydro-­electric power

station; an apparently rational attempt to generate revenue from Turkey’s
rapidly growing energy market. Assuming this is branded as the Trabzonspor
Power Station, under Annex X,B,k (UEFA, 2012b):

1. Should it be excluded from the calculation of relevant income as it is clearly

and exclusively not related to the activities, locations or brand of the football
club?
or
2. Is it an example of an operation clearly using the name and brand of the
club as part of its operations and hence relevant income should be adjusted
to include it?

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92   Handbook on the economics of professional football

box 6.4 RELATED PARTY TRANSACTION

In 2011 Manchester City signed a ten-­year partnership agreement with Etihad

Airways (Manchester City, 2011), a deal reported to be valued at £400 million
(Taylor, 2011). Etihad Airways is owned by the government of Abu Dhabi.
Manchester City’s owner, Sheik Mansour is a member of the Abu Dhabi Royal
family.

1. Is this simply an arm’s-­length commercial partnership, involving sport spon-

sorship, stadium naming rights and a highly innovative development, the
Etihad Campus (comprising a training facility, youth academy, sports
science laboratories, accommodation, office space and retail outlets),
which will benefit the club and the community, and is thus very much in
keeping with UEFA’s desire to encourage investment in youth and com-
munity development? If so, then the cost of the development would be
excluded, while any profits from the non-­football operations would be
included in the breakeven calculation.
or
2. Is this a related party transaction as defined in Annex X, E (UEFA, 2012b)
at a value above fair value, in which case the difference between fair value
and the agreed value would have to be deducted from the club’s relevant
income when calculating its breakeven position? If so, given the unique
nature of the agreement, how best can fair value be determined?

Note: For a very detailed discussion of this deal and FFP, see Swiss Ramble (2011).

classify activities or expenditure in a particular way in order to gain the maximum FFP
relief. But more pertinently from a financial point of view, no consideration or judge-
ment is made on the return on investment in these areas or on their effectiveness; this
is simply about what a club spends on these activities. A further weakness is that by
defining breakeven in terms of an acceptable deviation, it both clouds the common-
sense understanding of breakeven and also potentially encourages clubs to focus not on
breakeven per se, but instead on the maximum permissible loss. The absolute deviation
is also itself arguably unfair in that it takes no account of the relative size of a club in
terms of its turnover.
The desirability of regulatory intervention in European football and of FFP in
particular, has been questioned by some sport economists (see, e.g., Peeters and
Szymanski, 2012; Vöpel, 2011). They argue that FFP regulation may in fact be
dynamically inefficient, stifling competition and inadvertently serving to protect well-­
established clubs from being challenged by other clubs, as a consequence of impos-
ing a ceiling on deficits and restricting equity contributions by owners and others.
Similarly Geey (2011) suggests that FFP will act as an effective barrier for mid-­level
teams, reinforcing the competitive advantage enjoyed by those clubs that generate

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 Football finances  ­93

the highest levels of revenue. Its fitness for purpose has also been questioned. For
example, Szymanski (2012) suggests that such intervention initiatives are misguided as
they do not address the actual causes of football club insolvencies, focusing instead on
perceived management failures.
Like any form of regulation, it is also likely that FFP will have unintended conse-
quences. For example, while one of UEFA’s motivations may be to use FFP to curb
player wage inflation, some clubs may respond to the challenges of FFP not by restrict-
ing wages but by seeking to increase income. While this is perfectly consistent with the
matching concept referred to previously, if the approach adopted to increase income
focuses on, say, increasing ticket prices, then this does not align well with the perceived
socio-­economic focus of FFP (see the following section). This point was raised in an
open letter from Alisher Usmanov, 30 per cent shareholder in Arsenal Holdings plc,
to his fellow directors. (Arsenal is a club seen by many, including the UK parliament’s
inquiry into football finance – Culture, Media and Sport Committee, 2011 – as a role
model for FFP due to its self-­financing model.) In his letter he accuses the board of using
long-­term debt to fund the development of the Emirates stadium not as an example of
matching or self-­financing, but rather as a way of rewarding the former directors at the
expense of the club’s supporters:

The real conflict seems to be between the supporters’ expectations and your vision for the Club
and at the heart of this is the policy of so-­called self-­financing. The self-­financing model was
created to suit the major shareholders at the time, all of whom subsequently sold their shares.
The previous decision by the Board to fund the building of the Emirates Stadium with long-­
term debt was, we believe, certainly not about self-­financing. If it had been, it would have been
funded through a mixture of debt and non-­dividend equity. Instead it allowed, in our view, the
major shareholders of the time, who happened to all be Board directors, to load the Club with a
liability, to benefit from increased future revenue streams and consequent increase in the value
of their holdings, whilst avoiding dilution of their equity. The Board of the time then appeared
to pursue a policy of increasing ticket prices and squeezing the fans to cover the short term cost
increases which allowed them to bridge until all of these shareholders and Board directors sold
100 per cent of their holdings and cashed out at vast profits . . . This policy does not seem to
have changed. (Usmanov and Moshiri, 2012)

While this accusation was firmly rejected by Arsenal Chairman, Peter Hill-­Wood, it
demonstrates emphatically the contested nature of financial behaviour and decision-­
making in a politicised sporting environment.
While FFP rules do not come into full effect until the 2013/14 season, 2011/12 was the
first season to be included in the initial assessment. Following this assessment, UEFA
announced its first FFP sanctions, withholding prize money from 23 clubs taking part
in 2012/13 UEFA club competitions, including Atletico de Madrid from Spain and
Sporting Lisbon from Portugal, due to their having overdue payables towards other
clubs, and/or employees or social and taxation authorities (UEFA, 2012c). Subsequently
the Spanish club Malaga was banned by UEFA for two years in December 2012 because
of overdue payments to rival clubs and to the Spanish tax authorities. That was subse-
quently reduced to a year after the club regularised its overdue payables. The club unsuc-
cessfully appealed to the Court of Arbitration for Sport to have the decision annulled or
replaced with less severe sanctions (BBC, 2013).

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94   Handbook on the economics of professional football

6.7 THE POLITICAL CONSEQUENCES OF FFP

Ostensibly FFP is a form of financial regulation based on the information set out in
clubs’ general purpose financial statements (Morrow, 1999; Webb and Broadbent, 1986).
The focus of these statements is on providing useful information to rational economic
decision-­makers, primarily shareholders and lenders; that information concentrates on
economic events and transactions and on their predicted financial impacts. Yet, the
nature of football clubs and the behaviour of many stakeholders involved with clubs,
more often than not including their shareholders, leave them ill-­suited to meet the
perceived objectives and needs of stakeholders (Morrow, 2013). UEFA’s requirement
for modified financial information as set out above in the determination of relevant
income and expenditure suggests that general-­purpose financial statements do not meet
its needs. For UEFA, there is a desired social and political outcome associated with its
regulations, at its simplest, credible and sustainable sporting competition. FFP is socio-­
economic regulation based on a public interest argument, that is, the long-­run integrity
of its competitions is asserted to be for the greater good of football and hence of society.
In contrast to conventional financial statements which emphasise financial performance
at the level of a club focused on a narrow group of economically motivated users, FFP is
about prioritising social and sporting public policy objectives at the level of the competi-
tion. Thus FFP can be interpreted as contributing to shaping a social (sporting) reality
with beneficial social outcomes; this is a form of purpose-­oriented financial reporting. In
this context the accounting numbers required by UEFA are political in that they have
been selected with a particular outcome in mind: that is, the determination of key per-
formance indicators such as breakeven are dependent on political and value judgements
about what activities clubs engage in, and about how these are funded and organised.
At an organisational level, FFP acknowledges that the nature of football means that
that the relevant performance of a club cannot be captured simply by relying on con-
ventional measures of accounting performance. While accountability to stakeholders is
not an explicit consideration for UEFA in terms of FFP, its framing of the regulations,
for example the treatment of community and social expenditure, introduces the idea of
reporting performance that extends beyond a conventional financial bottom line, and of
accountability that extends beyond providers of financial capital. Financial fairness and
the rules provided to clubs in terms of determining breakeven will make it more difficult
for owners to behave in a manner detrimental to other stakeholders, including their
supporters and other clubs. FFP also has social and political consequences in terms of
whether clubs will be licenced to participate in UEFA’s competitions. From the clubs’
perspective, FFP and the accounting process provides an opportunity for them to legiti-
mate themselves and to obtain (financial) resources from their environment, through
participation in financially lucrative competitions.

6.8 CONCLUSION

Financial Fair Play initiatives represent the most radical attempt to date to regulate
football finances and to deal with the instability of football clubs. The involvement
by stakeholders including the European Club Association, National Associations,

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 Football finances  ­95

the European Professional Football Leagues, FIFPro Europe and Supporters Direct
Europe in UEFA’s FFP initiative suggests that there is widespread acceptance that
the market cannot be relied upon to regulate the business of football, given its sport-
ing, social and economic nature. While based on conventional financial information,
FFP is akin to socio-­economic regulation, where the determination of key performance
indicators such as breakeven is dependent on political and value judgements about what
activities clubs engage in, and how these are funded and organised; about the structure
of sporting competition and leagues; and about the social context within which profes-
sional football exists. Notwithstanding the high levels of revenue and finance at the top
levels of professional football, the introduction of FFP reinforces the argument that the
specificity of sport is of continuing relevance to football (Arnaut, 2006).
Despite the consultation process and stakeholder engagement that has preceded the
introduction of FFP, inevitably issues will arise in its implementation and in its enforce-
ment. But such challenges should not distract from the core and relatively simple ambi-
tion at the heart of FFP: that the often financially lucrative business of football be run in
a way which is also sustainable and socially responsible. Football policy initiatives which
encourage due emphasis on financial management and stewardship are certainly a move
in the right direction.

NOTE

1. ‘Why should the business model of one football club be predicated on the health of another?’ This was
the strapline in one Scottish newspaper article focusing on the ramifications of the collapse of Rangers
(Winton, 2012). The article continued: ‘The question, posed by David Reid [director as Stenhousemuir
FC, a Community Interest [Football] Company], should be rhetorical but instead some of his colleagues
in the boardrooms of Scottish football are desperately trying to agree upon an answer to appease their
creditors’.

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