In this blog post, we will look at the effectiveness and fairness of FFP rules and the future of European football finances through the mega-contract between Kylian Mbappé and PSG.
If we were to pick the hottest topic in the European football market in the last decade, it would definitely be the contract between the French professional football club Paris Saint-Germain (PSG) and French footballer Kylian Mbappé. On August 31, 2017, there was an official transfer announcement for Mbappé, who had been rumored to be transferring to several big clubs. According to the club’s announcement, Mbappé’s transfer fee was a whopping 180 million euros, which was an astronomical amount. Since PSG had already spent 220 million euros on Neymar’s transfer fee, many people expected sanctions under UEFA’s Financial Fair Play (FFP) rules, but when the club avoided the sanctions in a somewhat crude way, football officials openly criticized the limitations of the FFP rules, saying that there is no way to curb the skyrocketing transfer fees of star players even though they are skyrocketing. So, what are the FFP rules and what problems do they pose? Let’s find out about the FFP rules based on these questions.
First of all, what are the FFP rules? FFP stands for Financial Fair Play, a system that prevents football clubs from spending more than they earn at the UEFA level. Clubs that violate this rule will not be allowed to participate in UEFA-organized competitions. UEFA-organized competitions such as the UEFA Euro and UEFA Champions League are popular all over the world and are financially and honorarily significant for football clubs. Therefore, not being able to participate in these competitions is a major blow to the club. In other words, FFP rules prevent clubs from spending more than they earn and are a regulation that restricts owners from investing private funds through strong sanctions such as being banned from participating in competitions.
Why were FFP rules first established? Michel Platini, the then president of UEFA, introduced the system to prevent clubs from going bankrupt due to excessive investment. A typical example is the English football club Leeds United. Leeds United entered the Premier League, the top division of English football, in the 1989-90 season and finished third in the league in the 1999-2000 season, qualifying for the Champions League, the top European club competition. Afterwards, they reached the semi-finals of the Champions League, ushering in a golden age, but this moment of brief glory soon turned into a nightmare. The Leeds United players demanded high weekly salaries as they won league and cup competitions, and the club’s owner had to meet their demands by spending his personal assets and taking out bank loans. Nevertheless, the club failed to qualify for the Champions League the following season, and as a result, it lost out on a large amount of broadcasting revenue. As the amount of money that had to be repaid increased rapidly, the club was on the verge of bankruptcy and went on a downward spiral, selling off its players at bargain prices. This is where the phrase “the Leeds era,” which refers to the club’s once-promising era, originated. The example of Leeds United reminded UEFA of the need for regulations on club management, and in 2009, UEFA introduced the FFP rules. UEFA aimed to reduce the deficit, which was 1.2 billion euros at the time, through these rules, and focused on ensuring that all clubs could lay a stable foundation for growth, even if they did not make a profit.
When the FFP rules were first established, they started out as a set of regulations for the financial health of clubs, but in recent years, the meaning of the FFP rules has been interpreted in various ways. The meaning of the FFP rules in European football can be summarized in five ways. First, it continuously raises the overall level of European football and ensures that all clubs focus on developing and managing youth players. As they need to spend in line with their revenue, clubs will focus on developing prospects and improving team tactics instead of signing star players, which will reduce the gap between clubs and enable fair competition. Second, each club will be able to secure financial flexibility so that they can become financially independent even if they are in a difficult situation. Third, it will encourage clubs to provide safe and appropriate infrastructure for spectators and the media. This will help increase club revenues and is also positive for spectators. Fourth, it will ensure the integrity and fairness of UEFA club competitions by reducing private capital involvement. Fifth, it will allow European clubs to benchmark each other in terms of financial, sporting, legal and infrastructure aspects.
However, there is still criticism of the FFP rules, and there are still indications that several points need to be supplemented. In the early days of the introduction of the FFP rules, UEFA introduced the rules without defining them in sufficient detail, and many people in the football world criticized it as just a promise made by Platini to be elected as the president of UEFA. In particular, most leagues, except for the English Premier League and the German Bundesliga, were in the red, and there were many indications that the rules were ineffective in the face of a large gap in revenue between clubs. In addition, there were many loopholes in the FFP rules that could be used to circumvent the regulations because they were not defined in detail, and a typical example is the club’s sponsor contract. There was no way to sanction the owners of clubs who invested funds through their affiliated companies, as the sponsors on the football jerseys did, under the FFP rules, and billionaire club owners could still invest huge amounts of capital in club operations. There were also criticisms that there was no realistic consideration for clubs that were already operating at a loss.
As criticism grew, UEFA pushed for a revision of the FFP rules. First, the UEFA management subdivided the FFP rules. In the early days, the FFP rules only had a broad framework of “spending less than revenue,” with few details mentioned. In response, UEFA announced the revised FFP rules in 2015, which were positively received by the football world. A typical example of this is the refinement of the allowable deficit, which was limited to €45 million from the time of its implementation in 2015 to the 2018-19 season and to €30 million after the 2018-19 season, with the regulations being strengthened so that clubs that violate this rule cannot participate in UEFA-organized competitions. This change was praised as a revision in the right direction for clubs that have undergone financial upheaval. Second, with regard to the most criticized affiliate sponsorship contracts, UEFA has stipulated that contracts with organizations affiliated with the club owner or local government will be considered insider trading if they exceed 30% of the club’s total sales. This is a revision of the rules to prevent excessive capital from flowing into the club in the name of sponsorship, taking into account the circumstances of clubs that require sponsorship contracts, without completely banning them.
However, despite these revisions, the FFP rules still have many loopholes and remain controversial. A typical example is the transfer of Kylian Mbappé mentioned at the beginning. How was PSG able to finalize the contract with Mbappé without being sanctioned by the FFP rules? PSG used the transfer system. A normal transfer is a method of paying a transfer fee and acquiring a player completely, but a loan transfer is a method of renting a player for a certain period of time. Mbappe’s contract with PSG includes a clause that states, “If PSG is not relegated after a one-year loan, he will sign a permanent transfer and pay a transfer fee of approximately £166 million.” PSG is a prestigious club that is in contention for the top spot in the French league, so it seems virtually certain that they will not be relegated. Therefore, this clause is effectively the same as saying, “I will pay the transfer fee in a year,” and PSG has thus avoided the FFP rules that require them to calculate their finances on a yearly basis.
As such, the FFP rules are still being questioned, but they are also continuing to be criticized. However, UEFA has been steadily revising the rules since 2015, and the effects are slowly appearing as European clubs are beginning to adjust their spending in accordance with the FFP rules. As it remains an essential regulation in European football, UEFA will need to listen to various criticisms from the football world to come up with a more complete FFP rule.
