As all football fans(except those of a pale blue Mancunian inclination) have looked in incredulity at the sustained, profligate transfer policy of the Abu Dhabi Royal families current toy(namely Manchester City) more and more of us are speculating on the impact, if any, of UEFA’s Financial Fair Play(FFP) rules on the modus operandi of Manchester City.
Since the takeover by the current owner, Sheikh Mansour Bin Zayed al Nahyan to give him his full name, in August of 2008, the (Middle) Eastlands outfit have spent in excess of £450million, and that is with this current transfer window still open and petrodollars at the ready.
Clearly all these transfers will come with an attached wages commitment and while players have left the general trend is for higher and higher wages to be offered to players coming in at higher and higher transfer fees.
This is the first of three seasons in which FFP will be used by UEFA’s finance team to evaluate the financial performance of all European clubs wishing to take part in UEFA competitions with permitted deficits being £37million in years 2011-12 & 2012-13, and allowable deficits being £22 million and £11million in the next two years and a break even requirement in the following year.
The losses are only allowed if those deficits are funded by an injection of equity from the club’s owners, a share issue for example, like the Arsenal fanshare scheme that started last year.
“But what defines these losses?” you ask, if you’ve not all switched off at the merest hint of accountant speak.
A good question as UEFA do not merely intend to look at audited accounts, but at a statement of relevant income and relevant expenditure, using figures extracted from the financial statement by the clubs management.
Already there is a grey area as the definitions of “relevant income” and “relevant expenditure” are not exhaustive and therefore open to a degree of interpretation.
To further lessen the worry for any clubs worried by the potential impact of falling foul of the FFP regulations merely showing a trend of falling losses will be sufficient to avoid penalty especially if the losses can be attributed to contracts signed before June 2010, for example the huge contracts used to lure Carlos Alberto Tévez across Manchester and everyone’s favourite Togolese striker.
A major sticking point for relevant income is that of “related parties” and their influence on market value, perfectly exemplified by the naming rights “purchased” by Etihad Airways for the council property the trillionaires of the Middle East play their football in.
Currently UEFA have promised to gather some fair value benchmarks for naming/sponsorship deals but straight away this looks hard to define – how much more is the brand of Manchester City worth than old Bacon faces club for example, or Liverpool or even us ?
If the deal had been undertaken by unrelated parties then alarm bells wouldn’t have rung but as both Etihad and Manchester City are owned by the Abu Dhabi royalty then we cannot be expected to beleive that market value had been used in the deal.
Being the economist that our manager is, and the penchant for our hacks to ask him as many off pitch football questions as possible in order to ridicule his answers later, his response to the deal was:
“It raises a real question about the credibility of FFP. The difficulty and credibility of FFP is at stake. If it has to have a chance, sponsorship has to be at the market price.”
The club with the most cache in terms of world wide appeal is a club which neighbours Tarragona in north eastern Spain (OK, I’ll say their name Barcelona), and they recently concluded a sponsorship deal for 5 years worth £125million, yet Manchester City, a team with a fraction of Barca’s fan base and heritage of success on the pitch, “negotiated” a £400million deal over 10 years?
The feeling is in financial circles that UEFA won’t be able to, or have the inclination to, enforce any punishment of transgressors of FFP till around 2018 and while clubs can be banned from UEFA competitions that is very likely to be a last resort.
So where does that leave our beloved Arsenal, a club taking the implementation of FFP very seriously?
In the opinion of this humble blogger we are perhaps a tad too mindful of FFP as we seem to be handicapping our development in anticipation of FFP being implemented both rigorously and on schedule.
To not use the leeway of permissible losses in the next few years in our haste to be break even in advance of the date when it is required seems to be putting ourselves at an unfair advantage.
However I do concede anticipating just how strictly UEFA will enforce FFP will be a task that I’m glad is not mine to wrestle with.
Written by charybdis1966