The introduction of the Financial Fair Play (FPF) system has changed the way clubs are able to acquire players, but it will not lead to parity or increase fans’ trust in the system.
While Financial Fair Play was banned, PSG was able to recruit Lionel Messi and a slew of other players. Nasser Al-Khelaifi, the chairman, is also the president of the European Clubs Association, which is working with UEFA to rewrite the Financial Fair Play Regulations. Getty Images/Anadolu Agency/Alaattin Dogru
Over the last month, it’s been one of the most often asked questions. “How can Paris Saint-Germain possibly afford to add the expensive salaries of Sergio Ramos, Georginio Wijnaldum, Gianluigi Donnarumma, Achraf Hakimi, and, of course, Lionel Messi without breaching Financial Fair Play given the epidemic and collapse of the Ligue 1 TV deal?”
PSG chairman Nasser Al-Khelaifi has always responded the same manner, most recently on Wednesday: “We will follow Financial Fair Play.”
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Because of the impacts of the coronavirus epidemic, Financial Fair Play (FFP) has been halted. But it will return in a new format, and to be fair to Al-Khelaifi, he probably has a better idea than most of what it will look like when he returns since he is not only PSG’s president, but also the president of the European Clubs Association (ECA) and a member of UEFA’s Executive Committee. (He’s also the chairman of the BeIn Media Group, which buys broadcast rights from UEFA and other organizations, as well as the president of the Qatar Tennis Federation.)
While nothing has been officially authorized yet, it’s easy to understand how Al-Khelaifi can be so confident when he’s helping to draft the rules and is aware of the general agreement. And that agreement leads to a luxury tax system that is more about “sustainable” than “competitiveness,” as ECA officials pointed out on Tuesday. This is excellent news for Al-Khelaifi as long as Qatari funds continue to flow.
Individual clubs will be allowed to spend a certain amount on transfers, salaries, and agency fees, and if they exceed that amount, they will be sanctioned. That punishment, on the other hand, will be strictly monetary. If you go above your limit by, say, 50 million Euros, you’ll have to pay a part of the “luxury tax” on that 50 million. The exact amount has yet to be determined, but it may be as high as 100%, meaning that if you’re over by $50 million, you’ll have to pay another $50 million. If it’s 50 percent and you’re 50 meters over, it’s 25 meters.
It’s a big change from FFP’s previous methodology, which looked at total earnings and loss across three seasons. If you lose more than the allowed amount, you may face a variety of penalties, including fines, restrictions on squad size and transfers, and, in the worst-case scenario, a suspension from European play.
FFP was not without its detractors, but it mostly accomplished what it intended out to do: transform European football from a sport that lost almost $2 billion in 2012 to one that was profitable in the two seasons before to the epidemic. It did, however, have certain faults, particularly after the losses were reduced and the ecology grew more sustainable.
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There was the fact that it prevented owners from investing: you’re an eccentric billionaire who buys a club and is eager to spend money to bring in talent and increase the club’s earnings, but you can’t because your revenues won’t rise fast enough in the near term.
There was also the fact that it was retroactive: if you had the money, why should your capacity to spend be hampered by losses from two years ago? It was excruciatingly slow since it depended on audited official club finances, which meant that if you went on a spending binge in the summer, you won’t know if you’ll be penalized for another 18 months. Finally, you never knew what the penalty would be: if you broke FFP regulations, you usually had to negotiate with UEFA and end up with a “settlement agreement,” which outlined your punishments.
That last bit, by the way, was intentional. Former UEFA President Michel Platini said that he did not want a system in which clubs knew how much violating the rules would cost them ahead of time because he wanted clubs to obey the rules rather than deciding if it was preferable to violate them and then write a check.
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Some of the aforementioned problems, according to supporters of the revised FFP, will be addressed by the new system. Owners will be allowed to pump money into clubs (whether as a genuine investment or for the sake of vanity/ego): it will simply cost them a little more. You’ll know what your spending limit is, how much you may spend, and if it’s worth it to go over it. You’ll also know in “real time” (or near to it), enabling you to prepare ahead of time rather than waiting 18 months for a judgment and punishment.
For the time being, details are few, but it’s obvious that the new approach does a great deal. But there’s one thing it doesn’t do: it doesn’t encourage competition, and there’s one thing it should do, but probably won’t: it doesn’t build confidence in the system.
On the first point, it’s worth noting that this luxury tax varies significantly from what we’ve seen in the NBA or MLB. In such leagues, the cap is the same for all teams, and any penalties that exceed the limit are divided among clubs that do not break it. Because it will most likely be a proportion of income, the cap will vary from club to club (70 percent has been mooted; it could be more, it could be less).
Manchester United, for example, will be able to outspend Brentford since their revenues are much greater. (And will very certainly continue to be much, far higher in the future.) Furthermore, whatever “luxury taxes” are collected and allocated (and how they’re redistributed remains to be seen) aren’t going to make a difference: even 200 million Euros (let’s say) is peanuts when divided among 30 teams. So keep in mind that this isn’t intended to promote competition or parity, and it doesn’t.
The latter point is well-known. When people trust the system, it works — as you witnessed with FFP. Manchester City and Paris Saint-Germain believed UEFA and other major clubs were prejudiced against them. Other major teams believed they were cheating, while supporters were unsure what to think. We still don’t know for sure since there was minimal openness in both club finances and judicial procedures.
FIFA’s aim to hold the World Cup every two years, according to Jurgen Klopp, prioritizes money above the well-being of players.
Officials from the ECA have promised more openness; we’ll see whether they follow through. It would be fantastic if supporters and the media had complete access to club finances, knowing precisely what sponsorship agreements were in place and how much they were worth, whose agents were paid and how much they were paid, and details of every transfer and contract signed. Then we, too, would be able to see who is going over the luxury tax limit and who isn’t in real time. We’d also have greater confidence in the institution in charge of enforcing the law. (Unlike FFP, which saw several teams criticize UEFA for being too lenient with PSG and City, while City and PSG felt hounded and treated unjustly for the penalties they did receive.)
Don’t get your hopes up for the final one. Clubs speak a nice game, but they despise openness. Officially, it’s for “competitive advantage” and “trade secrets,” but in fact, it’s to make it simpler for fans to hold decision-makers accountable.
Following the epidemic, and after losses of approximately 8 billion euros, European football simply could not afford to enact regulations that punished excessive expenditure and financial infusions. Big clubs weren’t about to give up the advantage that comes with greater income (and therefore bigger budgets), and they certainly weren’t about to start supporting the competitors (which is, indirectly, what an NBA style luxury tax would have done). As a result, this approach is intended to keep prices low while encouraging those who can afford to spend to do so.
It’s probably the most we can hope for right now in terms of concept, but if we care about competition (and not everyone does), we’ll have to find another method to get there.