Financial Fair play regulations (FFPR) Legitimate or not?

UEFA created the FFPRs as part of its already-functioning club licensing system to ensure that clubs break even in the long run. The FFPRs' overarching goal is for UEFA's affiliated football clubs to balance their books, avoid spending more than they make, and stimulate investment in their stadiums, training facility infrastructure, and youth development. However, one does wonder whether the FFPR do in reach these goals and if so, whether proportionality is taken adequately into account?

It has been argued by Daniel Geey, sports lawyer that this concept of self-sustainability relates to UEFA's underlying belief that transfer fees and wage inflation will continue unabated because each new set of club owners injects more money into the European football club market; this “keeping up with the Jones's effect” spirals further out of control as owners are forced to outbid other high-spending clubs, resulting in financial insolvency. However, a devil’s advocate may reply to such an argument by asking: “shouldn't the owner have the freedom to decide how much money he invests in the club in order to acquire high-profile players?”

It's worth noting that the FFPRs apply only to Champions League and Europa League participation, not to local competitions. Each club having a chance of qualifying for that season's European tournaments must apply for a UEFA Club Licence prior to the start of that season. The sanctions related to breaching the FFPR started in the 2013-2014 season.

Most of the key requirements of the Financial Fair Play have not changed since: (I) it emphasizes transparency and credibility by establishing minimum disclosure requirements for clubs' financial statements; (II) it requires clubs to demonstrate that they do not have any outstanding payables to other clubs, their players, or social/tax authorities throughout the season; and (III) it requires clubs to comply with the break-even rule. In particular, the break- even criterion for FFP requires that relevant earnings and spending largely balance throughout the course of the reporting period, and that any discrepancy must be below a certain level.

Non-compliance with the FFP standards can result in a variety of sanctions ranging from warnings and fines to disqualification or removal from UEFA tournaments (i.e. the Champions League or Europa League). The European Commission seems to approve the Financial Fair play regulations in the white paper on sports, which states exactly;

The transfer of players also gives rise to concerns about the legality of the financial flows involved. To increase transparency in money flows related to transfers, an information and verification system for transfers could be an effective solution. The Commission considers that such a system should only have a control function; financial transactions should be conducted directly between the parties involved. Depending on the sport, the system could be run by the relevant European sport organisation, or by national information and verification systems in the Member States.

From this point of view, it can be said that the Commission allows FIFA to set the FFP regulations and interact or at least, does not dissent. In fact, in March 2012, UEFA and the European Commission struck a cooperative agreement, in that agreement it states that objectives of the FFP regulations are “consistent with the aims and objectives of European Union policy in the field of State Aid.” The author of this thesis deems it likeable that this is aimed at preventing clubs from challenging the legitimacy of FFP through the EU judicial system, e.g., by alleging that it violates the EU's anti-competition legislation. According to the author, this is truly alarming; when the European Commission enters into a cooperation agreement prohibiting anyone from challenging the FFP in an EU court, this may be interpreted as a breach of fundamental human rights, such as Article 47 TFEU and demonstrates the footballing organizations' dominance once again.

The aim of this thesis is not to determine whether the financial fair play regulations are successful in reaching their goals or not; Rather, the focus is on whether the financial fair play regulations comply with EU law.

The political support for UEFA ́s is apparent in the white paper on sports, the Commissions agreement, Court rulings and the organisations behaviour. As an example of this support is e.g. the cooperative agreement between UEFA and the European Commission, the Daniel Striani case and how UEFA have acted regarding the FFPR ́s and the super league. The European Commission stated in 2009 that a licensing system, such as UEFA's FFP, may be viewed as necessary for the functioning of the European sports model, and that the primary objective of financial criteria for licensing regulatory programs is to ensure clubs' viability within sporting competitions. In 2011, the European Commission declared unequivocally that one of the fundamental goals of sport regulating organizations is to ensure the financial viability of sports clubs. UEFA also carefully sought advice from the European Commission throughout the development of the regulations. Andrea Traverso, then-Head of Club Licensing and Financial Fair Play, acknowledged that UEFA spoke with the European Commission to ensure that FFP complies with EU law. Consequently, as in 2012, The European Commission issued the joint statement with UEFA supporting the regulation.

In this context, media reports on PSGs acquiring Neymar JR. for 220 million pounds from FC Barcelona sparked attention, as the new FFP regulation make it harder for PSG to afford such an amount. However, a closer examination of the move reveals that Neymar the 220 million pounds spent is not a complete loss; when Neymar, the celebrity, comes to Paris, television and commercial contracts can increase, since he sells a variety of items ranging from cups to shirts. In other words, Neymar draws people’s attention. With his talent, PSG are more likely to win trophies such as the Champions League, which brings the club a lot of money, and he has gained support from South America. Bearing this in mind, according to the author of this thesis FIFA appears to have overlooked the big picture while developing the FFP regulation.

Adjustments to the FFP

Following the first appearance of FFP and the following legal challenges, UEFA updated FFP to reflect the latest developments. Even though most of the challenges to various components of FFP were ineffectual, the regulations were relaxed to allow for greater equity participation by owners. Apart from that, UEFA has provided clubs with an additional tool: the ability to engage into Mediation and Voluntary Agreements, which are normally associated with less severe repercussions for teams that have or will breach the FFP's break-even criteria. One might inquire, since there are so many exclusions from the fundamental FFP requirements, why do we even have them in the first place? However, diving into this issue would provide material for an entirely new thesis.

A club may join a Voluntary Agreement if its ownership or control has changed significantly during the twelve months preceding the application deadline. However, a club must not have been a party to a Voluntary Agreement or been subject to disciplinary action during the three reporting periods before the submission of the application. Bear in mind that if a club changes owners as a result of disciplinary action taken against them within the three reporting periods before the filing of a fresh application to join a voluntary agreement, according to the author of this thesis, this must be regarded a major obstacle, and a potential breach of Art. 101(1). In contrast to Settlement Agreements, which are ex post arrangements, Voluntary Agreements are ex ante agreements that allow clubs to diverge from FFP norms in the future with the goal of meeting the break-even criterion. Voluntary Agreements are defined as “a structured set of obligations which are individually tailored to the situation of the club” To engage into a Voluntary Agreement, an application must be submitted by December 31 of the licensing season preceding the one in which the agreement would take effect. Additionally, the submitting club must present a long-term prospective business plan that includes a balance sheet, profit and loss statement, and cash flow statement. After submitting its application, the club must demonstrate its ability to accomplish its stated objectives. Following that, the CFCB's investigatory chamber analyses each application and, if accepted, oversees the Voluntary Agreement's appropriate and timely execution. The CFCB's refusal of AC Milan's (Milan) application for a Voluntary Agreement provides an illustration of the application procedure. Milan is one of Italy's most respected and greatest football clubs. Milan had changed ownership eight months prior. CFCB rejected Milan's Voluntary Agreement, citing "uncertainties about the refinancing of the debts due in October 2018 and the financial assurances offered by the principal owners."

After conferring with other members of the investigatory chamber, the CFCB investigator has the authority to enter into a Settlement Agreement with the investigated club at the completion of an inquiry. Similar to a Voluntary Agreement, a Settlement Agreement may include provisions for the club's essential duties, which may include disciplinary sanctions. More importantly, the severity of future obligations are dependent on the severity of the deficit. An example of a Settlement Agreement application is F.C. Internazionale Milano S.p.A (Inter), where the CFCB concluded that Inter failed to meet FFP’s break-even requirement during the 2014-15 season because it posted a larger-than-permissible deficit.

Inter committed in the Settlement Agreement to maintain a break-even deficit of up to €30 million in the 2016 reporting year and a balanced budget in 2017. Additionally, for violating FFP during the 2014-2015 season, Inter was fined €20 million, which was deducted from the club's Europa League earnings. €6 million of the total was to be paid in full regardless of the team's success, while the remaining €14 million was conditioned on Inter's continued compliance with FFP. According to this thesis author money withdrawal from prize rewards is extremely onerous; Inter should have been permitted to pay in their own self-interest.

Additionally, Inter agreed to a player cap for future UEFA club tournaments. Taormina finds that the above-mentioned FFP adjustments might be viewed as a direct response to the Article 101 difficulties and a means of protecting UEFA from future ones. As noted previously, UEFA's legal victory will be contingent upon the proportionality of its regulations and disciplinary procedures in relation to its aims. The inclusion of Settlement and Voluntary Agreements has increased the flexibility and, presumably, the proportionality of FFP. However these agreements presumably have their flaws and could be disputed. Only time tells when a club challenges them.

The FFP ́s Anti-Competition legal claims

The primary antitrust allegation against UEFA is argued under Article 101 of the TFEU. Like mentioned before, UEFA is the sole body that organizes football competitions in Europe. As a result, it has a dominant position in the European football market, providing a potential for FFP to be challenged under either Article 101 or Article 102. (1).

Article 101(1) of the European Union's competition law states that all agreements between undertakings, decisions by associations of undertakings, and concerted practices that have as their object or effect the prevention, restriction, or distortion of competition within the internal market are prohibited. This includes agreements between businesses, decisions by associations of businesses, and concerted practices that may affect trade between Member States. A number of studies back up the claim that the FFP’s break-even criteria protects the major and established pre-FFP clubs while serving as a barrier to entrance for smaller teams due to the restrictions on investment. Unsurprisingly, the FFP has gained the support of some of Europe's most powerful clubs.

It is important to remember that these larger clubs have enormous political and financial power. The big clubs have even tried to break away from UEFA and start their own Super league. Under Article 102 of the Treaty on the Functioning of the European Union, according to the author of this theses it would be difficult for UEFA to ban clubs or players from participating in such a competition. However, UEFA threatened to sanction Super league clubs, which goes against EU competition law, UEFA's monopolistic control of football in Europe violates EU competition law by allowing UEFA to penalize clubs while benefitting as the organizer of lucrative events such as the Champions League and Europa League. UEFA confirmed in May 2021 that it had reached settlement agreements with the nine Super League members that had withdrawn their participation in UEFA. This includes a gesture of goodwill and a Donation totalling an aggregate of €15 million to be used for the benefit of children, youth and grassroots football in local communities across Europe, including the UK and forfeiture of future award money, as well as increased financial penalties for participating in a similar initiative in the future.

The absence of participation from Europe's leading clubs would almost certainly result in a drop in UEFA's viewership and income, and ultimately, the organization's demise which according to the author of this thesis is a plausible explanation for why UEFA decided to reach the settlement agreements, despite the fact that UEFA does not control the clubs or their rights to pursue their own commercial interests.

The Daniel Striani case no. 299/15

Two anti-competition complaints were made on behalf of player-agent Daniel Striani by Jean-Louis Dupont in the year 2013. One complaint was filed with the European Commission on 6 May 2013, requesting an investigation into UEFA’s breakeven requirement, and a second complaint filed with the Brussels Court of First Instance, arguing that the Financial Fair Play (FFP), and in particular the breakeven requirement, has limited competition. Dupont stated in the Striani case, that the FFP curtailed investment, lowered the number of transfers, and strengthened the existing market structure. He argued that the FFP was restricting Striani’s ability to supply services in the Union as a result of the relative budgetary limitation placed on football clubs. According to Dupont ́s logic, if clubs are prohibited from spending more than they earned in the previous season, i.e., if they must break even, which is at the heart of the FFP, they will be unable to fully invest in the players market, thereby reducing the total amount of transfers, hence reducing profit opportunities for players' agents.

Moreover, he argued, FFP strengthens the current market structure because the break- even rules do not allow for any exceptions for clubs that are smaller, less established, and compete in less prestigious and lucrative national leagues, that is, leagues outside of Spain, England, Germany, Italy, France, and Portugal, thereby strengthening the current market structure.

Smaller clubs are more prone to suffer damage due to the FFP then larger clubs since they are unable to invest in their long-term success because they are barred from doing so. To put it another way, FFP encourages small clubs to remain small while shielding the major established teams from increased competitive pressure, As seen in the Manchester City case, the Court found that Manchester City violated FFP laws but was only required to pay a with small fine. As a result of UEFA's violation of EU competition law, Dupont asserted in the Striani case that the organization must demonstrate that FFP serves a legitimate and necessary objective and that they are the least restrictive means of achieving its objectives in accordance with the decisions in Meca-Medina v. Commission and Wouters v. Algemene Raad van de Nederlandse Orde van Advocaten. Taormina points out, that similar to the constitutional strict scrutiny practiced in the United States, this is a form of judicial review. Furthermore, EU courts have been unable to reach a decision on the merits of such lawsuits. He points out, that the European Commission was under no obligation to conduct the inquiry that had been requested. Given the European Commission's previous political support for FFP, which said that the laws are “compatible with the purposes and objectives of EU policy in the sphere of State Aid,” a decision against UEFA would have resulted in political humiliation for the Commission. As a result, the Treaty typically restricts State aid unless justified by considerations of economic growth in general. To guarantee that this restriction is adhered to and that exemptions are implemented consistently throughout the European Union, the European Commission is responsible for ensuring that State assistance adheres to EU regulations. In 2014, the European Commission issued a letter in accordance with Article 7(1) of Commission Regulation 773/2004 announcing its intention to deny the claim due to the continuing litigation in the Brussels court. The European Commission cited three procedural grounds for rejecting the appeal.

To begin, the European Commission determined that Striani lacked standing to file the complaint, since only legal persons can do so if they can establish that they are "directly and adversely impacted" by the alleged violation. Second, the European Commission reasoned that Striani might get sought protection before a national court as a result of his file with the Brussels Court of First Instance. Thirdly, the European Commission asserted that it had received just one complaint on FFP. Dupont responded that the first and third justifications for rejection were unfounded since FFP had a direct effect on player agents through a drop in transfers and that, in response to the third rationale, he filed three further complaints against FFP. However, in October 2014, the European Commission formally dismissed the complaint based solely on its second rationale, concluding that the Brussels Court of First Instance was well-positioned to hear the case and adequately safeguard Striani's rights.

Following the European Commission's judgment, the only available path for a ruling on the merits was the Brussels Court of First Instance. The Brussels Court of First Instance declared itself "incompetent" to deal with the issue in 2015, claiming that it lacked jurisdiction and hence could not proceed. Because UEFA is an association that is registered in the company registry under to Articles 60 and 61 of the Swiss Civil Code, it is recognized as a legal person under Swiss law. It follows that only Swiss courts could hear the claim because persons residing in countries that are parties to the Convention on Jurisdiction, Recognition, and Enforcement of Judgments in Civil and Commercial Matters (the "Lugano Convention") such as Switzerland can only be sued in the courts of the country where they reside. The Brussels Court also determined that it was not feasible to apply Article 5(3) of the Lugano Convention, which allows tort claims to be filed in the country where the injury happened, in this case, Belgium, because the addresses of FFP are only the clubs, and not player agents. Therefore, the loss suffered by Striani was determined to be indirect and too attenuated to qualify for compensation under Article 5(3) of the Lugano Convention. According to the author of this thesis this may demonstrate UEFA's might; courts may be seen avoiding confrontation with the organization.

However, the Brussels Court of First Instance referred the issue of whether the FFP laws breached Articles 101 to the ECJ for a preliminary judgement. Additionally, the court issued an interim injunction halting implementation of the second phase of FFP, which would cut the allowable deficit from €45 million to €30 million, until the ECJ issued a ruling on the filed subject. The court entered the interim order pursuant to Article 31 of the Lugano Convention, which permits the claimant to seek provisional and protective measures that may be available under the law of the state of the present court, i.e., Belgium, even if another state,i.e., Switzerland, would have substantive jurisdiction under the Lugano Convention. The referral to the ECJ was unlikely to result in a decision, since Article 267 of the TFEU provides that a Member State may refer an issue to the ECJ for a preliminary determination only in circumstances where the ECJ's adjudication is required for the presiding court to reach a conclusion. However, the presiding court, the Brussels Court of First Instance, had previously determined that it lacked jurisdiction to provide a ruling on the merits of the case. Thus, a preliminary determination by the ECJ would not have been necessary as required by Article 267 for the presiding court to issue a judgment since the presiding court lacked jurisdiction. As predicted, the ECJ dismissed the reference, noting the Belgian court's lack of international jurisdiction and other considerations that rendered such a preliminary ruling moot. To summarize, the European Commission dismissed the complaint on procedural grounds, and the Court of Justice of the European Union declined to issue a preliminary judgement.

No EU court has ruled on whether FFP conforms with Article 101. However, the Court of Arbitration for Sport (CAS) has determined that FFP did not constitute a violation of Article 101. Tom Serby, a Solicitor Advocate, maintains, the FFP Regulations’ break-even criterion has resulted in the formation of a cartel, or an oligopoly, which makes it extremely difficult for teams to compete with current ECA members for success and participation in UEFA tournaments, such as the Champions League and the Europa League. Hence, it is improbable that UEFA could convince the ECJ that the FFP Regulations’ anti-competitive effect, or the cartel effect, is a proportionate response to an inherent requirement for UEFA regulation, namely that “the consequential effects restrictive of competition are inherent in the pursuit of [their] objectives and are proportionate to them.” This, he asserts, is because there are alternative approaches available to address the issue of excessive investment in top European football teams that do not impede competition among football club investors. One such approach would be a hard pay cap, which has the extra benefit of generating fairer competition, resulting in a more engaging spectacle for the consumer and perhaps proving more financially lucrative for the sport as a whole in the long run. As Stephan F. Ross stresses, to establish the legitimacy of the FFP, UEFA would need to demonstrate that there were no other alternatives to excessive spending that were less restrictive of competition.

There is an obvious alternative to the break-even rule’s soft pay restriction which is a hard salary cap, or a limit on the amount of money that a team can spend on players salaries. Hard pay limitations, which are much more prevalent than the break-even criterion, hace, according to Ross, a substantially less harmful effect on competitiveness. Indeed, in the majority of professional sports leagues worldwide, competing teams compete against one another to recruit players, subject to league-imposed or mutually agreed upon restrictions.

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