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What Is Financial Fair Play & What Are The Rules?

What Is Financial Fair Play & What Are The Rules?

Professional football has been transformed in the last thirty years. The level of wealth at the top of the game these days is staggering, with clubs such as Chelsea and Manchester City spending hundreds of millions each year on signing new players, and TV broadcasting revenue and sponsorship deals boosting the bank accounts of Premier League owners, who are some of the wealthiest individuals on the planet.

These changes have had some key ramifications outside of simply ensuring that the best players in the world are attracted to this rich, glamorous league. In the eyes of the footballing authorities it’s more important than ever before to keep spending in check and ensure that some degree of financial fairness is being strived for. Many fans would argue that this is far from being the case. However, certain measures have been brought in in recent years with this in mind.

In this article, we’ll be focusing on these measures by examining what the concept of financial fair play means in football, explaining how it works on a practical basis, and defining what the modern financial rules are in European competitions and domestic leagues such as the Premier League. 

What is Financial Fair Play?

On a global basis, association football is governed by FIFA, but each continent has its own governing authority to manage continental competitions and affairs. In Europe, this organisation is called UEFA (Union of European Football Associations).

Financial Fair Play is effectively UEFA’s way of ensuring that the clubs it presides over are not operating in a financially irresponsible way.

The aim is to use a budgetary framework to stop clubs from massively over-spending and incentivise them to act responsibly with their money, ultimately reducing the regularity of clubs recording heavy losses or, in extreme cases, going into administration. 

Earlier this year, UEFA president Aleksander Ceferin spoke out about the positive effects of his organisation's Financial Fair Play regulations. "It has been very successful as a system, there are almost no losses in European football any more and now we will probably have to adapt to different times," he said. "We have the investigatory chamber and the adjudicatory chamber and at the end we have CAS in Lausanne. For some administrators it's a problem if you have an independent body. For me it's a privilege."

When Was Financial Fair Play Introduced?

UEFA first introduced the idea of Financial Fair Play (often abbreviated to FFP) in 2009. This was after they discovered that over half of the 665 European clubs under their jurisdiction had suffered losses over the course of the previous year. On top of this, it was thought that around 20% of investigated clubs were in financial danger. The opinion across football's governing bodies was that clearly, something needed to be done. 

The list of rules UEFA came up with back then was first implemented during the 2011/12 season but has changed and evolved over the years, as authorities have tried to respond to different developments in the world of football and keep their regulations as robust as possible. However, there have been some key facets of the legislation that have remained consistent throughout. In the next section of this article, we’ll flesh out what the most crucial UEFA financial fair play regulations are. 

The Most Important Financial Fair Play Rules

Under UEFA Financial Fair Play rules (which apply to all clubs entering UEFA competitions), clubs are allowed to incur losses of €60m over a three year period.

This was previously set at €30m, but it has been expanded in the aftermath of the Covid-19 pandemic, which negatively impacted clubs' finances in a number of ways; operating revenue losses accumulated, while staff costs remained at fixed levels, causing acute financial distress to many clubs across Europe. As a result, UEFA allowed for losses to become a little higher before FFP came into play.

On top of the recent leeway added here, financial fair play rules are also being changed to see the introduction of a spending cap on wages, transfers and agents’ fees, brought in by 2025/26. This cap will mean a club will be permitted to spend no more than 70% of its total revenue on these aspects of the business.

Additional timeframes have also been introduced in relation to the payment of overdue payables by clubs. 

For the 2022/23 season, UEFA also brought in new Club Licensing and Financial Sustainabilty regulations, establishing three key pillars in club monitoring: solvency, stability, and cost control. An important aspect of the Club Licensing and Financial Sustainability rules is the break-even requirement. This refers to the break-even result for a reporting period, which is calculated as the difference between relevant income and relevant expenses. Essentially, clubs can't be losing more than they are able to make up in revenue.

While FFP was primarily about monitoring overdue payables and the break-even rule before this point, it now has a crucial focus on cost control too, as attempts are made to crack down on the huge sums of money being spent on player wages, transfer costs and fees for agents. 

Domestic Financial Fair Play: Premier League Profit and Sustainability Rules

FFP has had major implications for the richest clubs in the land, who now face serious punishment if they fail to comply with the financial rules. The latest and most high-profile club to have allegedly broken the FFP regulations is Manchester City. Currently, the club is being charged with 115 alleged breaches of financial fair play, unearthed after a four-year investigation. City are strongly denying the accusations and fighting against them, and it is likely to be a while before any final judgement is made over the alleged breaches.

However, it's important to note here that the Premier League's financial rules are distinct from UEFA's, so clubs like Manchester City are not being charged by UEFA but by the Premier League. The EPL's own set of financial regulations are labelled the Profit and Sustainability Rules. 

The league's Profit and Sustainability Rules (PSR) were first introduced in 2013. Since that point, by March 1st each season every Premier League club must submit a set of accounts for the current season and the accounts for the two previous seasons. According to the rules, those accounts must "be based on the latest information available to the club and be, to the best of the club's knowledge and belief, an accurate estimate as at the time of preparation of future financial performance." 

The Premier League uses these accounts to create a "PRS calculation" that assesses whether a club has incurred excessive losses. This is the primary function of the PRS at the moment — to ensure that its member clubs do not incur huge financial losses over a three-year period.

On top of rules regarding losses, the Premier League Handbook also requires clubs to pay transfer fees, salaries and tax bills on time, and disclose any payments made to agents. And these domestic financial rules aren't just for England's top division; the English Football League (a crucial part of the UK's extensive footballing pyramid) also has its own financial regulations in place in order to promote financial stability and minimise damaging losses for its clubs. You can find out more about the English Football League's financial rules here.

The Everton Financial Situation Explained

Anyone who closely follows the Premier League will know that in recent weeks, an unprecedented punishment for financial irregulations has been doled out to Everton, a Premier League mainstay who have been in England's top division since the 1954-55 season. As a result of breaches of the Premier League's financial rules, Everton were given a whopping 10-point deduction.

The reason for the docking of these points comes down to losses over a three-year period. Everton violated PSR rules by exceeding the maximum losses allowed during the three-season period ending 2021/22. The maximum losses permitted in this window (which were adjusted in line with the impact of COVID, youth development and other costs), came to £105 million. Everton's losses during this period reportedly amount to £124.5m, hence the punishment.

Everton are currently disputing the decision, and they've maintained that they simply accounted for certain payments differently. The outcome of their appeal is expected in the new year, and one of their core arguments is that unlike Manchester City and Chelsea (who are currently facing their own set of FFP rule break allegations), they complied with the Premier League's investigations at all times and attempted to clear their name to the best of their ability. Whether this will be enough to save them from a points deduction remains to be seen. 

Regardless, the situation appears to have seriously galvanized the club's first team in the short term; since being slapped with the points deduction on Friday 16 November, Sean Dyche’s side have picked up 12 points from five games, only losing in the Premier League to Manchester United. An ‘us against the world’ mentality appears to have been cultivated, and it’s clearly working on the pitch. 

However, it’s unsure what the long term ramifications will be for Everton. What is certain is that Dyche will need to use all his experience and guile to navigate them to a safe mid-table position this season. If you want to find out exactly how he might be approaching this task, why not check out our in-depth guide to Everton’s training ground Finch Farm?