Financial fair play catch-up for Liverpool, Monaco, Roma and others
On the back of UEFA assessing financial fair play compliance of clubs new to the Champions League, Gabriele Marcotti answers all the pertinent questions on the matter.
Q: What's this I hear about Liverpool's Champions League prize money being withheld?
A: Not just Liverpool's. It could happen to any club that was not involved in European competition last season but recorded losses in 2011-12 or 2012-13. That includes the likes of Roma and Monaco.
Remember last spring when UEFA went through the FFP process and ultimately Manchester City, Zenit St. Petersburg, Paris Saint-Germain and a few others were sanctioned? Well, teams that were not in Europe are being assessed now for the first monitoring period (2011-12 and 2012-13). They will be assessed again in the spring along with everybody else.
Q: What's the point of assessing them now? It's not like they are going to kick Monaco or whoever else out of the competition in midstream, are they?
A: They are assessing them now because you have a competition where clubs that are subject to FFP are taking on those that weren't assessed before and therefore would not be subject to the same restrictions. Imagine Roma, Monaco or Liverpool win the Champions League and it emerges they would not have been FFP compliant. How would that look?
This is UEFA's way of leveling the playing field to some degree. You're right; realistically it would be impractical to throw a team out for violating FFP midcompetition. And you can't restrict current transfer spending the way it did with City and PSG. But they can still be fined or have their prize money withheld.
Q: So is that what will happen to Liverpool?
A: Well, no. Liverpool and other clubs in their position could be deemed to be "at risk" of breaching FFP. That means they would need to provide additional information to help determine whether they are in violation.
While UEFA's Club Financial Control Body investigate this, they could have their prize money withheld. In the case of a Champions League club like Monaco or Liverpool, it's just over $11 million, which is what you get for qualifying for the group stage.
Q: How likely is that to happen?
A: My guess is that UEFA would like to do this rather than wrangle about withholding prize money later. In other words, prove you're compliant and then we'll get you your money. But there's always scope for negotiation.
Q: Assuming the money is held back, how does the CFCB decide whether a team is compliant?
A: Same way it did last year, broadly speaking. It will look at how much of a club's losses were due to expenses it deems "virtuous," such as spending on infrastructure and youth. And it will look at revenue projections going forward, essentially whether a club is trending a certain way.
So if you made huge losses but they're getting slower and you show a realistic plan for breaking even in the near future, the CFCB will look upon that favourably. A club that's referred to the CFCB needs to prove this to avoid punishment. If Liverpool, Monaco, Roma or whoever else might be in this position have their prize money withheld, once they have proved compliance it will be duly paid out to them.
Q: How easy is it to show you're compliant if you get referred?
A: It depends on the club. Last year, 76 teams were referred and nine ended up getting sanctioned, including the high-profile clubs like PSG and City.
Q: Nine out of 76? That's not too bad. No wonder some complain that FFP is toothless.
ALL-TIME HIGHEST TRANSFER FEES
1) £85m Gareth Bale -- Tottenham to Real Madrid, Sept. 2013
2) £80m Cristiano Ronaldo -- Man Utd to R. Madrid, June 2009
3) £75m Luis Suarez -- Liverpool to Barcelona, July 2014
4) £71m James Rodriguez -- Monaco to Real Madrid, July 2014
5) £59.7m Angel Di Maria -- Real Madrid to Man Utd, Aug. 2014
6) £56m Kaka -- AC Milan to Real Madrid, June 2009
A: That was last year. It was the first season of FFP, and I suspect UEFA was a bit more lax. Furthermore, the parameters will be tighter in March when it looks at the second monitoring period (2011-12, 2012-13 and 2013-14). The cumulative losses are still $57.7 million, but now it's over three seasons, not two as it was in the first monitoring period. If a team lost a total of $50 million between 2011-12 and 2012-13, it will need to break even in 2013-14.
But that's not all. I spoke to Andrea Traverso, head of club licensing and financial fair play at UEFA. He pointed out that there were clubs that exceeded the parameters last year but were included because of their projected revenues in future seasons, starting with 2013-14. Well, they will be judged on whether they hit those targets.
Q: I see. So maybe I had losses of $70 million instead of the allowed $57 million in 2011-12 and 2012-13, but I persuaded UEFA it would be OK because I would make a $20 million profit in 2013-14. Now it wants to see if I really did hit that profit target.
A: Exactly. And when you project future profits, you need a coherent plan. You can't just go in and say, "Well, we made a huge loss, but it's OK because we plan on winning the Champions League for the next 10 years and making $100 million in prize money every year."
Traverso addressed this directly when I talked to him. "We judge different elements, but above all we look at what measures clubs put in place to cut costs and increase revenues," he said. "Sure, we accept sometimes they can be unlucky on the pitch and maybe moved from the Champions League to the Europa League [and get less revenue] ... but there has to be a plan. We don't want clubs simply gambling on getting results on the pitch."
Q: And if a club is in breach in the spring, it will get the maximum punishment that City and PSG agreed to?
A: No. UEFA is pretty clear on this. Those settlements don't constitute a precedent. Things worked out that way because it was the first season of FFP. But you could have the same breach that City or PSG had and get a different punishment.
Q: Why is that?
A: Well, partly because UEFA feels clubs have had an extra year to prepare and familiarize themselves. Ignorance is never an excuse, but you can see how some might have expected some leniency, especially if they were carrying over big losses from past years or had made big investments.
And partly because, at least in my opinion, some of the sanctions were a bit soft.
Q: Like what?
A: Like the squad-size reductions inflicted on PSG and City. They were able to register 21 senior players instead of the customary 25 for the Champions League. Now, that would be a hefty punishment if they still had to abide by the homegrown player rules: four have to be "association-trained" (i.e., either English or guys who spent at least three years at English clubs before their 21st birthday), and four have to be "club-trained" (meaning players who came through the academy).
That would have forced Manuel Pellegrini to leave out some very good players. Instead, UEFA reduced the homegrown player requirements: four association-trained and one club-trained. I don't think we'll be seeing stuff like that again.
Q: So UEFA will throw the book at clubs and start kicking guys out?
A: It depends on the size of the breach. Certainly, clubs like Zenit, PSG and City, for example, agreed to very stringent terms (and withheld prize money). They are effectively on probation. If they were to violate the rules again, I don't think UEFA would take it very well.
And as I said, some of the others avoided sanctions just because they promised they would have much better financial results in 2013-14. If they don't meet those goals, they could be in trouble.
I'm not sure clubs will be excluded unless they're brazen repeat offenders. But you could easily see bigger fines, more severe roster reductions and spending restrictions like those imposed on City and PSG.
Q: So overall, is it working? Because to me it seems like it's a case of the rich staying rich.
A: Look, that's a criticism of financial fair play and it's a fair one. It does favour the bigger, profitable clubs, particularly the ones that have been profitable for years. It creates -- to some degree -- a closed shop. Had UEFA put me in charge, I wouldn't have done it that way. I would have had some form of a luxury tax.
But you need to look at it from the perspective of UEFA and, most of all, the clubs. Their major concern is reducing losses and making this a sustainable business. The fact of the matter is that losses among the 700 or so clubs UEFA tracks in its "bench-marking report" declined from $2.2 billion in 2011 to $1.04 billion in 2013.
UEFA thinks FFP has something to do with this, and in fairness, it probably is a contributing factor. Plus, it believes the losses will decline further. But I'll let Traverso answer that one.
"Personally, I think the exercise has been quite positive," he said. "First of all, we have a very open dialogue with the clubs, one that wasn't there in the past. Second, they are all 'playing this new game' and they are taking it seriously. And that includes those [like PSG, City and Zenit] who signed the settlement agreements. The large majority of clubs are addressing this and they're moving towards compliance. But it takes time. It's a medium- to long-term project."
Q: You buying this?
A: Honestly? Ultimately, the vast majority of clubs are owned by very rich guys. And very rich guys don't like losing money if they can avoid it. So if they want to reduce losses and UEFA wants to reduce losses, I don't see who's going to stand in their way. Even with clubs like PSG and City, who have made enormous losses in the past, their plan is to break even in the near future.
Where we might one day run into an issue is if revenue growth massively outstrips wage growth. Last season, it did just that. It was the first time it happened, and it was only by a little bit.
But if we ever get to the stage where clubs are profitable and the money is going to the owners rather than to the players, then we may have a different problem. But that day is a long way off.
Gabriele Marcotti is a senior writer for ESPN FC. Follow him on Twitter @Marcotti.