UEFA Releases New Financial Regulations for Clubs

The UEFA Executive Committee approved the new UEFA Club Licensing and Financial Sustainability Regulations on April 7, 2022, which will be introduced in June 2022. The regulations mark the first major reform of UEFA’s Financial Fair Play (FFP) regulations since they were introduced in 2010.

The new Financial Stability Regulations aim to ensure that all clubs must be stable, solvent, and keep costs under control. In drafting the regulations, UEFA consulted with national associations, the European Club Association (ECA), European Leagues, FIFPro, supporters, the European Commission, the European Parliament, and the Council of Europe.

How will the new regulations achieve sustainability?

The new regulations include a package of measures including ways to encourage clubs to build equity and invest in infrastructure, youth development, and women’s football for their long-term benefit. It is anticipated that healthier club balance sheets and better cost controls can provide the first line of defense against revenue shortfalls.

The new regulations have three main areas of focus: 1) the no overdue payables rule, 2) the football earnings rule, and 3) the squad cost rule.

No Overdue Payables Rule:

The changes in the no overdue payments rule aim to promote the protection of creditors, ensure better solvency and protect the integrity of competitions. For instance, all payables to football clubs, employees, social/tax authorities, and UEFA due to be settled by June 30, September 30, and December 31 during any license season must be settled by the club by July 15, October 15, and January 15, respectively. The UEFA Club Financial Control Body (“CFCB”) will consider as an aggravating factor any instance that a club has overdue payables for more than 90 days.

Two areas where this new rule will come into play are when clubs suspend or defer wage payments to players (often occurring in smaller clubs) and in instances of affiliated loans from club owners who often defer repayments so that the clubs can maintain a positive cash flow for operations, transfers and facility improvement.

Football Earnings Rule:

The new football earnings (or stability) rule is intended to be an improvement upon the existing FFP “break-even” requirements, which often were creatively skirted by financially savvy clubs. The calculation of football earnings is similar to the calculation under the previous “break-even” rules. However, changes to the calculation of acceptable deviation encourage equity contributions rather than debt (again, aiming to cut down affiliated loan setups).

The new rule strengthens the requirements that a club’s costs of relevant investments (facilities, youth club development, etc.) must be covered with existing equity or contributions. The acceptable deviation amount has doubled from roughly $32 million to $64 million over three years and can be further increased by approximately $10.7 million for each reporting period for clubs showing good financial health.

Squad Cost Rule:

For the first time, the new regulations will subject clubs to squad cost controls. The squad cost rule restricts clubs’ spending on player and coach wages, transfers, and agent fees to 70% of club revenues after a graded implementation of 90% for 2023-2024, 80% for 2024-2025, and 70% beginning in 2025-2026. This requirement will provide a direct measure of squad costs and income so as to encourage more performance-related costs with the hope of limiting market inflation of wages and transfer costs of players.

Are these regulations really an improvement on FFP Regulations?

Two areas the new regulations target that had proven rife for exploitation under FFP were the look-back, historical view of financial information, and examination of only affiliated transactions. FFP focused on clubs’ trailing three years of financial information when determining such things as “break-even”. Now, there will be a larger emphasis on current financial information and balance sheets to provide a clearer view of the clubs’ financial health.

Furthermore, the new regulations will examine all transactions, not just affiliated or related-party transactions. FFP only went so far as to examine those transactions known or deemed to be between a club and a related part- (often, only entities with known connections to club’s ownership). It was only these related-party transactions that were examined for “fair-value” with an aim to prevent affiliated entities from injecting cash into the club at an over-valued rate so that it would pump up revenue (for instance, high-dollar commercial agreements for clubs without the highest exposure).

Will these new regulations have the teeth to punish clubs that don’t comply?

That remains to be seen. One glaring problem with FFP was that clubs did not respect the enforcement mechanism as a true threat and, unfortunately as was shown in the cases involving Paris Saint-Germain F.C. and Manchester City F.C., clubs often got away with intentional actions to circumvent the regulations. It is hoped that the requirements for more up-to-date financial reporting will help to cut down on the opportunities clubs have to circumvent the new rules.

Breaches to the new regulations will be sanctioned by CFCB pursuant to a catalogue of sanctions listed in the CFCB procedural regulations. The overdue payable sanctions have been strengthened and the football earnings requirements include the possibility of settlement agreements. The squad cost rule sanctions will be progressive based on the severity of the breach and number of breaches committed over a four-year period.