The implementation of new rules that introduce barriers to
entry and entrench existing disparities in an industry would normally be
frowned upon, particularly when those rules are being introduced by an
association that governs a large swathe of that industry. UEFA’s new Financial
Fair Play (FFP) rules appear to do exactly this though, and it is no surprise
to see the first major legal challenge to these regulations.
What is FFP?
What are Striani’s grievances?
Does the challenge have a chance?
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| UEFA's FFP is one of Michel Platini's crowning achievements, but it could face an uncertain legal future |
What is FFP?
Firstly, we shall look at what exactly FFP rules are and the
purpose that they are meant to serve. There were six primary objectives that
were set out when UEFA announced the framework for FFP:
- To encourage responsible spending for the long-term benefit of football
- To improve the economic and financial capability of the clubs
- To ensure that clubs settle their liabilities with players, tax authorities and other clubs punctually
- To encourage clubs to operate on the basis of their own revenues
- To introduce more rationality and discipline in club football finance
- To protect the long-term viability and sustainability of European club football
These objectives were set out to try and put the brakes on
costs and losses in football from spiralling out of control. Many clubs are
currently underwritten by wealthy, often overseas, investors, while others have
gambled the club’s future by operating above their means in the hopes of
achieving increased future revenues. This has led to a number of high-profile collapses
over the past decade, not just in the UK.
The general objective behind FFP is to ensure that clubs
balance their books over a specified period of time. Varying aspects of it have
also been separated adopted by leagues around Europe – the Premier League
recently announced a limit on the increase of wage bills from season to season,
while the Championship and Leagues 1 and 2 all have variant on UEFA’s
break-even approach.
What are Striani’s grievances?
On the face of it, the aims and objectives of FFP seem very
reasonable and the clubs themselves have agreed to abide by these rules.
However, Belgian agent, Daniel Striani, with the backing of Bosman lawyer,
Jean-Louis Dupont, has now launched a legal challenge to FFP on the basis that
it contains anti-competitive measures and will impact on his ability to
generate income due to reduced transfers between clubs.
The three main arguments that Striani and Dupont will employ
are that FFP will restrict outside investment in football clubs, FFP will
entrench the existing disparities within the market and that FFP will reduce
the transfer market and salary packages, thus affecting Striani’s ability to
generate income for his business.
Does the challenge have a chance?
One major question that must be discussed is how the
European Union views sporting industries. An EU white paper on sport mentions
that “the Commission acknowledged the usefulness of robust licensing systems as
a tool for promoting good governance in sport.” On the face of it, that would
suggest that there are no issues with FFP. However, it goes on to clarify that
“such systems must be compatible with competition and internal market
provisions and may not go beyond what is necessary for the pursuit of a
legitimate objective relating to the proper organisation and conduct of sport.”
It is in this clarification where the issues may potentially
lie. Sport is very different to other industries in that one of the key
elements of sport is uncertainty. Unlike other industries, there is a strong
interest on the part of clubs to ensure a degree of competitive balance within
competitions and leagues.
So, the question really arises as to whether FFP is
compatible with existing EU competition policy and whether it goes beyond what
is necessary.
In an opinion piece in the New York Times, Dupont argues
that FFP would struggle to meet existing EU law - “as an agreement whereby industry participants jointly decide to limit
investments, FFP likely constitutes collusion and hence a violation of EU
competition law.” The European Commission views this differently as EU
competition chief, Joaquin Almunia, has already written to Michel Platini
explaining his view that FFP is “consistent with the aims and objectives of EU
policy.”
A former case, that of Meca-Medina in 2006, has set the
precedent that sporting rules do not constitute a special case. They must be
fully consistent with existing EU regulations. In other words, the European
Court of Justice must apply the same tests to sporting rules as they would
apply to rules in any other area of economic activity.
FFP will almost certainly distort competition and
inter-community trade. It will almost certainly have an impact on the transfer
market, both internally within countries and between EU member states. They
will reduce both the size of transfer fees and the quantity of transfers
between clubs. It will also limit investment from outside third-parties. It
could be argued that this could entrench the existing elite at the top by
limiting the ability of other clubs to break into this group.
Chelsea and Manchester City are the obvious two examples
that have benefitted from outside investment, from Roman Abramovich and Sheikh
Mansour respectively, to break into the elite group. Without this third party
investment, it is very difficult to see a scenario where these two clubs could
have achieved the position in which they now find themselves.
Dupont explains that “the
break-even rule makes no allowance for the commercial disparities between
individual national leagues, which means that smaller clubs are hit harder,
proportionately, than larger ones. Without the ability to invest in their
longer-term success, smaller clubs will stay small. This is clearly
anticompetitive.”
So, the fact that it likely infringes upon competition
policy is fairly clear. The real question is whether it goes beyond what is
necessary to achieve its objectives – in other words, are there other
regulations that could be implemented instead to achieve the same objectives,
but that are less restrictive on clubs?
There is an argument that the existing regulations achieve
the stated objectives. Clubs are required to meet certain specifications to
receive a license from UEFA, including demonstrating that there are no overdue
payments to other clubs, employees or tax authorities. It could be argued that
there is no need to restrict how clubs spend their money, or how they utilise
debt, provided that they can meet their obligations through their existing
resources.
Striani and Dupont will argue that there are other, less
restrictive, ways to achieve the stated objectives. Improved revenue-sharing
and a ‘luxury tax’, as employed in the NBA, has been mentioned as an
alternative.
It will be a nervous time for UEFA. They have already had to
remove a transfer ban as one of the punishments for breaking FFP due to
concerns over it being unenforceable in court. Now they face the real threat
that the entire FFP framework could be picked apart in the European courts.
