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Financial Fair Play – A Game Within A Game

Will Turner, PhD, who has been a football journalist and broadcaster in the UK for the past 20 years. He specializes in the corporate, marketing and communication aspects of British football.

The imposition of financial fair play (FFP) throughout European football is proving to be a provocative affair. FFP has already seen significant sanctions handed out to clubs of the standing of Manchester City and Paris Saint-Germain and whilst fans remains largely in the dark as to how FFP works in detail, clubs are all levels are energetically coming to terms with dealing in a wholly reconfigured marketplace.

The imposition of FFP has seen a number of previously unconsidered aspects of football club stewardship brought into sharp focus. Not the last of these is the question of club sponsorship. Whereas once this was effectively an accounting free for all – with wealthy owners able to divert resources from a successful business into their pet footballing project under the guises of a commercial sponsorship, the very minutiae of such moves now have significant repercussions when it comes to FFP.

Some sponsorships are exactly what they appear – 32Red’s serial shirt sponsorship deals with Swansea City, Aston Villa, Crawley Town and Rangers football clubs in recent seasons being an obvious case in point. The 32Red deals are no more than a conventional, if energetic, targeting of the Premier league demographic as part of a sustained brand building exercise. In a sense 32Red and their like are getting exactly what their sponsorship money pays for, and the story ends there.

But in cases such as Manchester City’s deal with Etihad, the relationship is more convoluted, and the directly accountable commercial value of the sponsorship is more open to question. Along with Paris Saint-Germain, City have already caught UEFA’s regulatory eye. City’s deal with Etihad is a massive £400m over 10 seasons; Paris Saint-Germain’s deal with the Qatar Tourism Authority will put up to €200m per season into the club. Perhaps not surprisingly given the extraordinary amounts of money involved, both are being rigorously scrutinised to ensure they comply with the terms of the regulations.

The issue at question is the “fair value” of such deals.  In simple terms, what is being paid to the clubs bears no relation to the market value of commercial sponsorship as it is evidenced elsewhere. 32Red have been notably coy on the value of their recent sponsorships, but there is little doubt that their spending is simply not in the same league as the revenues enjoyed by the likes of City and PSG.

FFP is also having a significant impact when it comes to an area that fans are perhaps more comfortable discussing and that has a more direct bearing on the day to day business of player representation. This summer’s transfer window saw a number of high profile deals done that saw a player move on a 12month loan with the option to make that deal permanent at the end of that period. Although often packaged up as a ‘try before you buy’ exercise for the parties involved, this is, in reality, more to do with shifting the accounting of such transactions from one period to another. At its simplest this would allow a club to recruit a player in 2014, but not have to declare the transfer spend as part of its FFP requirement until 2015. Conversely, the selling club might have good reason to defer registering a multi-million pound cash input. Once you factor in the ‘amortised’ deterioration in the accounting value of a player over time, being able to effectively spread the transaction over multiple accounting periods can significantly change the numbers involved.

The Financial Fair Play website illustrates this point with the example of Falcao who was signed by Manaco in 2013 on a five year deal approximating to £50 million sterling. Such a deal would see the book value of the player reduce by £10 for each year of the deal. So if Manchester United were to sign the Falcao for that headline £50 million next year when his book value was £20 million rather than its current £30 million that would show the Monaco returning an addition £10 million on the sale. Given that Monaco are themselves on the FFP regulators’ radar, that £10 million represents a useful step towards showing a balanced trading account.

Additional uncertainty derives from the question of loan players’ wages – and of course club wage bills are at the heart of FFP. For example, it is simply not clear who is paying what proportion of Falcao’s reported £18 million annual wage. Given that clubs are not permitted to raise their total wage bill by more than £4m a season unless it is matched by an increased in commercial income (“own revenue uplift”) such issues are again one likely to be closely scrutinised.

How the clubs – and player representatives – negotiate the new landscape is currently a work in progress. As the clubs’ struggle to come to terms with the intricacies of FFP it seems that what happens in the offices of football club accountants is likely to be every bit as energetic and perhaps even as creative as what happens out on the pitch.

By Darren Heitner

Darren Heitner created Sports Agent Blog as a New Year's Resolution on December 31, 2005. Originally titled, "I Want To Be A Sports Agent," the website was founded with the intention of causing Heitner to learn more about the profession that he wanted to join, meet reputable individuals in the space and force himself to stay on top of the latest news and trends.

Heitner now runs Heitner Legal, P.L.L.C., which is a law firm with many practice areas, including sports law and contract law. Heitner has represented numerous athletes and sports agents as legal counsel. He has also served as an Adjunct Professor at Indiana University Bloomington from 2011-2014, where he created and taught a course titled, Sport Agency Management, which included subjects ranging from NCAA regulations to athlete agent certification and the rules governing the profession. Heitner serves as an Adjunct Professor at the University of Florida Levin College of Law, where he teaches a Sports Law class that includes case law surrounding athlete agents and the NCAA rules.

One reply on “Financial Fair Play – A Game Within A Game”

Sponsorship deals are getting bigger and more
intriguing by the year. Soccer leagues such as the Barclays Premier League are
seen with an abundance of sponsorship-adorned jerseys. While this style isn’t
new to those in Europe and the like, those of us in the United State aren’t
accustomed to such fashion. In following suit, the NBA appears on the cusp of
allowing jersey sponsorship, likely advancing the league closer to the revenue
of the NFL, whose sponsors and television deals have it as a marketing empire.
In turn, I expect to see many NBA players’ contracts rise, because where else
is that additional revenue going to go. While the league’s interest is waning
during the regular season, it peaks at playoff time. This new revenue stream
could be used to tweak salary caps and how players are added, such as how
they’re on loan in soccer. While this isn’t likely, players such as Cristiano
Ronaldo have benefitted. The highest paid player in the Premier League for Real
Madrid, Ronaldo ventured to Spain as part of an 80-million pound deal in 2009.
Since, additional players have closed in on his contract as the sport has
gained popularity with the recent World Cup. While fans may not like the look,
wearing these sponsors will ultimately benefit the league, and likely lead to
improvements for its current structure.

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