Reforms to Financial Fair Play rules should enable 'sustainable loss-making' by clubs, says expert

The European governing body for football announced earlier this week that it intends to make changes to the Financial Fair Play (FFP) regulations, which broadly require clubs participating in UEFA's pan-European club competitions to demonstrate a break-even financial position over three years.

UEFA president Michel Platini said the FFP regulations would be eased in an interview with a French radio station.

In a subsequent statement, UEFA said the FFP regime has helped to curb top clubs' loss making in recent years but that it is "vital" that the rules are reviewed "to ensure they keep pace with the ever-changing football environment and the new challenges that this often poses", according to a BBC report. Any changes made to the rules will "look to encourage more growth, more competition and market stimulation while strengthening the emphasis on controlling spending and safeguarding financial stability", it said.

Sports law expert Trevor Watkins of Pinsent Masons, the law firm behind Out-Law.com, said UEFA's plans to reform the FFP rules may have been prompted, at least in part, by the legal challenges brought against them and representations from leading clubs.

Watkins said the development was unsurprising given that UEFA and other sports governing bodies face considerable challenges in reconciling any regulation of sport with EU competition laws.

However, he said that whilst well-intentioned the current system has been of limited success and the FFP regime's break-even model is open to legal challenge. He said the "profitability and sustainability model" adopted by the Premier League in England is one that UEFA should consider when amending the FFP regulations.

"The FFP regulations were brought in to address the 'boom and bust' nature of spending in football and it has been successful to a point in ensuring clubs keep a better handle on balancing any increase in expenditure with growth in revenues," Watkins said. "Punishments have been levelled but the issue raised by the rules is whether the break-even model it promotes actually serves to promote competition or actually entrenches the position of the biggest clubs with the biggest resources at the top of the football pyramid and restricts the ability of smaller, less well-financed clubs to compete. In reality the regime is too early in its development to accurately assess the answer."

"A move away from the break-even model to one which gives clubs qualified freedom to make losses providing they are sustainable would likely overcome some of the objections made to the current system both practically and legally. It would also allow owners or financiers to invest in clubs providing they could demonstrate that the future financial stability of those clubs is not being put at risk," he said.

Further safeguards could be built in to ensure that the amended FFP regime does not give clubs a licence to return to care-free overspending, Watkins said.

"For example, the FFP rules could stipulate clubs are required to keep reserve funds that offer security for any loss-making over a set period, say of one to three years. This could be by way of a domestic or European wide financing scheme.  In addition, tighter controls could be placed on squad size limits to ensure that additional spending on players is kept under control," he said.

"Loss-making should be enabled subject to an upper limit. That limit should strike an appropriate balance between ensuring there is freedom for owners to invest but that loss-making is within restricted parameters that recognise the need for stability and the risk to clubs' finances if those bank-rolling loss-making operations move on, as well as contribute to the spirit of maintaining competition," said Watkins.

Watkins said that UEFA could learn lessons from the US sports market when looking to regulate spending, and that changes to the financial controls facing European football clubs could even spur a new finance market.

"If a profitability and sustainability model is adopted by UEFA and clubs are required to offer security over future losses associated with investment then this could spur a new line of business for funders of transactions within sport," Watkins said. "Forcing clubs to hold cash in reserve might be unpalatable for club owners, so there is an opportunity for growth in the finance market to provide for the securities clubs would need to put in place."