The Extra-Cover Blog
MANCHESTER CITY AND FINANCIAL (UN)FAIR PLAY (FFP Series-3)
**We know that the Cover Picture does not make sense because Dortmund have never been involved with FFP. But to be frank, the team leader of Extra-Cover absolutely loves them and hence so.
This post is third in the FFP Series by Extra-Cover and has been authored by Ramachandran Murugesan and Ninad Ajane.
Ramchandran is a B.A. LLB. undergraduate at the Gujarat National Law University, Gandhinagar.
Ninad is a B.A. LLB. undergraduate at the Maharashtra National Law University, Mumbai.
UEFA and FFP:
The Union of European Football Associations (“UEFA”) is the governing body of European football. It organizes many top tier competitions such as the Champions League (“UCL”), the Europa League, the Nations League, etc. It also works to protect the game itself by ensuring that various aspects of the game are functioning in tandem.
The most important policy put in place by UEFA for the smooth functioning of the game is known as Financial Fair Play (“FFP”). It was first implemented in the year 2009 to improve the worsening financial conditions of football clubs. Several clubs were in financial ruin as the debts were mounting. In that respect, it was a huge success as it helped European clubs to record an overall profit for the first time.
FFP regulations implemented a cap on the number of losses a club could have at the end of the season. This meant that a club could only spend €5 Million more than the revenue of the club. This can be exceeded up to €30 Million if;
“The losses are covered by the equity participants and/or related participants”.
UEFA penalizes the breach of FFP using fines, bans from the UEFA’s club competitions, transfer embargoes, and reduced UCL squad strength, etc.
Manchester City FC is an English football club owned by Sheikh Mansour Bin Zayed Al Nahyan through the Abu Dhabi United Group (“ADUG”). He is a member of the royal family of Abu Dhabi and the club’s newfound wealth and the success has been attributed to his ownership. Their main sponsors include Abu Dhabi based Etihad, Etisalat, Aaabar Investments, and the Abu Dhabi Tourism Authority.
In late 2018, several European media outlets like Der Spiegel and, subsequently the Reuters published articles regarding City’s alleged breaches of FFP regulations in 2014. These articles were published based on the “Football Leaks”, a website containing confidential information regarding the various alleged wrongdoings by several prominent figures of the football world. Among other things, it showed how City allegedly disguised equity funding by recording it as sponsorship revenue. City allegedly signed overvalued sponsorship deals with their Abu Dhabi based sponsors to offset their losses so that they could spend more and still not violate the break-even agreement. This excess amount was allegedly paid to these companies by ADUG, for them to reroute it back to City as sponsorship fees.
The Investigatory Chamber (“IC”) of the Club Financial Control Body (“CFCB”), which is an independent organ of UEFA tasked with overseeing the application of FFP, opened an investigation into City’s alleged breaches in March 2019. To corroborate the allegations with solid evidence, the IC made several requests for information from City who simply refused to cooperate thereby obstructing the investigation. The IC eventually decided to refer the case to the Adjudicatory Chamber (“AC”) for judgment. The City filed an appeal against UEFA in CAS regarding this decision (and UEFA’s alleged leaks of confidential information to the press) but failed as the CAS held the appeal inadmissible.
In February 2020, the AC banned City from European competitions for two seasons and was fined €30 million. City filed another appeal in CAS and both City and UEFA picked the same arbitrators. The hearings were held via videoconferencing on July 8-10. On July 13, CAS set aside the ban and reduced the fine to €10 million. It was held that most of the AC’s allegations against City were either not established or time-barred as the hearing took place after 5 years since the alleged violations. They were fined solely for the fact that they did not cooperate during UEFA’s investigation.
FFP: AN OWN GOAL BY UEFA?
City has demonstrated that FFP regulations can be circumvented using creative accounting, a refusal to cooperate, and having an exceptional legal team. City hired several leading firms and even two Queen’s Counsels to fight UEFA on their behalf. City’s legal team tackled pressure from CFCB’s investigators with threats to sue and a refusal to cooperate. Thus, the CFCB investigators weren’t able to collect sufficient evidence to build a strong case. It also remains to be seen as to why UEFA didn’t object to City’s choice of Andrew McDougall as an arbitrator on the CAS panel, as his clients include Etihad and Etisalat, which could be a potential conflict of interest. It is also extraordinarily unusual that the panel’s president, Rui Botica Santos, was recommended by City because according to CAS’s appeals procedure, the president is chosen by the President of the Appeals Arbitration Division and not one of the parties.
Many bemoan that FFP has now been rendered useless. This decision will only embolden oligarchs and ‘petrostates’ who seek to whitewash their tainted image by bankrolling successful European clubs, just like what Qatar has done with PSG. Qatar-backed PSG has spent a colossal €1.1 Billion on players like Neymar and Zlatan since their 2011 takeover and consequently won the last seven Ligue 1 titles. PSG’s success on the field and charity work is expected to offset the damage to Qatar’s image due to the corruption and human rights violations linked to its hosting of the 2022 FIFA World Cup. Abu Dhabi is attempting something similar with City. This technique, pioneered by Russian oligarch Roman Abramovich (who funded Chelsea FC’s meteoric rise to the top), is growing in popularity, which is evidenced by China’s increasing presence in European football, and the potential takeover of Newcastle United F.C. by Saudi-based entities. These clubs, due to their big-spending ways, fuel football’s ever-worsening financial and sporting inequality.
FFP plays its part in maintaining the status quo. To become more competitive, smaller clubs need to spend an amount disproportionate to their revenue to sign and retain better players, consequently increasing their chances of violating FFP. The new-money clubs indirectly financed by entire nations don’t face such losses as they can unfairly offset these losses using their owner’s money and then can get the penalties thrown out in court, as is evidenced by City’s and PSG’s victories in CAS. The old-money established clubs don’t need to break FFP rules anyways as they have higher revenue due to their global popularity. As a consequence, both types of rich clubs can spend more on wages and player transfer fees by which they can hoard top talent at the expense of smaller clubs. Thus, the upward mobility for smaller clubs has been severely hampered by the FFP rules. Furthermore, the coronavirus pandemic is only going to deepen the divide, as larger clubs will emerge relatively unscathed while smaller clubs with weaker alternate revenue streams will suffer.
FFP REFORM: A TACTICAL CHANGE
A proposed solution for decreasing this inequality is to implement a suitable hard cap on player wages (like in the NFL) and transfer market expenditure across UEFA’s jurisdiction. Such a cap will equitably distribute talent amongst European clubs, consequently increasing competition. Theoretically, it will ensure that clubs like FC Barcelona won’t be able to spend an astronomical £453m per year on wages and City won’t be able to spend £286m in a single transfer window. Although a few leagues like La Liga have a salary cap, it is not of much concern for clubs as wages of all clubs fall well under the said cap. An appropriately set cap on transfer expenditure could also theoretically end the hyperinflation in the transfer market caused by Neymar’s £198m transfer to PSG. While player values are set to fall anyways due to the pandemic, the cap will ensure that the hyperinflation won’t return.
City emerged out of this whole ordeal scot-free simply because they refused to cooperate with investigators. According to Article 13(4) of the CFCB’s Procedural Rules, the Chief Investigator may stipulate ‘suitable time’ to produce evidence, which gives clubs wiggle room for manipulation. There are no penalties if the stipulated time limit is breached. Such lax rules allow clubs like City to stretch out investigations to ultimately make the charges time-barred. In PSG’s case, the CFCB embarrassingly violated Article 16(1) of its own rules as the AC failed to finish its review of the IC’s decision within 10 days. Thus, the CFCB’s procedural rules need a significant revamp to strengthen its position as UEFA’s financial watchdog.
While FFP has served its purpose in making football more sustainable, UEFA needs to address how it stymies competition. City’s victory in CAS will only encourage the uber-rich to buy and use football clubs to fulfill their political objectives. This, coupled with the coronavirus pandemic, will only increase inequality amongst clubs. Thus, it is imperative that UEFA needs to widen its scope to tackle inequality and to give European football the shot in the arm that it needs so much, lest it will go down in the history books as one of the biggest miskicks in the footballing world.
The authors can be reached for comments on their emails at email@example.com & firstname.lastname@example.org
Cite as: Ramchandran M. & Ninad A., Manchester City and Financial (Un)Fair Play , Extra-Cover: The Sports Law Blog of India (2nd September 2020), Accessed at https://www.extra-cover.org/post/manchester-city-and-financial-un-fair-play-ffp-series-3 [Date of Access]