WILL FFP SUSTAIN A CLAIM IN COURT OF ARBITRATION FOR SPORTS? (FFP Series-4)
This post is fourth in the FFP Series by Extra-Cover and has been authored by Namit Halakhandi.
Namit is a fifth-year student of the B.A. LL.B. course at the prestigious O.P. Jindal Global University (JGU). He is an avid graphic designer with special interest in logos, thoughtful song art and movie posters. Apart from designing, Namit also dabbles with Sports Law and is due to start his Masters in Sports Law at ISDE, Madrid.
Financial Fair Play Regulations (“FFP”) were introduced by UEFA in 2010 to ensure that football clubs do not end up in huge financial losses.[i] These regulations by UEFA were brought in to stop, what has been now referred to as, ‘financial doping’ in football. This term was popularized by the Arsene Wenger, who used it in the context of Chelsea winning the Premier League in 2005. Further, he also accused clubs like Real Madrid and Manchester City for buying their way through football. The term refers to the situation where a club’s investor uses his personal income to buy talented players to win competitions instead of relying on the club’s revenue generation. This is extrapolated with regular doping and the rampant usage of external substances like pharmaceuticals, steroids, etc. to enhance the abilities. In this article, the author with empirical evidence attempts to analyse whether such an analogy can be used to challenge FFP in the Court of Arbitration for Sports (“CAS”), Lausanne.
This issue is not unexplored. There have been quite a few appeals filed in CAS, but no one has ever been successful in challenging these regulations. In 2014, UEFA introduced the option of voluntary settlements which allowed a club to spend money more than they make with the promise of being break-even compliant in the next few years. This is contingent on the clubs being able to show that they had complied with the regulations in the previous years. Most notable examples are Manchester City, PSG, and Galatasaray who entered into such agreements.
CHALLENGES TO FINANCIAL FAIR PLAY REGULATIONS
One of the first cases to come at the altar of CAS regarding FFP was of Galatasaray.[ii] Galatasaray was found to be in breach of the voluntary settlement under Article 15 of the Procedural Rules that govern the Club Financial Control Body (“CFCB”). The adjudicatory body first analysed and disregarded UEFA’s claim that the Treaty on the Functioning of European Union (“TFEU”) will not be applicable here since the club is from Turkey. The court held that even if the club is from turkey the UEFA Champions League as economic activity was part of the European Union and TFEU was held to be applicable.[iii]
The competition law argument was made by Galatasaray and the court while applying the principle of proportionality enshrined “David Meca-Medina and Igor Majcen v. Commission of the European Communities”, ruled that the plaintiff has neither submitted any analysis nor it has provided any empirical evidence to further its claim.
There have been other cases where the CAS has relied on the lack of evidence and held in the favour of the rules.
These cases were decided when FFP was initially enacted and thus there was a lack of effective jurisprudence in the field, with little or no empirical/economic evidence to raise counter-arguments. The latest case that could have gone to CAS but did not was of PSG. When PSG signed Neymar and Mbappe in the same season there were high speculations that they had flouted the FFP rules and thus an investigation was opened by UEFA. Although UEFA concluded that there was no breach of rules and PSG had complied with all financial regulations, the fact that there was an attempt to reopen investigation by UEFA later in the same year shows some guilty conscience on the part of UEFA. The reopening was appealed by PSG in CAS, and it was held that UEFA cannot reopen the investigation since there was a time delay. But hypothetically if the investigation would have been finally opened and PSG were found to be in breach of FFP, then it could have surprisingly lead to interesting conclusions. Therefore, the relevance of empirical evidence could always play a determining factor in forming an opinion on FFP’s potential to be violative of TFEU.
EMPIRICAL EVIDENCE AGAINST FFP
Since it has been established that the essential factor that could help to sustain a claim in CAS is empirical and economic evidence, the author will now proceed with providing the same.
In a recent study by Thomas Peeters and Stefan Szymanski titled European Football, the authors used a sample mathematical model & simulated results (taking into account all factors) to conclude that FFP is an immensely important tool and serves its purpose in improving the financial stability of clubs.[iv] It was however never in doubt that the regulations are not helping clubs to improve their financial health because it has been reported several times that FFP has tremendously improved the financial position of major clubs (Net debt is reduced from 65% to 35%).
The authors of the same study also concluded that;
“The break-even rule does far less to improve seasonal competitive balance. Furthermore, the break-even rule protects the success of the traditional big-market top teams, because it reduces the scope for challenges by smaller teams which may be financed by a wealthy owner. Our results, therefore, show how FFP would shift rents from the players to the owners without delivering gains for consumers in the form of an improvement in the intensity of on-field competition.”
One of the defences’ that UEFA could put against such an argument is that these regulations do not explicitly meddle with competitive balance but only account for ‘discipline and rationality’ in club finances.[v] But in making such an argument, it can’t be ignored that if competitive balance is reduced (including lack of intensity in football matches), it could have disastrous consequences in terms of audience engagement. This would eventually lead to media rights and broadcasting rights going for low-par sums of money.
CONCLUSION & ALTERNATIVES TO FFP
Unlike the initial flummox around FFP, there has been a slew of other model studies covering the same field of interest and a majority of them have concluded that FFP in some way or another will ensure the dominance of big clubs over the interest of smaller ones. Thus, after considering both the economic and empirical evidence hovering around FFP, the author would like to categorically argue that there is enough evidence available to object to FFP in CAS and it is likely that FFP may see a major overhaul in the coming years.
One of the ways through which UEFA can deter such harsh action against the guidelines is to have stricter sanctions towards the big clubs. Sanctions may include but are not limited to express restrictions on the overall number of the squad members. However, such a series of restrictions have rarely dented the aspirations of big-guns to circumvent guidelines through existing loopholes in the regulatory framework. Hence, these sanctions should be stringent enough to hamper the efforts of strong-arming by the clubs and their unwarranted material interests on and off the field. In an interesting turnaround, Raheem Sterling recently asked for a 9-point deduction against racial abuse. A ‘points deduction’ sanction and ‘disqualification’ from the league for example tend to be stringent than monetary sanctions. Such imposition may not be a universal remedy but would at least provide leeway to the smaller clubs, to survive the challenge from the top.
One of the other ways could be the imposition of alternative taxes like a relative luxury tax or a salary cap on the lines of the NBA’s regulations. In such a case, if a team is spending more than the cap fixed by the league, then the team has to pay a certain amount of relative tax to the league, and thereafter this money could be redistributed in form of financial aid to the other lower-tier clubs in need of capital.
Another factor that can’t be overlooked is the ‘insider influence’ that the top European clubs have on the functioning and governance of UEFA. This can be observed from instances in the past, where top clubs have threatened UEFA to form another league on their own. Thus, there is no reason to deny that a topflight club soon would present an effective challenge against FFP in the recent future. Alternatively, if the guidelines continue to exist in operation, it could cause serious impediments in the rise of smaller but competitive clubs. One must be wary that such a situation may lead to a dismal end to fairy-tale campaigns of unknown clubs reaching to the pinnacle of club football. Rivalries and faith to the respective clubs aside, one would always want an underdog like Leicester City in the 2015-16 Premier League to lift the title, and maybe who knows it could be Leeds United. Conclusively, all of this will remain a mere possibility until there is a reorganization of the system to avoid the risk of leagues being converted into ‘oligopoleague’ at the behest of alphas in the pack. [vi]
The author can be reached for comments on his email at email@example.com
Cite as: Namit H., Will FFP Sustain a Claim in Court of Arbitration for Sports?, Extra-Cover: The Sports Law Blog of India (2nd October 2020), Accessed at https://www.extra-cover.org/post/will-ffp-sustain-a-claim-in-court-of-arbitration-for-sports-ffp-series-4 [Date of Access].