Why Manchester City will avoid sanctions under UEFA’s Financial Fair Play Regulations – Andy Brown
By Community | January 7, 2013
Manchester City raised eyebrows when it stated that despite reporting a net loss of £97.9 million for the 2011/12 financial year, the club is on course to comply with UEFA’s Financial Fair Play Regulations (FFPR). Many asked how could a club which has reported a loss of £197.5 million for 2010/11 and a further loss of £97.9 million for 2011/12 possibly comply with regulations aiming to punish clubs that don’t break even?
‘The application of UEFA allowable reliefs for certain categories of expenditure and investment in 2011-12, position the Club well for compliance with UEFA’s Financial Fair Play regulations which come into effect in season 2013-14’, read a 14 December club statement. It is important to remember that this statement has been made by an Executive Board that includes bank Directors and international company Chairmen. They would not say this if they were not confident that City will comply.
UEFA’s FFPR are loosely based on the concept that clubs which spend more than they earn will be banned from European competition. As City rightly state, they come into force next season (2013/14), when UEFA will analyse club accounts relating to the 2011/12 and 2012/13 seasons (not 2010/11). Clubs will be permitted a total ‘acceptable deviation’ of €5 million, plus €45 million for both the first and second monitoring periods under the FFPR (i.e. the 2012/13 monitoring period and the 2013/14 monitoring period, which encompasses the 2011/12, 2012/13 and 2013/14 seasons).
In other words, for the 2011/12, 2012/13 and 2013/14 seasons, City must keep its financial losses down to a total of €50 million.
On the face of it, Manchester City looks to be in serious trouble. Its losses of £97.9 million translate to €120.6 million, way above its €50 million allowance. However, City has said it will be able to deduct £17 million from its 2011/12 total for academy spending and other items that are exempt from the FFPR under Annex 10, taking its losses down to £80.9 million.
Also, if a club has reduced its deficit (This is why City’s £197.5 million loss during 2010/11 is important) and can prove that the ‘aggregate break-even deficit is only due to the annual break-even deficit of the reporting period ending in 2012 which in turn is due to contracts with players undertaken prior to 1 June 2010’, then Annex 11.2 of the FFPR applies, which allows a licensee to avoid being sanctioned for breaching the aggregate break-even deficit.
In layman’s terms, if Manchester City can prove that the main reason for it breaching the €50 million ‘acceptable deviation’ is wages paid during the 2011/12 season relating to players under contracts signed prior to 1 June 2010, then it can escape sanctioning. This exemption is because UEFA doesn’t want to unduly punish clubs for players signed before the FFPR were drawn up in June 2010.
Guess what? The main reason for Manchester City breaching the €50 million deviation is because of wages paid during the 2011/12 season due to players signed prior to 1 June 2010. Such players include Gareth Barry, Joleon Lescott and Carlos Tevez, who is reputedly paid more than £200,000 per week. “Looking at the players involved, this is likely to save the club in excess of £60 million”, said Ian Lynam, a Partner with Charles Russell LLP.
This takes City’s losses down to £20.9 million (€25.7 million) for the 2011/12 season. This leaves City able to report a total loss of €24.3 million for the 2012/13 and 2013/14 seasons and still escape UEFA sanctions. City’s prospects for the 2012/13 season look good. City will benefit from extra revenue from UEFA for qualifying for its Champions League as Premier League champion next season. A Nike kit deal signed in May 2012 will also add extra revenue.
City’s statement said that it is positioned well for FFPR compliance. The club does face a task in generating enough revenue to compensate for its wage bill during 2012/13 and 2013/14 and it is also possible that City’s losses could still rise above the permitted level – even with these exemptions. Perhaps it would be a better explanation to describe City’s position as being positioned well to avoid UEFA sanctions under FFPR.
About Andy Brown
Andy is Editor of World Sports Law Report, a monthly journal tracking global developments in the regulation of sport. Prior to this, he was Managing Editor of Sport Services Group, a subsidiary of the Press Association that provided information services to the sporting industry. He was founding Editor of Football Insider magazine and has also worked on a number of other sports business publications.