What Ever Happened to FFP?

• by Ross Fadner , Sep 2, 2015

Now that the European transfer window has closed and the smoke is starting to clear, our eyes are just now settling on what will make up the squad(s) of our favorite club(s) for the current season—at least, until the next transfer window opens in January. Understanding is usually followed by questions. For example: did English Premier League clubs really spend $1.3 billion on player transfers this summer? How did they afford that? Perhaps a better question is: did the Manchester clubs and Liverpool really combine for more than 40 percent of that total? How on earth did they afford that?

In the age of UEFA’s supposed Financial Fair Play, the latter question in particular bears answering. 

As we’ve noted before, the truth behind the EPL’s massive summer splurge lies in the clubs’ net spend. While Manchester United spent close to $170 million and Liverpool $119 million on players this summer, both clubs also sold their fair share, with United making $108 million from player sales, and Liverpool $77 million. A little math reveals that United’s net expenditure was closer to $62 million, while Liverpool spent $42 million (note: all data per Transfer League).

Obviously, this is still a lot of money, but for United, a $60 million net spend is less than the club spent in any season since 2010-11, while Liverpool’s $42 million net spend is less than its average spend of $50 million over the last five seasons.

The fact that both clubs could have and probably would have spent more money if the right targets had been on the market is beside the point.

Or is it?

Indeed: when you take a look at Manchester City’s summer spending, you can no longer make the argument that Premier League spending is under control. City spent (again, per Transfer League) $232 million on players this summer, including $84 million on Kevin De Bruyne and $75 million on Raheem Sterling, while selling just $63 million. For those counting, that’s $169 million net spend in one transfer window.

The crazy thing is that that is just the third-most expensive net transfer window spend of all time, behind Real Madrid’s 2009 expenditure of $191.5 million on the likes of Cristiano Ronaldo, Kaka and Karim Benzema, followed by City 2010’s capture of Edin Dzeko, Mario Balotelli, David Silva, Yaya Toure and others for a net total of $177.5 million.

However, both of those mammoth summer expenditures came before UEFA’s financial fair play. So, how did City in the era of FFP get away with spending so much?

Two reasons, says the Guardian’s Owen Gibson: one, EPL clubs will soon earn a collective $12.3 billion from the sale of domestic and international TV rights once overseas sales kick in. Since that revenue is distributed somewhat equally, this gives English clubs far more cash to reinvest in players than other leagues. Also: the fact that these massive transfer fees can be written off gradually over the length of a player’s contract also helps. 

The second reason is that UEFA drastically reduced FFP restrictions this summer -- in fact, the announcement came on the eve of the transfer window’s opening. Though clubs must now demonstrate that they lose less than $33.7 million annually (down from $50.5 million the past three seasons), UEFA introduced new caveats that allow owners to pump cash into their investments as long as they show a pathway towards eventually breaking even. Indeed, owners must now present a business model for UEFA to approve which affords them the temporary right to record financial losses as long as the club breaks even within three years. The real kicker here is that owners have to show that the club is not “gambling on success” with its investment. 

How a club that lost $35.2 million in 2014-15 can go out and spend $170 million on players in one transfer window and not be viewed as anything other than “gambling on success” is absolutely beyond Off The Post. In fact, City better hope it not only wins the Treble this year, but in so doing converts every Manchester United fan in the UK along with it in order to achieve a return on investment with that kind of money spent on transfers alone.

Of course, as with any regulations, there are loopholes, and with UEFA’s FFP, spending on things like stadiums, training facilities, youth development and women’s soccer are all excluded from a club’s break-even calculation. Moreover, as part of its new regulations, UEFA said that sponsors or anyone else that contributes more than 30 percent of a club’s revenue would be investigated to see if it is linked to the club’s ownership.

In case you didn’t know, Manchester City is part of a parent company called City Football Group, which owns the Premier League club, New York City FC in MLS, Melbourne City FC in Australia, and Yokohama F. Marinos in Japan. City Football Group is owned by the Abu Dhabi-based private equity firm, Abu Dhabi United Group, which in turn is run by Sheikh Mansour bin Zayed al Nahyan, the deputy prime minister of the United Arab Emirates.

How does City Football Group -- each of its clubs, affiliated clubs and other soccer-related operations -- fit into Manchester City and FFP? One of the inquiries UEFA has made with Manchester City was whether subsidiary companies City Football Group created to conduct marketing and scouting series for its group of clubs were not reported in Manchester City's financial report because they were indeed an effort to shield more Manchester City losses from UEFA's accounting. Just as its increasing sponsorship revenues from its network of clubs are put on Manchester City's books to maximize its income.