sd europe conference

Financial Fair Play

Barcelona

July 17th 2010

Barcelona, 17 July 2010

• WHY is action needed? Overall picture of clubs’ finances

• WHERE did the idea of new financial controls come from?

• HOW has it been developed? Consultative approach

• WHAT are the objectives?

• WHAT are the financial fair play rules? Proposed concept

• HOW will the new rules be implemented?

• WHEN will new rules be introduced? Planning and Timeline

• Open discussion, suggestions….

AGENDA


• After 10 years of nearly continuous income growth, losses remain and many balance sheets also weak. Some clubs reporting relatively massive losses.

• 10% of European clubs (sample c400) had Going Concern emphasis of matter or qualification in 2008 Audit Report

• Preliminary figures suggest modest income rise in FY2009 with second tier clubs in particular struggling to meet commitments

• Longer term investment in football has not matched spending – Less than 1 in 4 clubs own stadium and less than 1 in 3 own training facilities

• Increasingly difficult for clubs with sustainable business plans to compete with those living beyond their means

WHY is action needed: Overall picture of clubs’ finances today


WHY is action needed: Almost half clubs reported losses in 2008

• Most leagues reported losses in 2008

• Despite revenue increases 47% of all clubs reported losses and 37% of larger clubs (revenue >€5m)

• 145 clubs spent more than €6 for every €5 income

• 57 clubs reported salaries > total income

• The worst 20 clubs reported combined losses of €735m


WHY is action needed: Many clubs with reported assets < liabilities

• 35% of clubs reported negative equity in FY08

• 155 clubs reported losses and negative equity

• This included 15 of TOP 60 largest revenue clubs

• Net equity deteriorated in 44% of top division clubs

• Clubs from 47 different countries reported negative equity

• €5.5bn reported level of bank debt and commercial loans


• Multitude of reasons

• Relevant factors often differ

• Short term environment:

• Classic zero sum game

• Nature of football competitions (cups/leagues)

• Nature of success based prize money

• Transfer system

• Presidential terms & elections

• Separation of directors/owners personal risk and risk to club

• Lack of transparency – awareness of problems

WHY are the finances so poor?


WHERE did the idea of new financial controls come from?

• UEFA investigated financial controls particularly salary controls 1999-2000

• Salary caps also on agendas at club meetings

• UEFA concluded salary control not feasible at that stage but introduced its club licensing system in 2003 including some financial criteria

• 50+ clubs prevented from participating in UEFA club competitions and receiving financial reward due to licensing

• Prior to recession many stakeholders including prominent club owners requesting intervention at European level

• UEFA President took up invitation and investigations performed

• Agreed that new financial control panel should be set up and new financial controls included on top of current licensing system


HOW have new rules been developed?

• Financial situation of European club football – stakeholders calling for change;

• Extensive consultation with all stakeholders (NAs, EPFL, ECA, FIFPro Europe, SD Europe);

• New financial rules to be built on top and integrated with existing club licensing regulations in effect since 2004;

• New regulations approved by UEFA EXCO on May 27th 2010.


WHAT are the objectives of new rules? Agreed ‘objectives’

As approved by UEFA’s Executive Committee and key stakeholders, the new

requirements aim principally to:

• Introduce more discipline and rationality in club football finances;

• Encourage clubs to operate on the basis of their own revenues;

• Protect the integrity and smooth running of the competitions;

• Encourage investment for the long-term benefit of clubs;

• Ensure clubs settle their liabilities on a timely basis;

• Protect the long term viability and sustainability of European club football.


WHAT are the objectives of new rules? Net benefits to club football

Use carrot of UEFA competitions (‘ultimate stage’ + €1,400,000,000 per year) to encourage sustainable business models and reward fair play

• Tighten noose on clubs with questionable business practices

• Make clubs directors/owners aware that finances independently monitored

• Require transparency in owner’s objectives and LT business model

• Realign salaries with ability to pay salaries


WHAT are the new rules? Break-even requirement

• http://www.uefa.com/MultimediaFiles/Download/uefaorg/Clublicensing/01/50/09/12/1500912_DOWNLOAD.pdf

• The cornerstone of the Financial Fair Play concept;

• A club must not repeatedly spend more than its revenues (assessed over rolling 3 year period)

• A tailored approach with exemptions for small clubs, relative advantages to medium sized clubs and more relaxed requirements for clubs not exhibiting warning signs. ‘Investments’ in youth football, community schemes and infrastructure differentiated to ‘spending’ and excluded.

• Introduction of an ‘acceptable deviation’ over three years;

• Assessment of other factors (quantum, trend, budgets, debts);

• A web-based IT tool to be developed for use by clubs, licensors and the CFC Panel.


RELEVANT EXPENSES

• Cost of Sales

• Employee benefits expenses

• Other operating expenses

• Player transfer amortisation or expense

• Finance costs

RELEVANT INCOME

• Revenue:

– Gate receipts

– Broadcasting rights

– Sponsorship & advertising

– Commercial activities

– Other operating income

• Player transfer profit or income

• Finance income

• Excess proceeds on disposal of tangible fixed assetsNO LIMIT:

• Infrastructure costs

• Youth development activities

• Community development activitiesNote: Only represents a simplified version of calculation.

WHAT are the new rules? Break-even requirement


WHAT are the new rules? Warning signs/ indicators

If club breaches the following indicators then further information required:

• Audit opinion in annual and/or interim financial statements includes emphasis of matter or qualified opinion regarding going concern;

• Annual or interim financial statements disclose deteriorating net liabilities;

• Club reports a break-even deficit in period t-1 and/or t-2;

• Club has overdue payables as of 30 June in year club competitions commence.


WHAT are the new rules? Other rules

In support to the “break-even” rule

• Enhanced overdue payables rule (backward mechanism)

• To ensure that clubs have honoured their commitments when these were due

• Enhanced Future Financial Information (forward looking mechanism)

• To monitor clubs’ projected results;

• To monitor that clubs will dispose of sufficient liquidity to continue servicing their commitments in the future.


Club submits information to licensor

Licensing decision by the licensor

Some clubs qualify on sporting merit, enter UEFA competitions

Risk-based approach for club monitoring

Club monitoring requirements assessed

during the season by the CFCP

Club submits information to CFCP via licensor

HOW will the new rules be implemented? Integrated approach


WHEN will the new rules be implemented? Introduction

• Creation of CFC Panel

• Development of enhanced requirements

• Consultation process

• EXCO approve new Regs

• Licensors update national regulations

• Training of licensors and clubs

• Prepare for implementation of enhanced requirements

• Implementation of new financial rules

May 2010 May 2011 May 2012 May 2013


WHEN will the new rules be implemented? Assessment

Year UEFA competition

season

Assessment of financial reporting periods ending in:

Acceptable Deviation

2013 2013/14 2012 (T-1)

2013 (T)

€5M - €45M

2014 2014/15 2012 (T-2)

2013 (T-1)

2014 (T)

€5M - €45M

2015 2015/16 2013 (T-2)

2014 (T-1)

2015 (T)

€5M - €30M

Supplementary slides


31.05.T

15.07.T

30.06.T

30.09.T

15.10.T

CFCP Licensor ClubDisciplinaryDates

Licensing decision

Reception list of licensed clubs

Licence granted

Upload financial information

Validation

Receipt of financial information

F/S T-2, T-1

Overdues 30/06

IndicatorsAssessment

Overdue 30/06

Negative Equity

Deficit T-2 or T-1

Going concern

No indicator triggered

OK

If existence of overdues

Yes, indicator triggered Request for more

information

Upload additional financial informationValidation

Receipt of additonal financial information

F/S T

FFI (T+1)

Overdue 30/09

Breach of criterionRefer to

disciplinary

1


CFCP Licensor ClubDisciplinaryDates

1

Assessment of monitoring criteria

Break even rule(T-2, T-1, T)

Overdues 30/09

FFI (T+1)

Surplus

No overdues

If existence of overdues

OK

Deficit (over 3 years)

Submission of info to licensor in view of next licensing

cycle

Breach ofcriterion

Refer to disciplinary

AccumulatedDeficit< €5M

AccumulatedDeficit

€5M< X < €15M(in transition

€5M<X<€30M)

AccumulatedDeficit

> €15M(in transition

> €30M)

Covered by committed funds?

Yes

No

Is deficit covered by accumulated surpluses

in T-4 and T-3?

Yes

No, breach of criteria

OK

Assessment other factors

Quantum

Trend

FFI (T+1)

DecisionRefer to

disciplinaryBefore

31.05.T+1

Request for hearing, additional documentation, etc

sd europe conference

Documents

tier clubs

new rules

european clubs sample

financial fair play

idea of new financial

massive losses

modest income rise

continuous income growth