UEFA Club Licensing & Financial Fair Play and its approach to clubs in financial

difficulty, before, during and after insolvency events

Club Licensing & FFP Unit

Presentation structure

1. Basics of club licensing;

2. Basics of Financial Fair Play (FFP);

3. Financial and structural trends in club football;

4. Approach of UEFA regulations to clubs in difficulty;

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The basics of Club Licensing

Scope and implementation of UEFA Club Licensing

• Scope: European wide introduction;

• Principle: A licence is mandatory for entering all UEFA club

competitions (Champions League and Europa League);

• Rule: UEFA set minimum standards for 36 criteria in 5 areas: sporting,

infrastructure, personnel & administrative, legal, financial;

• Summary: Widest ranging governance project in world sport;

Overall Objectives of UEFA Club Licensing

• Promoting youth football education;

• Improving stadiums (equipment and safety);

• Improving clubs’ management and organisation;

• Improving economic and financial capacity of clubs;

• Monitoring of financial fair-play in UEFA competitions;

• Safeguarding continuity of international competitions for one season;

• Allowing benchmarking of European club football;

Club Licensing Evolution and Timeline

2004/05

UEFA Club

Licensing Manual

v1.0

2008/09

UEFA Club

Licensing Manual

v2.0

2009/10

UEFA Club

Licensing

Regulations (2008)

2011/12

UEFA Club Licensing &

Financial Fair Play

Regulations (2010)

2012/13

UEFA Club Licensing &

Financial Fair Play

Regulations (2012)

Proliferation of domestic club licensing

• The UEFA club licensing revolution has had much deeper impact than just the 237+ clubs in UEFA competitions;

• Over 1400 clubs undergo some type of domestic club licensing;

• Four countries at the start has become 48+;

The basics of Financial Fair Play

Financial Fair Play rules

• Enhanced overdue payable rule monitored as from June 2011;

• 1st cycle : June & September 2011

• 2nd cycle : June & September 2012

• Implementation of the break even rule as from 2012 with first assessment that will be done during the 2013/14 season.

• Financial Fair Play rules implemented over a staged approach;

• FFP concept developed through two year consultation process with all key stakeholders including FIFPRO;

• FFP regulations approved in June 2010;

Financial Fair Play concept

• Financial Fair Play rules implemented on top of club licensing criteria;

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

Club submits information to CFCB

via licensor

Clubs monitoring requirements assessed during the season by

the CFCB

237 qualified clubs monitored in June

2011

31 clubs investigated until

Sept 2011

10 clubs

referred

237 qualified clubs monitored in June 2012

67 clubs investigated until Sept 2012

23 clubs with temporary

suspension of UEFA prize

money

9 clubs

referred

2012/13 season

2011/12 season

Enhanced Overdue Payables: Early FFP success story

• Improved Transparency for players: list of clubs under investigation published;

• Significant Payment Improvement from FFP: Overdues to employees and on transfers almost halved from c€57m in 2011 to €30m in 2012;

Potential sanctions

• Reprimand / Warning

• Fine

• Withholding of revenues from a UEFA competition

• Deduction of points

• Exclusion from future competitions

• Prohibition to register new players in UEFA competitions;

• A restriction on the number of players that a club may register for

participation in UEFA competitions

• Disqualification from a competition in progress

Shaded blue: new sanctions

Clubs excluded from UEFA competitions for breaches

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Financial & structural club trends

Increasing transparency • UEFA report available in four

languages;

• Unique 124 Page financial, structural and competition profile of European club football;

• Based on UEFA Club financial database, sourced from audited financial statements, covering all 53 UEFA member top divisions and more than 1 million items;

• Report presented to UEFA EXCO 25th Jan and then issued to NA’s;

• Media & uefa.com launch (video conference) with UEFA GS 4th Feb;

1.HIGHLIGHTS section 2.First benchmark of UEFA competitions and participating clubs

3.Profile of domestic competitions 4.Europe wide financial profile 600+ clubs

The case for FFP: Unprecedented football club losses reported

• Aggregate football club losses have spiralled from €0.6 Billion in 2007 to an all-time record of €1.7 billion in 2011;

• This level of losses is unprecedented and unsustainable with €9 spent for every €8 earned;

• Balance sheets are stretched and 1-in-7 club auditors directly expressed concern of the club to continue;

• Indicates concerted action is essential;

The case for FFP – Clubs’ unable to manage wage growth

• Whilst top division revenue has grown 24% in last five years;

• Financial problems driven by excess spending with employee costs increasing 38% in last five years;

• Once the increased net transfer cost is added to employee costs, the combined growth is 43%;

• The ratio of this cost to revenue has increased from 62% to 71% in last 5 years;

• Increased losses inevitable

The case for FFP – Worsening financial results widespread

• Between 2007 and 2011 aggregate income increased for clubs in all fifteen of the largest revenue leagues with exception of Scotland;

• During same period despite income increases, the bottom line aggregate club net result (loss/profit) worsened for ALL fifteen leagues;

• In particular at aggregate level, Russian clubs reported losses increased by c€200m, Ukrainian by c€160m and Spanish by c€140m;

• Largest losses from English clubs c€430m albeit same level as 2007;

• Of these 15 leagues, only countries with strong domestic club licensing regulations (Germany & Austria) reported aggregate club profits in 2011;

Clubs adapting their legal forms

• Pie chart reflects legal form of 237 clubs in 2012/13 UEFA competitions;

• Majority of clubs 58% structured with some type of company form;

• The trend in Southern and Eastern Europe is from ‘association’ or ‘not-for-profit’ entity to ‘company’ based legal form;

• In particular many Balkan clubs undergoing this transformation process;

• Significant relevance for players and application of insolvency law;

Note: The figures referenced in this slide have been included to add some context to discussions but have not been verified or checked by UEFA.

Clubs undergoing insolvency events

• Not ‘official’ figures;

• Newspaper article January 2013 lists 120 clubs from 41 countries that have been either ‘wound up’ or re-launched below the top two tiers since 2007;

• Excludes some clubs that have undergone and exited administration within the top 2 tiers (eg Portsmouth);

Note: The figures referenced in this slide have been included to add some context to discussions but have not been verified or checked by UEFA.

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Approach of Club Licensing & FFP to clubs in financial

difficulty & the protection of players

• Working group including internal and external experts considered clubs undergoing insolvency events as part of a strategic review of the CL&FFP regulations 2012;

• As a result a number of changes were made to the regulations;

– Clarification on licence refusal;

– Consistent application of rules for companies and registered member club;

– Differentiation between (i) clubs that restructure without administration procedures (ii) clubs that enter & exit administration procedures (iii) clubs that set up newco and fail to reach agreement with creditors;

– Re-entry to UEFA competitions linked to exit from administration;

Approach of Club Licensing & FFP

Approach of Club Licensing & FFP - Summary

1. Approach to clubs before insolvency events:

– Player protection through specific treatment of amounts due to players;

– Clubs as going concerns;

– Obligation for budgeted information;

2. Approach to clubs during insolvency events:

– Limited power to intervene;

– Incentivised to reach agreement and restructure;

3. Approach to clubs after insolvency events:

– Three year membership rule;

– Licence refusal post exit;

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Summary

Summary of club licensing & FFP approach

• CL&FFP: Two main layers of protection covering multiple aspects;

• Manage expectations – Can encourage/ discourage through €1’200 million ‘carrot & stick’ but can’t prevent;

• Need for increased financial regulation recognised by all stakeholders;

• As financial rewards and exposure increases, club ‘owners’ and directors increasingly overstretching;

• Players and agents the primary benefactors from this largesse but downsides as well as upside;

Thank you