What is Financial Fair Play and how will Uefa enforce it ?

Financial Fair Play (FFP) is Michel Platini’s, Uefa presidents design to crack down on debt-laden clubs and to level the playing field for the 660 top division clubs scattered across 53 European countries.

Principal objectives

• introduce more discipline and rationality in club football finances;
• decrease pressure on salaries and transfer fees and limit inflationary effect;
• encourage clubs to compete with(in) their revenues;
•  encourage long-term investments in the youth sector and infrastructure;
•  protect the long-term viability of European club football;
•  ensure clubs settle their liabilities on a timely basis.

Clubs will be able to record maximum losses of €45 million (£39.5m) in total over the following three years. That can be subsidised by an owner but only if they invest the money permanently in return for shares, not by lending it as Roman Abramovich did when he first took control of Chelsea. If owners are unable to subsidise debts, the maximum loss is €5m (£4.4m). From 2014 to 2017, the overall permitted loss will fall to €30m (£26.3m) for each three-year block monitored by Uefa. Information collected from the 2011-12 and 2012-13 accounts, action can be taken for the first time during the 2013-14 seasons with the first possible exclusions from Uefa competition taking place in 2014-15.

Key factors

* Three years to ‘break even’

* Clubs will be able to record maximum losses of £39.5m before 2014

* From 2014 to 2017, the overall permitted loss will fall to £26.3m

* Owners cannot bail clubs out of debt with personal wealth

* Clubs could face exclusion from Uefa competitions in 2014-15

* Newly-created Club Financial Control Panel to ensure rules are abided by

The newly created Club Financial Control Panel is a team of eight independent experts chaired by former Belgium Prime Minister Jean-Luc Dehaene. They are given the task of ensuring the rules are correctly applied. But how rigidly are these rules to be applied. If massive interest payments continue to push clubs into losses, clubs sign players with money they have not earned will Uefa lay down the law?  To have this momentum and then not enforce it would be the end of Platini and the end of Uefa versus the clubs.

Expenditure such as stadium infrastructure, youth development, community development  could be excluded.

Chelsea, for instance, estimate that around £10m a year is spent on a youth set-up, while another £9m can be dropped off for depreciation on tangible fixed assets such as spectator facilities at Stamford Bridge or training facilities at Cobham. FFP rules would allow Chelsea to reduce their expenses by £19m, which is a considerable portion of the £70.9m loss revealed on their last annual balance sheet.

Transfer fee do not automatically show up as an annual expense because clubs tend to amortise player acquisition costs over the length of their contracts. Fernando Torres’ £50m signature to Chelsea would not show up as one lump sum in Chelsea’s 2010-11 accounts  instead it would be an annual amortisation of £9m (£50m fee divided by the 5.5 years of his contract). Add in an estimated salary of £8m and the total cost of Torres. By FFP rules that is £17m per year.

If a club misses the target, it can still be granted a licence if it meets two criteria – the trend of losses is improving; and the over spend is caused by the wages of players that were contracted before June 2010(for reporting period up to 2012). Uefa have excluded 27 clubs from European competition over the last five years as they did not fulfil the club licensing criteria. Chelsea has over spent and has used cash injections from Roman to balance the books.