Financial Fair Play: European Clubs' Accounts Are Getting Better
ACCOUNTING | ECONOMICS |

Financial Fair Play: European Clubs' Accounts Are Getting Better

UEFA RULES HAVE HAD THE GREATEST EFFECT ON THE CLUBS WITH AMBITIONS TO PARTICIPATE IN EUROPEAN COMPETITIONS AND ON THE MOST INDEBTED, ACCORDING TO A RESEARCH PRESENTED TODAY AT BOCCONI

The introduction of the Financial Fair Play rules by UEFA in 2011 (the year of the first survey) has had a positive, swift and substantial effect on the income statements of clubs in the major European leagues, but has not yet resulted in a general improvement in the balance sheet, and in particular in the debt-to-cash flow ratio. This result suggests the opportunity of extending the Fair Play rules in that direction, according to Does Financial Fair Play Matter?, a study by three Bocconi scholars (Ariela Caglio, Donato Masciandaro and Gianmarco Ottaviano) and one from ENS Paris Saclay (Sébastien Laffitte), presented today at Bocconi.
 
In 2010, one in two clubs participating in the top division in France, Germany, England, Italy and Spain lost money and total losses amounted to more than €1.5 billion per year - more than twice as much as in 2007. With the introduction of Financial Fair Play, clubs that, in a given year, do not want to incur penalties that can culminate in exclusion from UEFA European competitions, must record in the previous three years a substantial balance between «relevant» income and «relevant» expenses (the «break-even result»), allowing only «acceptable» deviations. The maximum deviation, depending on the intervention or not of contributions by the shareholder, can range from 5 to 30 million euros.
 
The authors have collected public financial data of the 150 clubs that, between 2008 and 2015, have played at least once in the top division of one of the five countries, dividing them into two groups - the clubs that traditionally have more ambitions to participate in international competitions and the others. They find that, after the introduction of the Financial Fair Play, the gap between turnover and cost of employees has increased not only for all clubs (by an average of around €5 million per year from 2011 to 2015), but much more markedly for clubs with stronger international ambitions (by an average of around €20 million per year). Similarly, this gap has increased more for the more indebted clubs than for the less indebted ones.
 
In particular, the gap between turnover and cost of employees for clubs with stronger international ambitions has increased on average by 40% amply exceeding the initial level of €60 million after the introduction of the Financial Fair Play. Econometric analysis reveals that around three quarters of the increase would have not materialized without the Financial Fair Play.
 
The observed growth in the difference between turnover and cost of employees is the result of growth in both terms, with turnover increasing more than costs. There were no statistically significant changes in the debt-to-cash flow ratio.
 
However, the difference between turnover and cost of employees, available in the public data, is an approximate measure of the balance between «relevant» income and «relevant» expenses monitored by the Financial Fair Play. UEFA thus replicated the analysis on its proprietary database, built to monitor the effects of Financial Fair Play.
 
The results are confirmed. The gap between relevant income and relevant expenses increased on average from 2011 to 2017 for all clubs and more markedly for clubs with stronger international ambitions and for those initially more indebted. The source of income that has increased most is sponsorship, an indication of how corporations consider football as a marketing investment much more profitable than in the past.

by Fabio Todesco

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