LITERATURE REVIEW

Football Pre-Financial Regulations

Football and the Premier League could not be compared with any other sport or their leagues for that matter when competitiveness is being discussed. Competition imbalance in the football arena before the FPP was introduced, characterized the sport. The competition was mostly associated with the fact that there was and there is still a higher level of the spread of wealth in football (Simpson, 2017).  Leagues such as the FA Cup and the UEFA Champions League being quite dominant in the European football provides a platform for football to be more intuitive in capturing more consumers. The competitive nature of football was driven by both the performance and the prize which would be later awarded for the aforementioned. The fact that most of the clubs participating in this football functions are from England, then there would be a lot of stiff competition in order to bag the prize.

European football was associated with financial instability. Quite a number of clubs in 1968 as found out by a British government report, were struggling financially.  The deficiency of cash in a certain number of clubs made them exist near the poverty line. This led to their bankruptcy. Consequently, insolvency for clubs, more so in England was not a new phenomenon (Szymanski, 2012). There was fear for increased insolvency due to financial instability. Clubs incurred a lot of losses, and due to lack of proper financial soundness, then, the clubs would face court cases. Deficits which were accumulated over the years by the clubs, raised a lot of worries since profitability was the key reason for their existence and more so, clubs needed to take care of the creditors and also settle their liabilities. Restoring competitive balance is of quite the importance since

Clubs such as Manchester City and FC Chelsea, on the other hand, are able to thrive due to the support they get from their wealthy owners. This fact makes all the difference in competition since the overdue payables hinder the prosperity of most clubs.

Fairness Fair Play

FFP regulation is a license which must be obtained by any club intending to participate in either the Champions League or the Europa League. FPP is was initiated by UEFA, the European football governing body (UEFA, 2012b). It was introduced in order to enhance financial soundness through putting across a financial regulation and framework. Also, it was important to introduce FFP because various clubs in the Europa League were facing a financial crisis that was threatening to the entire system. Competitions associated with UEFA are regulated with FPP as the legal framework. Certain obligations are to be met by the clubs in order to enhance fairness both in the pitch and in the bank.

The FFP aims at standardizing the world of football class. The fact that there exists a certain number of football clubs which seem to be more superior and dominant than others prompted the need for the FFP regulation. According to Vopel (2011), FFP is bound to bring financial stability which consequently will disrupt the nature of football in the European leagues as well as in the clubs themselves. Therefore, to ensure that we have fair play, the State should come in and play its part. For instance, the State should bring about soft credit, soft administrative prices and soft taxation to ensure that all football clubs are bailed out. A good example of State involvement is the use of municipal stadiums based on different agreements that will allow adjustments of prices when the football club is facing some financial issues. Soft credits can be important to football clubs by ensuring that they are either postponed or rescheduled when the club is facing a financial downfall. A paper by Peeters and Szymanski (2014) evaluated the financial and sporting impact of these ‘Financial Fair Play’ (FFP) regulations in four major European football leagues. The researchers used qualitative research method by analyzing the details of FFP and how the regulations are operated in the European football industry. By including the break-even constraint in FFP, researchers showed that FFP can substantially reduce payrolls and increased financial stability of teams. Similarly, another paper by Sendy and Sari (2014) evaluated the implementation of UEFA Financial Fair Play (FFP) in European football clubs and analyzed the financial statements of Arsenal and Manchester United football clubs for 2010-2012. Using the empirical research method of financial simulation the research intended to analyze compatibility of UEFA FFP rules. The study found that the two clubs included in study implemented the UEFA FFP and financial performance was found to be positive with Arsenal having better financial ratios than Manchester United however, the solvency of clubs remained an issue given the debt holdings and high salaries owned by both clubs.

 

Club licensing

In comparison to regulations, Club licensing is also another issue that brings out the unfairness issues among clubs.Licensing is an issue of concern and is likely to affect the clubs that play in the UEFA Champions’ League (UEFA, 2010). German domestic licensing is one that comes out clearly as since it was introduced in 2000; it has implemented a criterion where it licenses clubs based on different criteria such as infaust Ure, personnel, and administrative, sporting, financial and legal issues (Budzinski, 2014). Although the German licensing body has the authority has the ability to request and send all information including forecast and audit accounts to the Deutsche Fussball Liga, it is evident from the public and interviewees that DFL can only make decisions based on the provided data, but it cannot question it. In some worrying cases, press coverage has argued that most of the clubs are being saved by the asset sales, player securitisations and local state ID. In that case, you will find that even if some financial bodies ensure there is fairness in financial reporting, there will always be limitations that will be an advantage to some clubs and a disadvantage to others business wise.

Criticism

FFP regulations are projected to bring conflict more so between clubs which are in association. The fairness deal is being felt that it is not promoting competition. Based on the regular market competition, the higher the risk, the better the chances of making a profit. FFP is, therefore, contradicting this, and the consumers are in a dilemma whether the same regulations will befall the premier league (CDES, 2013). By taking a closer look at the regulation, it is clear that FFP has very restrictions that are fairer compared to the US regarding salaries. Such Restrictions will only be beneficial to the FFP but not to the United States government since it is not binding even in a normal business environment.

Another criticism that makes it hard to believe in the financial reporting of FFP is the fact that the organization takes in a lot of assumptions when it comes to small and big clubs. The organization assumes that huge clubs and small clubs both have an equal challenge in a system comprising of equal money injections. In the real sense, there is no mechanism that can provide both classes of clubs an unlimited supply of money that will ensure that they are relatively more competitive.

Premier League stakeholders.

Premiere league stakeholder has always had an impact on how the sport is played and managed. In that case, it is important to note that no matter how fairness in football is perceived, there will always exist what is referred as the stakeholder factor. In normal business environments, you will find that stakeholders are always put first since they fund most of these clubs. A paper by Menary (2016) included an interview with various interviewees which showed that due to the interdependence of the clubs as well as the political and social context surrounding football, it has a lot of Limitations when it comes to financial performance measures. Furthermore, they believe that FFP is just a regulatory process and by FFP drawing attention towards the issue will bring about less impact. In that connection, the given the stakeholders and the social and political context of football, it will be difficult for the organizations to disclose all the information for financial reporting purposes.

Comparatively, stakeholders, are also likely to influence the performance of a team as in the case of Chelsea. The clubs have a lot of funding and money injections where they can easily obtain players at whatever cost. Such cases, give as a clear view picture of how Football can be unfair to both the clubs and players and it is obvious that even if the stakeholders can initiate rules that make it fair, they are always guided by their own interests as stakeholders.

Several reports and papers on Premier league shys aways from calling regulations in the league as similar to FFP rules and regulations however, Thompson (2016) in his report highlighted two major aspects of Premier league that are not so different from FFP regulations. These include the Profit and Sustainability and Short term cost control where profit and sustainability “ensure that clubs don’t make unacceptably high financial losses, and that club debts do not grow significantly” while short term cost controls ensures that “clubs don’t blow their bumper TV deal on wages” which means that clubs are ensured to be not dependent on TV deals and any reduction or increase in them. The researcher also highlighted that profit and loss limits for Premier League that are similar to FFP regulations and thus, the money injected in the leagues is similar under the FFP regulations. Similarly, a report by Consultancy UK (2015) highlighted that under the new regulations by FFP and Sustainability regulations for UK football clubs, the leagues are becoming more unified in their approach towards sustainability and revenues as highlighted by interviews with 60 Financial Directors from clubs in the English Premier League (EPL), English Football League Championship (FLC), Football Leagues One (FL1) and Two (FL2) and the Scottish Premier League (SPL). The report highlights that under the similar Financial Fair Play regulations, most of the football leagues (98%) are expected to follow sustainability regulations related to  revenues, high value players and profit and loss margins.

Competitive structure

English Premier League is the most renowned league in the world. In that case, over the years, it has attracted investors and stakeholders who take over the ownership of the clubs. Such cases have brought about the implementation of FFP which is aimed at bringing about what we call fairness in football. It is doing so by preventing any unnecessary or unfair competition between different clubs (Schubert, 2014). Without such bodies, we are deemed to see a hierarchical, competitive structure where wealth teams are successful while unfortunate teams fight financial crisis.

Given that football can attract different wealthy investors, it means that they can use all means of direct investments to make the club successful while attaining their fair share of profits. For instance, a club like Manchester City has wealthy owners who can buy players at their own cost a move that is deemed to be unfair. Although how beneficial it is for a team like Manchester to inject funds, other teams are likely to be affected. It would create an uncompetitive structure especially in the transfer window whereby a small club finds it difficult to bid against a wealthy club. As approached by regulatory bodies like FFP and premiere league, in that case, they are trying to ensure there is fair competition by restricting how a club spends (Schubert, 2014). Also, they have come up with a better way to deal with debts which helps various Football clubs sustain themselves while avoiding instances of financial crisis.

Regulation of Money injections

All clubs are required to operate within the limits of financial resources they can generate. However, rules of the Football industry require that clubs only compete with what they can acquire from Football. If the clubs were allowed to inject more money into their operations or rather competitions, it means they will, for instance, be able to undertake a lot of bailouts in order to stay in operation (Sendy and Sari, 2014). In that case, it is out rightly clear that even though money injection can be important for a team, it will be unfair for the teams that cannot raise money to inject into their team. Comparatively, by injecting money into the team, a club might end up with talented players, happy consumers and wealthier players who are not the case of teams that cannot be affordable to do so. In that case, unregulated money injection is one crucial unfair play since it has the potential to affect all the decision making and associated incentives in football.

According to various critics, by limiting the amount of money injection using FFP, it does not imply that an organization will have less money or players will have less income, it means that it create fairness to the extent that it will restore the efficient managerial incentives. In that case, fair play in regard to injection of money into clubs will only be possible if an effective FFP comes into action. There are several critcisms that football leagues face in terms of money injection, revenues and marketing and sales regulations. An empirical study by Menary (2016) evaluated the impact that prize money distributed by UEFA for participation in the Champions League has on club sustainability and how this impact varies on basis of club size. The study showed that under UEFA’s guidelines for Financial Fair Play there is a conflict of interest for small and large clubs. The UEFA’s interest creates an unregulated free-for-all in financial terms at the lower end of the club game which does not allows sustainable financial position and competitive balance. Similalry, an article in the Guardian (2016) highlighted the ethical criticism on Premier league where since games are now broadcast in 212 countries and territories, with the league claiming a worldwide TV audience of 4.7 billion people, the sponsors include non-UK commercial brands who have often undisclosed and unlimited amounts of money injected in the league. The article highlights that these investments assert that “the ever-increasing raft of deals means global commercial duties are a part of the professional life of many top Premier League footballers”. At the same time, the money spinning deals have created an ethical dilemma among clubs for their sustainability.

Premiere league domestic TV rules.

It is evident that with FFP, regulations and rules form what is commonly known as the break-even rule. This implies that it limits teams or other clubs in terms of transfers and wages. In doing so various clubs were affected since they could not be able to engage in any other activities that will promote or facilitate club Improvements (Sass, 2012). According to the Arsenal manager, it is evident that most of the rules implemented by the FFP, have not been effective. FFP come up with a rule that only was beneficial to the rich clubs and a disadvantage to the less fortunate clubs. Over time various England clubs invested in what is called the premiere league domestic TV rights where they were required to buy different packages probably for showcasing their matches.

Due to the FFP rules, some clubs could not manage to invest since they could not afford the money or rather inject from external sources. In that case, such instances have provided evidence that indeed that rules are not fair and will only benefit the rich clubs. Thus, FFP rules have not worked, and due to the rules, small clubs are finding it difficult to compete with the huge and wealthy clubs (Sass, 2012). Therefore, it is widely believed the rules need to be reevaluated since the rules they had put in place was against the interests of the players as well as those of other stakeholders. Luckily a club like Arsenal was not affected because it only operates on what it earns as revenue.

 

 

Sass, M. (2012). Long-term competitive balance under UEFA Financial Fair Play regulations.

Univ., Faculty of Economics and Management.

 

Schubert, M. (2014). Potential agency problems in European club football? The case of UEFA Financial Fair Play. Sport, Business and Management: An International Journal, 4(4), 336-350.

 

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