Economic Effects of UEFA’s Implementation of Financial Fair Play in European Top Five

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ECONOMIC EFFECTS OF UEFA'S IMPLEMENTATION OF FINANCIAL FAIR PLAY IN

EUROPEAN TOP FIVE LEAGUES

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Economic Effects of UEFA’s Implementation of Financial Fair Play in European Top Five
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Literature Review

The popular financial fair play (FFP) has again found itself hogging the limelight,

following the transfer of football stars, such as Lionel Messi, to Paris Saint-Germain. FFP was

first introduced in 2009 by UEFA to enhance the overall financial performance and health of

European club football Sports (Rohde & Breuer, 2016 p. 92). UEFA designed FFP to ensure

clubs spend within their means, or rather, its aim to enhance the economic and financial

capabilities of the football club (Ahtiainen & Jarva, 2020 p. 15). The regulation aimed to limit

European teams from running up huge losses and debts and compel them to be financially

prudent. Instead, the regulation aimed to encourage clubs to operate based on their generated

revenues and spend responsibly. For instance, in England, Chelsea FC had debts running to 295

million Euros, higher than the previous financial year (Birkhäuser et al., 2017 p. 120).

Additionally, with debts totalling 78 million Euros in 2002, Leeds United was forced to

sell its popular football players at highly discounted rates (Lawrence, 2017 p. 133). Similar

scenarios were evident in Italy and Spain, attracting UEFA's attention. By 2009, UEFA felt the

need to intervene and salvage the European football clubs (Madden, 2012 p. 179). Generally, the

net losses in European clubs stood at 1.6 billion Euros, a higher figure than in 2008 (Özaydın,

2020 p. 200) – clubs were spending at least 64 percent of their income to cater to players' wages.

Therefore, the main objective for establishing FFP was to prevent European clubs from spending

more than what they earn in revenues, including preventing them from attracting financial

problems that could affect their long-term survival.

However, even that being the case, the implementation of FFP fostered several economic

effects, summarized into the salary reduction effect, the consolidation effect, the investment

security effect, and the incumbent protection effects. Firstly, the salary reduction effect
Economic Effects of UEFA’s Implementation of Financial Fair Play in European Top Five
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determines the salaries players receive as well as the transfer charges for all related activities.

The latter can also be described as the effects of the break-even rule on the market for talent and

the market for players' consulting services (Dimitropoulos & Scafarto, 2019 p. 27). The charges

incurred on player wages and transfer activities represent the dominant part of the relevant costs

of professional football clubs, which largely escalates the debts levels. Suppose the break-even

rule restricts expenses because of the limitations to relevant income as a source of financing

expenses. It is most likely that a declining trend in players' salaries and transfer payments will be

encountered (Dunbar & Middleton, 2022 p. 67). As a result, a club may incur huge losses for

players' salaries and charges on transfer activities services. The reduction of players' wages will

also trigger a decrease in the revenue of players' agents (Madden, 2012 p. 179). In other words,

the investment level adopted by FFP will attract an expense on the earning possibilities of both

players and their agents. Therefore, when players' salary and agents are slushed downwards,

there is a reduction in disposable income, forcing UEFA to cater to other essential needs, such as

rent.

The incumbent protection effect means that the clubs need to re-adjust their investment to

their revenue level. This means that if a certain club has higher revenue than another, it can

spend accordingly to the maximum of its finances (Menary, 2018 p. 14). Alternatively, if a club

has low revenue, it has to keep its expenses low to avoid being bankrupt or increasing its debt

level (Franck, 2020 p. 413). For this reason, clubs with higher revenues can maintain their

competitive advantage through high investments. But the challenges are witnessed among clubs

that do not have high revenues, which disadvantage them when competing with popular clubs

(Paul, 2021). In other words, football clubs that do not have access to high revenues cannot

effectively and willingly invest into becoming more competitive because of the FFP regulation
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(François et al., 2021 p. 76), which compels them to maintain their lower competitive level by

capping their investments. The break-even rule brought about by FFP regulations frustrates clubs

that cannot raise high revenues for investments (Freestone & Manoli, 2017 p. 180). Instead, it

favours incumbents at the top level of European football, particularly those enjoying high

revenue because of valuable brands and success. The FFP rules are economically disadvantaged,

yet to attain the top level but desire to challenge bigger football clubs (Jakar & Gerretsen, 2021

p. 520). Therefore, FFP regulations cement market structure on European football's top level and

protect top and popular clubs from contemporary challenges by newcomers, upward-pressuring

upstarts and maverick competitors.

Further on, the other economic effect, the consolidation impact, refers to the reducing

volatility of transformation in competitive merits and demerits. As discussed earlier, the

challenges posed by FFP is that clubs operate in different financial strengths, which limits

younger clubs that have the potential to compete with bigger clubs to do so because of the

financial limitations (Geey, 2016 p. 57; Serby, 2016 p. 48). While bigger clubs can and privilege

to invest in talented players, smaller clubs do not have this advantage. FFP is viewed as an

agreement between all European football clubs seeking to enhance themselves must do so in a

slow and measured manner that will create fewer losses (Jakar & Gerretsen, 2021 p. 520).

Consequently, changes in the competition arena do not interest supporters or fans as they happen

slowly, which sets them in a position to be willing to invest in this potentially enabled club to stir

their competitiveness.

Finally, the investment security effect is also an issue to discuss when referring to the

economic impacts of FFP in the top European leagues. This effect points to the anticompetitive

exclusion of entrepreneur risk (Procházka & Vanc, 2021 p. 80). In other words, the FFP
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regulations leave the clubs with less or no options for investment due to the financial limitation

and capping on expenses incurred in players' salaries and transfer activity charged. FFP, through

the break-even rule, has reduced the risks of bad investments most clubs were used to make since

both volumes of investment and magnitude of competitiveness consequences are deflated (Petit,

2014 p. 70). The high expenses in acquiring players and catering to the transfer charges explain

why UEFA established the regulation. Therefore, the entrepreneurial element was being

witnessed before interfering with investment security. Due to unplanned investment decisions on

players' salaries and transfers, most clubs incurred huge expenses, increasing their debt levels.
Economic Effects of UEFA’s Implementation of Financial Fair Play in European Top Five
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References

Ahtiainen, S. & Jarva, H., 2020. Has UEFA’s Financial Fair Play Regulation increased football

clubs’ profitability? European Sport Management Quarterly, pp.1–19.

Birkhäuser, S., Kaserer, C. & Urban, D., 2017. Did UEFA’s financial fair play harm competition

in European Football Leagues? Review of Managerial Science, 13(1), pp.113–145.

Dimitropoulos, P. & Scafarto, V., 2019. The impact of UEFA financial fair play on player

expenditures, sporting success and financial performance: Evidence from the Italian Top

League. European Sport Management Quarterly, 21(1), pp.20–38.

Dunbar, N. & Middleton, T., 2022. UEFA’s Financial Fair Play Regulations: A good example of

best practice governance by a sporting body? The International Sports Law Journal,

pp.57–76.

Franck, E., 2020. Introducing hard budget constraints without restricting entrepreneurs: The role

of voluntary agreements in UEFA’s Club Licensing and financial fair play regulations.

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François, A. et al., 2021. Analyzing the effectiveness of UEFA's Financial Fair Play Regulations:

A Comparative Study of the French ligue 1 and the English Premier League. Management

et Organisations du Sport, 3(Research articles), pp.21–121.

Freestone, C.J. & Manoli, A.E., 2017. Financial fair play and competitive balance in the premier

league. Sport, Business and Management: An International Journal, 7(2), pp.175–196.

Geey, D., 2016. Football League Financial Fair Play: Domestic League Regulation. Volume 10,

10(1), pp.12–76.
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Jakar, G. & Gerretsen, S., 2021. Ownership in European Soccer, financial fair play, and

performance in UEFA’s 2006–2018 Champions League tournaments. Journal of Sport

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Lawrence, S., 2017. A critical race theory analysis of the English Premier League. The English

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Madden, P., 2012. Welfare Economics of “Financial fair play” in a sports league with benefactor

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Menary, S., 2018. One rule for one: The impact of champions league prize money and Financial

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Paul, W., 2021. How does financial fair play work? all you need to know. SportsAdda. Available

at: https://www.sportsadda.com/football/features/financial-fair-play-uefa-football-

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Petit, N., 2014. Financial fair play ou "oligopoleague" de clubs rentiers: Elements d'analyse en

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Serby, T., 2016. The State of EU sports law: Lessons from UEFA’s ‘financial fair play’

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Özaydın, S., 2020. An empirical analysis of Financial Fair-play: The case of russian premier

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