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Blowing the whistle on ‘financial fair play’

It is a common practice for football clubs to pay lucrative wages to the best players to secure the higher places in football competitions.

Amid trends of heavy spending by a number of a professional football clubs across Europe, the Union of European Football Associations (UEFA) introduced regulations to ensure financial fair play, aiming at safeguarding the health of European football and promoting good governance standards.

Notwithstanding the competition law issues surrounding them, these rules have been endorsed by the European Commission. In a recent conference, the vice-presid-ent of the Commission reaffirmed its support for UEFA’s Financial Fair Play Regulations, stating that football clubs should be able to stand on their own two feet and live within their own means.

The UEFA Club Licensing and Financial Fair Play Regulations that were approved in May 2010 and updated in 2012 are being implemented with clubs participating in UEFA club competitions. In order to qualify for UEFA competitions, clubs have their outgoings monitored so that there are no overdue payables to other clubs, their players and social or tax authorities throughout a season. For the current season 2013/2014, clubs also have to break even; the first sanctions for expenditures superior to the yearly income will be imposed by UEFA on the infringing clubs as from the 2014/2015 campaign.

These rules are meant to stop clubs’ ballooning financial losses

Clubs are allowed to spend up to €5 million more than they earn per year. This limit can be exceeded if it is covered by a direct contribution or payment from the club owner or a related party. Yet, UEFA will continue to tighten its grips on shortfalls.

These rules are meant to stop clubs’ ballooning financial losses and to help improve the ailing financial situation of European clubs. A breach of the regulations does not mean that a club will be excluded automatically from participating in competitions. Sanctions vary from a warning to a withdrawal of a title or award.

However, the compatibility of the rules with EU competition law is not resolved. This system of financial regulations is curr-ently under attack before the European courts.

It is well established in EU competition law that football is an economic activity. A Belgian football agent, Daniel Striani, has launched formal proceedings at European level contending, among other things, that the rules constitute an agreement between competing businesses under the EU competition law regime and limit their commercial freedom of action. The complaint focuses on the break-even requirement. In essence it claims that an agreement whereby industry participants jointly decide to limit investments and reduce the number of transfers constitutes a collusion, and hence a violation of the EU competition law. These rules have also been criticised for their restrictive effect on free movement of workers and services.

The view of the European Commission and a number of other stakeholders, European clubs and players’ unions is different. They have been supportive of UEFA, which believes these rules are fully in line with EU law. The European Commission has justified the break-even principle as consistent with the aims and objectives of EU policy in the field of state aid.

Football, like any other multi-billion-euro industry, must comply with the law. It is now up to the general court to decide on whether these UEFA rules are, in turn, compatible with EU law.

Josette Grech is adviser on EU law at Guido de Marco & Associates.

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