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Uefa’s new regs are about to be voted through, and they will change the whole face of football



The last time I wrote about the new Champions League anti-financial-doping regulations that are being voted on today, 27th May, a lot of people wrote in saying that they had already been watered down, and wouldn’t work because clubs would find a way round them.

I know it is bizarre for me, a person who has railed against both Uefa and Fifa in the past, to pin my hopes on Uefa, but that’s what I am doing.  I’ll try to explain why, and why I think the “watering down” suggestions are wrong.

From the start, the EPL has been against the new regs, which in their simplest form say that the licence for clubs to play in European competitions (which is already in place – Portsmouth and WHU didn’t get it this year) will be a lot harder to come by.  In essence participating clubs will have to make a profit.

I think the person who has done most to help this proposal come to the table, and (I believe) get through the voting procedure today is Richard Scudamore, the Premier League’s chief executive, who earns something like £1m a year representing the EPL’s interests.

Scudamore tried to stop the Uefa plan by rubbishing it. Indeed he treated Uefa like a bunch of little schoolboys making up their own rules in the gutter.

Now I know I might do that too, but I just write a blog and advertising copy and press releases for my companies clients.  I don’t earn his kind of dosh and I am not doing PR for the EPL.

So, anyway, as part of his grand plan to sweep away these new regs in September 2007 Scudamore The Great waved a dismissive hand towards  Platini and his comments about “rampant commercialism” and called the new plan “not much above the view of people in the corner of the pub”.

I took offence (I often pontificate in the corner of the pub.)  Platini laughed at Scudamore, openly.  He then said he rather liked pubs. (I warmed to the man).   He talked (as Wenger has done) of watching football as a child in French bars.  He went for Scudamore’s throat.

In one move, Platini turned Scudamore The Great’s rhetoric into one of the biggest errors in PR terms ever made by the EPL.  Until that moment there was a serious chance that Spain, Italy and England (the three great offenders in debt terms) would combine with smaller nations to kick out the Uefa proposals.

Platini redoubled his efforts. He quoted Scudamore, and spoke of “rampant commercialism”, and “financial fair play”.  He came out with his “bar room plans” and the nations outside of England, Spain and Italy, united and said as one, “about time too.”

From 2012-13, just two seasons’ time, the clubs that want to be in any Euro competition (Champs League, Europa League, Diddly Widdly Just Invented League etc) must not spend more than they earn in the season before.

In 2008-09 accounts, 14 of the 20 Premier League clubs lost money.  They will have to change their ways in the next two years.  In La Liga the percentage seems higher, but I will bow to expert opinion.  In Italy I think it is worse again.  Again, expert opinion would be welcome.

Benefactor donations of the Man City and Chelsea type will not be accepted. Debt is not outlawed – clubs can carry forward as much debt as they like, but the interest payments are counted when calculating the profit/loss.  So if Man U make £50m profit before interest, but have £80m interest to pay on their debts, they are loss making, and cannot play in Europe the next season.

Indeed, by my estimation, Man U and Liverpool will not get a licence because it is virtually impossible for them to make a profit unless they sell a Ronaldo and a Gerrard every year.  They now desperately need a very rich person to buy them out, a person who will expect no interest on the debt, and won’t ever expect it back.

So, what about the get out clauses that were regularly mentioned last time we debated this?

Yes they are there – for there is a committee that will decide if a club should lose its licence to play in Europe, rather than a straight absolute rule.  And yes I would not be surprised if some technicality allows Juve, Inter, Barca and Real Mad in.  But the English clubs?  Thanks to Mr Scudamore, the Walking PR Disaster Man, I think not.

Clubs can still invest in training grounds, youth development and a new stadium (all part of the Arsenal model) and owners can put money into the club as shares.  But owners can’t give money or lend money to the club (most of the donors are in fact lenders not givers) for players, wages, general upkeep, tax bills and the like.

So how will it affect English clubs?

As I have noted, Man U and Liverpool will have to sell and sell players to pay their loan interest – or else find a new owner who can pay the debt off (quite hard in a recession, and besides why not buy Everton – its a lot cheaper.  Buy Everton, spend two years buying a big squad, get them into the top four, and then spend your money on a new ground.)

Chelsea and Man C can carry on with more and more money going into the club as shares, so they won’t be denied if they want another £40m player, but the owner must know that short of selling the shares, the money is dead and buried.  It will never come back.

The Tinies claim to make a profit, so they might be ok, but we don’t yet have any Arry Accounts to look at.  Their benefactor, Joe Lewis, is more removed from the club that Abramovich from Chelsea, but he is still a benefactor, and so will again only be able to put money in as shares and with Arry running the show there are bound to be big transfers, and so big losses.

In other words, as I read it, the benefactor can say “There’s £80m share capital, just gone into the club.  Go and buy Bendtner from Arsenal” and they can do that.  But on the balance sheet Bendtner’s salary and the £80m cost of the transfer will still show on the outgoings side, so will still count towards the loss.  There’s no way around that.

Everton, Aston Hold Your Head Villa (over £40m losses a year), Birmingham Satan, Blackburn Rotational, Fulham, Stoke Evil, Sunderland, Bolton, Wigan, Wolves, West Porno Olympic,  all loss making.  Newcastle, WBA and Blackpool might be ok – I am not sure.  Blackburn are typical – £3.5m profit, but a £5m further loan from the owners.  That’s how they live.

Next, the delays in introducing the programme, that were mentioned by so many after my last article.

Between 2012-13 and 2015-16, owners can still be benefactors, to the tune of  €45m (£38m) – but that is not per year, as some said, it is overall for that period.  It is in fact  €15m a year, but even then they have to put the money in, in shares, and when it is spent it counts towards the loss.  Over the next three years it comes down to €30m total.

So even the Chelsea/Man C loophole gets closed.  Maybe one player a year, providing the money goes in as shares, not a loan, not a gift.

Following Scudamore’s total misunderstanding of how to handle the situation, the EPL has gone dead quiet, and put a sticking plaster over his face.  Now we only get comments from our old chum A. Spokesman.

“The vast majority of what is being proposed is common sense and has already, or is about to be, incorporated into Premier League rules,” a spokesman said. “If the regulations are introduced as reported, we envisage a difficult period of adjustment for our member clubs who play or aspire to play in European competition.”

That from the Guardian – and yes, I know I railed against them earlier this week, but it is the only EPL comment going.

And so, wither Arsenal?

We are fine – making a profit every year, thanks to Arsene Wenger’s financial know-how.   Over the next few years not only will we have the benefit of the youth team with their three trophies in two years, but we will still be able to buy everyone we want, and we will see the other clubs (not only here, but in Europe generally) moving onto that level playing field.  The cost of top players will decline.

Of course if the deal doesn’t go through today I will look a prat.  But I look a prat anyway.

————————————–

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Want want want? Well you could always read a book.

22 comments to Uefa’s new regs are about to be voted through, and they will change the whole face of football

  • avatar Rhys Jaggar

    Tony

    The analysis you make is correct, assuming that clubs are run using the current model.

    There are ways for the top, top clubs to change their model which might allow them to compete.

    I guess the next 5 years will determine whether those models can do it or not.

  • i hop the rules go through. fair play at last. spurs wil go back to where they belong and Man utd wil be relegated.

  • http://www.sportinglife.com/football/premiership/manu/news/story_get.cgi?STORY_NAME=soccer/10/05/26/manual_163015.html&TEAMHD=manu&DIV=prem&TEAM=MANCHESTER–UNITED&RH=Manchester–United&PREV_SEASON=

    United say under the UEFA rules they would be able to write off around £38million a year for ‘goodwill’ payments – an accounting practice that reflects the amount overpaid by the Glazer family to buy the club compared to the paper value of the club’s assets.

    Furthermore, the interest on the Glazers’ PIK (payment in kind) loans will not be taken into account because that is not paid out, but merely added to the debt – they now total £225million.

    That report also says that even Liverpool might use the “Goodwill” write off.

  • Tony,

    WRT the 80 Mn for Bendtner example (nice touch btw)

    Only his salary will go into the P&L account and will impact the profit or loss. The equity and the player value will be balance sheet items and will not directly lead to a loss. It might have some impact on the P&L in terms of depreciation and amortization but that will be spread over the period of the contract.

    The best way for owners to work around this would be to show the money as an income (for instance fordstam can buy naming rights of stamford bridge for 100 mn or so). Of course, that money would be difficult to recover but once people are putting in money that is anyway over the total assets of the club, then I’m not sure they have much interest in recovering it.

  • avatar DarkPrince

    The uefa regulations also does not have provisions for clubs running under massive debts. Basically it states that a club should spend only what it can earn. I’ll reiterate, most of the clubs will find a way around it by the time this regulation gets implemented completely.

  • avatar Richard B

    Ways round rules can always be found – but I think the key point is that the basis on which so many clubs have been run in the past will have to change and the expectations of owners will have to change with it. Clubs are going to become a much more expensive bauble to have and business strategies will have to be much tighter and more logical.
    The fact that Arsenal will have to change by not one jot is a huge advantage to us . They will sit in a competive environment that will be, other than at Arsenal, in relative turmoil. And where there is turmoil there will be those who cannot cope with it and will suffer as a result. In UEFA terms Arsenal are just about the only ‘big’ club who are well run and, as a result, have probably been used by UEFA as the template to prove that you can live by these rules (in our case, self imposed) and still be successful. Indeed, while acting as that template, Arsenal may well have had to hold back on transfer expenditure so as not to break ranks with UEFA who need them to continue to act as the example that everyoner else is being asked to follow. As Tony points out, transfer prices are likely to fall in the absence of the past levels of competition in the market and salaries will fall as clubs need to trim their outgoings. Arsenal’s wait-and-see strategy which eventually brought us Chamakh could well bring us many more such bargains in the next year or three. Which, of course, might not be great news for that wonderful youth team!

  • avatar AaronGSi

    Just adding to Richard B’s comments about future bargains having a potential negative effect on the youth team. I don’t think this will be the case, mainly because of the new squad rules that come into effect this new season and clubs needs for a good pool of homegrown players. In fact, I would suggest that, if anything, these UEFA rules will actually help focus clubs on developing young players, because 1. it will be cheaper than forking out top money on transfers (although transfers fees should decline in general, there is little hard evidence they will for the best players as clubs will still be determined to hang on to the Fabs and Ronaldo’s etc at all costs) and 2. because developing good young players can also be a good source of revenue in itself. Clubs like Ajax are proof of what this strategy can achieve (talking about their 1995 CL winning side with all those young homegrown players from their youth set-up)
    As Arsenal are both wise in the transfer market and are developing their youth set-up way ahead of most other EPL teams (except for maybe ManIOU in some respects who always have good youth teams in general), then there is no doubt that we will be reaping the rewards of AW’s structure in the years to come and it is something to really look forward to seeing and supporting.

  • avatar DarkPrince

    I think there will be a section of the gonner fans who will be indifferent to this provision. Simply because Arsenal have no problems in facing these regulations. The other section, however, will be interested in this because they hope that this regulation will oust many big clubs. But it would be a false hope. I agree that most of the big clubs will have to change their strategies to get along with this regulation but eventually they will manage. They have the time to change things. Arsenal on the other hand have already changed things well before this rule came up. So they just need to strengthen their position. So i think we need to focus on our strength rather than what other clubs might be doing. FOCUS ON YOUR OWN STRENGTH RATHER THAN THE WEAKNESS OF THE ENEMY.

  • avatar WalterBroeckx

    Great article Tony. Let’s hope the rules are voted today.
    As it also could have as a result that teams from smaller country’s could make it to the finals like in the old days before the CL

  • avatar The Swiss Rambler

    Tony,

    Another excellent article on a subject which could indeed have far-reaching implications for the footballing landscape in Europe.

    Desi’s comment on the hypothetical Bendtner transfer is correct, but underplays the impact of amortisation. If he were bought for £80m on, say, a 4 year contract, this cost would be capitalised and amortised over the length of the contract, i.e. £20m a year. This is why clubs that splash out a lot of money on purchasing new players do not immediately greatly suffer in their P&L, but the day of reckoning is merely put off. This is what is happening in Tottenham’s accounts. Fear not, the accounts will soon prove that Harry has not lost his touch.

    The other point I would like to make is that UEFA are not completely stupid, so the regulations address the possibility of clubs trying to get around the new initiative by their mega-rich owners simply paying, say, £200m for a sponsorship deal or pricing executive boxes at £10m.

    The regulations include the concept of “related parties” and “fair value” so beloved of tax authorities when reviewing inter-company transactions. In short, if an owner over-pays for services, this income will be adjusted down to a fair value in the break-even template that a club needs to complete, i.e. what the club would have received if the transactions were conducted on an “arm’s length” basis.

    I know this, as I have ploughed through the full 60 page draft proposal from UEFA …

    If you’ll forgive me including a link, I examined this in detail in my blog:

    http://swissramble.blogspot.com/2010/05/uefa-say-fair-play-to-arsenal.html

    Keep up the good work.

  • avatar Gf60

    Reading both Tony’s and Swiss Rambler’s excellent blogs makes me wonder if the so called antipathy between AW and Platini isn’t a smoke screen. Somehow these regulations (not to mention the new squad size restrictions) seem to favour Arsenal to an incredible degree. Let’s hope it starts reflecting in the results in the not too distant future.

  • avatar Rowan

    Interesting stuff, as ever!

    I think that quite naturally there is a hope that these regulations will “level the playing field” and that the prudence shown by Arsene and the Board in the way they have run the club will now begin to pay real dividends.

    There is though, one thought that I can’t shake off – is UEFA really going to make it difficult for the likes of Man Utd, Chelsea, Liverpool to play in the European competitions when doing so is likely to have such a detrimental affect on television audiences and the consequent downturn in revenue secured via television and advertising contracts? The regulations are well intentioned, but in practice? I’m afraid I remain cynical to the eventual outcome.

  • avatar LenH

    I don’t like how you assume Man Utd and Liverpool won’t get UEFA licences. Surely a Champions League without Man Utd is more detrimental to UEFA than a Champions League with a heavily indebted Man Utd. They’ll find a way of making sure the big clubs get through the system.

  • avatar Toby

    2 questions:

    1) if big clubs like Man U and Madrid aren’t allowed to play in the Big Cup, are they allowed to start a breakaway competition to rival the Big Cup, thus compensating for any loss of income and potentially relegating the Big Cup to something on par with the UEFA Cup?

    2) As a way around the accounting issues, since profit and loss has absolutely nothing to do with cash flow, does anyone see changes in the transfer system on the horizon, in favor of player exchanges/trades, instead of outright contract buyouts for cash?

    Would love to hear people’s thoughts….

  • avatar ugandan goon

    stick that in yer pipes and smoke it anti wengeroos!

  • avatar ELR77

    I agree with both Tony’s and Swiss Rambler’s analysis of the impact of the new rules. The mere fact that clubs will have to report not just to their local FAs but also to UEFA means that accounting rules will be eventually harmonized. So the very notion that accounting loopholes will persist is not entirely accurate. If you look at banking sector regulations, i.e. Basel I and II, as dumb as they are and in my humble opinion were part of the cause of the current global financial crisis, the regulators do attempt to close loopholes. So even if there are loopholes exposed in the UEFA rules, they will be closed.

    Again, when it comes to putting money into clubs as shares, again the key issue is “fair-value” accounting, the constant issuing of stocks is unsustainable financially and at some point will actually devalue the company. Therefore talk of continued stock issuance year on year even if held by the benefactor make little financial sense.

    As for Man Us claims of being able to meet the rules, well that I have to see. In most GAAPs there are rules about goodwill. Moreover, just because you add your interest payments into the debt figure does not mean you do not account for them in your income statements, it just means they are not part of the cash flow statement. So there will still be a figure for interest on loans/debt. And I doubt UEFA will just take Man U’s financial statements and accept them without paying a PriceWaterHouseCoopers to audit the books using UEFA’s own accounting rules just like the Inland Revenue do for tax calculations. Man U will simply have to start producing 3 sets of financial statements instead of 2. So the claim in the Sporting Life article may not be entirely correct.

    Moving to the more footballing matters, will the Champions League be less of a competition without Liverpool, Man U or Chelsea? Definitely not, LenH you forget that English clubs were banned from European competitions between 1985 and 1990, when, in the aftermath of the Heysel Stadium Disaster and had Liverpool ever been relegated but won the FA or league cup they would not have been allowed to play in Europe till 1991.In all that time European cup competitions still went on strong and we will still see amazing matches with gifted players showing their stuff. What we wont see are bloated teams that in real life would be chased by debt collectors dominating these competitions.

    Besides the rules will not be implemented for a couple of seasons so these guys have time to get their house in order before then. So don’t be offended by Tony and Swiss’ comments about Man U not qualifying because both use Man U’s financials as of today as we know them and assume the rules were to come into effect immediately and then look at the impact it would have. Man u and Chelsea have already started talking about spending on their youth programmes and Terry and co are getting closer and closer to retirement so the clubs wage bill may very well drop sharply over the next couple of seasons.

  • avatar ELR77

    Toby, I too had thought about the idea of a break away league or cup for the big clubs, but UEFA are part of the FIFA global structure and FIFA actually appear to support the UEFA rules, unless there is such a huge amount of money to be made by FIFA, both FIFA and UEFA could theoretically slap international bans on players who play for teams in that break away competition.

    So for example if Man U, Barce and co go into a break away competiton, then FIFA and UEFA could very well say to England, Rooney, is not eligible for selection in the European Cup or Would Cup and Messi not allowed to play for Argentina in the Cuppa America or World Cup. They could also force the English FA and other FAs to enforce these rules or ban England and Argentina from international competitions for some penalty period.

  • avatar Shane

    If that is the case, and these regulations would be passed. Wouldn’t it be a good idea to spend now on the younger, fully talented players. Like Bojan. Even if we over spend, now. It will be no where near over spending in the future. I think that it would be the best way to make good of a bad situation. We must look at the long term implications of this for Arsenal. If this is going to happen. We will see the price of young players going throught the roof. This will not be a level playing field in teh end. As other teams are going to adobt the Arsenal model of development.

  • avatar The Swiss Rambler

    @ELR77,

    Brilliant comment. I very much agree with your analysis.

    Manchester United are interesting. I saw a report yesterday where they again expressed confidence that they would meet the financial fair play requirements. They confirmed that they would exclude goodwill, as I had suggested in my article, but also that they would exclude the interest on the exorbitant (now 16.25% per annum) PIK loans, as these are not paid out, but accumulate on the debt. Can’t see it myself, as: (a) United’s own audited accounts report them as an expense; (b) it’s against all laws of common sense.

    The fair play regulations specifically allow the deduction of goodwill in the break-even calculation, but, frankly, a common sense rule should also exclude this, as it effectively rewards owners for over-paying when they buy a club. In United’s case, the goodwill reflects the amount overpaid by the Glazer family to buy the club compared to the paper value of the club’s assets. This is a recognised accounting treatment, but in my opinion is against the spirit of UEFA’s initiative. I only hope that this is not part of some sort of deal that UEFA did in order to ensure the support of the top clubs for their proposal.

  • avatar Samuel

    Luckypool and Trash.United not in the C.L impossible for the amateurish EFA to implement even if they,re both in huge debt ,so cut the bulls- please ?

  • avatar ArsenalDubai

    I’m impressed by the level of financial knowledge around here!
    Don’t underestimate the power of a sugar daddy!
    The likes of Sheik Mansour of Manchester Arab can easily get around such regulations. One easy way: buying a “special” shirt for 80mil from the club! There’s no regulation against that, is there?

  • avatar ELR77

    @Shane

    I know what you mean but the youth player rules will to some extent prevent this. We all know about Arsenal’s January signing Wellington who tho an Arsenal player is not allowed to join the club till he turns 18 next January. I could be wrong but we may see more deals like this or club partnerships but because of the risks of not having the player in your hands and the fact they are so young, there will be an offsetting effect.

    @Samuel and ArsenalDubai

    I have no doubt that deals will be struck UEFA accountants will sit with Barce, Man U, Liverpool, City and co accountants and harsh out an action plan for these clubs to just about make the grade.

    We also need to stop using British news media eyes to look at Man U and Liverpool they are not big as far as Platini and those guys are concerned. They will enforce the rules and I don’t believe the court of sports arbitration will get involved in the matter. UEFA are in a strong position because the only countries opposed to the rules were England, Italy and Spain and FIFA seem to like the rules. UEFA are in a strong position here.