Soccer’s New Goal: Kick The Spending Habit
To end lavish spending, European soccer's governing body UEFA has devised new regulations to force clubs to pay out no more than they earn.
August 13, 2011 9:36 by p.deleon
Mansour has forked out more than 600 million pounds since buying Manchester’s second club in 2009. Result: City won last season’s FA Cup, the club’s first trophy since 1976.
On paper, the new rules will hit such clubs hard, forcing their deep-pocketed benefactors to stop injecting their private cash and instead rely on what the club earns.
But some soccer finance experts say owners may bypass the rules by pumping cash into a club and declaring it as income. One way to do this would be through inflated sponsorship deals.
“Theoretically, a club’s owner could get a ‘friendly company’ to pay well over the odds, whether it’s for shirt sponsorship or stadium naming rights, which would allow them to grow revenues in a big way,” said Ernst & Young’s Patey.
Even before the rules take effect, rival clubs in the English Premier League have pointed at Manchester City, who posted a loss of 123 million pounds last year. City recently agreed a 10-year, 400 million pound deal with Etihad Airways — part-owned by Abu Dhabi’s government and founded by Sheikh Mansour’s half brother. The club’s ground will be renamed Etihad Stadium, Etihad will be on signs at a new training facility and a shirt sponsorship deal will be extended.
The deal — City described it as “game-changing” — is the biggest stadium naming rights agreement ever, topping the 360 million pounds Citigroup paid to put its name on the stadium of U.S. baseball team the New York Mets. But given that City has struggled to stay in England’s top division over the past decade, is such sponsorship based in reality?
Arsene Wenger, manager of London club Arsenal, which in 2004 struck a 90 million pound stadium and shirt sponsorship deal over 15 years with Emirates Airline, responded with a hint of sarcasm that his club “must have done a bad deal”.
Speaking to Reuters from a pre-season tour in Norway, Liverpool’s commercial director Ian Ayre said it was critical that UEFA applied the FFP criteria rigorously to all clubs. “It will be potentially devastating to clubs that fall into line if others take advantage of it and are allowed to,” he said. “That would create a very uneven playing field and would just be a disaster for everyone.”
City declined to comment on criticism of the deal, but chief executive Garry Cook said the club has been talking with UEFA about the issue.
“We have had several meetings with UEFA about our plans and they are very supportive of Manchester City’s ambition,” he told reporters at a news conference to announce the Etihad agreement.
WHAT’S A GLOBAL BRAND WORTH?
Infantino, who previously worked as an adviser to the Italian and Spanish leagues, insists the rules will apply to everyone.
“The train has left the station and is not stopping,” he said, sitting in a conference room with a view across Lake Geneva to Mont Blanc. “We have rules and we apply them to all in the same way. The clubs know the rules. They know what they have to do.”
UEFA says it is looking at City’s Etihad sponsorship deal to decide if it has been artificially inflated. Valuations will be assessed by the federation’s Financial Control panel, chaired by ex-Belgium Prime Minister Jean-Luc Dehaene and made up of accountants, auditors and lawyers.
“If I’m telling you that the shirt sponsor(ship) of Wigan is 10 times higher than the shirt sponsor(ship) of Manchester United then I think even a non-expert would say ‘OK, you don’t bullshit me’,” said Infantino. “A fake sponsorship deal would certainly be analysed
and would not be accepted by the panel.”
To prevent manipulation of the rules, UEFA will examine an investor’s connection to a club, while transactions between club and sponsor will be compared with the wider market.
Still, lawyers believe there are grey areas.
“If a company says ‘We’re genuinely trying to build a global brand, this is a global club and we think this is what this deal is worth,’ it becomes quite difficult for UEFA,” said Daniel Hall, a partner at global law firm Eversheds. “It’s something that is very much open to subjective opinion and that is where there may be legal disputes.”
Even the rules themselves have some built-in wiggle-room — at least at first. Though clubs are meant to ensure they break even, they will be allowed an “acceptable deviation” of 45 million euros in the first few years. That will fall to 30 million euros over three years before a UEFA committee decides on further reductions.
In another hint that UEFA will be flexible, Infantino suggests any guaranteed money from sponsors should outweigh concerns about market value. “From a pragmatic point of view it’s still better to have a sponsorship contract with a committed amount even if it’s too high,” he told Reuters days before the City deal. “At least it’s a contract, it’s black and white, you will receive the money, and the financial situation is safer than it is today where you just have a loan by an owner or a promise.”