Financial Fair Play at odds with EU Competition Law

At first glance, UEFA’s Financial Fair Play (FFP) rules seem to be the solution to protecting football and making the sport more competitive. From an economic point of view, however, this does not seem to be the case – according to a working paper from Nicolas Petit, a competition law academic from the University of Liége, FFP implementation is likely to create “oligopoleagues” in the long run, and thus be anti-competitive. He argues that FFP violates “both the spirit and the letter of EU competition rules”. Current Competition Commissioner, Joaquín Almunia, has publicly favoured the FFP rules, but this might change with the new European Commission being appointed in November.

Financial Fair Play in a nutshell:

The break-even requirement imposed by UEFA’s new rules guarantee the long term financial stability of football clubs by forcing them to not spend more money than what they have earned in the previous season. Not only does the ruling aim to enforce financially sustainable strategies in the game, but it also aims to prevent  financial competition from taking precedence over where the real competition is meant to happen: on the pitch.

Non-compliance results in thumping punishments for clubs: Champions League exclusion, huge fines and transfer bans. In May, England-based club Manchester City were billed with a €60 million fine from UEFA for breaking the €45 million loss threshold imposed under FFP after accumulating gross losses of €182 million last season. However, it appears that under EU Competition Law, Manchester City can successfully challenge this fine.

Illegality under EU Competition Law:

The break-even rule is likely to do the opposite of its guiding principle of fairness by distorting competition, rather than harnessing it, and by freezing the existing financial position of European football clubs. This will mean that the dominant will remain dominant and the weak remain weak. Spanish club Real Madrid will now always be permitted to spend more than Scottish football club Celtic due to vastly different revenue levels (mainly due to state aid). The status quo is thus kept. Even worse, leagues in smaller European countries could suffer – many League of Ireland clubs require large debts to even function properly.

The break-even rule is an unlawful limitation of investments by an association of undertakings, with UEFA meeting the classification of an undertaking as described in Article 101 of the Treaty of the Functioning of the European Union (TFEU), even though FFP only rules out investments that yield debt. Article 101 d) prohibits all forms of investment limitation, regardless of its type or effects. This makes sense – debt drives market competition and is a legitimate strategy to finance productive and profitable investments. This creates a competitive disadvantage to smaller clubs in the market. Article 101 (1) in TFEU paragraph d) accounts for this, outlawing any action by an undertaking create such a competitive disadvantage.

Clubs like Manchester City and PSG, who were also subject to FFP punishment, could also potentially argue that it is also in breach of Article 102 of the TFEU – abuse of a dominant market position. There is a risk that dominant clubs could become entrenched in the all too lucrative Champions League to the detriment of City and PSG, who require large cash investment to compete with already established names.

Article 102 also covers the concept of consumer prejudice, as Manchester City could argue that impaired performance in the Champions League would restrict competition with established clubs. As their market share falls, it is possible that the elites would then raise Champions League ticket prices, to the detriment of the consumer.

Ultimately, EU Competition Law demonstrates how a well-wishing policy of governance can result in outcomes which completely counterbalance what its guiding principle aims to achieve. The irony of the UEFA Financial Fair Play is clearly exposed by the EU Competition Law. Lack of competitiveness will not only be from a financial point of view either. The football itself is likely to become increasingly boring, with underdog upsets becoming increasingly less likely.

By Kevin O’Donohoe

Tags: , , , ,

Categories: Europe

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