It’s been one of the most frequently recurring questions over the past month: “Given the COVID-19 pandemic and collapse of the Ligue 1 TV deal, how can Paris Saint-Germain possibly afford to add the hefty wages of Sergio Ramos, Georginio Wijnaldum, Gianluigi Donnarumma, Achraf Hakimi and, of course, Lionel Messi, without violating Financial Fair Play?”
And we’ve always had the same answer from PSG chairman Nasser Al-Khelaifi, most recently on Wednesday: “We will respect Financial Fair Play.”
Financial Fair Play (FFP) is suspended, essentially, due to the after-effects of the coronavirus pandemic. But it will be back in a revised format and to be fair to Al-Khelaifi, he probably has a better sense than most of what it will look like when he returns owing to the fact that he’s not just the PSG boss — he’s also the president of the European Clubs Association (ECA) and, as a result, a member of UEFA’s Executive Committee. (He’s also chairman of the BeIn Media Group — which does a lot of business buying broadcast rights from entities like UEFA, among others — as well as president of the Qatar Tennis Federation.)
So while nothing has been formally approved yet, you can see why Al-Khelaifi can be so confident when he’s helping to rewrite the rules and knows what the broad consensus is. And that consensus points towards a luxury tax structure that, as ECA officials pointed out on Tuesday, is more about “sustainability” than “competitiveness.” This is good news for Al-Khelaifi, as long as the money keeps flowing from Qatar.
There will be a limit to spending — transfers, wages, agent fees — for individual clubs and if you go beyond that limit, you face a sanction. That sanction, however, will be purely financial. Exceed your cap by, say, 50 million Euros and you’ll pay some portion of “luxury tax” on that 50m. How much has yet to be decided, but it could be as high as 100 percent, which would mean that, if you’re over by 50m, you need to pay another 50m. If it’s 50 percent and you’re over by 50m, then it’s 25m.
It’s a pretty stark departure from the existing system of FFP, which looked at overall profit and loss over three seasons. If you exceeded the allowable losses, you could face a range of punishments from fines to limits on squad size and transfers, to, ultimately, a ban from European competition.
FFP had its critics, but it broadly achieved what it set out to do: turn European football from a sport that lost nearly $2 billion in 2012, to one that was profitable in the last two seasons before the pandemic. But it also had a number of flaws, especially once the losses were slowed and the ecosystem became more viable.
There was the fact that it discouraged investment by owners: You’re an eccentric billionaire, so you buy a club and you’re excited to spend money to bring in talent and grow the club and its revenues, but, effectively, you can’t, because your revenues won’t grow quickly enough in the short-term.
There was the fact that it was backward-looking: if you have the cash, why should your ability to spend be impacted by your losses two years earlier? There was the fact that it was painfully slow because it relied on audited official club accounts, which meant that if you go on a spending spree in the summer, you won’t know if you’ll be punished for another 18 months. And, finally, there was the fact that you never quite knew what the punishment was going to be: if you breached FFP rules, in most cases you then negotiated with UEFA and ended up with something called a “settlement agreement,” which laid out your sanctions.
Incidentally, that last part was by design. Former UEFA President Michel Platini said he specifically didn’t want a system where you knew ahead of time how much breaking the rules would cost you because he said he wanted clubs to follow the rules, rather than figuring out whether it was better to break them and then write a check.
Proponents of the revamped FFP say the new system will fix some of the above issues. Owners will be free to pour money (whether you consider it legitimate investment or just vanity/ego) into clubs; it will just cost them a little bit extra to do so. You’ll know what your cap is, what you can spend and whether it’s worth your while to exceed it. And you’ll know in “real time” (or close to it), allowing you to plan without having to wait 18 months for a verdict and sentence.
Details are sketchy for now, but it’s clear the new system does a lot of things. But there is one thing it does not do — foster competitiveness — and one thing it needs to do, but probably won’t: increase trust in the system.
On the former, it’s important to note that this luxury tax differs in important ways from what we’ve seen in the NBA or in baseball. In those leagues, the cap is the same for every club and the excess fines are redistributed among clubs who don’t breach the cap. Here, the cap will differ from club to club, because it will likely be a percentage of revenue (70 percent has been mooted; it could be more, it could be less).
What this means is that Manchester United, for example, will be able to outspend Brentford because their revenues are far, far higher. (And will likely remain far, far higher in perpetuity.) What’s more, whatever “luxury taxes” are collected and redistributed (and it remains to be seen how they’ll be redistributed) aren’t likely to move the needle: even 200m Euros (let’s say) is relative peanuts when split among 30 clubs. So let’s remember: this isn’t designed to foster competitiveness or parity and, in fact, it doesn’t do that.
The latter point is familiar. The system works when people trust the system — you saw it with FFP. Clubs like Manchester City and PSG felt UEFA and other big clubs were biased against them. Other big clubs felt they were, well, cheating, while fans were left confused as to what to think. And because there was little transparency, both in club accounts and in legal proceedings, we still don’t know for sure.
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ECA officials promise greater transparency; we’ll see if they deliver. It would be great if fans and the media had full access to club accounts, knowing exactly what sponsorship deals were in place and how much they were worth, which agents were paid and how much, if we had details of every transfer and every contract signed. Then we too would, in real time, have a clear sense of who is going over the luxury tax cap and who isn’t. We’d also have more faith in the system that polices this. (Unlike with FFP, which sees some clubs slamming UEFA for being too soft on PSG and City, while City and PSG felt persecuted and unfairly treated for the sanctions they did receive.)
Don’t hold your breath on that last one. Clubs talk a good game, but they hate transparency. Officially it’s in the name of “competitive advantage” and “trade secrets,” in reality it’s because it would make it far easier for fans to hold decision-makers to account.
Post-pandemic, after losses of around 8 billion euros, European football simply could not afford to put in rules that overly penalized spending and that cash being pumped into the system. Equally, big clubs weren’t going to surrender the edge they get from having higher revenue (and therefore having bigger budgets), and they sure as heck weren’t going to start subsidizing the competition (which is, indirectly, what an NBA style luxury tax would have done). That’s why this system is designed to keep costs down, while encouraging those who can afford it to continue spending.
Conceptually, it’s probably the best we can hope for right now, but if we care about competitiveness (and not everybody does), we’ll have to find a different way to to get there.