Financial Fair Play: 'An open invitation to trickery'

Manchester City face Real Madrid in the first leg of the Champions League round of 16 on Wednesday, a competition from which the English Premier League club has been  banned for the next two seasons for breaching UEFA's rules on Financial Fair Play (FFP). The rules, which were introduced in 2013 are designed to prevent clubs from spending more money than they earn. UEFA argues that the rules are meant to protect the clubs from themselves, preventing them from spending their way into crippling debt. While one might think that this would help smaller clubs to be competitive, a 2016 study by the Technical University of Munich found that FFP would serve to widen the gap between football's haves and have-nots. DW spoke to one of the authors of the study, Professor Christoph Kaserer, to find out how the issue has developed since then.

DW: Professer Kaserer, in the report that you published three years ago, you arrived at the conclusion that Financial Fair Play is actually counterproductive because it tends to hinder rather than help smaller football clubs. Why is this?

Christoph Kaserer: The rule stipulates that income generated by a club's football operations must to be sufficient to cover investments and other expenses,meaning that it is difficult to implement growth plans. If this rule applied to the business world beyond football, it would have been impossible to establish companies like Apple, Microsoft or SAP. This is because as a matter of course, startups incur debt, which has to be covered by the owners. Of course there were other reasons for introducing Financial Fair Play (FFP), but in terms of its effect on competition, it actually shields the big clubs from competition from smaller clubs.

Are you saying that this is because a small club has to adopt a high-risk strategy if it is to develop into a big one?

You could say that. You don't have to look very far. RB Leipzig comes to mind: A large corporation takes over what had been a small, unknown club and helps to build it up through major investment. This has worked despite FFP, but this is the exception not the rule. Without a major corporation as a sponsor, it's impossible for a startup to grow to these dimensions.

Your study was published in late summer 2016. Do you feel that the way things have developed over the past three and a half years has confirmed your thesis?

Yes. The tendency we observed, that the intensity of competition in the big leagues is declining and that fewer and fewer clubs are contenders for the championship is even more evident today than it was then. Financial Fair Play isn't the only reason for this, of course. National regulations, such as the 50+1 rule in Germany are also a factor. But overall, I see a clear trend towards increased concentration of competition in the business of football.

What do you think can be done to narrow the gap between rich and poor clubs?

(Laughs) This is difficult. If you really want to eliminate this inequality, there's no way around placing a ceiling on player's salaries. But that would be a deep intervention in the freedom of the market economy. This is why I am against it, at least not before exhausting other possible remedies. What we have to ask ourselves is: How can the starting conditions be improved for smaller clubs?  In my view there should be exceptions from FFP for certain specific cases. And in Germany, we need to consider abolishing the 50+1 rule. Such things would help to reduce the inequality, at least a bit.

Let's talk a bit about 50+1 and Financial Fair Play. From your point of view as an economist, how fair is this rule really?

This rule serves to discourage investors from investing in German clubs. They avoid doing so because at the end of the day they can never really be the boss of the club. This is what distinguishes German clubs from English clubs, for example. If you look at how they fare in international competition, German clubs are at a clear competitive disadvantage here. From a financial point of view, this rule is a major stumbling block. But, of course, I am not blind to the fact that traditions and emotion are a major factor in football. And there are people who are prepared to accept this disadvantage if it means that our football is not sold to foreign investors.

For the first time, UEFA has come down hard over FFP, banning Manchester City from the Champions League for two years. What do you make of this?

I don't have any inside information; I only know what I've read in the newspapers. If the information published is correct, the punishment is, of course, absolutely correct. But I do question whether it will be upheld by the CAS (Court of Arbitration for Sport). Manchester City are accused of declaring income as sponsorship money when in fact it was not. This is difficult to prove. In order to do so, one would have to know what the market price for a particular sponsorship contract is. In my opinion, it is difficult to say exactly; the scope for interpretation is extremely broad.

I'm pretty sure that similar things are happening at many other clubs, in other words: sponsorship income being de facto hidden capital subsidies. As you can see from this specific case, there are loopholes in Financial Fair Play for clubs that have large investors behind them.

Would you describe this kind of trick as football-specific or do they also exist in other sectors of the economy?

Interpreting rules as much as possible for one's own benefit is something that happens everywhere. The first question is: How clear are the rules and how easy is it to prove it when they are violated? The second question is: Is there someone who will impose severe sanctions for non-compliance? In football there is a combination of soft, unclear rules and a football organization that has no great interest in uncovering infringements. This is an open invitation to trickery. One day we will probably find out what really happened at Manchester City. According to media reports, there seems to have been a lot of trickery. If such suspicions were to arise in a business in a different economic sector, there probably would have probably been personnel consequences.

Christoph Kaserer, 56, is a professor of business administration at the Technical University of Munich and co-director of the Center for Entrepreneurial and Financial Studies. 

The interview was conducted by Stefan Nestler.