This blog post examines the effectiveness and fairness of the FFP rule, as well as the future of European football finances, through the lens of Kylian Mbappé’s mega-contract with PSG.
If we were to name the hottest topic in European football over the past decade, it would undoubtedly be the contract between French professional football club Paris Saint-Germain (PSG) and French footballer Kylian Mbappé. On August 31, 2017, the official announcement of Mbappé’s transfer was made, following widespread transfer rumors linking him to several big clubs. According to the club’s announcement, Mbappé’s transfer fee was a staggering €180 million, an astronomical sum. PSG had already spent €220 million on Neymar’s transfer, leading many to anticipate sanctions under UEFA’s Financial Fair Play (FFP) rules. However, when the club managed to avoid punishment through somewhat crude methods, football officials publicly criticized the limitations of the FFP rules, stating there was no way to curb the extreme rise in transfer fees for star players. So, what exactly are the FFP rules, and what problems do they pose? Let’s explore the FFP rules based on these questions.
First, what are the FFP rules? FFP stands for Financial Fair Play, a UEFA-level system designed to prevent football clubs’ financial expenditures from exceeding their revenues. Clubs violating these rules are barred from participating in UEFA-organized competitions. UEFA competitions like the UEFA Euro and UEFA Champions League are globally popular tournaments holding significant financial and reputational value for clubs. Therefore, being barred from these competitions deals a major blow to a club. In essence, the FFP rules prevent clubs from spending more than their revenues and act as a regulatory mechanism to curb club owners from recklessly injecting private funds, using the powerful sanction of competition exclusion.
Why were the FFP rules first established? Michel Platini, then UEFA President, introduced this system to prevent clubs from going bankrupt due to excessive investment. A prime example is the English football club Leeds United. Leeds United entered the Premier League, England’s top division, in the 1989-90 season. By the 1999-2000 season, they finished third in the league, securing qualification for the Champions League, Europe’s premier cup competition. They then reached the semifinals of the Champions League, ushering in a golden era. However, this brief moment of glory soon turned into a nightmare. As Leeds United players enjoyed success in league and cup competitions, they demanded higher wages. The club owner had to pour in personal assets and even take out bank loans to meet their demands. Despite this, the club failed to secure qualification for the Champions League the following season, resulting in a significant loss of broadcasting revenue. Ultimately, the rapidly mounting debts pushed the club to the brink of bankruptcy, forcing it down a path of decline, including selling players at bargain prices. This is where the term “Leeds era,” signifying a once-promising time, originated. The Leeds United case highlighted the need for regulations on club management, prompting UEFA to introduce the Financial Fair Play (FFP) rules in 2009. UEFA aimed to reduce the then-massive €1.2 billion deficit through these rules, focusing on enabling all clubs to establish a stable foundation for growth, even if they couldn’t achieve profitability.
While initially established as regulations for club financial health, the meaning of FFP rules has recently been interpreted in various ways. Currently, the significance of FFP rules in European football can be summarized in five points. First, it continuously elevates the overall standard of European football and encourages all clubs to concentrate on developing and managing youth players. Since spending must align with revenue, clubs focus on nurturing promising young talent and improving team tactics rather than signing star players. This reduces disparities between clubs, enabling fair competition. Second, it ensures each club secures financial flexibility, allowing them to remain financially self-sufficient even when facing difficult circumstances. Third, it encourages clubs to provide infrastructure with safe and appropriate facilities for spectators and media. This helps increase club revenue and is positive for spectators. Fourth, it reduces private capital intervention, helping maintain the integrity and fairness of UEFA club competitions. Fifth, it enables European clubs to benchmark each other financially, sports-wise, legally, and in terms of facilities.
However, criticism of the FFP rules persists, with ongoing suggestions that several improvements are still needed. When initially introduced, UEFA implemented the regulations without defining them in sufficient detail. Consequently, many football stakeholders criticized the rules, claiming they were merely a campaign promise made by Michel Platini to secure his election as UEFA President. Particularly, many pointed out its limited effectiveness given that most leagues, except the English Premier League and the German Bundesliga, operated at a deficit, and the revenue gap between clubs was significant. Furthermore, the lack of detailed definitions in the FFP regulations created numerous loopholes for circumventing the rules, with club sponsorship contracts being a prime example. There was no way to penalize club owners who invested funds through their own affiliated companies, similar to sponsors appearing on football jerseys. Billionaire owners could still pour massive capital into club operations. There was also criticism that there was no realistic consideration for clubs already operating at a loss.
Faced with growing criticism, UEFA pushed for revisions to the FFP rules. First, UEFA’s management team refined the FFP rules. The initial FFP rules only provided a broad framework of ‘spending less than revenue’, with almost no mention of specifics. Consequently, UEFA announced the revised FFP rules in 2015, which the football world viewed positively. A prime example of this refinement was the detailed specification of the permissible deficit range. From the rule’s implementation in 2015 until the 2018-19 season, the allowed deficit was capped at €45 million. Starting from the 2018-19 season, this limit was reduced to €30 million. Clubs violating this cap were barred from participating in UEFA competitions, strengthening the regulations. These changes were evaluated as a positive revision for clubs experiencing financial upheaval. Second, regarding affiliate sponsorship contracts—the most heavily criticized aspect—UEFA stipulated that contracts with entities linked to club owners or local authorities exceeding 30% of total club revenue would be considered insider trading. This rule revision prevents excessive capital inflows disguised as sponsorship while acknowledging clubs’ need for sponsorships.
However, despite these amendments, the FFP rules still contain numerous loopholes and elements that remain controversial. A prime example is the transfer issue involving Kylian Mbappé mentioned earlier. How was PSG able to finalize Mbappé’s contract without incurring FFP sanctions? PSG utilized a loan transfer. While a typical transfer involves paying a transfer fee to fully acquire a player, a loan transfer involves borrowing a player for a set period. Mbappé’s contract with PSG included a clause stating, ‘After a one-year loan, if PSG is not relegated, the transfer becomes permanent, and a transfer fee of approximately £166 million will be paid.’ As PSG is a top-tier club competing for the French league title, relegation seems virtually impossible. Therefore, this clause effectively means “we will pay the transfer fee after one year,” allowing PSG to circumvent the FFP rules, which calculate finances on an annual basis.
Thus, while the necessity of FFP rules is still debated, criticism also persists. However, UEFA has steadily revised the rules since 2015, and European clubs have begun adjusting their spending in accordance with FFP regulations, showing gradual effects. As it remains an essential regulation in European football, UEFA must listen to diverse critiques from the football community to establish a more comprehensive FFP framework.
