The future of UEFA’s FFP Regulations – has the final whistle blown?

UEFA’s Financial Fair Play Regulations (FFP Regulations) regulate the spending of major European football clubs. These rules are intended to protect the long-term viability and sustainability of European club football. However, recent decisions have shown that the FFP Regulations may have some structural weaknesses or be vulnerable to challenge on competition law grounds.

Two fundamental questions stem from this:

1. how could UEFA improve the effectiveness of its regime; and
2. are the UEFA FFP Regulations nonetheless vulnerable to a competition law challenge?

Picking up the baton from SportingLinks’ inaugural podcast on Financial Fair Play in football, this article takes a deeper dive into both of these questions.

Rule changes?

A clear understanding of the procedural rules is one of the most important aspects of any robust enforcement process. Indeed, in our experience, the success of any regulatory action often turns on compliance with the procedural aspects of the process. Accordingly, the less glamourous features of a regulatory regime, such as limitation time periods and information gathering powers, often make a difference between whether a regime ‘sinks or swims’. At a time when COVID-19 offers a good opportunity for, if not necessitates, introspection, could now be the right occasion to take another look at the rulebook?

• First, in relation to the limitation time period for UEFA FFP Regulation breaches, the Court of Arbitration for Sport (CAS) has recently confirmed that under the current rules, the operation of the five-year limitation period occurs from when the breach first took place. This clearly creates enforcement issues if UEFA’s Club Financial Control Body (CFCB) is not immediately aware of breaches that have been committed. Accordingly, there may be scope for a rule change to measure the relevant period as of the time at which the CFCB knew or ought reasonably to have known of breaches, which is used in a range of contexts where breaches are not immediately apparent to the other party. In the case of civil fraud, for example, the period of limitation does not begin to run until the claimant has or could with reasonable diligence have discovered the fraud. A similar standard is also provided for in section 66 of the UK’s Financial Services and Markets Act. Under this Act, the clock ‘starts to tick’ when the UK financial services regulators have information from which the breach can reasonably be inferred. Could a similar standard be used by UEFA?
• Second, per Article 56 of UEFA’s FFP Regulations, clubs have a duty to cooperate with the CFCB in respect of its requests and enquiries. However, as currently phrased, the obligation arguably limits UEFA’s enforcement power because the FFP Regulations do not require clubs to proactively disclose material.  Again, there may be lessons to be learned here from financial services regulation, such as (i) the Financial Conduct Authority’s Principle 11, which requires firms to be open and cooperative with its regulators; and (ii) the aforementioned Financial Services and Markets Act which, among other things, provides the UK financial services regulators with the powers to request information from regulated firms and compel individuals to interview. UEFA may be better able to detect non-compliance through the introduction of parallel rules providing its CFCB with the necessary powers to obtain relevant documents from clubs, their owners and their sponsors – perhaps by insisting that clubs include clauses about information access in their contracts – as well as the power to conduct interviews and regular audits of accounts. Moreover, as with any robust enforcement process, UEFA would need the operational resources to monitor compliance with its rules and properly investigate suspected breaches swiftly.
• Third, in the English Football League’s (EFL) newly introduced salary cap rules, there is a positive obligation on clubs to report gaps to the EFL, rather than exploit them. Whilst it remains to be seen how the EFL will police this rule, might a similar directive offer another layer of rule improvement / protection for UEFA?

A competition law challenge?

When UEFA first launched its financial fair play programme, it released a joint statement with the European Commission. This non-binding statement noted that UEFA’s FFP Regulations and the EU State aid rules pursue broadly the same objective of preserving fair competition between football clubs.

Though it is a path which has been previously trodden, there is arguably still some scope for clubs to cite competition law arguments before the CAS in opposition to the FFP Regulations, as part of a future challenge to a CFCB decision. Whilst one of its stated purposes is to encourage sustainability, arguably a natural side effect of the FFP Regulations is to entrench the status quo. The biggest clubs, with established revenues, can spend more freely and clubs looking on enviously at football’s top table can be punished if they seek to buy a seat at the top table through owner investment in excess of the specified limits. For some, therefore, the question remains as to whether the FFP Regulations truly promote fair competition.

Striani and Galatasaray

As noted above, the FFP Regulations have been challenged in the past on at least a couple of occasions on competition law grounds. Daniel Striani, a Belgian football agent, challenged the rules, but his complaint was rejected by the European Commission on procedural grounds; more recently, Galatasaray challenged the rules before CAS. In the latter case, Galatasaray argued that:

• the break-even rule within the FFP Regulations was illegal under, amongst other provisions, Article 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits agreements and concerted practices which may affect trade between EU Member States and which may have the object or effect of preventing, restricting or distorting competition;
• in this respect, the main objective of the FFP Regulations’ break-even rule is to impede small clubs’ ability to invest and recruit new talented players, thus preventing them from qualifying and/or accessing UEFA’s competition; and
• the ‘you can spend what you earn’ system put in place by that rule is designed to protect a handful of well-established clubs from the competition of newcomers, in breach of Article 101 TFEU.

The CAS held that the FFP Regulations do not have as their object the restriction or distortion of competition: the object is the (legitimate) financial stability of clubs wishing to participate in UEFA competitions. However, whilst the restriction by object argument fell flat, the restriction by effect argument appeared to fail only due to a lack of economic evidence provided by Galatasaray. The question remains, therefore, as to whether the door has been left ajar – could a club, whether subject to enforcement action or otherwise disgruntled with the FFP Regulations, seek to challenge the legality of the FFP Regulations on the basis of the effect criterion in Article 101 TFEU?

Saracens and the PFA

In other sports, competition law challenges to financial play rules and regulations are not new. Saracens, the English rugby union club, was recently fined £5.36m and deducted an unprecedented 105 points after being found to have flouted the sport’s salary cap for three consecutive seasons. In its case against Premiership Rugby, Saracens unsuccessfully argued that the Premiership Rugby Salary Cap Regulations breach competition law and are “illegal and thus void and unenforceable.” The club argued that the regulations have an “anti-competitive object” and/or an “appreciable anti-competitive effect” under Article 101 TFEU. On the question of object, the panel held, inter alia, that financial stability is the primary legitimate aim of the Salary Cap Regulations and is consistent with EU law. On effect, the panel, held that, somewhat like the Galatasaray case, Saracens’ evidence was ‘decidedly limited’. The panel also failed to accept Saracens’ argument that the impact on competition could be seen in its reduced ability to compete on the pitch, particularly in European competitions.

Turning back to football, the Professional Footballers’ Association (PFA) has also sought to challenge the EFL’s recent introduction of salary caps in League One and League Two (and the proposed salary cap in the Championship) through an expedited arbitration, initiated in August 2020. In response, the EFL CEO at the time, David Baldwin, said “The term ‘salary cap’ is an emotive one, creating the impression of a restrictive measure but we are clear in our view that this is neither the objective nor the likely effect of these changes to EFL Regulations. The financial impact of Covid-19 will be profound for EFL Clubs and today’s vote will help ensure Clubs cannot extend themselves to the point that could cause financial instability.” Notwithstanding David Baldwin’s views, it is unsurprising that some of the ‘bigger’ clubs in League One and League Two, including Portsmouth, have raised concern. It therefore remains to be seen whether the legality of the EFL salary cap rules will be challenged by clubs themselves on competition law grounds.

Is financial fair play dead?

Despite reports to the contrary, the demise of financial fair play seems exaggerated. In recent years, sanctions in relation to failures of the break-even requirement have been successfully imposed on a number of other clubs, including AC Milan. Moreover, in July 2020 the CAS announced that it had upheld the CFCB’s decision to impose a one-year ban on participation in UEFA competitions upon Turkish club Trabzonspor AS for a breach of the FFP Regulations – specifically, for failing to maintain compliance with a break-even requirement as provided for in a previous settlement agreement.

Recently, UEFA has also more frequently used its powers in relation to settlement agreements, including with Inter Milan, AS Roma and AS Monaco, amongst others and LOSC Lille SA and Wolverhampton Wanderers for the 2020/21 season. Common themes included in these agreements are the withholding of certain revenues from UEFA competitions; prohibition on registering new players in UEFA competitions; and restrictions on the number of players that a club may register for participation in UEFA competitions. The increasing number of settlement agreements are perhaps indicative of UEFA’s willingness to sanction clubs and provide for a roadmap for compliance, without the risk of considerable legal costs and increasing press interest that the enforcement process otherwise tends to bring, for instance through appeal to the CAS. This looks likely to be a trend that will continue.

Comment

Notwithstanding the procedural weaknesses in UEFA’s FFP Regulations and the potential for further challenge on competition law grounds, financial fair play is still quietly effective away from the media glare – as demonstrated by the various CFCB decisions in recent years, and the explosion of settlement agreements. Further, whilst the recent ‘Project Big Picture’ failed to win sufficient support from the Premier League clubs, a key aspect of the aborted plan was a proposal that the Premier League financial fair play rules would fall in line with UEFA’s much stricter FFP Regulations. Anyone expecting less financial regulation, and less focus on financial fair play, was in for a surprise.

On the other hand, whilst the final whistle has not yet blown on UEFA’s FFP Regulations, the regime may still be vulnerable to those seeking to exploit its procedural weaknesses or mount a credible and well-evidenced competition law challenge. Accordingly, to make its regime more effective, UEFA could consider strengthening its enforcement powers and capabilities, including with respect to its limitation time periods and evidence gathering powers. Given UEFA’s demonstrated willingness to amend the FFP Regulations in light of Covid-19, it may well be minded to further amend the rules.

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