UEFA’s Financial Sustainability regulations. What is new?

UEFA's executive committee has approved new "sustainability regulations" to replace the previous Financial Fair Play system from this June, allowing European clubs to make more significant losses than before but limited to spending no more than 70% of their revenue on players, transfers and agents fees. One of the last modifications introduced in the old regulations has been maintained so that only deviations caused by investments in infrastructure, or development of grassroots and women's football, among others, will be accepted.

The regulations are the first significant reform of UEFA's finance regulations since they were first introduced in 2010. Since then, there has been an extraordinary improvement in the finances of European clubs at all levels; pre-tax losses fell from €1.674 billion in 2010 to just €30 million in 2016, while 2017 and 2018 managed to deliver aggregate profits for the first time: €984 million and €499 million, respectively. However, COVID-19 has had a negative impact, and after two years, the pandemic has left a hole of more than 7 billion euros.

UEFA president Aleksander Ceferin said, "UEFA's first financial regulations, introduced in 2010, served its primary purpose. They helped pull European football finances back from the brink and revolutionised how European football clubs are run. However, the evolution of the football industry, alongside the inevitable financial effects of the pandemic, has shown the need for wholesale reform and new financial sustainability regulations."

New, improved financial solutions were needed to deal with this new reality, the Financial Fair Play needed to be overhauled, and the pandemic has accelerated the process. The key objective of the new regulations is to achieve financial sustainability. The new rules have three key pillars:

-??????Solvency and no overdue payables.

-??????Stability and the football earnings.

-??????Cost control and the squad cost.

Solvency and no overdue payables: The No Overpayment Rule means clubs' accounts will be checked every quarter to ensure all bills are being paid on time. In case a club has payments that have been overdue for more than 90 days, the UEFA Club Financial Control Body will consider this as an aggravating factor.

Stability and the football earnings: The Football Earnings Rule deviation has increased acceptable losses from €30 million over three years to €60 million over the same period, which was permitted under Financial Fair Play. Clubs will be allowed to sustain an extra €10m in losses a year for clubs showing good financial health.

Cost control and the squad cost: According to UEFA president Aleksander Ceferin "The biggest innovation will be the introduction of a squad cost rule to bring better cost control in relation to player wages and transfer costs,". The new regulations will see clubs subject to squad cost controls for the first time. The cost control rule restricts spending on player and coach wages, transfers, and agent fees to 70% of club revenues. "Before the pandemic, the average ratio was under 70 per cent," said Andrea Traverso, UEFA's director of financial sustainability.

Over three years, there will be gradual implementation to allow clubs the necessary time to adapt; it will be at 90% in 2023/2024, 80% in 2024/2025, and 70% in 2025/2026. The new regulations will come into force in June 2022.

UEFA will have pre-agreed financial and sporting punishments ready to impose on clubs that break the rules. The sanctions are progressive, so the penalties will become more severe if a club keeps breaking the rules. First and second breaches of the rules are likely to result in fines; subsequent and more severe violations will result in sporting sanctions. For instance, relegating offenders from the Champions League Europa League or Europa Conference League was also considered.

Traverso has admitted that experience revealed weaknesses in the previous regulation, as evidenced by the sponsorship contracts that Paris Saint-Germain or Manchester City have been securing from companies owned by or closely linked to the state to which they belong. UEFA will calculate the fair value by benchmarking and using external agencies to advise whether deals are being done at real market prices. Traverso stated, “Now we just say that any transaction should be at a fair market price, regardless of whether they are related parties or not”.

Traverso recognises that the rules would not achieve greater competitiveness in European football. “Competitive imbalance cannot be addressed simply by financial regulations. It must be addressed in combination with sporting measures and other measures. This is why we changed the name. The name fair play was interpreted as creating a level playing field; we wanted to change that perception.”

What will happen with these new regulations? Traverso said, “Our capacity to investigate is limited, we are not the police, but we believe that in the way they are defined, it is becoming more and more difficult to get around.” Ceferin declared, “I am very happy, I don’t want to say even surprised, that we got support from all the stakeholders,”.

The ultimate challenge? The correct implementation of this. Let us see if, besides of backed the new regulations by words, the richest clubs play under the new rules. More importantly, it will be interesting to see if UEFA applies the sanctions if any club breaches the regulations.?