The Financial Fair Play regulations of UEFA: an adequate concept to ensure the long-term viability and sustainability of European club football?

Muller, J. Christian ; Lammert, Joachim ; Hovemann, Gregor 等

Introduction

Professional football clubs throughout Europe have been experiencing significant losses despite sustained revenue growth. Furthermore, quite a few clubs show considerable levels of indebtedness. Long-term financial stability as well as going concern of even prestigious clubs are at risk. At the same time, enormous funding by investors and benefactors of football clubs can be seen as a means of keeping clubs alive and of gaining influence on sporting performance through investments in valuable players. Together, these aspects have gained considerable attention in relation to what the primary focus should be: the actual performance on the pitch. Against this background, UEFA has decided to take action and, as a supplement to its existing licensing regulation, has issued the Financial Fair Play concept under the name of "UEFA Club Licensing and Financial Fair Play Regulations Edition 2010" (hereafter: UEFA, 2010a). Its main aims are to improve the financial performance of European club football and to protect its long-term viability and sustainability (see Art. 2(2) therein).

Among these issues, Financial Fair Play pursues many different detailed objectives, introducing several requirements, two of which are of major importance: 1) the enhanced rules concerning overdue payables (Art. 65-66) which came into force in June 2011; and 2) the break-even requirement specified in Art. 58-63. UEFA club monitoring of the break-even requirement will take place for the first time in the course of the season 2013-14. A "monitoring period" will initially cover two, and later three, financial years of the respective club (Art. 59). The first financial statements to be considered in UEFA's assessment are those of the current year 2011-12.

Both provisions--enhanced overdue payables rules and the new break-even requirement--aim at encouraging clubs to settle their debts when due and to maintain or establish financial stability by operating within their means arising from revenues. The latter prevents some of them from having to rely on wealthy individuals to continuously cover their losses. To reach those and other objectives, UEFA's Financial Fair Play concept implies a certain complexity. This is inherent in the need to account for the interests of the various stakeholders (clubs, licensors, players, and supporters in/from different European countries) with their heterogeneous cultural background. This paper provides evidence for the issue to be tackled by the regulating authority. Furthermore it brings up a theoretical backing of UEFA's new regulation, especially with regard to its expected impact, potential weaknesses, and future requirements.

The paper is structured as follows: In the following two sections we lay down the empirical background and theoretical foundation of the Financial Fair Play concept. We start by setting out the financial situation of European football as plotted by UEFA's Benchmarking Report Financial Year 2010, which was published in January 2012 (UEFA, 2012). We refer to the phenomenon of the rat race (Akerlof, 1976) as causing the "genuine paradox of inexistent or constantly low operating profits despite almost exploding revenues" (Franck, 2010, p. 109), which we deem fit and proper to explain the behavior of professional team sport clubs all over the world. Next, we illustrate the influence of external funding on the integrity of the sporting competition as essential to understanding what UEFA labels "Fair Play" in financial terms and what UEFA considers harmful to it. In the Basis and Objectives of the Financial Fair Play Regulations section, we explain the basics of the previous licensing regulations that form the basis for the Financial Fair Play concept. Moreover, we take a closer look at its various objectives. We then assemble and illustrate the most important elements of the operative design of the Financial Fair Play Regulations. The next section serves to evaluate these major amendments regarding the intended improvement of financial stability and the regulation of external funding. The paper then concludes with a summary and an outlook.

Empirical Background

For decades, football clubs across Europe have enjoyed steadily rising popularity and increased earnings with regard to all revenue categories. Deloitte (2011) computed the compound annual growth rate (CAGR) of the five strongest European leagues in terms of revenue to be over 10% in the period 1996-97 to 2009-10, with total revenues (excluding transfer fees) of the "big five" leagues doubling in the last 10 years from 4.2 [euro] billion (1999-2000) to 8.4 billion [euro] (2009-10). Revenues from the sale of broadcasting rights have increased significantly, as has income from sponsorship through the provision of additional advertising space as well as other new opportunities and technical features which have been offered to advertisers. Over and above transactions with companies, consumer relationships have also become more lucrative from the clubs' point of view. Higher attendances and price increases on the sale of tickets and higher merchandising have helped the clubs to achieve revenue growth. UEFA's recently published Benchmarking Report Financial Year 2010 (UEFA, 2012) provides a wealth of detail on this revenue growth and on specific trends in the particular countries.

However, club spending, of which players' wages are by far the largest component, has increased even faster than revenues. UEFA (2012) estimates the average growth of net transfer and salary costs of European top-division clubs, per year over the five years between 2005 and 2010, to be 14%. As a result, the bottom line annual financial results of top-flight clubs in all 53 UEFA member associations again deteriorated significantly in 2010: 372, or 56%, of the 665 European clubs whose financial figures are incorporated in UEFA's report (covering 90% of top-division clubs and almost 98% of all estimated revenues and costs) reported substantial aggregate bottom-line gross losses of 2.036 billion [euro], in contrast to aggregate net profits of 395 million [euro] disclosed by 293 clubs. The combined net bottom line losses recorded by European top-division clubs as a whole amounted to 1.641 billion [euro], an increase of 435 million [euro] (36%) compared to the financial year 2009, and of 153% with regard to 2008 (UEFA, 2012).

A total of 195 top-flight clubs reported net losses equivalent to more than 20% of total revenue. This means that one out of four clubs is spending 120 [euro] for every 100 [euro] of revenues. For 78 clubs, wage costs only exceeded total revenue. The fact that the 20 least profitable clubs recorded an aggregate loss of 1.085 billion [euro] appears particularly worthy of note. Seventy-five percent of the 73 European top-selling clubs generating revenues of more than 50 million [euro] reported losses in 2010, with the trend worse for 63% of these clubs (UEFA, 2012). It is no great secret in industry circles that some of these heavily unprofitable and often indebted clubs are also among the 20 "richest" and sportingly most successful clubs in Europe as listed in Deloitte's (2012) "Football Money League" ranking of clubs by total revenue. These clubs regularly make it through the Champions League group stage and reach the knockout phase of the last 16 clubs. Looking at the financial results for the 80 clubs that qualified for the 2011-12 Champions League and Europa League group stages, it is rather striking that 29 clubs competing at the highest European level in UEFA club competitions reported net losses equivalent to more than 20% of total revenue; seven clubs reported large net losses of between 10% and 20% of revenue; and 16 clubs reported losses up to 10%, which totals a two-thirds majority of loss makers (UEFA, 2012). Summing up, "la creme de la creme" of European football includes a string of clubs with significantly loss-making business models that in "normal" industries, where profitability is the criterion for survival, would fall into bankruptcy.

Furthermore, this is not only an issue for certain national professional football leagues, rather it is a Europe-wide phenomenon. In both 2009 and 2010, only four of the 30 highest-earning top divisions in Europe broke even, once the annual results of their member clubs had been aggregated. The average loss ratio of the 53 top leagues in UEFA's sphere of responsibility amounts to 12.8% of the respective revenues (UEFA, 2012), with that of the Premier League, the market leader in terms of revenues and global attention, approximating 15% in 2009 and almost 20% in 2010. Of the 20 clubs in the English Premier League, only four made a profit in the 2009-10 season. Total aggregate losses for the 20 clubs were 445 million [pounds sterling], having been just under 300 million [pounds sterling] in each of the three previous years (Deloitte, 2011).

The fact that many clubs continually tend to spend more than they earn is also reflected in their balance sheets. Roughly a third of the European top-division clubs, precisely 237 clubs (including 20 of the 73 top-selling clubs), disclosed negative equity (debts larger than reported assets) in 2010. Auditors of more than one out of eight clubs issued a qualified audit opinion (UEFA, 2012). Altogether, despite the astounding increases in income and popularity, the financial state of European professional football is astonishingly bad. Such findings highlight and suggest the need for action and regulation.

Another interesting finding is that football clubs often rely on their owners, creditors, or benefactors to keep the club finances balanced. Frequently, this happens through contracted sponsorship, but in numerous cases ad hoc capital injections serve to cover losses and liquidity shortfalls. The movement in the amount of net equity disclosed in the balance sheet (total assets less liabilities) reflects the financial profit/loss of the year incurred by the reporting unit plus any capital distributions or injections. Intuitively, due to the aforementioned massive losses sustained in 2010, one might expect a considerable equity decline in European club football relative to the comparative figure contained in the 2009 financial statements. But since the sum of the nonprofit-related equity of all European top-division clubs has increased by 1,784 [euro] million due to either capital injections, write-off of owner loans, or revaluations, the bottom-line aggregate equity of clubs actually increased by 150 million [euro], from 1,739 million [euro]to 1,889 million [euro]. This reverses a recent negative trend that had seen balance sheet equity diminish by 999 million [euro] over the previous four years (UEFA, 2012, p. 89). Fifty European top-division clubs reported net losses in 2010 but improved their equity. However, UEFA's analysis shows that the balance sheet position of 52% of the clubs still deteriorated during financial year 2010 by an aggregate of 1,510 million [euro], requiring recapitalization.

How can the astoundingly poor financial performance of professional football clubs be explained? Is there any reason to be bothered by and to scrutinize immense cash injections that are used to keep a persistently loss-making club running?

Theoretical Justification

Financial Stability and the Rat Race

Hyperactivity is the pictorial description of individual action that on the collective level provokes a rat race: multiple participants compete against each other for prizes (figurative pieces of cheese) that, independent from an increase in the effort or input displayed by the race participants, grow only by a disproportionately small amount or not at all. This metaphor, which was originally introduced into economic literature by Akerlof (1976), has been applied to sport economics by Franck (1995) to explain specific features of league competition. Alchian and Demsetz (1972, p. 791) coined the term "hyperactivity" as a synonym for "reverse shirking" and thus paraphrased the finding that clubs in team sports tend to inefficiently overinvest in playing strength. Contrary to shirking as the basic problem of agency theory (Jensen & Meckling, 1976), the problem is not that clubs do not struggle sufficiently, but that they display too much effort.

The reward mechanism within a league, based on particular positions in the table, corresponds to the basic pattern of contests and gives individual clubs strong incentives to spend more money on players (wages and transfer fees) than can be covered by the total revenues collectively generated by the league. Clubs invest in their teams with the aim of achieving incremental sporting success and securing additional revenue linked to specific positions in the table. Various factors boost the incentives of professional clubs to overspend on playing talent, the most important being the growing concentration of potential revenues at the top league positions which, in case of a club qualifying for the group stage of the Champions League, turn out to be veritable "jackpots" as against the drop in revenue connected with relegation to a lower league.

Unlike most common competitive processes, in a rat race additional input--despite being carefully considered within the framework of maximizing individual objectives--is not rewarded in overall terms. This is due to sport leagues exhibiting a remorseless ranking arithmetic, as better positions in the table cannot be shared and clubs are stringently banished to inferior ranks. According to the individual pursuit for mutually exclusive sporting success, clubs in professional team sports, seen as a collective, tend to spend too much on players, resulting in an unbalanced p&l account where expenses systematically exceed income (Franck & Muller, 2000; Franck et al., 2008).

With a shrug of the shoulders, one might accept this as a constituent yet unavoidable ingredient of team sport, arguing that sport draws much of its appeal from the unpredictability of sporting success and amortization of investments in the services of players (Neale, 1964; Rottenberg, 1956). This would lead to the conclusion that every club should be free in its operational and financial decisions, even if they turn out to be costly or ruinous. Regarding the situation of a single club, that would no doubt be true. However, the problematic issue is that overspending of one club, as well as the resulting financial distress, might cause negative externalities (e.g., Milgrom & Roberts, 1992) for the other participants (as well as for communities, local bussinesses, and supporters) such as:

* Damaging the reputation of the joint production and marketing of a league and bringing about lower collective revenues (Downward & Dawson, 2000; Lago et al., 2006). Principally, the integrity of the championship is at stake, e.g., in the case of an imminent ex-post neutralization of matches following dropouts of collapsing clubs, the fixture list cannot be completed properly (Buraimo et al., 2006).

* Threatening to damage the financial stability of other clubs because of interdependencies comparable to the banking industry arising from receivables and liabilities between clubs from an exchange of playing talent (Lago et al., 2006).

* Certain clubs that can afford continual loss-making, due to overspending in playing talent, infecting others that, trying to keep up with the competition, increase their expenses for playing talent or their risk exposure to an extent that they cannot sustain for their part.

If the utility function of a club only incorporated the private negative effects, the club would be rather tempted to take a risk. This would lead to inefficient results for the league as a whole and initiate the role for the governing body of a professional sport league to release appropriate regulations. This follows from the concept of market failure, which can be associated with externalities (Bator, 1958). As the extent of hyperactivity depends on individual motivation to achieve sporting success or to avoid sporting failure, as well as on the given reward system, e.g., the distribution of revenues according to league positions, different measures may be chosen to damp the extent of hyperactivity (Franck & Muller, 2000; Muller, 2003). These include (1) even sharing or redistributing of revenues, or decreasing of revenue differentials between positions, which correspond to the financial motives; (2) regulatory induced random influences, increasing the unpredictability of success and amortization of investments; (3) regulatory requirements called licensing systems to adhere to financial stability; and (4) input rationing, which corresponds to both sporting and financial motives of hyperactivity. The two latter approaches are reflected in the Financial Fair Play Regulations.

Integrity of the Competition and External Funding

Integrity is a basic element of sporting competitions highlighted in almost every rulebook and constitutes a central category of sport economics. It presupposes equal starting conditions guaranteed by rules and regulations applied prior to and during competition, as well as compliance with sport-ethical standards. (1) Institutional rules and regulating systems that guide the participants' conduct are issued to achieve this objective and to avoid behavior that damages the integrity of the competition or violates sport-ethical standards. Based on this, it is important that the rules are followed by every participant; otherwise, consumers are going to question the meaning of the competition (Hoehn, 2006). If the behavior of a participant is felt to be in breach of the universally accepted level of equal opportunities (individuals) respectively of level playing field (clubs), or oppose sport-ethical standards, and no sanctions are imposed, the reputation of the competition will suffer serious damage and the demand for it will decline (Franck, 2002). For this reason, potential damage to the competition not only concerns the culpable participant, but also every participant of the sporting competition and their stakeholders (Downward & Dawson, 2000; Lago et al., 2006).

Based on these findings, application of property rights theory, and the typology of goods (Milgrom & Roberts, 1992; Varian, 1992), while focusing on rivalry and excludability in consumption, it can be shown that integrity of the competition has the characteristics of a common-pool resource. These are rivalry and non-excludability, with inflows of the common-pool resource arising from competitions being perceived as happening with integrity and outflows arising from perceived breaches of the rules of integrity (Thieme & Lammert, 2011). This insight serves as the theoretical justification for a regulatory intervention (Ostrom, 2008; Ostrom et al., 1994) to ensure a sufficient level of integrity of the competition and to avoid an overconsumption of the common-pool resource, as an overconsumption of a common-pool resource may lead to a breakdown of the resource system and a crash in the interest in the sporting competition.

Does this general economic insight provide a justification for regulating external funding (which can be understood as the provision of financial means not earned as revenues arising from the sale of products or rights by a club directly or indirectly through its sporting operations or drawing potential [supporter appeal]), but rather being injected from an external investor, benefactor, or creditor? To answer that question, it is necessary to take a closer look at the extent of external funding. As in other industries, of course, there is funding that can be seen as being a regular component of business development. To enable professional football clubs to construct or refurbish stadium facilities or to develop the abilities of young players, considerable amounts of funds are often required. However, there seems to be an amount of external funds injected from outside that is widely perceived as excessive, meaning it cannot be seen as a regular behavior or common measure in the sports industry, especially if invested in player salaries and transfer fees. Thus it has both a quantitative (regarding its extent) and a qualitative (regarding its use within the club) aspect. But the question remains if it is justified to regulate (excessive) external funding.

On the one hand, if it is possible for every participant to generate external funding via investments, gifts, or credits, every football club actually enjoys equal opportunities. Of course, clubs achieving sporting success or enjoying imperturbable drawing potential might be able to generate higher amounts of external funding than others. But this does not seem to be in breach of the principle of equal opportunities, as this advantage has to be regarded as an internal feature of the competition rewarding sporting and other merits in the past, as every club has the opportunity to continuously and gradually increase its sporting performance and its drawing potential (supporter appeal) supporter reputation and is thereby able to generate higher amounts of external funding. Therefore, different amounts of sponsoring revenues or gate receipts realized by different clubs also would not be questioned as they are in line with the principle of rewarding superior ability or performance.

On the other hand, excessive external funding does seem to violate sport-ethical standards because funding can be provided independently from sporting success, the tradition and reputation of the club, and because it can considerably improve sporting prospect through investments in players (Frick, 2005; Hall et al., 2002; Simmons & Forrest, 2004). The efforts to generate external funding, which can exert an enormous influence on the sporting competition and create significant advantages over competing clubs, may be detached from the sporting competition and create an independent existence. This may lead competition to shift away from the pitch and on to the quest for the most wealthy club owner, benefactor, or creditor. As this can be compared to the phenomenon of medical doping, its considerable influence on sporting performance, and the quest for the most effective and least observable dope, this shift off the pitch (and apart from competing in physical abilities) would violate sport-ethical standards and the spirit of the competition and therefore lower the attractiveness of professional club football (in connection with doping, see Preston & Szymanski, 2003). In this context, corresponding to the denotation of (medical) doping, excessive external funding could be classified as financial doping. Based on the general consensus regarding the necessity and appropriateness of regulating medical doping, it seems justified to regulate financial doping, as done by the Financial Fair Play Regulations.

On the basis of these considerations and according to the general understanding of external funding, excessive external funding or financial doping can be defined as follows: performance-oriented financial means not earned by a club directly or indirectly through its sporting operations or drawing potential, but rather provided by an external investor, benefactor, or creditor detached from sporting merit and drawing potential as well as from sustainable investment motivations. A sustainable use of finance in the case of football clubs would be realized by temperately investing in infrastructure or youth development and not by covering pathological financial deficits caused by overspending on salaries and transfer fees. This definition conforms to the understanding of medical doping, which is represented by an application of performance enhancing substances (or methods) that are rejected (as being abnormal) on the basis of corresponding but not sufficiently determinable sport-ethical ideals (Daumann, 2003; for a former definition in 1963 by the European Parliament, see Reiter, 1994).

For the purpose of adequate legal enforceability, it was deemed necessary to forego a universal definition and to define medical doping by an enumerative list of prohibited substances and methods (WADA, 2009, Art. 1; for the first time: IOC, 1999, Art. 2; see also Maennig, 2002)--a procedure that can also be seen in detailed rules of the Financial Fair Play Regulations as to be shown later in this paper. (2)

Basis and Objectives of the Financial Fair Play Regulations

Having illustrated a theoretical justification to explain why UEFA took action, we now examine the regulatory basis and objectives of the Financial Fair Play concept, beginning with a brief outline of UEFA's established licensing regulations. Additionally, we take a closer look at the various objectives pursued by the newly issued Financial Fair Play Regulations.

Subject of the Basis Licensing Regulations

As far back as 2003, UEFA decided to enact certain minimum requirements that professional clubs have to fulfill as a prerequisite for being granted a "UEFA license," and thus being eligible to take part in European club competitions. Based on the argument of subsidiarity, UEFA opted not to be in charge itself but instead to deploy the national associations or their appointed leagues as the licensing body (i.e., licensor) and to ensure, through an accreditation system for the national licensing procedures, that the minimum standards are enforced and satisfied in a comparable manner across Europe. To this end, the licensors are also reviewed annually by a neutral control and inspection company. From the outset, UEFA aimed to encourage the licensors to extend the licensing system, which was originally designed only for clubs that had qualified for European competitions, to all would-be participants in the domestic top flight leagues. This intended proliferation proved a success. In 2011, 48 of the 53 member associations applied a national licensing system (UEFA, 2012), most of them integrating UEFA's minimum standards into corresponding domestic licensing procedures that govern admittance to at least the respective top division. (3) Upon being granted a license for the national championship, each successful applicant thus gains the right in principle to take part in UEFA's club competitions, provided they have qualified to do so on the pitch.

UEFA's club licensing regulations define minimum requirements in five categories: sporting; infrastructure; personnel and administrative; legal; and financial criteria, of which only the financial criteria are relevant here. Before the introduction of Financial Fair Play into the licensing regulations in 2010, the indispensable financial requirements that applicants had to meet to be granted a license were essentially as follows (UEFA, 2008):

* Submission of audited annual financial statements for the previous financial year and, if the statutory closing date of the license applicant was more than six months before the deadline for submission of the list of licensing decisions to UEFA (May 31), an additional set of audited interim financial statements (Art. 45-46). Referring to these financial statements, the underlying financial criterion was only fulfilled, and the license granted, if the definite auditor's report did not exhibit either a disclaimer of opinion or an adverse opinion or, in respect of going concern, either an emphasis of matter or a qualified "except for" opinion. (Annex IX Art. B[2])

* An audit opinion confirming that as of March 31 (deadline for submission), all payables owed to other clubs, arising from player transfers, and all payables toward employees (professional players and the administrative and technical staff), as well as social security and tax authorities that were overdue as of December 31 of the year preceding the season to be licensed, and not subject to not obviously unfounded litigation, had been settled, i.e., paid (Art. 46-47). Referring to these overdue payables, the underlying financial criterion was only fulfilled, and the license granted, if the applicant could prove that all payables had been settled properly before March 31. (Annex IX Art. C and Art. D)

The license applicant was also required to:

* Determine the reporting entity, i.e., to present and to explain its legal group structure, furthermore to prepare and to hand in consolidated financial statements. (Art. 44)

* Inform the licensor in writing seven days prior to the scheduled licensing decision of any events that have occurred since the balance sheet date of the preceding audited annual financial statements that may have a material adverse impact on the applicant's financial position. (Art. 49)

* Submit future financial information, i.e., budgeted p&l accounts and corresponding explanatory notes for the part of the current season not covered by the latest audited statements and for the forthcoming season to be licensed. (Art. 50[1-9])

* Demonstrate to the licensor its ability to continue as a going concern until the end of the season to be licensed if any warning sign being called "indicator" flashes, such as doubts expressed in the auditor's report in respect of going concern, or a deterioration in negative equity compared with the preceding annual financial statements. (Art. 50[10-11])

* Prepare and submit periodically updated future financial information if any aforementioned indicator flashes. (Art. 51)

* Promptly notify subsequent events of major economic importance following the grant of the license. (Art. 52)

Set against the financial results of Europe's top-flight clubs referred to above, these requirements are clearly not stringent nor rigorous enough to ensure sound business management. However, there is no reason to be overly critical here of the UEFA Licensing Regulations that were in force until 2010. The introduction of these regulations some 10 years ago in the territory for which UEFA is responsible, extending from the Faroe Islands to Kazakhstan, was a mammoth task as far as logistics and especially substance were concerned, as not all association bosses regarded the objectives pursued through the introduction of a licensing system with the same enthusiasm. So, all long journeys begin with an initial step.

Objectives of the Financial Fair Play Regulations

UEFA's decision to draft and to put into force its Financial Fair Play concept was clearly motivated by the aforementioned poor financial performance of European professional football and by the increasing awareness of football fans throughout Europe. In addition to an extension of the previously existing licensing regulations serving to ensure the integrity and smooth running of the competitions, UEFA's Financial Fair Play defines a new fundamental objective of regulatory intervention in Art. 2(2,f) which is "to protect the long-term viability and sustainability of European club football" Two different instrumental objectives (4) can be identified to achieve this fundamental objective:

* First, Financial Fair Play assists the existing licensing regulations in improving financial stability of professional football clubs and ensuring the smooth running and integrity of the competitions as well as protecting professional football clubs' creditors (e.g., players or other clubs) (Art. 2[1,d] and Art. 2[2,a]). (5)

* Second, the Financial Fair Play concept limits the possibilities of financial doping and its impact on on-field competition (Art. 2[2,d]; see also Ernst & Young, 2010)

To reach these instrumental objectives, several operational objectives have been implemented within the Financial Fair Play Regulations. While the former are still abstract in this context, the latter have direct connections to detailed regulations within the concept. Therefore, they can be classified as being "operational" objectives. The operational objectives are mentioned explicitly within Art. 2 (Objectives) and have also been communicated extensively by UEFA. They are as follows:

* To encourage professional football clubs not to spend more than they make in income

* To limit the level of debt at professional football clubs

* To encourage professional football clubs to settle their debts on time

* To stop excessive salary and transfer payments

* To stimulate long-term investment, for example in youth development and infrastructure (training grounds and stadia)

* To encourage sensible long-term financial management

* To limit the possibilities of external funding from investors, lenders, or benefactors

* To make professional football clubs more transparent in their dealings with UEFA Trying to structure these fundamental, instrumental and operational objectives, one

can see that several instrumental objectives serve to reach the fundamental objective. Also, several operational objectives serve to reach the instrumental objectives, and within the instrumental objectives different levels can be identified in part. Table 1 integrates the aforementioned objectives and detailed regulations of the Financial Fair Play concept, and also helps to clarify the connections between the different levels.

Bearing in mind these different objectives and their hierarchical nature, we are able to illustrate the deduced operative design of the Financial Fair Play Regulations and to conduct an evaluation regarding the objectives achievement for the major innovations of the Financial Fair Play Regulations. This will be the subject of the following sections.

Operative Design of the Financial Fair Play Regulations

Basically, the new section "club monitoring" in UEFA's Club Licensing and Financial Fair Play Regulations (UEFA, 2010a) comprises three subchapters, the first of which introduces the Club Financial Control Panel as a new body and defines the rights, duties, and responsibilities of all parties involved in the process. (6) The second subchapter deals with the break-even requirement (Art. 57-63), while the third one contains other monitoring requirements (Art. 64-68). We start our detailed analysis with the latter.

Improvement of Financial Stability

Aside from the obligations to submit enhanced future financial information and to report subsequent events similar to those in the previous edition of the regulations, overdue payables are specifically subject to club monitoring and of particular interest to us because they best prove the need for enhancement of the former rules. The following examples pertaining to significant delays in paying due liabilities reveal the weakness of UEFA's previous regulatory attempt to stem financial misconduct.

Until the amendment to the regulation in 2010, a club that had contracted debts toward another club arising from transfer activities or toward an employee had the possibility of easing their cash flow shortly after the cutoff date, December 31, by withholding due and undisputed payments for almost 15 months without coming into conflict with the rulebook. Such overdue liabilities would come to the attention of the auditors only when the balance sheet was presented at the following statutory closing date (assume December 31). Even then the club had another three months until March 31 (deadline for submission of the license application to the licensor) to effect the payment without being refused a license. Many cases, including some even of famous clubs, are hawked, especially in relation to cross-border transfers of players for systematically ignoring due liabilities and relying on the inability of their creditors to enforce payment. Although the initial introduction of this licensing criterion eased the problem to a certain extent, and at least made clubs with aspirations of playing in a UEFA competition a little more disciplined, they still had the option, as in the above example, of delaying payments for almost 15 months without being in danger of being sanctioned. What was particularly unfortunate was that this behavior often had a spiraling effect, with the clubs owed such payables in turn falling behind with their own liabilities or simply being unable to pay due to a lack of liquidity.

A similar breach of the concept of integrity pursued by UEFA occurs when clubs fail to pay their employees on time or in accordance with the terms of their contracts. On the one hand, this is an obvious violation of the principles of ethical business. On the other, a failure to pay wages harms the integrity of sporting competition and thus offends the basic idea of fair play. If a club fields players it has not paid or is unable to pay as specified in the terms of their contracts, and wins games and points against clubs who are paying their squad in accordance with the underlying contracts and accordingly with the regulations, then the first club has used inputs under false pretenses and in doing so reaped unjust rewards. In cases when suspended players are fielded, the result of these matches is commonly declared void. Participants are aware of this sanction and will usually observe the suspension. Fielding players whose transfer fee or salaries have not been paid clearly shares some characteristics with fielding suspended players and can be deemed as not complying with the concept of integrity of the competition and should be monitored accordingly.

In analogy with the laws of the game, we can call such unprofessional business conduct "financial foul play." The new regulation explicitly including the notion of Fair Play (UEFA, 2010a) strengthens the counteractions of national licensors and the UEFA administration by introducing two further cutoff dates in addition to December 31-June 30 and September 30, by which time any club taking part in a UEFA competition must not have any overdue and undisputed payables to another club, its employees, or social and tax authorities. The club must provide evidence to this effect by submitting a transfer payables table and issuing a binding declaration, no later than 14 days after each additional cutoff date, which is forwarded via the national licensor to UEFA. (7)

If one of these other monitoring requirements is not fulfilled, then the Club Financial Control Panel may refer the case to the Organs for the Administration of Justice. Financial foul play during the season has become an indictable offense at the start of the 2011-12 season. As UEFA's monitoring procedures run parallel to its competitions, it is not yet clear what sanctions any breach of the ban on overdue payables on the new cutoff dates will incur.

Regulating the Influence of External Funding

The core element of the Financial Fair Play Regulations is the introduction of the "break-even" rule (Art. 58-63), which requires that clubs have to operate within their means and are basically not allowed to spend more than they earn in income. Nevertheless, this does not mean that clubs are obliged to earn profits, nor does it mean that a deficit is in general against the rules. As the financial performance of a football club depends on, or is at least correlated with, its sporting performance that admittedly carries a considerable degree of uncertainty, it would have been inadequate to require a positive break-even result year by year, which is defined by relevant income minus relevant expenses (coming back to the notion of relevance below).

Consequently, the break-even requirement is not applied with respect to every single financial year, but rather with respect to the so-called monitoring period covering three financial years: the reporting period ending in the calendar year that the UEFA club competitions commence (reporting period T) and the two preceding reporting periods (reporting period T-1 and T-2). A possible break-even deficit in one financial year can then be compensated by a break-even surplus in the other two financial years of a particular monitoring period, of which the aggregate break-even result is the sum of the break-even results of the three financial years. (8) The monitoring period is then assessed during the ongoing season of the UEFA club competitions (Art. 59 [1]).

There are four features that soften the absolute break-even guideline. The first one distinguishes between relevant and non-relevant income and expenses in Art. 58.

Three categories of expenses are not accounted for as expenses and accordingly are neutralized in terms of break-even, because following UEFA they have a sustainable impact and a positive long-term influence on football (Traverso, 2011). Non-relevant expenses are defined as expenses concerning (9)

* youth development,

* construction and maintenance of infrastructure, e.g., training facilities and stadia (i.e., depreciation and impairment of tangible fixed assets and directly attributable finance costs), (10) and

* community development (activities for the public benefit to promote participation in sport and advance social development).

The neutralization of such expenditure complies with the objective outlined in Art. 2 (2, f) "to encourage responsible spending for the long term benefit of football." These expenses being unregulated can be seen even as an incentive for clubs to invest in youth development and infrastructure and to provide funds for community development. On the other hand, these exceptions soften the break-even guideline, as they extend the amount of allowed expenses for every club and leave the door open for clubs to operate with expenses exceeding their income.

In contrast to these reliefs, which have the effect to improve the break-even result of all clubs, the arm's length principle serves to avoid unjustified improvements to the clubs' figures. Income and expenses from related parties, e.g., shareholders (see in detail Annex X, Art. E), must be adjusted in the break-even calculation to reflect the fair value of any such transactions (Art. 58[4]). Consequently, clubs cannot boost relevant income (e.g., from sponsor deals) or diminish relevant expenses (e.g., for purchased services like the rent of the stadium) via transactions with related parties in order to fulfill the break-even requirement. Below fair value amounts of expenses are added to the relevant expenses and above fair value amounts of income are excluded from income in order to calculate the break-even result in a reliable manner (Art. B[1,j] and C[1,f] of Annex X: Calculation of the break-even result). In doing so, only the fair value of those transactions is considered, which is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and independent willing parties (Art. E[7] of Annex X: Calculation of the break-even result).

[FIGURE 1 OMITTED]

A last confine to the definition of relevant income and expenses has been made regarding football and non-football operations. For football clubs operating within a corporate group, it is necessary for the break-even result to only represent the result from football operations (i.e., it is not influenced by non-football activities that could distort the calculation of the break-even result). (11) An overview regarding the definition of relevant income and relevant expenses for the calculation of the break-even result is given in Figure 1.

The second feature softening the guideline to absolutely break even is the principle of acceptable deviation defined in Art. 61. An aggregate break-even deficit of 5 million [euro] calculated for the three reporting periods of a particular monitoring period does not represent a breach of the break-even requirement because it is not regarded as being material. Moreover, an additional aggregated break-even deficit is deemed to be in compliance with the rules if such excess is entirely covered by contributions from equity participants and/or related parties, with those contributions being payments for shares or unconditional gifts (12) (Art. D[1], and the following from Annex X: Calculation of the break-even result). In the first two years of application of the breakeven requirement, the acceptable additional aggregated break-even deficit is between 5 million [euro] and 45 million [euro]; in the three years of application thereafter it is between 5 million [euro] and 30 million [euro]; and for the monitoring periods assessed in the following years, a lower amount will be decided in due course by the UEFA Executive Committee. Only if a club exhibits a break-even deficit greater than these amounts is it in breach of the break-even requirement, regardless of possible further contributions from equity participants and/or related parties (Art. 63[2,b]).

[FIGURE 2 OMITTED]

The third feature softening the guideline to absolutely break even is, according to Art. 63(2,b), the allowance to incorporate the break-even surplus (if any) in the two preceding financial years (T-3 and T-4) in addition to the break-even results of the three reporting periods (T, T-1 and T-2) if the maximum acceptable aggregate breakeven deficit of the break-even requirement is exceeded, in order to assess if under this extra condition the break-even requirement can be considered as being fulfilled.

Finally, the fourth feature is characterized by other factors that have to be taken into consideration if the break-even requirement is not fulfilled (Article 63[4]). At least some of them also have a softening potential. According to Annex XI Art. 1, other factors include: the quantum and trend of the break-even result, the impact of changes in exchange rates, the projected break-even result, the budgeting accuracy, debt situation, and force majeure. Transitorily, a further softening element follows from Annex XI Art. 2 for contracts with players undertaken prior to June 1, 2010.

Considering an exceptional two-year monitoring period in the first year of application of the break-even requirement, according to Art. 59(2), Figure 2 gives an overview of the annual financial statements to be incorporated and the acceptable deviations of the general break-even requirement for its first three years of application.

As can be seen from the figure, the average acceptable deviation per annum decreases from 22.5 million [euro] in the first year of application to 10 million [euro] in the third year of application of the Financial Fair Play concept. This shows that there is a transition period granting clubs some time to adapt and get used to the new regulation.

Structure of the Financial Fair Play Regulations

Together, the enhanced overdue payable rules and the break-even requirement, issued to improve financial stability and to regulate the influence of external funding, are the cornerstones of UEFA's approach to gain control of the poor financial performance of European club football and the threats arising regarding the viability and sustainability of European club football. The implemented club monitoring implies an ongoing inspection, instead of the previous key date inspections, which may provide a more sustainable realization of UEFA's objectives.

While the licensing regulations are applied prior to the UEFA club competitions and the grant of the license is a necessary prerequisite to participate, the monitoring process of the Financial Fair Play Regulations will be performed during the ongoing UEFA club competitions beginning in July and lasting until the month of May (Art. 59[1]). (14) Consequently, the monitoring requirements are not applied to all license applicants, but only to licensees who have qualified for a UEFA club competition (Art. 57[1]). Different from club licensing, in which the breach of a mandatory criterion will result in a refusal of the license and consequently an a priori exclusion from UEFA club competitions, the non-fulfillment of the various monitoring requirements will lead UEFA to develop a set of appropriate and perhaps novel sanctions that have not yet been specified in detail.

[FIGURE 3 OMITTED]

Whereas UEFA has delegated full responsibility and competence for club licensing to the national associations or their appointed leagues as licensor, the process of club monitoring is jointly performed by the clubs participating in UEFA competitions, the national licensors, and UEFA. The monitored clubs prepare and submit all documents and information to their national licensors where it is stored and forwarded to UEFA via a specifically designed software solution. At UEFA the licensing department and the Club Financial Control Panel, (15) which has been set up especially for this purpose (Art. 53), handle and revise the information submitted electronically and may get in touch with the clubs to bring forward the specific case and to eventually arrive at appropriate decisions regarding the monitoring requirements.

The cornerstones of the new and the previous regulations are summarized in Figure 3.

Evaluation of the Major Amendments of the Financial Fair Play Regulations

The enhanced regulatory measures on overdue payables can be considered to support financial stability of professional football clubs as well as to protect professional football clubs' creditors. The introduction of two more cutoff dates entails an ongoing inspection instead of the former static key date inspection, which may provide a more sustainable realization of the UEFA objectives. By actually preventing overdue payables throughout the year, the new requirement inhibits a spiraling effect between clubs having contracted debts toward one another.

The new break-even requirement serves the objective of curbing distortions of the sporting competition through excessive external funding by club owners, benefactors, or creditors. This constitutes a far-reaching extension of the regulatory requirements set by UEFA so far. For the first time in the history of European football, the diffuse discomfort resulting from persistently loss-making clubs depending on benefactors and simultaneously playing in the knockout phase of the Champions League is officially acknowledged and tackled by regulatory action. In doing so, UEFA accommodates the finding that the sporting performance in team sport football can be increased enormously by external funding through investments in players and that this could lead to competition shifting off the pitch and into the quest for the most wealthy club owner, benefactor, or creditor. Moreover, the brand and reputation capital of football clubs, built up through previous sporting merit, titles, and tradition, is secured to some extent as its role in determining the ability to draw interest and consequently revenues cannot easily be eclipsed by unlimited cash injections by affluent people. Nevertheless, the aforementioned four features that soften the break-even guideline tend to capture quite a bit of its strictness and rigor. On the other hand, reportedly, UEFA would not have achieved approval for the backbone of the Financial Fair Play Regulations from the European Club Association lobbying for the interests of the most prestigious clubs if they had not compromised on some reliefs, for instance the suspension of player contracts undertaken prior to June 1, 2010, for the purpose of calculating the break-even result of the first two monitoring periods (Annex XI Art. 2).

While ignoring, and thus encouraging, expenditure on youth development, infrastructure as well as community development is well intentioned and might prove advantageous to the industry in the long run; these activities have yet to be financed. Furthermore, the distinction between relevant and non-relevant expenses opens up an ample scope to apply creativity and ingenuity in labeling for what purposes the money is used. UEFA seems to be aware of that but has yet to be well prepared for disputes with clubs sounding out the limits.

Also, it will be interesting to observe how the Club Financial Control Panel will use its discretion to take "other factors"--such as the quantum and trend of the breakeven result, projected break-even result, budgeting accuracy, and debt situation (Annex XI Art. 1)--into consideration if the break-even requirement is not fulfilled.

It can be considered appropriate to discriminate between cash injections of equity and debt, with debt not being permitted to cover an acceptable deviation. This indirectly regulates the issuance of debt. Being a considerable reason for financial instability and distress (Beaver, 1966; Ohlson, 1980), extensive indebtedness receives a regulatory threshold, possibly initiating a positive effect for the future financial shape of European football clubs. (16)

The exemption of clubs generating less than 5 million [euro] in relevant income or expenses (Art. 57[2,b]) can be considered as a well-shaped confinement of the applicability of the break-even requirement since the big losses in European football can be traced back to the top selling clubs, as shown previously in this article. The same can be said regarding the approach to ignore an aggregate break-even deficit of less than 5 million [euro] over a three-year period, as it is regarded as materially insignificant.

Adjusting the income of clubs from relationships with related parties that is not transacted on an arm's length basis in an objective and legally robust manner will presumably be the most difficult task to be performed by the Club Financial Control Panel. An initial test is already looming in the shape of a sponsorship deal at Manchester City, now a "nouveau riche" top club thanks to its Abu Dhabi owner, Sheikh Mansour. Etihad Airways, the national airline of the United Arab Emirates controlled by Sheikh Mansour bin Zayed Al Nahyan and his half-brother Sheikh Hamed bin Zayed Al Nahyan, has completed what looks to be a record-breaking, 450 million [euro], 10-year deal for Manchester City's shirt sponsorship and stadium naming rights. This is a clear case of a related-party transaction. The amount by which the sponsorship sum is to be adjusted downward to ascertain a fair value for calculating the club's relevant result is, however, likely to be a difficult task, which the representatives of Manchester City, one of the biggest loss-makers, will presumably question and contest.

Finally, the new regulations have been criticized since it has not been specified which sanction will follow for failing to meeting the criteria. Previously, the range of sanctions in UEFA's Disciplinary Regulations was limited to reprimands/warnings, fines, deduction of points, disqualification from a competition in progress, and exclusion from future competitions. In March 2012, the UEFA Executive Committee approved extending the available scope to withholding of revenue from UEFA competitions, prohibition to register new players for UEFA competitions, and a restriction on the number of players that a club may register for UEFA competitions. One might speculate how a breach of the monitoring requirements will be punished when the first monitoring period will be assessed. But generally, point deductions and disqualification (perhaps appropriate for serious security or match fixing issues) are not favored by competition organizers since there is a sense that it "distorts." One might imagine disqualification potentially being used at an early stage of the competition if a club provides false declarations. But the most probable sanctions are withholding of revenue for its own competitions and, in severe cases, exclusion from future competitions. A restriction on players to be registered for its competitions seems to be within UEFA's scope of competence, whereas a "transfer ban" is rather a FIFA and domestic licensor competence. To be an effective sanction and to be fair to individuals and other clubs, there will need to be transparency on clubs that have this restriction in place (caveat emptor for new players considering signing and their present clubs). Restriction on number of players obviously has its limits. Squad limits have not been uniformly introduced by leagues, so UEFA might revisit this. A further step proving UEFA's intention to seriously enforce the regulations and to punish violations of the rules is that the Club Financial Control Panel will be transformed into a Body as a UEFA Organ for the Administration of Justice, allowing it to take disciplinary measures itself.

Conclusion

European professional football has been experiencing considerable levels of financial instability and questions of going concern for numerous clubs, and at the same time enormous funding by investors, lenders, and benefactors of football clubs exercising influence on the sporting performance via investments in valuable football players. Together, these factors have gained considerable attention in relation to what should be the primary focus: the actual performance on the pitch. Against this background, UEFA has decided to take action and has issued the Financial Fair Play Regulations as a supplement to the existing licensing regulations. The cornerstones of the innovations are the enhanced overdue payable rules and the break-even requirement, together promoting financial stability and regulating the influence of external funding.

Within our paper, we have shown that these regulatory interventions can be regarded as theoretically justifiable from a sport economics perspective. For the regulation of financial instability of football clubs, this is based on the mechanism of the rat race and on negative externalities. Regarding the regulation of external funding and its effects, which may be characterized by the expression "financial doping," it is intended to secure sport-ethical standards to avoid a decline of interest and demand. Based on the typology of goods, it is the characteristics of integrity as a common-pool resource that requires regulatory intervention to ensure a sufficient level of integrity of the competition.

Based on the new fundamental objective of regulatory intervention followed by UEFA, which is to protect the long-term viability and sustainability of European club football from a theoretical point of view, it is especially the limitation of the possibilities of financial doping and its impact on on-field competition that represents a remarkable regulatory step by UEFA. Also, the indirect first-time regulatory action against the level of indebtedness of clubs and the implementation of the independent Club Financial Control Panel are notable.

From a practical point of view, the enhanced regulations to ensure financial stability seem to be promising, although a perfect achievement cannot be reached without the clubs' widespread acceptance and cooperation. Whether it will actually deliver the change in conduct intended by UEFA, in particular that of officials of popular clubs that regularly generate huge losses, therefore remains to be seen. The break-even rule does include three essential elements that soften the idea of encouraging football clubs not to spend more than they make in income and thus leaves owners with sufficient discretion on how to develop and bring forward their clubs. However, it also offers a number of opportunities for creative accounting, such as shifting wage payments to players into expenditure on youth development.

An important finding is that once the break-even rule comes into full force in summer 2015, clubs will be allowed to make average annual losses of 10 million [euro], toward which expenditure on youth development, infrastructure, and community activities (which can be estimated to total another 5 million [euro] to 10 million [euro] on average for top selling clubs) does not count, without being in breach of the requirement, provided at least the relevant deficit is covered by equity contributions. Consequently, UEFA defines an average capital injection of 15 million [euro] to 20 million [euro] as complying with the regulations, whereas higher cash injections are considered to be "financial doping" contrary to the rules.

A weakness of the Financial Fair Play concept is the fact that the sanctions for breaches of the break-even rule have yet to be defined and that extensive amendments of the UEFA statutes are still required for this purpose. The fact that Michel Platini is linking the success of his presidency to the implementation of the fair play concept justifies a prediction that the necessary steps will follow and that some of Europe's most popular clubs must fear that their future participation in UEFA competitions is at risk without significant changes to their business practices. Apart from that, UEFA, previously fearing legal challenges, has recently won legal as well as communicative backing for the Financial Fair Play Regulations from the European Commission. Commissioner for Competition Joaquin Almunia signed an agreement stating that the rules were fully compliant with European law. (17)

Like any other regulator, UEFA will certainly face attempts to circumvent the rules and to exploit potential loopholes therein. Coming back to the opening question: Are UEFA's Financial Fair Play Regulations an adequate concept to ensure the long-term viability and sustainability of European club football? We think that it does represent several remarkable steps, but that it probably requires amendments and enhancements in the future in reaction to the clubs' behavior to accomplish its intended objectives.

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Endnotes

(1) However, it is neither possible nor preferable to fully equalize all factors that have an influence on a particular competition; for example, cultural, sociological, and economic determinants (Daumann, 2011). As absolute equality cannot be achieved it is the task of the governing body of the competition to limit the sphere of action in a way that a level of equal opportunities that is accepted among the stakeholders can be assured.

(2) This enumerative definition is criticized by Bird and Wagner (1997) and Maennig (2002) for enabling possibilities to circumvent.

(3) Among the five associations without a domestic licensing system in place by UEFA's definition, England and France are special cases. For England, the debate has gone back and forth as to whether they already have a "licensing" system in place as many of the licensing rules are applied at the domestic level (e.g., submission of all financial documents, etc.). Either way, the Commons Select Committee for Culture, Media & Sport Inquiry into Football Governance has recently recommended a formal domestic licensing system to be introduced; the football authorities have acknowledged this and will implement it. However, it is unclear whether this will be a full licensing or a financial licensing system and when the first season will be. In France the Direction Nationale du Controle de Gestion (DNCG) is responsible for monitoring and overseeing the accounts and all financial operations of the 44 member clubs of the French Professional League LFP, but there is no full domestic licensing system in place. Moreover, the Spanish Professional League LFP recently approved a rulebook to monitor and control the accounts of its member clubs, which will come into force in the 2014-15 season.

(4) In comparison to fundamental objectives, instrumental objectives have no end in themselves, but serve to reach a fundamental objective. Breaking down the fundamental objective and establishing a hierarchy between lower objectives enables a higher objective achievement, since this enhances the making of right decisions through the detailed overview (Goodwin & Wright, 2010).

(5) An interesting issue raised by Hamil and Walters (2011) is the exclusive and somehow collusive protection for members of the football family, whereas unprivileged creditors of football clubs do not benefit from the monitoring and prosecution of payables overdue.

(6) Besides the aforementioned panel and UEFA administration, these are national licensors and licensees being all European clubs that have been granted a UEFA license by their licensor (Art. 53-56).

(7) Precisely, all clubs competing in UEFA competitions are requested to submit information on overdue payables as of June 30. Further monitoring requirements are based on a risk based approach: Clubs presenting "warning signs" are again requested to submit information on overdue payables as of September 30. A club presents warning signs if it has breached one of the following indicators: 1) auditor's emphasis of matter or qualified opinion in respect of going concern, 2) disclosure of deteriorated negative equity, and 3) presence of overdue payables as of June 30 (Art. 52 (2); 62 (3iv); 65 (8); 66 (6)). Additionally, clubs presenting such warning signs have to submit updated future financial information (i.e., an update of the future financial information that was provided for club licensing purposes in the month of march) covering the 12-month period commencing immediately after the closing date of reporting period T (i.e., reporting period T+1) (Art. 64).

(8) Following Art. 63(1) and (2), the fulfillment of the break-even requirement is requested if one indicator as defined in Art. 62(3) is breached. These indicators include: Uncertainty in going concern, negative equity, break-even deficit in either or both of the reporting periods T-1 and T-2, and overdue payables as of June 30 of the year that the UEFA club competitions commence.

(9) Not in accordance with the underlying reason to neutralize the aforementioned expenses, tax expenses based on taxable profit are also defined to be non-relevant.

(10) As infrastructure falls under the category of fixed assets and is used by the club for many seasons there are generally no direct expenses when those assets are acquired. Instead, the depreciation or amortization and impairment, which allocate the attrition of the investment over different periods, are considered for tangible or intangible (other than player registrations) fixed assets, respectively. Regarding the tangible fixed assets, finance costs are also excluded if they are directly attributable.

(11) Art. 58(1) and (2) state that income and expenses of non-football operations are excluded from the calculation of relevant income and expenses (also Art. B[1,k] and C[1,k] of Annex X: Calculation of the break-even result).

(12) Gifts made to the reporting entity by a related party increase the reporting entity's equity without an obligation for repayment.

(13) The figure assumes a financial year according to calendar year. In case of a non-calendar business year, the rectangles would have to be moved accordingly.

(14) Since this may confuse the parties involved, UEFA defined in Art. 3 the "license season" as the season for which a club has applied or has been granted a license.

(15) It is composed of up to 10 qualified experts in the financial (e.g., chartered accountants, auditors; at least four members) and legal (e.g., qualified lawyers) fields (see for details UEFA, 2010b).

(16) Within a parsimonious model, Charitou et al. (2004) find that three financial variables, a cash flow, a profitability, and a financial leverage variable, yielded an overall correct classification accuracy for future financial distress of 83% one year prior to the occurrence.

(17) Commissioner Alumnia was quoted by Collett (2012): "I fully support the objectives of UEFA's FFP rules as I believe it is essential for football clubs to have a solid financial foundation. The UEFA rules will protect the interests of individual clubs and players as well as football in Europe as a whole."

Table 1. Fundamental and Instrumental Objectives, Operational
Objectives, and Detailed Regulations of the Financial Fair Play Concept

Fundamental
Objective Instrumental Objective

Protection of the Ensuring the smooth Assistance of the
long-term viability running and integrity existing Licensing
and sustainability of the competitions Regulations in
of European club (Art. 2[1,d]) and improving financial
football Protection of stability of
(Art. 2 [2, f]) professional football professional
 clubs' creditors (e.g., football clubs
 players or other clubs) (Art. 2[1,e];
 (Art. 2[2,b]) Art. 2[2,a])

 [If other clubs are
 creditors, their
 protection in turn
 improves their intended
 financial stability.]

 Limitation of the possibilities of financial
 doping and its impact on on-field competition
 (Art. 2[2,d])

Fundamental Detailed
Objective Operational Objectives Regulations

Protection of the Encouragement of Art. 63(2,a)
long-term viability professional football
and sustainability clubs not to spend more
of European club than they make in
football income (Art. 2[2,d])
(Art. 2 [2, f]) Art. 63(2,a)
 Limitation of the level Art. 61(2)
 of debt at professional
 football clubs
 (Art. 2[2,c&d])
 Art. 61(2)

 Stop of excessive Art. 63(2)
 salary and transfer
 payments (Art.
 2[2,a&c])Art. 63(2)

 Promotion of investment Art. 58(2)
 in youth development
 and infrastructure
 (training grounds and
 stadia) (Art. 2[1,a&c];
 Art. 2[2,e]) Art. 58(2)

 Encouragement of Art. 63(2)
 sensible long-term
 financial management
 (Art. 2[2,c&e])
 Art. 63(2)

 Ensuring to make Art. 64-67
 professional football
 clubs more transparent
 in their dealings for
 UEFA (Art. 2[2,a])
 Art. 64-67

 Encouragement of Art. 65-66
 professional football
 clubs to settle their
 debts on time (e.g.,
 players or other clubs)
 (Art. 2[2,b]) Art. 65-66

 Encouragement of Art. 63(2,a)
 professional football
 clubs not to spend more
 than they make in income
 (Art. 2[2,d])