Fixing Financial Fair Play: How to Make European Soccer's Salary Cap Stick

• Author: Samuel Kilb
• Position: Benjamin N. Cardozo School of Law
• Pages: 808-842

e Indonesian Journal of International & Comparative Law

ISSN: 2338-7602; E-ISSN: 2338-770X

http://www.ijil.org

© 2014 e Institute for Migrant Rights Press

rst published online 12 June 2014

808

ank you to Jessica Chao and Professor Arthur J. Jacobson for their valuable

encouragement, insight, and eorts in editing and preparing this article, and to Pranoto

Iskandar for patience and assistance throughout the publication process.

FIXING FINANCIAL FAIR PLAY

HOW TO MAKE EUROPEAN SOCCER’S SALARY CAP STICK

SAMUEL T. KILB

Benjamin N. Cardozo School of Law

E-mail: samueltkilb@gmail.com

e Union of European Football Associations (UEFA) has implemented the Financial

Fair Play rules designed to stem runaway spending that has become endemic to the

modern game. e introduction of Financial Fair Play is a response to the problem

raised in an unregulated market of top-league sports clubs: wealthier clubs, which

can aord to spend more, will outbid the others for the best players, causing some less-

endowed clubs to overstretch their means in an attempt to attract top-level players,

sometimes to the point of sliding into receivership, thereby reducing competition and

legitimacy within the league. e result, in due course, is a stark dierentiation in

the quality of the teams elded for play, with the same club, or handful of elite clubs,

invariably winning the championship. at would lead to reduced ticket sales and

hence revenues, and perhaps the disappearance of some clubs. is concentration

(reduction of the number of competing clubs—as would tend to happen in any

mature industry in general) would exacerbate the problem and tend to lead to the

demise of the league as a whole.

However, even before the rules went into eect last year, many clubs began

looking for ways to circumvent the break-even provision in order to stay competitive.

Manchester City and Paris Saint-Germain, two clubs backed by extraordinarily

wealthy ownership groups, oer examples of the type of accounting tricks and related-

party transactions that could be used to circumvent the rules. Legal challenge to the

rules, which could very well be successful, may mean enforcement will be hedged

and that no club will face the ultimate punishment—exclusion from the UEFA

Champion’s League and the lucrative payouts that come with it. And dierent tax

rules and club ownership structures in dierent countries will mean inconsistencies

Samuel Kilb

FIXING FINANCIAL FAIR PLAY: HOW TO MAKE EUROPEAN SOCCER’S SALARY CAP STICK

809

that could further undermine the rules. ese challenges to the legitimacy of Financial

Fair Play threaten the legitimacy of the system as a whole, which could cause it to face

widespread rebellion and scorn, causing it to lose in the court of public opinion faster

than a case could get through European courts. is article looks into the question

of how to set rules that maintain a reasonable number of viable clubs, allowing for

erce competition amongst these, yet preventing grave asymmetries or disappearances

of clubs. In particular, it looks at how the Europeans are trying to cope, and compares

this in several spots with similar attempts in North America. Ultimately, this article

gets into detailed institutional consideration of what does not seem to work and what

might work, and recommends that rules such as these be adopted at the level of the

national football associations of each country rather than at the European level.

Keywords: Sports Law, Anti-competition, Free Trade, Free Movement, Salary Cap,

Financial Fair Play.

I. INTRODUCTION

Since its humble beginnings as the people’s game, soccer (“football”) has

grown to be among the most valuable games in the sport industry. Football

clubs occupy the top three spots on the Forbes list of most valuable sports

franchises,1 and Fox and Telemundo recently agreed to pay a record fee

of more than $1 billion for the rights to broadcast the 2018 and 2022

FIFA World Cups in the United States2—a country where football, while

growing rapidly, still sits lower than several other sports on the totem pole.

e gure Fox and Telemundo bid was a record, by a sizeable margin—

more than double the amount ESPN and Univision paid for the rights

to broadcast the 2010 and 2014 World Cups in the United States.3 e

biggest clubs sell more than a million replica jerseys per season—at about

$90 per unit, it adds up.4

1. Kurt Badenhausen, Real Madrid Tops the World’s Most Valuable Sports

Teams, F (July 15, 2013, 10:04 AM), http://www.forbes.com/sites/

kurtbadenhausen/2013/07/15/real-madrid-tops-the-worlds-most-valuable-

sports-teams/.

2. Jeré Longman, Fox and Telemundo Win U.S. Rights to World Cups, N.Y. T (Oct. 21,

2011), http://www.nytimes.com/2011/10/22/sports/soccer/fox-and-telemundo-

win-us-rights-to-2018-and-2022-world-cups.html?pagewanted=all&_r=0.

3. Id.

4. e World’s Best Selling Club Football Shirts, SB, http://www.soccerbible.

com/news/football-shirts/archive/2012/10/09/the-world-s-best-selling-club-

The Indonesian Journal of International & Comparative Law Volume I Issue 3 (2014) at 808–842

Samuel Kilb

810

As revenues and values rise, so has spending. Real Madrid, the most

valuable club in the world, has broken the record for transfer fee paid

for a player four times in a row. In 2009, Madrid broke the record twice,

rst with a £56 million move for Brazilian midelder Kaka, then with

the famous £80 million purchase of Manchester United star Cristiano

Ronaldo.5 In the summer of 2013, the Spanish giants shelled out a

reported £85.2 million for Welsh winger Gareth Bale.6

e enormous pressure to spend on big-name players who are supposed

to win trophies has taken a toll on the nancial health of many clubs. One

of the most recent and high-prole examples is that of Rangers Football

Club, one of the most storied clubs in the world and one of two major

clubs in Scotland. Financial mismanagement ended with the team being

forced to dissolve, re-form, and begin the climb to the top of Scottish

football anew in the country’s fourth division for the 2012-13 season—

leaving Celtic the only big club left in Scotland, and the only serious title

contender.7 is sort of collapse could have a ripple eect that impacts the

game as a whole in Scotland; without Rangers pushing Celtic, they may

nd wins come too easily, leaving a less exciting league with fan interest

waning and a decreasing bottom line.8 Across the continent, European

clubs in general totaled a breathtaking €2.036 billion in debt according

to a 2012 UEFA report, an increase of €453 million from 2009, and up

a full 153% from 2008.9 Some of the clubs with the most debt are also

those clubs considered among the richest in the game, and are clubs that

compete at the highest level—the UEFA Champions’ League.10

With the purpose of improving the long-term nancial health of

football-shirts.aspx.

5. Gareth Bale: e History of e World Transfer Record, BBC (Sept. 1, 2013), http://

www.bbc.co.uk/sport/0/football/23903470.

6. David Hytner, Gareth Bale Transfer: Real Madrid Conrm Signing In Reported

€100m Deal, T G (Sept. 1, 2013), http://www.theguardian.com/

football/2013/sep/01/gareth-bale-real-madrid-tottenham.

7. Rangers: Charles Green Accepts Division ree Vote, BBC (July 13, 2012), http://

www.bbc.co.uk/sport/0/football/18813407.

8. Chris Davies, Labour Market Controls and Sport in Light of UEFA’s Financial Fair

Play Regulations, 33(10) E. C L. R. 443 (2012).

9. J. Christian Muller et al., e Financial Fair Play Regulations of UEFA: An Adequate

Concept to Ensure the Long-Term Viability and Sustainability of European Club

Football?, 7 I’ J. S F 117, 119 (2012).

10. Id. at 120.