UEFA's Financial Fair Play (FFP) rules may seem to be the solution to protecting the beautiful game, by making the sport more competitive, but it may not be the case from an economic point of view. The implementation of FFP may unintentionally lead to anti-competitive "oligopoleagues". It could be argued that FFP violates both the spirit and the letter of EU competition rules. The EU’s Competition Commissioner, Joaquín Almunia, himself an avid Athletic Bilbao fan, has publicly favoured the FFP rules, but this might change with the new European Commission being appointed in November.
Financial Fair Play in a Nutshell
The break even requirement imposed by UEFA's new rules guarantee the long term financial stability of football clubs by forcing them to not spend more money than what they have earned in the previous season. The rules aim to enforce financially sustainable strategies in the game and they also aim to prevent financial competition from taking precedence over the where the real competition is meant to happen: on the pitch.
Non-compliance may result result in substantial punishments for clubs: exclusion from the Champions League, huge fines and transfer bans. In May 2014 Manchester City were given a €60 million fine from UEFA for breaking the €45 million loss threshold imposed under FFP after accumulating gross losses of €182 million last season. But Manchester City may well have grounds to challenge this fine under EU Competition Law.
Illegality under EU Competition Law
The prohibition in Article 101 (1) of the Treaty on the Functioning of the European Union covers agreements and practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition. An agreement, decision or concerted practice which infringes the above prohibition is void and unenforceable unless exempted. An exemption is only applicable where specified conditions are met, particularly where the pro-competitive effects outweigh the anti-competitive effects.
Article 101 (1) (b) specifically prohibits agreements which limit or control investment. The break-even rule could be seen as an unlawful limitation of investments by an association of undertakings, with UEFA meeting the classification of an undertaking as described in Article 101, even though FFP only rules out investments that yield debt. This makes sense because debt drives market competition and is a legitimate strategy to finance productive and profitable investments. The result is that smaller clubs are placed at a competitive disadvantage in the market. This would appear to fall within the prohibition in Article 101 (1) of agreements and practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition.
By effectively freezing the existing financial position of European football clubs, thebreak-even rule is likely to do the opposite of its guiding principle of fairness, by distorting competition rather than encouraging it. This will mean that the dominant will remain dominant and the weak remain weak. Real Madrid will now always be permitted to spend more than Celtic, for instance, due to their vastly different revenue levels. The status quo is reinforced. This is disenchanting for any lower league football fans out there. Leagues in smaller European countries could really suffer – many League of Ireland clubs require large debts for basic day to day operations.
Clubs like Manchester City and Paris Saint Germain, who were also subject to FFP punishment, could also potentially argue that UEFA is in breach of Article 102 of the TFEU. Article 102 prohibits abusive conduct by companies that have a dominant position on a particular market. The fact that UEFA may hold a dominant position is not in itself illegal. However, a dominant company has a special responsibility to ensure that its conduct does not distort competition. It could be argued that the rules risk causing the large dominant clubs to become entrenched in the lucrative Champions League competition, to the detriment of the likes of City and PSG, who require large amounts of investment to compete with already established names.
Protecting against ‘consumer harm’ is often cited as a core goal of competition provisions such as Article 102. The FFP could be an interesting test case for such theories, because they may well have an impact on the ability of ordinary fans to have access to the team they follow. In competition law terms, an element of consumer harm could arguably arise because limiting the amount of investment that up-and-coming clubs can make will necessarily restrict their ability to compete with the leading incumbents in the top-level competitions such as the Champions League. This could lead to a chilling effect on the amount of competition posed by smaller clubs, leading larger clubs to cement their positions. As their prominence and popularity increases, it is possible that the elite teams could then raise their ticket prices, to the detriment of the consumer.
It appears that, though well-intentioned, UEFA’s new governance policy could result in outcomes which completely undermine its guiding principles. The irony of the UEFA Financial Fair Play is clear to see, and its underlying legality may be tested by EU competition law. Lack of competitiveness won’t only be from a financial point of view either: the football itself is likely to become increasingly lacklustre, with underdog upsets becoming increasingly less likely.