The 2011-12 season saw a revolution within European football: the take-over of billionaires. Chelsea won the Champions League and Manchester City won the Premier League. Both clubs have the distinction of being owned by multi-billionaires. True, money has always been central in professional football. True, many European football clubs are the possessions of wealthy businessmen. But very few of these owners have assets of more than several billion euros, and this is what makes the difference as the amounts needed to build a competitive squad at the European level (i.e. at least several hundred million euros) represent only a small share of their wealth. According to the March 2012 Forbes ranking, the fortune of Roman Abramovich, Chelsea’s owner, amounts to $ 12.1 bn and the assets of Mansour bin Zayed Al Nahyan, Manchester City’s owner, are estimated to be worth more than $ 20 bn. Paris Saint-Germain just joined this closed group as the Qatar Sports Investment, a branch of the Qatar Investment Authority (QIA), the Qatar’s sovereign wealth funds, acquired 100% of the shares in the club. By the way, to my knowledge, this is the only case where a foreign state directly owns a football club1. According to the Sovereign Wealth Fund Institute, assets held by QIA amount to $ 100 bn.
How does it work?
The story is simple. As soon as the multi-billionaires arrive, the clubs invest heavily on the transfer market; they buy world-class players, the wage bill surges and they run heavy deficits (this is illustrated in the figures below). Of course, revenues rise thanks to higher attendances and more lucrative sponsorship deals, but not as fast as expenditures. This is absolutely not a problem as the multi-billionaires are able to cover the losses and pump new funds into the club. As there is a correlation in the long-run between the wage bill and sportive success (see for instance Kuypers and Szymanski (1999), Kuper and Szymanski (2009), Drut (2011)), the future of Paris Saint-Germain seems to be written. This has worked for Chelsea. This has worked for Manchester City. So, why not for Paris Saint-Germain? The point is that one major difference arose in the meantime: this “multi-billionaire model” may be troubled by the Financial Fair Play (FFP) rules.
What about Financial Fair Play?
From the2013-2014 season onwards, UEFA’s FFP rules will be put in place. Their principle is that clubs that qualify for European competitions (Champions League and Europa League) will have to show evidence of a break-even budget, i.e. they will not be allowed to spend more than their revenues. For the first years of implementation, UEFA will tolerate aggregate losses of 45 million euros over the two previous seasons where the owner covers them. In the case of excessive deficits, the clubs will be sanctioned. This threatens the “multi-billionaire model” in the form that we have known since Roman Abramovich took over Chelsea in 2003 and in which multi-billionaires’ clubs have spent far more than their revenues for years. Theoretically, this means that FFP rules would prevent Paris Saint-Germain from acquiring a competitive squad by forbidding expenses from exceeding income. The problem is less serious for Chelsea and Manchester City as both clubs already have world-class players, but will also be on the table.
A likely scenario could be that multi-billionaires shift from a spending model to a more revenue-centered model: they would try to stimulate the revenues in order to maintain spending. They may take advantage of the fact that non-football related expenses are not covered by FFP rules. For instance, they can spend heavily on stadium refurbishment or construction to stimulate matchday revenues by raising ticket prices. They can also invest in youth development (another expense not covered by FFP rules) by building football schools everywhere in the world in order to scout for the most talented kids. Another possibility is that they could contract overvalued sponsorship deals with related parties, as all multi-billionaires have stakes in several, diversified, businesses. UEFA acknowledged this possibility by specifying that “relevant income and expenses from related parties must be adjusted to reflect the fair value of any such transactions”. In this scenario, the major problem is determining the “fair value” of a sponsorship deal or of naming rights.
But more importantly, is UEFA really willing to strongly punish multi-billionaires’ clubs? The possible sanctions for deviations from FFP rules will be: reprimand, fine, deduction of points in group stages, withholding of revenue from UEFA competitions, prohibition to register new players for UEFA competitions, disqualification from a competition in progress or exclusion from future competitions. At the time of writing, the link between deviations from FFP rules and resulting sanctions remains unclear and therefore it is unclear which sanctions Chelsea and Manchester City would have received during the last few seasons.
UEFA may be reluctant to heavily punish clubs whose deficits are not a real economic danger in itself; multi-billionaires are always able to cover losses and their clubs are always able to pay players’ wages or taxes, while this is not the case for some other clubs. Incontestably, in times of problems with public finances in Europe, the priority is to tackle the unpaid taxes and social contributions. UEFA is not incentivized to punish multi-billionaires’ clubs as many of the best players in the world play for them; excluding them would have dramatic consequences on TV rights UEFA receives for the Champions League and the Europa League. Against this backdrop, it seems reasonable to think that UEFA may choose other sanctions than pure exclusion against Chelsea, Manchester City and Paris Saint-Germain.
For all these reasons, Paris Saint-Germain should not be too worried by FFP rules.