Pros and Cons of Financial Fair Play Rules

In the previous article, we have already seen how certain football clubs in Europe have been using their money power in order to muscle their way to the top of the league. Hence, in order to prevent this, certain organizations such as EUFA have created certain financial fair play rules.

The aim of these rules is to ensure that all teams get a level playing field regardless of the financial prowess of the people who own these franchises.

However, the idea of financial fair play rules has itself come under a lot of criticism. There are critics on both sides of the table and all of them are able to make some valid points. Hence, it can be said that the issue of financial doping as well as fair play rules is not so straightforward and it has some nuances.

In this article, we will have a look at the detailed arguments that mention the pros and cons of financial doping as well as financial fair play regulations.

Arguments in Favor of Financial Fair Play Regulations

The arguments in favor of financial fair play regulations are as follows:

1. Possible Bankruptcy: The main idea behind the introduction of financial fair play (FFP) norms is to prevent the bankruptcies of stellar clubs.

   Almost every club that is a part of the European football leagues has a rich history spanning many decades. They have a well-established brand name and a high degree of brand equity as local communities identify with these clubs.

   Now, there are many financially powerful individuals and organizations who are taking over the ownership of such clubs. The financial fair play (FFP) regulations have been put into place to ensure that these new investors do not recklessly overleverage the brand name of the club, borrow heavily against it, and run it to the ground, ultimately filing for bankruptcy.

2. Financial Strain on Other Clubs: Also, all the clubs in a sporting league, ultimately operate in a closed loop. This means that the actions of one sporting franchise ultimately have an impact on the others as well.

   If one football club starts hiring players by paying them excessive sums of money, others are forced to follow suit in order to defend themselves. Now, the clubs that have deep financial backing will be able to navigate these issues. However, the clubs which are running as self-sufficient entities are likely to collapse. Hence, financial fair play (FFP) regulations have been created in order to prevent such a situation from happening.

3. Predatory Competition: The management of some sporting franchises has started using their financial strength in such a way that they are deliberately creating losses for themselves. In order to compete, other companies are also required to operate at a loss.

   However, since the financial capability of other teams is limited, their ability to bear losses is also limited and they are likely to be wiped out eventually. The Financial Fair Play (FFP) regulations have been created to prevent such predatory competition.

Arguments Against Financial Fair Play Regulations

From the above arguments, it seems like financial fair play (FFP) is a well-intentioned and well-executed idea. However, this is not the case. There are many arguments which can be made against this idea as well. Some of these arguments have been presented below:

1. Restriction on Spending Money Financed by Equity: Firstly, it is important to note that even though financial fair play (FFP) claims that its objective is to curb excessive leveraging by certain football clubs, they do not place limits on debt funding and spending. Instead, limits are placed on the overall spending of the franchise regardless of whether it is financed by debt or equity.

   Many franchises find it strange that the sports league is trying to limit spending even though it has been financed by equity. Ideally, as long as the club is not leveraging itself, its spending should not matter to the franchisor.

2. Unfair Advantage to Top Clubs: It is claimed that the real purpose of financial fair play (FFP) regulations is to actually provide an unfair advantage to the top clubs. This is because the spending capacity has been defined in relation to the revenue generated by the firm. Now, since the top firms are able to generate a high degree of revenue, by default, they are also allowed to spend more money. This creates an unfair system wherein the top clubs have a huge advantage and hence are likely to continue to remain on the top.

3. Protecting Cash Flows for Top Clubs: It is important to note that many European football leagues distribute common revenues based on the rank of the club.

   For instance, top-ranking clubs receive more cash remuneration from the franchisor. Hence, if a new set of teams starts finishing at the top of the league, there are financial losses that start accruing to the teams that used to top the charts earlier. Hence, it has been claimed that the financial fair play (FFP) regulations have only been brought into existence in order to prevent the losses accruing to certain clubs.

4. Past Records: Last but not least, it is being claimed that many of these sporting franchises do not have the moral high ground to criticize clubs such as Manchester City and Chelsea. This is because clubs such as Liverpool and Manchester United themselves grew in size with a sudden burst of funds in the previous decades. Now, once they have reached the top, they are trying to create unnecessary barriers for the others.

Hence, the bottom line is that financial fair play (FFP) regulations are a controversial issue. There are many arguments in favor of as well as against the idea. The pros and cons need to be weighed carefully before arriving at a decision.