University of Amsterdam Ȃ Amsterdam Law School
Financial (un)Fair
Play?
Analysis of UEFAǯs Financial Fair Play Regulation in
light of European Union competition law
Stephanie Christina Permanand 5968798
7/31/2015
2
Table of Contents
Acknowledgements ... 4
1 Introduction ... 5
2 Legal framework ... 8
2.1 Dynamics between EU law and the European sport market ... 8
2.2 UEFA ... 10
2.3 ThHILQDQFLDOGHYHORSPHQWVRI(XURSH¶VIRRWEDOOPDUNHW ... 12
2.3.1 Developments in the system of acquiring players ... 13
2.3.2 Third party ownership of football clubs... 14
2.3.3 Wage Inflation and the rat race ... 15
2.4 The Financial Fair Play Regulation ... 16
2.4.1 Aims and objectives of the Financial Fair Play Regulation ... 17
2.4.2 The break-even rule ... 19
2.4.3 Overdue payables ... 21
3 The analysis of the Financial Fair Play Regulation in the European competition law framework ... 22
3.1 Financial Fair Play Regulation in light of Article 101, paragraph 1 TFEU ... 23
3.1.1 The definition of an undertaking... 23
3.1.2 Agreement, decision or concerted practice ... 24
3.1.3 Trade affecting member states ... 25
3.1.4 Object or effect of the prevention, restriction or distortion of competition ... 26
3.2 Financial Fair Play Regulation in light of Article 102 TFEU ... 27
3.2.1 Dominant position ... 28
3.2.2 Abuse of the dominant position ... 28
3.3 Possible justifications ... 29
3.3.1 Article 101, paragraph 3 TFEU ... 30
3.3.1.1 Efficiency gains ... 30
3.3.1.2 Fair share to consumers ... 31
3.3.1.3 Indispensible restrictions ... 32
3.3.1.4 No elimination of competition ... 33
3.3.2 The inherent restriction doctrine ... 34
3
3.3.2.2 The legitimate aim test ... 36
3.3.2.3 The inherency test ... 37
3.3.2.4 The proportionality test ... 37
3.4 Alternatives to the Financial Fair Play Regulation ... 39
3.4.1 Absolute salary cap ... 39
3.4.2 Luxury tax ... 40
3.4.3 Revenue sharing ... 40
4 Conclusion ... 42
5 Bibliography ... 45
Articles, Research Documents and Working Papers ... 45
Books ... 47
Cases ... 47
European Union Documentation... 47
UEFA Documentation ... 48
Websites ... 48
4
Acknowledgements
ǯ profound gratitude towards everyone who has helped me during the process of writing my thesis.
ǡ ǯ mr. A.S.M. Galama for her advice and feedback during the last few months. The guidance has been very much appreciated. ǡǯǡmy other family members and my friends for their support during this period. Special thanks go out to those who kept me motivated when necessary, but also stopped me from overreaching at times.
5
1 Introduction
As is well-‐‑known Article 5, paragraph 1 of the Treaty of the European Union (henceforth TEU) introduces the concept of conferral as the basis for all legal competences of the European Union (henceforth EU).1 In Article 3 of the same legal document the aims, objectives and competences of the EU are laid down.2 Although neither article mentions sports explicitly, the competence of the EU to interfere on this market has always been widely accepted. Since the introduction of the Lisbon Treaty in 2009, the legal competences of the EU involving sport are laid down in Article 165 of the Treaty on the Functioning of the European Union (henceforth TFEU). The fact that the EU has always influenced this sector is demonstrated in the numerous formal decisions and informal settlements made and the policies created or supported in this field.3 An example hereof is the Bosman case, where the European Court of Justice (henceforth ECJ) decided that the transfer system used in the European football market at that point of time breached Article 45 TFEU. UEFA was forced to amend their transfer system in accordance with EU law. 4
Issues involving the European sport market have mainly been dealt with by the European Commission (henceforth EC).5 One of the latest interventions of the EC in the field of sports is the official and public support of the Union of European Football Associations (henceforth UEFA) Regulation on Financial Fair Play.6 This document aims for prudent economic management by European football clubs, striving for financially healthy clubs, protection of the players and a stable market.7
The Regulation has been the subject of discussion between various legal scholars. One of the many topics of the debate seems to be whether the contents of the Regulation breach European competition law, as (mostly) laid down in Articles 101 and 102 TFEU.8
1Art. 5, paragraph 1Treaty on the European Union (TEU) 2Art. 3 TEU
3 http://ec.europa.eu/competition/sectors/sports/overview_en.html [online] 4 ECJ, 15-‐‑12-‐‑1995, C-‐‑415/93 (Bosman case) [online]
5 http://ec.europa.eu/competition/sectors/sports/overview_en.html [online]
6 European Commission & UEFA, 12-‐‑03-‐‑2012, Joint statement on Financial Fair Play rules and state aid
control in professional football [online]
7 http://ec.europa.eu/competition/sectors/sports/overview_en.html [online] 8 Art. 101 + 102 Treaty on the Functioning of the European Union (TFEU)
6
This thesis revolves around this issue. The research question of this paper will be as follows:
ǮTo what extent do the rules and principles laid down in the Financial Fair Play Regulation of UEFA comply with the competition rules and the competition aims of the European Union?ǯ
The rapid development of the European football market, the unidentified role
that the EU plays in this field and the strong influence the Financial Fair Play Regulation will have on this sector, makes research in this field very topical.
This thesis distinguishes itself from other research on this topic due to the approach it has taken is on the subject. Instead of focusing on the consequences of the implementation of the Regulation and whether these consequences are desirable, the thesis will focus on whether the Regulation fits into the legal framework of EU competition law.
The introduction of the Financial Fair Play Regulation does not only raise questions in light of Articles 101 and 102 TFEU. Questions surrounding the Financial Fair Play Regulation in connection with the freedom of workers within the EU (Article 45 TFEU) or ǯ state aid law policy (Article 107 TFEU) are also very interesting research topics. However, due to the limited size of this research the writer choose not to include these topics in the thesis. This research will solely focus on Articles 101 and 102 TFEU.
The paper is based on literary research. With this method the writer hopes to conduct research on the dynamics between the Financial Fair Play Regulation and the competition law rules and aims laid down by the EU. With the use of different pieces of literature the compatibility of the Regulation and EU competition law will be examined, thus conducting a legal analysis.
In order to give the reader the basic information necessary for the rest of the thesis, a legal framework will be the starting point of this research. First, the special role of sports (and particularly football) within the EU will be discussed. Hereafter the UEFA and its functioning, the financial troubles on the European football market and Financial Fair Play regulation will be elaborated on.
7
After this theoretical part, the analysis of the Financial Fair Play Regulation can start. In order to properly conduct research on whether Financial Fair Play Regulation and the EU competition laws do or do not comply with one another, the analysis is divided into three sections:
1. How does the Financial Fair Play Regulation fit within the framework of Article 101 TFEU?
2. How does the Financial Fair Play Regulation fit within the framework of Article 102 TFEU?
3. Are there any possible justifications for the restrictive effects on competition? This thesis ends with a conclusion drawn on the information that is found by the prior conducted research. Here the answer to the research question can be found.
8
2 Legal framework
The legal framework is structured as follows: It starts with an elaboration on the special structure of the European football market and the dynamics between this market and EU law. Afterwards the UEFA will be introduced, clarifying its role and ǯ market. Hereafter the financial developments of the football market will be discussed. Here the focus will lay mostly on the change in financial behavior of football clubs and the necessity for UEFA to develop rules in order to protect the market from a financial downfall. Last, but not least the Financial Fair Play rules themselves will be explained. Not only the rules, but also the aims and objectives of the Regulation will be discussed.
2.1 Dynamics between EU law and the European sport market
In this section the main dynamics between the EU and the sport market will be discussed. Before anything else, the writer would like to pay attention to two topics, which are part of the difficult balancing act between EU law and sports regulation: the special market structure of the football sector and the special role that sport (and football in particular) plays on a social level within the EU.
The structure of the football market differs from other markets, due to the interdependency of clubs.9 On a regular functioning market, undertakings are free to create and conduct their own financial management policies. The possible failure of an undertaking is not regarded as a negative development, but simple as a result of inefficiency by the undertaking. Removing this undertaking from the market ǯ lead to complications on the market functioning as a whole.10
In the sport market however, bankruptcy of one or more football clubs can have a severe impact on the continuity and stability of the competition. And obviously, a football competition cannot exist if there are not a minimum number of clubs available to provide a proper and combative competition. Therefore eliminating each other out of
9 Jemson, )RUWKH/RYHRI0RQH\)RRWEDOODQG&RPSHWLWLRQ/DZ$QDQDO\VLVRIZKHWKHU8()$¶s Financial
Fair Play Regulations breach European competition law, University of Otago, 2013, p. 26
10 Lindholm, The Problem with Salary Caps under European Union Law: The Case Against Financial Fair
9
the market is not sustainable.11 This explains the different market approach for sport in comparison to regular functioning markets.
Sport, with football as one of its most popular components, also holds a special role for the social policy within the EU. The White Paper on Sports states the following:
ǮSport is an area of human activity that greatly interests citizens of the European Union and has enormous potential for bringing them together, reaching out to all, regardless of age or social origin.ǯ12
The White Paper on Sports shows the objective of the EC to use sport as an instrument to reach several objectives on a social level. One of these objectives is mentioned in the above quote, namely bringing citizens of the EU together or in other words: Creating solidarity amongst citizens of the EU.13 Examples of other objectives are the enhancing of public health14 and the promotion of volunteering and active citizenship.15
Partly due to the two topics discussed above, sport and EU Law have always struggled to find the right balance between self regulation of the sport market and involvement of the EU. Gardiner & Welch describe the situation as follows:
ǮSport has a strong historical tradition of self-‐‑regulation, which has caused
significant tension between how and to what extend European professional sport should comply with EU Law.ǯ16
As early as 1974 the ECJ recognized the special place that sport holds within the EU. In the Walrave case the ECJ decided that the sport market only has to comply with EU law, when it constitutes an economic activity.17 This is called the sporting
11 Budzinski, The Competition Economics of Financial Fair Play, Ilmenau Economics Discussion Papers,
2014, p.1
12 European Commission, 11-‐‑07-‐‑2007, COM/2007/0391 Ȃ White Paper on Sports, p. 3[online] 13 Ibid, p. 3[online]
14 Ibid, p. 3[online] 15 Ibid, p. 6[online]
16 Gardiner & Welch, Bosman Ȃ There and Back Again, the Legitimacy of Playing Quotas under European
Union Sports Policy, European Law Journal, 2001, p. 829
10
exception.18 In theory this exception should clarify the boundaries of EU law on the European sport sector. However, over the years multiple cases have shown that in practice the boundaries are unclear and a balance between both still needs to be found. In 1995 the ECJ dealt with a case that clearly showed the struggle between self regulation of the European football market and compliance of European sport with EU law. This is the notorious Bosman case.19 In this judgment it was decided that football clubs could no longer demand a transfer fee for football players whose contracts have expired. This means that clubs who are interested in signing the footballer no longer have to pay a fee to the clubs who owned him previously. The reason for this decision is based on Article 45 TFEU, the free movement of workers.20 The main argument for this decision is that football clubs had the power to restrict the movement of football players, by not releasing him from its contract. This breaches Article 45 TFEU.21 Important to note in light of this research is that this judgment shows that the EU certainly does influence the European sport market and that this market should comply with EU law.22
2.2 UEFA
UEFA is the parent body of European football and at this point in time has 54 National Football Associations (henceforth NFA) as its members.23 It should be noted that the boundaries of the EU and the UEFA are not the same. There are NFAs that hold membership of UEFA, while they are located in countries that areǯof the EU. Turkey is an example hereof. A legitimate question is then why UEFA should be bothered with following EU law. This question has the very simple answer that all of ǯ most successful clubs and leagues are established in countries that are part of the EU, like Germany, Spain and England. Since they are obligated to incorporate EU law
18 Vermeersch, ǯ ǫ ,
Journal of Contemporary European Research, 2007, p.238
19 ECJ, 15-‐‑12-‐‑1995, C-‐‑415/93 (Bosman case) [online] 20 ECJ, 15-‐‑12-‐‑1995, C-‐‑415/93 (Bosman case) [online]
21 Camatso, European Sports, the Transfer System and Competition Law: Will They Ever Find a Competitive
Balance?, Sports Law Journal, 2005, p. 160
22 Brown, European football and the European union: Governance, participation and social cohesion Ȃ
towards a policy agenda, Routledge, 2007, p. 130
11
into their own law systems and thus also in their sport sectors, it makes sense for UEFA to comply the laws laid down by the EU.24
To illustrate the role that UEFA plays within the governance of European football in respect to other organizations, a pyramid structure has been set up in the following figure:
Figure 1: The Pyramid of European football governance25
*NFA = National Football Association * NL = National League
The pyramid is hierarchical in its structure, meaning that The Fédération Internationale de Football Association (FIFA) Ȃ which is the worldwide football government organization, is dominant over UEFA.26 As the pyramid shows, UEFA is hierarchically placed higher than the NFAs, with the consequence that UEFA can force them to comply with certain types of rules and restrictions. However balance of power between all the governance organizations has been developing in the past decades, making the pyramid structure less rigid.27 This is shown in the fact that UEFA is willing to collaborate with NFAs, clubs and players in various fields.28
UEFA has different types of tasks and responsibilities. It regulates competitions between both national teams as well as privately owned clubs. UEFA also regulates the
24 Lindholm, The Problem with Salary Caps under European Union Law: The Case Against Financial Fair
Play, Texas Review of Entertainment & Sports Law, 2010-‐‑2011, p. 191
25 Garcia, UEFA and the European Union: From Confrontation to Co-‐‑operation?, Journal of Contemporary
European Research, 2007, p. 204
26 Art. 20, paragraph 3 FIFA Statutes
27 Garcia, UEFA and the European Union: From Confrontation to Co-‐‑operation?, Journal of Contemporary
European Research, 2007, p. 205
28 Garcia, UEFA and the European Union: From Confrontation to Co-‐‑operation?, Journal of Contemporary
European Research, 2007, p. 206 FIFA UEFA NFAs* + NLs** CLUBS + PLAYERS
12
rules of football, the guidelines on player transfers and organizes the four main European tournaments on club level: The Champions League, The Europa League, The ǯue.29 As the introduction of the Financial Fair Play Regulation proves, they also have a vested interest in creating a healthy, properly functioning European football market. All these tasks show that the influence of UEFA on football on a European level is enormous and significant.30
2.3 The fina ǯarket
Over the years the European football sector has grown rapidly and grown more into a commercial market, with increasing earnings for clubs as result of the popularity of the sport. Due to the high revenues from broadcasting rights, sponsor contracts, merchandising and high ticket sales the revenues of clubs grew fast.31 Unfortunately, even though the revenues grew, so did the expenses. The following numbers are ǯ of 2010: The European Club Footballing
Landscape-‐‑ Club Licensing benchmarking report financial year.32 This is the last year
before the introduction of the Financial Fair Play Regulation. Therefore these numbers are still unaffected by change in behavior of clubs due to the impending Regulation.
̀ͳʹǤͺ ǡ ̀ͳͶǤͶ Ǥ ̀ͳǤ billion. The two most significant expense categories are the employee costs and transfer costs, which both increased enormously over the last few years.33 According to research carried out by UEFA, 61% of all top division clubs had a net operating loss in the financial year of 2010. This combined loss was ̀342 million, which is a growth of ̀102 million compared to the financial year of 2009. Noteworthy is the fact that 47% of
29 Lindholm, The Problem with Salary Caps under European Union Law: The Case Against Financial Fair
Play, Texas Review of Entertainment & Sports Law, 2010-‐‑2011p. 192
30 Briggs, UEFA v The European Community: Attempts of the Governing Body of European Soccer to
Circumvent EU Freedom of Movement and Antidiscrimination Labor Law, Chicago Journal of International
Law, 2005, p. 439
31 Hoveman, Lammert & Muller, The Financial Fair Play Regulations of the UEFA: An Adequate Concept to
Ensure the Long-‐‑term Viability and Sustainability of European Football? International Journal of Sports
Finance, 2012, p. 119
32 UEFA, The European Club Footballing Landscape-‐‑ Club licensing benchmarking report financial year
2010, Official UEFA Document, 2012
33 UEFA, The European Club Footballing Landscape-‐‑ Club licensing benchmarking report financial year
13
ǯ * in 2010 also show a deficit.34 This proves that financial problems do not only occur at the less wealthy clubs, but exist throughout the market as a whole. Some of the latest financial numbers that UEFA has published are from 2012 and can be found in their Club Benchmarking Report: A License to thrill.35 This report is based on the financial numbers of football clubs who have qualified to play for one of the UEFA tournaments in the season 2013/2014. In comparison to the financial numbers from 2010, the financial situation of football clubs seem to have improved in two years. ʹͲͳʹ ̀ͺǤͳ ǡ ̀7.7 billion.36 This leaves a ̀ͶͲͲǤ UEFA sees this development as a clear indication that that the introduction of the Financial Fair Play Regulation is improving the financial situation of the European football clubs.37
Even though the financial situation of the European football market seems to have improved since the introduction of the Financial Fair Play Regulation, it is still important to understand which circumstances caused the financial instability of this market in the first place. In the following sections different aspects will be discussed.
2.3.1 Developments in the system of acquiring players
There are three different ways for private clubs to acquire new players to play for their team:
Firstly one can invest in the creation and development of a youth academy. With the establishment of a high quality youth academy, young players have the opportunity to improve their football abilities with the intent of making it into the main squad of the club. You see this phenomenon with almost all European football clubs, even though some clubs choose to focus more on youth development than others.
Another way to obtain new football players is for a club to purchase the player from another club. In exchange for a transfer fee, and with the approval of the selling
* UEFA considers a Ǯ ǯ ͷͲǤ
34 UEFA, The European Club Footballing Landscape-‐‑ Club licensing benchmarking report financial year
2010, Official UEFA Document, 2012, p. 73
35 UEFA, License to Thrill Ȃ Benchmarking report on clubs qualified and licensed to compete in the UEFA
competition 2013/14, Official UEFA Document, 2013
36 Ibid, p. 45 37 Ibid, p. 7
14
club, the buying club can convince the player to switch teams and move to the new football club.
The last approach to committing to new players is to offer them a contract after the contract with their old club has expired. When this happens, there are no transfer fees applicable, since there is no selling club present. Ǯ ǯ principle38, and was established in the Bosman case.39 This decision by the ECJ had a tremendous influence on the behavior of clubs and players on the football market. The prime difference between the pre-‐‑Bosman period and the post-‐‑Bosman period is that players have more control over their careers. They are free to move to another club when their contract has expired, or to negotiate different, better terms for a new agreement. Behavioral changes of the players are also visible in the sense that they demand more contractual benefits from their new club since these are freed from transfer-‐‑fees, making the player a lower cost commodity. Also, there is a development that clubs offer longer lasting contracts, with the perspective that when a player leaves before the expiration date of the contract, the club can still expect a transfer fee. This is a new, less favorable position for football clubs, where they are being forced into longer lasting contracts with a better negotiation position for the player and without the insurance of a transfer fee when the player leaves the club.40
2.3.2 Third party ownership of football clubs
In the recent years a new development in Europǯ Ǣ third party ownership of a football club. In 2003 Chelsea FC was one of the first clubs that was bought by a third party owner, but more were soon to follow.41 Nowadays almost all NFAs have to deal with this situation: There is Paris Saint Germaine F.C. in France, Manchester City F.C. in England and Vitesse in the Netherlands: all are bought by wealthy third parties, who support the club with different financial investments.
38 Ericson, The Bosman Case: Effects of the Abolition of the Transfer Fee, Journal of Sport Economics, 2000,
p. 204
39 ECJ, 15-‐‑12-‐‑1995,C-‐‑415/93 (Bosman case) [online]
40 Long, ǫ ǯ
Rules, Marquette Sport Law Review, 2012-‐‑2013, p. 81
15
Another option is that clubs are not bought by a third party investor, but are supported with financial injections by wealthy individuals.42 This, for example happened with the Dutch football club AZ Alkmaar, who had Dirk Schieringa as a capital investor through extreme payments for sponsoring. Ǯǯ attitude by clubs, because of the promised financial support and the knowledge that they will be bailed-‐‑out when in financial trouble.43 This in turn leads to over-‐‑investment and financial risky behavior.
2.3.3 Wage Inflation and the rat race
Another effect of the third party buying and the over-‐‑investment tendency is the change in financial behavior of competing clubs. Multiple researches have concluded that the money spent on wages (especially player wages) and the clubs successes in different competitions are positively correlated.44 Research on the English Premier League in season 2010/2011 done by Deloitte concluded the following:
µ2010/11 exhibited a particularly strong correlation in the Premier League between OHDJXH ILQLVKLQJ SRVLWLRQ DQG D FOXE¶V ZDJH UDQNLQJ LPSO\LQJ WKDW DOO RWKHU WKLQJV EHLQJ equal, spending more on wages translates to on-pitch success¶45
In order to keep up with the capital-‐‑injected competition, other clubs are tempted to raise their salaries in order to keep their players, or attract new ones their club. This of course, has a financial risk associated with it. In the previously mentioned
ǮBenchmarking Report of the financial year 2010ǯ by UEFA, it not only concluded that the
salary paid by employers is increasing every year, but the rate in which this occurs is also increasing.46 All the clubs trying to keep up with each other has led to a snowball
42 Hoveman, Lammert & Muller, The Financial Fair Play Regulations of the UEFA: An Adequate Concept to
Ensure the Long-‐‑term Viability and Sustainability of European Football? International Journal of Sports
Finance, 2012, p. 120
43 Haugen, Preuss & Schubert, UEFA Financial Fair Play: The Curse of Regulation, European Journal of
Sport Studies, 2014, p. 35
44 Flanagan, ǣ ǯ inancial Fair Play Regulations and Their
Compatibility with EU Law, International Sports Law Journal, 2003, p.160
45 Deloitte, Annual Review of Football Finance 2010-‐‑ Highlights, 2012, Deloitte United Kingdom, p. 10 46 UEFA, The European Club Footballing Landscape-‐‑ Club licensing benchmarking report financial year
16
effect, decreasing the financial healthiness and stability of not only the clubs themselves, but also the market as a whole. This phenomenon is also known as the rat-‐‑race.47
2.4 The Financial Fair Play Regulation
The Financial Fair Play rules are documented in the UEFA licensing and Financial Fair Play Regulation.48 This is an extension to the former Club Licensing Regulation, which was officially implemented in 2004.49 Since the enforcement of the Club Licensing Regulation all clubs who want to participate in competitions hosted by UEFA, have to receive a license prior to participation. The only way to receive such a license is to comply with multiple requirements given by UEFA.50 These requirements can be divided into five categories: sporting, infrastructure, personnel, legal and financial.51 Since the 2013/2014 football season this includes the new Financial Fair Play rules. Considering that the license only grants one access to tournaments organized by the UEFA, the direct effect is of licensing is only applicable by those who are part of these competitions. So in theory only those of participate in UEFA tournaments are affected by the Financial Fair Play Rules.52 However, in his paper Lindholm states that clubs who are not currently active in UEFA tournaments are also affected by the Financial Fair Play Regulation.53
His first argument is that UEFA is the host of all four main football tournaments in Europe, with the result that the richest and most competitive clubs will always participate in one of these competitions and therefore will be forced to comply with the rules of the Regulation. Basically he states that (almost) all clubs with a certain financial and competitive value will fall in the scope of the Financial Fair Play Regulation.54
47 Hamel & Walter, ǣǮ ǯ, Soccer
& Society, 2010, p. 362
48 Haugen, Preuss & Schubert, UEFA Financial Fair Play: The Curse of Regulation, European Journal of
Sport Studies, 2014, p. 35
49 Haugen, Preuss & Schubert, UEFA Financial Fair Play: The Curse of Regulation, European Journal of
Sport Studies, 2014, p. 35
50 Art. 57 UEFA Club Licensing and Financial Fair Play Regulation
51 Franck, Financial Fair Play in European Club Football-‐‑ What is it all About?, 2014, p.2
52 Haugen, Preuss & Schubert, UEFA Financial Fair Play: The Curse of Regulation, European Journal of
Sport Studies, 2014, p. 35
53 Lindholm, The Problem with Salary Caps under European Union Law: The Case Against Financial Fair
Play, Texas Review of Entertainment & Sports Law, 2010-‐‑2011, p. 192
54 Lindholm, The Problem with Salary Caps under European Union Law: The Case Against Financial Fair
17
In his second argument he states that those clubs, who are not participants in UEFA tournaments, will most likely desire to become so in the future. Therefore they will be obliged to follow the Financial Fair Play rules, so that when the opportunity to ǯ arises, they caǯ financial behavior.55
In his last argument he focuses on the NFAs. These associations have shown the ǯ Ǥ Chances are they will do the same with the Financial Fair Play Regulation, with the ǯ ǯ the same rules as those who do.56 With these arguments Lindholm shows the enormous impact the Regulation has on all football clubs, and thus on the European football market as a whole.
To start with, the aims and objectives of the Financial Fair Play Regulation will be discussed. Afterwards the contents of the Regulation will be elaborated upon. The Financial Fair Play Regulation holds two core elements, namely the break-‐‑even principle and the rules concerning the overdue payables.57 Both will be discussed separately.
2.4.1 Aims and objectives of the Financial Fair Play Regulation
As is shown above, the development of the financial situation on the European football market before the implementation of the Financial Fair Regulation was not regarded as a positive one. In order to protect the market from a financial downfall UEFA decided to take matters in its own hands and created the Licensing System.58 The Financial Fair Play Regulation is part of this Licensing System. The overall aim of the l ǯ Ǥ59 While not explicitly stated, it can be assumed that these aims are also valid for the Financial Fair Play Regulation. Besides these general aims, UEFA has been clear about the particular
55 Ibid, p. 192 56 Ibid, p. 192
57 Vogel, ǫ ǯ
Play Rules, Hamburgische WeltWirtschaftsInstitut, 2013, p. 5
58 UEFA, UEFA Club licensing and Financial Fair Play Regulation, Official UEFA Document, 2010
59 Lindholm, The Problem with Salary Caps under European Union Law: The Case Against Financial Fair
18
objectives for the Regulation itself. Article 2, paragraph 2 of the Regulation gives multiple objectives, which states the following:60
Article 2-‐‑ Objectives ǥ
2) Furthermore, they aim to achieve financial fair play in UEFA club competitions and in particular:
a) To improve the economic and financial capability of the clubs, increasing their transparency and credibility;
b) To place the necessary importance on the protection of creditors by ensuring that clubs settle their liabilities with players, social/tax authorities and other clubs punctually;
c) To introduce more discipline and rationality in club football finances; d) To encourage clubs to operate on the basis of their own revenues; e) To encourage responsible spending for the long-‐‑term benefit of football; f) To protect the long-‐‑term viability and sustainability of European club
football.
Besides these aims, UEFA has also clearly stated the following objectives:61
a) To introduce more discipline and rationality in club football finances;
b) To decrease pressure on salaries and transfer fees and limit inflationary effect;
c) To encourage clubs to compete with(in) their revenues;
d) To encourage long-‐‑term investments in the youth sector and infrastructure; e) To protect the long-‐‑term viability of European club football;
f) To ensure clubs settle their liabilities on a timely basis;
All the aims and objectives seem to come together as follows: protecting the long-‐‑term viability and sustainability of European football, by ensuring financial stability of the football clubs.62
60 Art. 2, paragraph 2 UEFA Club Licensing and Financial Fair Play Regulation
19
The Regulation could potentially lead to more equal competition between European football clubs. This is a result of the reduction of the financial differences. This is an effect, but not an objective of the Regulation. UEFA very clearly states that the reason for the introduction of the Regulation is to increase financial stability, not to create more equality on field amongst the European football clubs.63
2.4.2 The break-‐‑even rule
The simplified explanation of this rule is that clubs are not allowed to spend more than they earn per time period. Article 60, paragraph 1 of the Financial Fair Play Regulation states that the difference between the relevant income and the relevant expenses of a club mount up to the break-‐‑even result.64 Ǯ ǯ explained in Article 58, paragraph 1 of the Regulation, while relevant expenses are covered in the second paragraph:
Article 58-‐‑ Notion of relevant income and expenses:
1) Relevant income is defined as revenue from gate receipts, broadcasting rights, sponsorship and advertising commercial activities and other operating income, plus either profit on disposal of player registrations or income from disposal of player registrations, excess proceeds on disposal of tangible fixed assets and finance income. It does not include any non-‐‑monetary items or certain income from non football operations.65
2) Relevant expenses is defined as cost of sales, employee benefits expenses and other operating expenses, plus ether amortization or costs of acquiring player registrations finance costs and dividends. It does not include depreciation/impairment of tangible fixed assets amortization/impairment of intangible fixed assets (other than player registrations) expenditure on youth development activities, expenditure on community development activities, any other non-‐‑monetary items, finance costs directly attributable to the construction of
62 Jemson, ǡ ǣ ǯ
Fair Play Regulations breach European competition law, University of Otago, 2013, p. 27
63 http://www.uefa.org/protecting-‐‑the-‐‑game/club-‐‑licensing-‐‑and-‐‑financial-‐‑fair-‐‑play/ [online] 64 Art. 60, paragraph 1 UEFA Club Licensing and Financial Fair Play Regulation
20
tangible fixed assets, tax expenses or certain expenses from non football operations.66
In order to establish whether a club complies with the break-‐‑even principle, the break-‐‑even result for the current monitoring period is calculated. The monitoring period consists of three reporting periods. A reporting period runs for one complete season, excluding the licensing period. So the monitoring period is the last three seasons.67 Accordingly, for the first licensing season of 2014/2015, the break-‐‑even result for the 2011/2012, 2012/2013 and 2013/2014 are assessed.68 For each reporting period the break-‐‑even result is calculated and the sums of these calculations determine the result for one monitoring period. When the sum of these calculations is a positive number, we speak of a break-‐‑even surplus for the monitoring period. When the sum of these calculations is a negative number, we speak of a break-‐‑even deficit.69 The main principle is that when the break-‐‑even result for the monitoring period is positive, a license request will be assigned. However, there are multiple situations where a club with a negative result is still applicable for a license. The most important exception is laid down in Article 61 of the Regulation and holds the notion of an acceptable deviation.70 It states that a devi ̀ͷ Ǥ However a higher deviation can also be accepted, but only when this difference is totally covered by contributions from equity participants and/or related parties. For the seasons 2013/2014 and 2014/2015 the acceptable deviation is set ̀Ͷͷǡ for the following three seasons ̀͵ͲǤ assess what the acceptable deviation for the following seasons should be. Paragraph 4 of Article 63 states that when one does exceed the deviation that the Club Financial Control Panel Ȃ a body of the UEFA-‐‑ may refer the case to the Organs For Administration of Justice which will take the appropriate measure(s) without delay in accordance with the procedure defined in the UEFA Disciplinary Regulations for current cases.71 These
66 Art. 58, paragraph 1 UEFA Club Licensing and Financial Fair Play Regulation 67 Art. 60, paragraph 4 UEFA Club Licensing and Financial Fair Play Regulation
68 Haugen, Preuss & Schubert, UEFA Financial Fair Play: The Curse of Regulation, European Journal of
Sport Studies, 2014, p. 36
69 Art. 60, paragraph 2 UEFA Club Licensing and Financial Fair Play Regulation 70 Art. 62 UEFA Club Licensing and Financial Fair Play Regulation
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measures can be as ordinary as a simply fine, but can be as severe as banning a club from playing in an UEFA tournament.72
2.4.3 Overdue payables
The articles surrounding the prohibition of overdue payables are a lot more accessible and easily understood than the articles surrounding the breakȂeven rules. Article 65 of the Financial Fair Play Regulations obliges the licensee to prove that they have no overdue payables open towards other football clubs (regarding transfer activities). The deadline for the overdue payables is the 30th of June of the current year.73
Article 66 of the same Regulation states that there cannot be any overdue payables towards employees and/or social/tax authorities Again, the deadline for the overdue payables is the 30th of June of the current year.74
Ǯǯ rule, is to prevent European football clubs from deceiving UEFA and the NFAs by moving money around to appear in a better financial situation than they actually are.
72 http://www.financialfairplay.co.uk/financial-‐‑fair-‐‑play-‐‑explained.php [online] 73 Art. 65, paragraph 1 UEFA Club Licensing and Financial Fair Play Regulation 74 Art. 66, paragraph 1 UEFA Club Licensing and Financial Fair Play Regulation
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3 The analysis of the Financial Fair Play Regulation in the
European competition law framework
Even though the EC made a statement that it supports the Financial Fair Play Regulation75, it is questionable whether the Regulation actually complies with EU competition law. EU competition law is mainly documented in Articles 101 and 102 TFEU. In this analysis the Financial Fair Play Regulation will be tested against the EUǯs competition rules. The first part of this analysis if focused on the Financial Fair Play Regulations in light of Article 101 TFEU. Afterwards, the focus will switch to the Regulation in the framework of Article 102 TFEU. Hereafter the possible justification of a breach of one of these articles will be evaluated.
Before the actual analysis can take place, there is an issue that needs to be addressed: To conduct a successful analysis for any type of competition law case, it is important to define the relevant market of the subject. In this case the subject is the Financial Fair Play Regulation. The relevant market is divided into the relevant geographical market and the relevant product market.76 The EC explained this concept as follows:
µ7KHREMHFWLYHRIGHILQLQJDPDUNHt in both its product and geographic dimension is to identify those actual competitors of the undertakings involved that are capable of constraining those undertakings' behavior and of preventing them from behaving independently of effective competitive prHVVXUH¶77
Both relevant markets for the Financial Fair Play Regulation have been identified in prior research, conducted by Kaplan.78 For this paper it is sufficient to follow her reasoning and identify the relevant markets as follows:
75 European Commission & UEFA, 12-‐‑03-‐‑2012, Joint Statement on Financial Fair Play rules and state aid
control in professional football [online]
76 European Commission, 09-‐‑12-‐‑1997, C372/05 -‐‑ Commission Notice on the definition of the relevant
market for the purposes of Community competition law, §1 [online]
77 Ibid, §2 [online]
78 Kaplan, UEFA Financial Fairplay Regulations and European Antitrust Law, Emory International Law