Towards the end of last year the Court of Arbitration for Sport (CAS) has issued an important ruling in the case involving the Spanish football club Malaga CF. The defendant club has been found to have an unpaid tax in the amount exceeding €8 million. The Club Financial Control Body (CFCB) – UEFA’s legal arm within the newly established Financial Fair Play (FFP) framework that fully came into force at the start of the current football season – has interpreted the Regulations in a strict manner, leading to a €300.000 fine and an exclusion from two UEFA club competitions should Malaga qualify in the next 4 seasons. The Spaniards have appealed this decision to CAS though the appeal has been overturned and the CFCB ruling upheld. It is a good moment to take a closer look at the Financial Fair Play, the ruling in Malaga‚s case and the exact interpretation by sport tribunals and governing authorities of the most significant articles within the FFP Regulations.

What shaped the Financial Fair Play and how to enforce its objectives?

Majority of the clubs competing in national leagues under the auspices of UEFA have debts. More often than not this leads to untimely payments of current expenses such as various contributions to respective tax authorities, transfer money to selling clubs as well as salaries of their own employees. This sad state of affairs stems from a number of different factors – rich owners treating their football clubs as mere toys, short-sightedness and a lack of coherent development plan, expectation of immediate success with no regard for the long-term costs it may generate; these are only some of them. In order to preserve the integrity and competitiveness of football UEFA has decided to act. Financial Fair Play is the fruit of their labour; a fairly complex mechanism of rules and regulations to be observed by clubs from UEFA member associations. The UEFA Executive Committee members (with a vocal presence of Michel Platini) alongside various officials from the European Commission have been supporting the measure on the basis of counteracting the unreasonable and imprudent financial practices within the football world. The most important provision is the ‘break-even’ rule whereby clubs are forced to cut spending to match their revenue – in other words, stop living beyond their means.

Acceptable deviation is a solution acting alongside the ‚break-even’ provision.Introduced in order to smooth out the process of debt reduction, it is essentially an instrument allowing clubs to report debts; however, the parameters for such debts are very clearly prescribed. First, acceptable deviationis divided into two groups, according to the way fundingis provided– equity investments and non-equity investments. There are monitoring periods within which the assessment by UEFA is done and these normally span three seasons. Currently acceptable deviations are set at €45 million for equity investments in a monitoring period and €5 million for non-equity investments as per monitoring period. These limits will be reduced systematically so that the equity investment should go down to under €30 million until the 2018/2019 season (with a view to completely phase them out over a long-term period) and non-equity investments are to be gone by that time altogether. Money invested into club infrastructure or youth academies – essentially development of grassroots projects – is deemed desirable and as such is not within the ambit of Financial Fair Play.

Overdue payables and regular, timely payments more generally are dealt with explicitly, too. This was the issue at heart of the Malaga case. Infringement of provisions relating to the timely payments can result in various types of sanctions and fines handed to the club by the CFCB. These include, but are not limited to: withholding of the prize money, pecuniary fine and exclusion from UEFA competitions for a specified period. UEFA successfully lobbied for EU Competition Commissioner’s support right from the inception of the FFP idea. It has been seen as crucial, given reported unrest regarding the Regulations within some circles; with that much needed support obtained, UEFA sees its creation as legally bulletproof in case a challenge grounded on the principles of EU competition law were to be mounted.

In its appeal to CAS Malaga argued that what appeared to be overdue payables have in fact been deferred payments (not sanctioned as severely as overdue payables). Furthermore, it has transpired that the delay may have been caused by the fact the Spanish tax authorities have been slow in dealing with the request for deferment. However, CAS rejected this line of argument, pointing out that ss.1 of Annex VIII unequivocally stated that the originally agreed payment conditions have to be followed where overdue payables are concerned and also that ss.2(b) obliges the debtor to secure a payment extension document. Malaga has not presented the required documents within the timeframes specified in Financial Fair Play (Articles 62(3) and 65(8)); these state that a club found to be in arrears on June 30 has until September 30 to pay all the outstanding sums. Provided the club is in arrears after September 30 then it is infringing the relevant articles of the FFP. This has appeared in the CAS ruling – the Court followed the interpretation of the lower instance chamber thus rejecting defendant’s appeal.

The quest for finding the right place for Financial Fair Play within the current legal order

 Interestingly, the Court of Arbitration for Sport felt bound to reaffirm the proportionality of the CFCB ruling and thus its own. The Court decided on this point despite no claim of disproportionality put forward by Malaga. This is in line with previous decisions by the Court in cases against Györi ETO, Bursaspor and Beşiktaş J.K, where the CFCB and CAS issued identical remarks stating that the possibility of handing out of a different set of sanctions does not impinge on the proportionality of those finally employed (Beşiktaş) as well as that no infringements in the past will not sway the decision of the ruling bodies towards handing out a more lenient sanction or fine (Györi, Bursaspor). Proceedings against Györi and Bursaspor unearthed certain practices relating to the concealment of overdue payables; these were aimed at facilitating the granting of a licence entitling its holder to participate in UEFA club competitions. Such practices have been deemed to be a flagrant infringement of the Financial Fair Play provisions. Bursaspor has been fined in the amount of the prize money it received from participating in the relevant UEFA competition and Györi, among other, have been excluded from UEFA club competitions for two seasons provided they qualify.

Considering the above it can readily be observed that Financial Fair Play is the jewel in UEFA crown. Clubs proved to be infringing on the Regulations will have to brace themselves for a stringent treatment on the part of UEFA and CAS. Majority of the decisions thus far concerned clubs based in Eastern Europe which lead to outcries of a bias within UEFA and their reported miscarriage of justice by turning a blind eye to the infringements in other parts of the continent. The Malaga case seems to have quieted the critics in this regard, at least for the time being. Placing the Malaga ruling in the larger context of already decided disputes allows us to see clearly the reasoning of the court and proves beyond any doubt that the football authorities in Europe take their newly introduced Regulations very seriously.

Michał Kramar