Competitive Imbalance and Budget Constraints
New Horizons in the Economics of Sport series
Chapter 8: Regulation in leagues with clubs’ soft budget constraints: the effect of the new UEFA Club Licensing and Financial Fair Play Regulations on managerial incentives and suspense
The main pillar of the new Union of European Football Associations’ (UEFA) Club Licensing and Financial Fair Play Regulations (FFP), the ‘break-even requirement’, is defined in Articles 58–63. This new rule requests clubs to live within their own means by and large. More precisely, clubs are in compliance with the break-even requirement if ‘relevant expenses’ do not exceed ‘relevant income’ in the reporting periods combined to one so-called ‘monitoring period’ by more than the ‘acceptable deviation’6 of €5 millon. On top of this ‘normal’ level of €5 million, the ‘acceptable deviation’ can currently7 go up to a level of €45 million, provided that equity participants are willing to inject the respective funds. A closer look at the notions of relevant income and relevant expenses makes clear that ‘football investors’ will be confronted with a cap on payroll injections in the future. They can obviously still spend unlimited sums of money by investing in stadia, youth academies or community projects, since such expenditures do not count as relevant expenses and therefore do not enter the break-even calculation. However, ‘football investors’ are no longer able to rescue a club for licensing purposes if the latter overinvested in salaries and transfers with the result that relevant expenses exceed relevant income by more than the ‘total acceptable deviation’.
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