The Choices and Realities of Financial Fair Play

Valerio Pennicino

It's a financier's world. We're just living in it.

Around a month ago, we found out that Manchester City and Paris Saint-Germain were on the shortlist of clubs that UEFA was investigating for Financial Fair Play. This was long-expected, and many anticipated this as the first demonstration of whether or not FFP has "real teeth" or not.

While some clubs like Chelsea have been fairly smart about their spending under FFP, it's been pretty clear for awhile now that others would fail FFP's "break even test" in magnificent fashion. Liverpool had been tagged as an at-risk club at one point, but were apparently cleared after submitting further financial information to UEFA's financial guru's. Manchester City, on the other hand, pretty clearly flaunted FFP's regulations, with Ed Thompson giving a brilliant analogy of their apparent thinking:

I recently handed my son £5 to buy some sweets, telling him to spend no more than £1. Inevitably, he came back with quite a lot of sweets having spent about the £1.50. He didn't exceed the budget because he wasn't able to count - he just evaluated the pros and cons and viewed that the extra sweets were worth the telling-off he was likely to get. It was a conscious and rather calculated decision to overspend and take the punishment. He also made a conscious decision not to go massively over the budget - that would be taking the mickey and the telling-off would be fairly harsh.

This brings me nicely onto Manchester City.

We shouldn't be under any illusions - City exceeded the FFP threshold by choice.The rules were agreed in 2009 and the club has had plenty of time to adjust to the new rules. City are a sophisticated multi-million pound business and will have had their accountancy team working on interactive finance models to understand exactly where they would be by the time the shutters came down. The club will have weighed up the merits of complying with rules against the likely punishments and the benefits of spending heavily to compete in the Premier League and in Europe. Reining in the spending to meet the FFP limits would have reduced their ability to compete.

Thompson goes on to make an excellent point* on the timing of Roberto Mancini's firing, as well as noting that City currently employ some of the same Deloitte accountants that helped UEFA draw up the Financial Fair Play rules. They know exactly what it takes to qualify, and they actually could have, but decided not to for the sake of their ability to compete, both this season and in years past. Given their title two seasons ago and being on the doorstep of another, I'm sure their fans will gladly accept the risk.

*Thompson actually makes a lot of good points throughout his work. Seriously, go read the whole piece, then go read more of his FFP writing. No one is doing better work on that front right now.

While City have only been slapped with a fine for the time being (It hasn't officially been announced yet, but that's what reports indicate and Michel Platini has publicly stated that no team will face a European ban), that's not to say that FFP has no teeth. A competitive ban straight off the top was never likely, as the documentation available indicated that such a punishment would be for more advanced or repetitive cases of failed compliance. City will have to bring things in line over the next probably two years to avoid risking a potential ban, but they're probably capable of avoiding it.

So what does this mean for Liverpool? Well, for now... nothing.

The club's finances aren't in perfectly rosy shape at the moment, but they've apparently passed inspection for FFP without too much incident. As we've discussed before, John Henry, Tom Werner, and Fenway Sports Group have elected to run the club in a responsible manner, doing what they can to keep the team competitive without tempting financial fates as other clubs have in the past. City getting called to the carpet over their FFP violations while Liverpool hang with them in the title chase only show that the job can be done without buckets of oil money.

With the addition of Champions League prize money in the offing, we'll almost certainly see a larger transfer budget and acquisition of higher-profile players than we have in the past. We've seen the courting of various quality players in the past, but have consistently missed out for reasons presumably having to do with finances.  That shouldn't be an issue with some extra cash in hand this summer, although with FFP still a factor, you shouldn't expect to see the club go too crazy.

What will be interesting to see, though, is what happens in the summers after the next two seasons. Those will be the years where we get a better idea of how "real" FFP is going to be, if there's actually going to be bonafide consequences besides wristslap fines like we're expecting to see this year. If it's not there, and FSG can take the reins off the pocket book a bit, things could get very interesting. We know from their ownership of the Red Sox that they have more money to spend than we've seen at Anfield so far; without FFP to restrict them, we could easily see a much more aggressive recruitment campaign unfold.

For the time being, though, we can expect to see business as usual: drive up revenues as far as possible through as many means as possible. Spend responsibly. Find values where you can to maximize the efficiency of the money used. Win matches, and surprise the hell out of people.

Even if Liverpool don't win the title this season, they've put themselves in to a position with the way FSG has run the club so far that improvements and continued competition are a reality. Even if they can't spend money like the Cities, Chelseas, and PSG's of the world, Liverpool can keep hanging around with the clubs that do. If they can take the financial gloves off... watch out.

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