Are some clubs too big to fail? A look at whether UEFA's Financial Fair Play rules are farcical

The worrying similarity between global football and the financial sector

One need only take a browse through Twitter, as I myself did on the evening I started writing this article, to get a feel for just how dire the financial situation is at FC Barcelona- the football club whom many perceive to be the biggest in the world.

I stumbled upon a quote from the club’s president, Joan Laporta, claiming that one person employed by the club was “…being paid €8m to scout players in South America.” That alone may not sound like a lot, but when you consider that reports emerged in January of this year that the club’s total long-run debt stands at over €1 billion, and that they owe roughly €200 million in unpaid transfer fees, some of which are for players that have since left the club, you begin to comprehend the extent to which the club has been financially mis-managed.

Less than a 2-hour flight away in Paris, one finds another example of club finances which simply boggles the mind. Paris Saint-Germain’s (PSG’s) transfer activity this summer has been nothing short of insane, managing to bring in Real Madrid legend Sergio Ramos, Barcelona legend Lionel Messi, AC Milan goalkeeper Gianluigi Donnarumma (viewed by many as one of the best goalkeepers in the world already at just 22) and Liverpool midfielder Georginio Wijnaldum- all on free transfers. This is in addition to the combined £68.4 million (according to Transfermarkt) the club spent on Achraf Hakimi (from Inter Milan) and Danilo Pereira (from Porto). According to Sportekz, those six acquisitions will earn a total of €65 million combined in pre-tax salary. They already pay Neymar and Kylian Mbappé €57.5 million combined in pre-tax salary.

One may largely struggle to find similarities between the financial situations of these two clubs, but between them, they manage to represent arguably the biggest farce in European football right now: UEFA’s Financial Fair Play (FFP) rules.

What are the rules?

By definition, one immediately infers that these regulations are designed to help keep clubs competing on an even playing field when it comes to expenditure (primarily on transfers and player wages), by preventing clubs from spending more than they earn. The regulations that affect clubs in different countries are not just one and the same: while also being subject to financial regulations in their own domestic leagues, clubs which earn the right to compete in continental competitions are also subject to separate financial rules by UEFA, European football’s governing body. These specific regulations state that a club cannot suffer losses of more than €5 million in any three-year period, else it will be subject to punishments ranging from restrictions on registered squad sizes for UEFA competitions, all the way up to being banned from such competitions outright for a given period of time.

One key thing to remember in the context of UEFA’s regulations is that they permit club owners to spend their own money to alleviate losses, giving stability to clubs such as PSG, heavily backed by Qatar-based ownership, but no such relief to clubs such as Barcelona, which are largely fan owned. Barcelona must also adhere to a 70% wage as percentage of turnover limit as part of La Liga financial regulations, which directly explains Messi’s defection to PSG this summer – even if he had agreed to play for free, the club would still be breaching domestic financial regulations.

Where does the “too big to fail” idea come from?

This stipulation also helps to account for the current debt crisis in Turkish football, with the four biggest clubs in the country: Besiktas, Galatasaray, Fenerbahce and Trabzonspor, possessing combined total debts in January 2021 (according to Daily Sabah) of $1.89 billion. Turkish clubs are also historically fan-owned, a key aspect of the club’s footballing culture, meaning it would likely not be feasible for rich, foreign owners to invest in the clubs; the long-standing ownership structure makes it simply impossible. The Turkish football authorities are also more than happy to write off large portions of these clubs’ debts, as they know all too well that those four clubs, particularly the three Istanbul giants foremost in that list, form part of the lifeblood of Turkish football. This is to the extent that only two Turkish Super League titles since the league’s inception in 1959 have been won by clubs outside of that list, and only seven have ever been won by a club based outside Istanbul. In other words, the three Istanbul giants could be seen as too big to fail.

The idea of certain clubs being too big to fail is a principle I have taken from a common view of the financial sector – it is the idea that certain financial institutions are so integral to the survival of the international financial system that they almost have free reign to act as they please, with no need to worry about losses, safe in the knowledge that they will be bailed out by the authorities if anything disastrous happens. One need only take a look at the 2008 Global Financial Crisis to understand this idea further.

I bring this idea up because it could be argued that it be applied not only to Turkish clubs, but to the clubs I discussed at the beginning of this article, alongside other European powerhouses I am yet to mention. In other words: are the European elite of football clubs happy to spend with almost reckless abandon (in Barcelona’s case, to the extent the club is in a billion-euro debt crisis), safe in the knowledge that they will not be punished by UEFA or their respective domestic footballing authorities, purely because the stature of the clubs is so large on a global scale, that football, as an entity and industry, would not survive without them at the top of the pyramid?

How have smaller clubs struggled financially?

A good group of counterexamples here is the fate which has befallen some smaller clubs in England who have run into financial troubles. One of the most notable of these is Bury FC, whose proud 134-year history came to an abrupt end on 24th August 2019, after the club was unable to find suitable investment to pay off £1.6 million (as of the end of May) in wages, pensions and unpaid taxes. For context, Manchester City, located an 11-mile drive away from Bury’s home of Gigg Lane, had a wage bill (as of the end of the 2020/21 season) of over £2.8 million per week, according to Salary Sport. It does not take much to work out that Manchester City would have been comfortably able to eliminate the entirety of Bury’s debt. Yet instead, Bury FC now lies dormant, with Gigg Lane having since been put up for sale by the club’s administrators, who, as of June 25th 2021, now estimate the club’s debts to be in excess of £12.5 million.

Since Bury’s demise, Manchester City’s substantial spending in the transfer market has continued, with net spends exceeding £75 million in each summer between 2019 and 2021inclusive. One may wonder how such spending is permissible or possible with regard to FFP regulations, especially after the global COVID-19 pandemic provided another obstacle for global football finances, but therein lies a significant twist: directly in light of the pandemic, UEFA temporarily removed the requirement for clubs to break even in their transfer activity. This has directly allowed clubs such as PSG and Manchester City to, quite literally, spend with reckless abandon. UEFA’s director of financial stability and research, Andrea Traverso, was even quoted by Reuters as describing the break-even rule as “purposeless” in the post-pandemic era, implying the rule could be completely scrapped.

What effect have FFP rules had since their inception?

Both PSG and Manchester City have fallen foul of FFP rules in the past, but were able to avoid excessive punishment via successful appeals through the Court of Arbitration for Sport. Traverso’s comments now imply a future where there will be effectively no spending limit for clubs when it comes to wages and transfer fees. All at the same time, however, smaller clubs face fates as severe as expulsion from their domestic leagues due to their own financial difficulties (as with Bury); PSG’s spending this summer is even more excessive when considered in the context of the financial crisis currently affecting much of French football as a whole after the collapse of the domestic league television deal. Barcelona have also never fallen foul of FFP rules since their introduction in 2009, which, given the club is now, as aforementioned, in a billion-euro debt crisis, at the very least causes eyebrows to be raised.

In the past, FFP has been criticised for creating what can be perceived as a big-club status-quo, whereby the so-called big clubs, who generate the largest revenue and profits, can consequentially afford to spend more money on transfers. At least in part, this does account for how rich, foreign-backed clubs with global brands and reputations such as PSG and Manchester City are able to spend so much on transfers- it is not as if they are spending money they do not have. However, when these clubs do break financial regulations and get away with mere slaps on the wrist, it begins to raise questions as to whether UEFA is well aware of the fact that these clubs may be in continual breach of said regulations, and also whether the stature and success of the clubs, which brings so much money (chiefly via television revenue) into European football, mean that they simply do not care if the rules are broken.

It would certainly explain why Traverso may want the break-even rule to not even be there at all: allowing these clubs to continually spend and spend to remain at the top of the European game simply brings in so much money- so why would UEFA want to punish these clubs at all, if they themselves benefit from it? It may also, at least partially, account for why Barcelona are able to run themselves into a financial crisis of stratospheric proportions through continued, long-run financial mis-management under ex-club president Josep Maria Bartomeu; UEFA knows Barcelona represents part of the lifeblood of European and world football, so it has zero incentive to punish them.

Concluding thoughts

In conclusion, I would certainly argue that UEFA’s Financial Fair Play rules are indeed a farce: when big clubs can freely run themselves into debts totalling the GDP of an entire country without punishment, when they can freely spend at will while their domestic rivals struggle immensely financially, and when they can spend in one summer an amount which would have wiped out a dormant club’s debt six times over, you really begin to question whether or not these clubs are simply too big to fail, even when the cost is as great as the very existence of smaller clubs which may not be as global in their stature, but mean absolutely everything to the communities they represent.