Stiff penalties face clubs that fail to play the financial game

Business of sport: The Financial Fair Play rules that start with the 2013-2014 season might see some teams following Chelsea, which exited the Champions League.

Chelsea's Gary Cahill reacts after Juventus' Sebastian Giovinco, centre, scored a goal during the Champions League match in Italy last month. Massimo Pinca / AP Photo

Becoming the first holders of the Champions League to exit the tournament at the group stage this month left many Chelsea supporters nursing red faces.

But the hurt may prove more lasting for the club. As well as missing out on a potential €25 million (Dh118.9m) for teams in the last 16, the Blues' exit from the world's premier club competition will not help Chelsea meet Uefa's stringent new Financial Fair Play (FFP) rules.

FFP starts with the 2013-2014 season but the first period of monitoring also takes into account losses made in the two preceding years.

Rich club owners such as Chelsea's Roman Abramovich can absorb aggregate losses of up to €45m over those two years by converting debt into equity. In the 2015-2016 season, the maximum permitted loss drops to €30m and will fall again in 2018/19 to an as yet unspecified amount.

This summer Chelsea spent £32m (Dh188.6m) on Eden Hazard, a Belgian international, and £25m on the Brazilian player Oscar, seemingly returning to the profligate spending that contributed to total losses of €1.6 billion at Europe's leading clubs in 2010. "There was a great risk of crisis, of the bubble bursting. We had to do something and financial fair play is the way we designed it," says Gianni Infantino, the Uefa general secretary.

Clubs are preparing for FFP and Chelsea were buoyed by €59.9m from Uefa for that Champions League final victory in Munich in May. That pushed turnover last season to a record £255.7m (Dh1.5bn) and helped produce a £1.4m profit. Now, after their unexpected elimination, Chelsea need something better than a belated run in the Europa League, the much lesser competition they are now in following their Champions League exit.

Uefa cannot force clubs to break-even or be profitable but football's European body can ban those sides that do not comply with FFP from the Champions League or Europa League. There is likely to be some flexibility for clubs heading in the right direction but Alistair Bell, Uefa's director of legal affairs, has warned that any clubs that exceeding losses of £36m in two years by more than 20 per cent would be sanctioned.

At their congress in March, Uefa came up with another three penalties to take the total punishments for clubs that break the FFP rule to eight. Sanctions start with a reprimand or warning before a fine, then a point's deduction. The fourth sanction involves withholding revenue from club competitions and the penalties get increasingly stronger.

There is a ban on registering new players for Uefa competitions followed by a restriction on the number of players to be used. The final two penalties are the ones that concern clubs the most: being banned from a Uefa competition they are currently playing in; and exclusion from future competitions.

Some costs, such as work on stadiums or youth developments are exempt, but players' wages are not. The wage bill is usually a club's biggest expense. Unless wages can be controlled, clubs will need to get more from areas such as broadcast deals, shirt sponsorship, stadium naming rights and, perhaps, even ticket prices. A new £5.5bn TV deal for English Premier League clubs will certainly provide significant compensation for Chelsea and others. Even the club finishing bottom will get about £60m for a season in the world's richest league.

Clubs in the Champions League qualification slots will get between £80m and £90m next year.

At the start of this year, Mr Infantino said that while total revenues in European club football had increased last year from €12bn to €12.8bn, year-on-year, indicating huge and growing interest and health of the game, costs including players' salaries, were increasing faster, up from €13.3bn to €14.4bn.

"That is why I say this is the last wake-up call for European football, this red trend has to be inverted very, very quickly if we want to save European football," he told the UK's Telegraph newspaper.

"Net losses have increased European football every year since 2006. Income has grown but so have losses. In two years from 2008 to 2010 net losses have increased by €1bn. In 2006 losses were just €216m. If this is not enough to tell us that we need to act and act quickly then nothing will," he told the paper.

Drawing parallels with the euro-zone crisis, Mr Infantino said during discussions with the European Commission, EC officials had joked that "if there had been financial fair play in the economy and not just football, things would not be so bad".

Clubs, players and fans must be hoping those words do not come back to haunt them.

Steve Menary is a British writer and journalist. He is a contributor to World Soccer, When Saturday Comes, Four Four Two and Backpass magazines, as well as PlayTheGame.org. He wrote Outcasts! The Lands That FIFA Forgot, shortlisted for the Football Book of the Year in 2008