Sd europe conference

Financial Fair Play
Barcelona
July 17th 2010

WHY is action needed? Overall picture of clubs’ finances
WHERE did the idea of new financial controls come from?
HOW has it been developed? Consultative approach
WHAT are the objectives?
WHAT are the financial fair play rules? Proposed concept
HOW will the new rules be implemented?
WHEN will new rules be introduced? Planning and Timeline
Open discussion, suggestions….
AGENDA

WHY is action needed:Overall picture of clubs’ finances today
After 10 years of nearly continuous income growth, losses remain and many balance sheets also weak. Some clubs reporting relatively massive losses.
10% of European clubs (sample c400) had Going Concern emphasis of matter or qualification in 2008 Audit Report
Preliminary figures suggest modest income rise in FY2009 with second tier clubs in particular struggling to meet commitments
Longer term investment in football has not matched spending – Less than 1 in 4 clubs own stadium and less than 1 in 3 own training facilities
Increasingly difficult for clubs with sustainable business plans to compete with those living beyond their means

WHY is action needed:Almost half clubs reported losses in 2008
Most leagues reported losses in 2008
Despite revenue increases 47% of all clubs reported losses and 37% of larger clubs (revenue >€5m)
145 clubs spent more than €6 for every €5 income
57 clubs reported salaries > total income
The worst 20 clubs reported combined losses of €735m

WHY is action needed:Many clubs with reported assets < liabilities
35% of clubs reported negative equity in FY08
155 clubs reported losses and negative equity
This included 15 of TOP 60 largest revenue clubs
Net equity deteriorated in 44% of top division clubs
Clubs from 47 different countries reported negative equity
€5.5bn reported level of bank debt and commercial loans

Multitude of reasons
Relevant factors often differ
Short term environment:
Classic zero sum game
Nature of football competitions (cups/leagues)
Nature of success based prize money
Transfer system
Presidential terms & elections
Separation of directors/owners personal risk and risk to club
Lack of transparency – awareness of problems
WHY are the finances so poor?

WHERE did the idea of new financial controls come from?
UEFA investigated financial controls particularly salary controls 1999-2000
Salary caps also on agendas at club meetings
UEFA concluded salary control not feasible at that stage but introduced its club licensing system in 2003 including some financial criteria
50+ clubs prevented from participating in UEFA club competitions and receiving financial reward due to licensing
Prior to recession many stakeholders including prominent club owners requesting intervention at European level
UEFA President took up invitation and investigations performed
Agreed that new financial control panel should be set up and new financial controls included on top of current licensing system

HOW have new rules been developed?
Financial situation of European club football – stakeholders calling for change;
Extensive consultation with all stakeholders (NAs, EPFL, ECA, FIFPro Europe, SD Europe);
New financial rules to be built on top and integrated with existing club licensing regulations in effect since 2004;
New regulations approved by UEFA EXCO on May 27th 2010.

WHAT are the objectives of new rules? Agreed ‘objectives’
As approved by UEFA’s Executive Committee and key stakeholders, the new
requirements aim principally to:
Introduce more discipline and rationality in club football finances;
Encourage clubs to operate on the basis of their own revenues;
Protect the integrity and smooth running of the competitions;
Encourage investment for the long-term benefit of clubs;
Ensure clubs settle their liabilities on a timely basis;
Protect the long term viability and sustainability of European club football.

WHAT are the objectives of new rules? Net benefits to club football
Use carrot of UEFA competitions (‘ultimate stage’ + €1,400,000,000 per year) to encourage sustainable business models and reward fair play
Tighten noose on clubs with questionable business practices
Make clubs directors/owners aware that finances independently monitored
Require transparency in owner’s objectives and LT business model
Realign salaries with ability to pay salaries

WHAT are the new rules?Break-even requirement
http://www.uefa.com/MultimediaFiles/Download/uefaorg/Clublicensing/01/50/09/12/1500912_DOWNLOAD.pdf
The cornerstone of the Financial Fair Play concept;
A club must not repeatedly spend more than its revenues (assessed over rolling 3 year period)
A tailored approach with exemptions for small clubs, relative advantages to medium sized clubs and more relaxed requirements for clubs not exhibiting warning signs. ‘Investments’ in youth football, community schemes and infrastructure differentiated to ‘spending’ and excluded.
Introduction of an ‘acceptable deviation’ over three years;
Assessment of other factors (quantum, trend, budgets, debts);
A web-based IT tool to be developed for use by clubs, licensors and the CFC Panel.

WHAT are the new rules?Break-even requirement
RELEVANT EXPENSES
Cost of Sales
Employee benefits expenses
Other operating expenses
Player transfer amortisation or expense
Finance costs
RELEVANT INCOME
Revenue:
Gate receipts
Broadcasting rights
Sponsorship & advertising
Commercial activities
Other operating income
Player transfer profit or income
Finance income
Excess proceeds on disposal of tangible fixed assets
NO LIMIT:
Infrastructure costs
Youth development activities
Community development activities
Note: Only represents a simplified version of calculation.

WHAT are the new rules?Warning signs/ indicators
If club breaches the following indicators then further information required:
Audit opinion in annual and/or interim financial statements includes emphasis of matter or qualified opinion regarding going concern;
Annual or interim financial statements disclose deteriorating net liabilities;
Club reports a break-even deficit in period t-1 and/or t-2;
Club has overdue payables as of 30 June in year club competitions commence.

WHAT are the new rules?Other rules
In support to the “break-even” rule
Enhanced overdue payables rule (backward mechanism)
To ensure that clubs have honoured their commitments when these were due
Enhanced Future Financial Information (forward looking mechanism)
To monitor clubs’ projected results;
To monitor that clubs will dispose of sufficient liquidity to continue servicing their commitments in the future.

HOW will the new rules be implemented?Integrated approach
Club licensing
Club monitoring

WHEN will the new rules be implemented?Introduction
May 2010
May 2011
May 2012
May 2013
Licensors update national regulations
Training of licensors and clubs
Prepare for implementation of enhanced requirements
Implementation of new financial rules
Creation of CFC Panel
Development of enhanced requirements
Consultation process
EXCO approve new Regs

WHEN will the new rules be implemented?Assessment

Supplementary slides

http://local.tealeaf.com	229
http://tealeafcustomerexperience.com	10
http://www.apmae.net	3

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