Financial Stability is Financial Fair Play Supporters Direct Annual Meeting London, June 12th 2010
07/05/10 Structure of this presentation 1. Bundesliga: very popular and economically sound 2. Two main reasons  - strictly...
Structural Overview: Football in Germany 36 professional clubs constituting Bundesliga and Bundesliga 2 are members of the...
Booming Bundesliga ... attracting big crowds <ul><li>Average Attendance per Match Season 2008/09 </li></ul>07/05/10 * Bund...
Booming Bundesliga ... affordable <ul><li>Average Ticket price per Match in €  Season 2008/09 </li></ul>07/05/10 * Bundesl...
<ul><li>... facilitate fantastic football feeling! </li></ul><ul><ul><li>11 of 34 stadia classified „elite“, UEFA's highes...
Still growing popularity being reflected in increasing turnover 07/05/10 2008/2009 €  2,036
Bundesliga‘ s  well balanced Revenue Mix 07/05/10 Other, i.e. Merchandising Transfer fees Media rights  Sponsorships  Gate...
Most clubs  constantly profitably <ul><li>Clubs exhibiting a post-tax profit for </li></ul><ul><li>  Bundesliga Bundesliga...
Apparently Reasonable Salaries <ul><li>Payroll costs to Total Revenue </li></ul>07/05/10 64% 62% 45%* * Bundesliga 2: < 49...
Licensing Procedure <ul><li>A Success Story for the Past 40 Years </li></ul><ul><li>No Bundesliga Club ever went bankrupt ...
How it works 07/05/10 Club DFL  (First Instance Body) Licensing Committee ( Appeal Body) League Association Court of Arbit...
Assessment of economic viability <ul><li>Liquidity   situation positive at the end of the season to be licensed </li></ul>...
It‘s all about... Liquidity <ul><li>The applicant's liquidity forecast for 18 months must exhibit that </li></ul><ul><ul><...
Sample liqidity calculation   short form   07/05/10 - Negotiations ongoing - Empirical evidence of   planning bias - Justi...
Content of audit report i 07/05/10 Receivables aging report Balance sheet item Desription of receivable Total on 31 Dec 08...
Content of audit report ii 07/05/10
Final Verdict refering to economic viability <ul><li>Possible decisions regarding financial criteria </li></ul><ul><li>Opt...
Cornerstones of German licensing system   <ul><li>licence regarded as seal for good governance </li></ul><ul><li>Quality a...
Implications for the Business model 07/05/10
Restricted Ownership in Clubs „50+1“-Clause   <ul><li>A football club (Verein) must hold the  majority of voting rights  o...
Clubs incorporated as   <ul><li>Verein </li></ul><ul><li>Schalke 04 </li></ul><ul><li>VfB Stuttgart </li></ul><ul><li>Hamb...
European Football Some key figures 07/05/10 Big five leagues dominating European Football Deloitte’s Football Money League...
UEFA‘s Fair Play Concept  Objectives 07/05/10 <ul><li>As approved by UEFA’s ExCo End of May and supported by key stakehold...
General Principles of Licensing and Monitoring 07/05/10 UEFA and licensors To observe the principle of subsidiarity betwee...
Club Licencing and Club Monitoring  An integrated approach 07/05/10 Club monitoring Club licensing
Principles of Licensing and Monitoring 07/05/10 Since 2002, all participants in UEFA’s club competitions must undergo a na...
Break-Even Requirements Core Principles 07/05/10 <ul><li>Cornerstone of the Financial Fair Play concept </li></ul><ul><li>...
The concept of Relevance Break-even calculation 07/05/10 <ul><li>RELEVANT EXPENSES   </li></ul><ul><li>Cost of Sales </li>...
07/05/10 <ul><li>The Break-even calculation is prepared for each reporting period </li></ul><ul><li>Calculation is primari...
07/05/10 <ul><li>Monitoring Period 3 reporting periods (last season and the two preceding seasons) Except first period ass...
07/05/10 <ul><li>In support to the break-even rule will be implemented earlier </li></ul><ul><li>Enhanced overdue payables...
07/05/10 May 2010 May 2011 May 2012 May 2013 <ul><li>Creation of CFC Panel </li></ul><ul><li>Development of enhanced requi...
To Resume 07/05/10 Platini expressed alarm at the &quot;danger to football&quot; of debt,  overspending and &quot;rampant ...
07/05/10 <ul><li>The principle to cut/ limit owner donations will decrease expenditures for players and thus clubs‘ losses...
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Just how broken is football's financial model (German Football Regulation)

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Christian Muller & Dr. John Beech of the DfL talk you through the issues.

We've now seen well in excess of 50 insolvencies at football clubs since 1992 compared to no insolvencies in the Bundasliga during this period, leading to most expert commentators on football finance now agreeing that ‘light-touch' regulation is at an end.

We heard from one of the most respected academics in his field, Dr John Beech of Coventry University, about what has failed and what he believes needs to change. and the DfL's Christian Muller on how they do it in Germany,

For Dr John Beech's presentation look on our main presentations section.

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  • Michel Platini expressed alarm at the &amp;quot;danger to football&amp;quot; of debt, overspending and &amp;quot;rampant commercialism“ Approval of UEFA’s &amp;quot;financial fair play&amp;quot; regulations means There is an alternative to the game being just a toy of the free market From 2014/15, clubs who wish to play in European competitions must not spend more than they earn. The idea is to stop clubs spending on players&apos; wages beyond their income to chase the dream of success, since according to the most recent, 2008-09 accounts, 14 of the 20 Premier League clubs made substantial losses. In Spain, La Liga clubs have recently posted €3bn annual debts, and Italy&apos;s top clubs, have long been addicted to financial fixes from owners. An individual club must pay their players and other costs out of the money they earn, from TV, sponsorships – and incresasing ticket prices – not from &amp;quot;benefactor&amp;quot; owners.
  • Just how broken is football's financial model (German Football Regulation)

    1. 1. Financial Stability is Financial Fair Play Supporters Direct Annual Meeting London, June 12th 2010
    2. 2. 07/05/10 Structure of this presentation 1. Bundesliga: very popular and economically sound 2. Two main reasons - strictly enforced licensing system - restricted ownership structure (fans = members = owners) 3. UEFA‘s Financial Fair play concept 4. Some learnings and implications for the English model
    3. 3. Structural Overview: Football in Germany 36 professional clubs constituting Bundesliga and Bundesliga 2 are members of the League Association Die Liga Fussballverband e.V. (league association) is the 27th ordinary member of the DFB Nearly 27,000 Clubs incorporated as associations (“Vereine”) are ordinary members of the respective regional and state associations 07/05/10 The Federation: German Football Association (DFB) 5 regional associations are ordinary members of the DFB 21 state associations are ordinary members of the DFB
    4. 4. Booming Bundesliga ... attracting big crowds <ul><li>Average Attendance per Match Season 2008/09 </li></ul>07/05/10 * Bundesliga 2: 15,550, thereof 52,5 % season ticket holders Source: www.weltfussball.de 35,592 28,478 25,304 21,034 58,9% Season Ticket Holders 41,904 42,000 Ligue 1 * Primera Divisi ó n * Premier League * Serie A * Bundesliga
    5. 5. Booming Bundesliga ... affordable <ul><li>Average Ticket price per Match in € Season 2008/09 </li></ul>07/05/10 * Bundesliga 2: 13,35 € Source: Simon Kuchler & Partner 26,00 27,00 40,00 43,00 20,79 21,89 Ligue 1 Primera Divisi ó n Premier League * Serie A Bundesliga
    6. 6. <ul><li>... facilitate fantastic football feeling! </li></ul><ul><ul><li>11 of 34 stadia classified „elite“, UEFA's highest quality standard </li></ul></ul><ul><ul><li>Average Bundesliga stadium capacity stands at 46,747 seats; highest in Europe </li></ul></ul><ul><ul><li>Exploitation of capacity above 90% (42,000 spectators) </li></ul></ul><ul><ul><li>High comfort, high security standard, excellent infrastructure </li></ul></ul>Booming Bundesliga ... with State-of-the-art grounds 07/05/10
    7. 7. Still growing popularity being reflected in increasing turnover 07/05/10 2008/2009 € 2,036
    8. 8. Bundesliga‘ s well balanced Revenue Mix 07/05/10 Other, i.e. Merchandising Transfer fees Media rights Sponsorships Gate Receipts 594 29% 573 28% 425 21% 168 8% 276 14% 1,715 84% 321 16% Bundesliga Bundesliga 2 2,036 bn € come from
    9. 9. Most clubs constantly profitably <ul><li>Clubs exhibiting a post-tax profit for </li></ul><ul><li> Bundesliga Bundesliga 2 Total out of 36 </li></ul><ul><li>2008/09 season 11 5 16 </li></ul><ul><li>2007/08 season 15 9 24 </li></ul><ul><li>2006/07 season 18 12 30 </li></ul><ul><li>2005/06 season 12 9 21 </li></ul>07/05/10 but the trend doesn‘ t remain friend ...
    10. 10. Apparently Reasonable Salaries <ul><li>Payroll costs to Total Revenue </li></ul>07/05/10 64% 62% 45%* * Bundesliga 2: < 49% Source: Deloitte & Touche 2008 – 2006/2007 season 63% 62% Ligue 1 * Primera Divisi ó n * Premier League * Serie A * Bundesliga
    11. 11. Licensing Procedure <ul><li>A Success Story for the Past 40 Years </li></ul><ul><li>No Bundesliga Club ever went bankrupt during a running competition or was unable to complete the season </li></ul><ul><li>Gives business partners additional appeal and security </li></ul><ul><li>Fully supported and accepted by the clubs </li></ul><ul><li>Guarantees the integrity of the competition </li></ul><ul><li>Impetus for continuous professionalization </li></ul><ul><li>Role model for UEFA’s licensing procedure </li></ul>07/05/10
    12. 12. How it works 07/05/10 Club DFL (First Instance Body) Licensing Committee ( Appeal Body) League Association Court of Arbitration of BL / BL 2 (Alternative to system of ordinary courts) Licensing Agreement Application Positive Positive Negative Refusal of License Negative Licensing Committee (Appeal Body) Positive Negative
    13. 13. Assessment of economic viability <ul><li>Liquidity situation positive at the end of the season to be licensed </li></ul><ul><ul><ul><li>Assets </li></ul></ul></ul><ul><ul><ul><li>Receivables </li></ul></ul></ul><ul><ul><ul><li>Cash and bank balances </li></ul></ul></ul><ul><ul><ul><li>Liabilities/provisions </li></ul></ul></ul><ul><ul><ul><li>Current account overdraft facilities </li></ul></ul></ul><ul><ul><ul><li>Loan commitments </li></ul></ul></ul><ul><ul><ul><li>Projected profit and loss statement </li></ul></ul></ul><ul><li>Net Equity positive (or sanction if further diminished) </li></ul><ul><li>Final verdict regarding economic viability </li></ul>07/05/10 <ul><li>Planned income from match operations </li></ul><ul><li>Planned advertising income </li></ul><ul><li>Planned income related to transfers </li></ul><ul><li>Planned payroll costs for match operations </li></ul><ul><li>Cash inflows and outflows from investing and financing activities </li></ul>
    14. 14. It‘s all about... Liquidity <ul><li>The applicant's liquidity forecast for 18 months must exhibit that </li></ul><ul><ul><li>payment obligations can be fulfilled at all times </li></ul></ul><ul><ul><li>regular match operations are guaranteed at all times </li></ul></ul><ul><ul><li>financial distress can be countered </li></ul></ul><ul><li>For that examination we employ a liquidity calculation </li></ul><ul><ul><li>starting with the audited balance sheet as of December 31 t-1 </li></ul></ul><ul><ul><li>and taking into account the budgeted p&l statements for the periods January 1 t to June 30 t and July 1 t to June 30 t+1 </li></ul></ul><ul><ul><li>which must come up with a positive figure as of June 30 t+1 </li></ul></ul>07/05/10
    15. 15. Sample liqidity calculation short form 07/05/10 - Negotiations ongoing - Empirical evidence of planning bias - Justification in doubt „Prudence“
    16. 16. Content of audit report i 07/05/10 Receivables aging report Balance sheet item Desription of receivable Total on 31 Dec 08 Of which due by 30 Jun 09 Cash inflow since 31 Dec 08 Of which due 1 Jul 09 – 30 Jun 10 Of which due after 30 Jun 10 Available Assigments/pledges/other restraints on disposal as at 31 Dec 08 Trade accounts receivable                 Transfer receivables                 Receivables from affiliated companies and other investors                 Receivables from legal and/or natural persons with a direct or indirect affiliation with members of the applicant‘s executive bodies                 Other receivables                 Securities                 Cash and bank balances                 Prepaid expenses                 Total   0 0 0 0 0 0  
    17. 17. Content of audit report ii 07/05/10
    18. 18. Final Verdict refering to economic viability <ul><li>Possible decisions regarding financial criteria </li></ul><ul><li>Option A: The financial criteria have been fulfilled - no conditions or obligations </li></ul><ul><li>Option B: The financial criteria have been fulfilled - no conditions but certain obligations apply </li></ul><ul><ul><li>Liquidity as of 30 June 2010 is expected to be positive but </li></ul></ul><ul><ul><li>Equity as of 31 December 2008 is negative </li></ul></ul><ul><li>Option C: The financial criteria have been fulfilled - but conditions and certain obligations apply </li></ul><ul><ul><li>Liquidity as of 30 June 2010 is currently expected to be negative (a condition is imposed) </li></ul></ul><ul><ul><li>Obligations will definitely be imposed </li></ul></ul><ul><li>Option D: The financial criteria have not been fulfilled - no licence </li></ul><ul><ul><li>The conditions have not been met - there are no signs that liquidity will be positive as of 30 June 2010 </li></ul></ul>07/05/10
    19. 19. Cornerstones of German licensing system <ul><li>licence regarded as seal for good governance </li></ul><ul><li>Quality assurance for clubs </li></ul><ul><li>Benchmarking as side effect </li></ul>Goal: Sufficient liquidity Goal: Positive equity capital Goal: Ensuring the integrity of competition Action: Fin. Forecast checked Action: Capital requirements Action: Submission of all essential contracts 07/05/10
    20. 20. Implications for the Business model 07/05/10
    21. 21. Restricted Ownership in Clubs „50+1“-Clause <ul><li>A football club (Verein) must hold the majority of voting rights of the attached football company (Kapitalgesellschaft), thus 50% + 1 voting rights in the General Assembly (in case of a GmbH & Co. KGaA, the football club must hold 100% of the GmbH shares). The football club’s determining influence on the course of business, especially the sportive competition, must be secured </li></ul><ul><li>The issuing of non-voting shares remains unaffected; major contribution of capital is therewith permitted </li></ul><ul><li>There are two exceptions (grandfathering rights) for Leverkusen - Bayer AG and Wolfsburg - Volkswagen AG </li></ul><ul><li>Interlocking participations between clubs are prohibited </li></ul>07/05/10
    22. 22. Clubs incorporated as <ul><li>Verein </li></ul><ul><li>Schalke 04 </li></ul><ul><li>VfB Stuttgart </li></ul><ul><li>Hamburger SV </li></ul><ul><li>FSV Mainz 05 </li></ul><ul><li>SC Freiburg </li></ul><ul><li>1. FC Nürnberg </li></ul><ul><li>1. FC Kaiserslautern </li></ul><ul><li>FC St. Pauli </li></ul>07/05/10 <ul><li>Company (AG = plc; GmbH = Ltd.; GmbH & Co. KGaA = ?) </li></ul><ul><li>FC Bayern AG </li></ul><ul><li>Eintracht Frankfurt AG </li></ul><ul><li>Borussia Mönchengladbach GmbH </li></ul><ul><li>1. FC Köln </li></ul><ul><li>Werder Bremen </li></ul><ul><li>Hannover 96 </li></ul><ul><li>Bayer Leverkusen GmbH </li></ul><ul><li>VfL Wolfburg GmbH </li></ul><ul><li>TSG Hoffenheim 1899 GmbH </li></ul><ul><li>Borussia Dortmund (stock market listed ) </li></ul>
    23. 23. European Football Some key figures 07/05/10 Big five leagues dominating European Football Deloitte’s Football Money League exhibiting the turnover ranking 2008/09 with Real Madrid (401 mio €) ahead of Barcelona (366), ManU (327), Bayern (290)… 7 English, 5 German, 4 Italian, 2 Spanish, 2 French Clubs in Top 20 (Newcastle 101) … but Turnover doesn’t necessarily mean financial soundness UEFA’s Benchmarking Report findings Total Revenues of of 732 First League Clubs in 53 member associations 12 bn € but 47% of these clubs disclosing losses in their annual financial statements and, even worse, 22% of these clubs disclosing significant losses (>20% of total revenues) According to the most recent, 2008-09 accounts, 14 of the 20 Premier League clubs made substantial losses. In Spain, La Liga clubs have recently posted €3bn annual debts, and Italy's top clubs, have long been addicted to financial fixes from owners
    24. 24. UEFA‘s Fair Play Concept Objectives 07/05/10 <ul><li>As approved by UEFA’s ExCo End of May and supported by key stakeholders, the new requirements aim principally to </li></ul><ul><li>Introduce more discipline and rationality in club football finances </li></ul><ul><li>Decrease pressure on players’ salaries and transfer fees </li></ul><ul><li>Encourage clubs to operate on the basis of their own revenues </li></ul><ul><li>Protect the integrity and smooth running of the competitions </li></ul><ul><li>Encourage investment for the long-term benefit of clubs </li></ul><ul><li>Ensure clubs settle their liabilities on a timely basis </li></ul><ul><li>Protect the long term viability and sustainability of European club football </li></ul>
    25. 25. General Principles of Licensing and Monitoring 07/05/10 UEFA and licensors To observe the principle of subsidiarity between UEFA and assoc./leagues To ensure equal treatment of all licensees To guarantee full confidentiality of all information provided License Applicants/Licensees to meet deadlines to submit complete and correct information in coherence with previous doc. to promptly notify subsequent events that constitute significant changes
    26. 26. Club Licencing and Club Monitoring An integrated approach 07/05/10 Club monitoring Club licensing
    27. 27. Principles of Licensing and Monitoring 07/05/10 Since 2002, all participants in UEFA’s club competitions must undergo a national licensing procedure according to UEFA’s Licensing Regulations often extended voluntarily to all first league clubs and even more leagues Financial requirements - no concern about going concern - Financial statements for the interim period (half of current season) - no overdue payables towards employees and social/tax authorities as of 31 Dec on March 31 - no overdue payables towards football clubs as of 31 Dec on March 31 All licensees having qualified for UEFA’s club competitions now must comply with new monitoring requirements - break-even rule - enhanced overdue payables rules - Submission of Future Financial Information
    28. 28. Break-Even Requirements Core Principles 07/05/10 <ul><li>Cornerstone of the Financial Fair Play concept </li></ul><ul><li>A club must not repeatedly spend more than its revenues </li></ul><ul><li>Stabilize and rationalize club’s spending in Europe </li></ul><ul><li>Club to « break-even » on a yearly basis, means that football relevant expenses < football relevant income </li></ul><ul><li>A tailored approach with exemptions for small clubs and more relaxed requirements for clubs not exhibiting warning signs </li></ul>
    29. 29. The concept of Relevance Break-even calculation 07/05/10 <ul><li>RELEVANT EXPENSES </li></ul><ul><li>Cost of Sales </li></ul><ul><li>Employee benefits expenses </li></ul><ul><li>Other operating expenses </li></ul><ul><li>Player transfer fee amortisation </li></ul><ul><li>Finance costs </li></ul><ul><li>RELEVANT INCOME </li></ul><ul><li>Gate receipts </li></ul><ul><li>Broadcasting rights </li></ul><ul><li>Sponsorship & advertising </li></ul><ul><li>Commercial activities </li></ul><ul><li>Other operating income </li></ul><ul><li>Player transfer income </li></ul><ul><li>Finance income </li></ul><ul><li>Excess proceeds on disposal of tangible fixed assets </li></ul><ul><li>NO LIMIT for </li></ul><ul><li>Infrastructure costs </li></ul><ul><li>Youth development activities </li></ul><ul><li>Community scheme expenses </li></ul>
    30. 30. 07/05/10 <ul><li>The Break-even calculation is prepared for each reporting period </li></ul><ul><li>Calculation is primarily based on a club’s profit and loss account (as contained in the club’s audited annual financial statements) </li></ul><ul><li>Risk-based approach (indicators: going concern, negative equity, break-even deficit in either/both preceding seasons, overdue payables in June) </li></ul><ul><li>Multi-year assessment of three reporting periods (T-2, T-1 and T) </li></ul><ul><li>Introduction of an ‘acceptable deviation’ over three years (€45 mio for the first two monitoring periods and then €30 mio) </li></ul><ul><li>CFC Panel’s Discretion: Assessment of other factors (quantum, trend, budgets, debts) </li></ul><ul><li>A web-based IT tool to be developed for use by clubs, licensors and CFC Panel </li></ul>Break-even analysis Key Features
    31. 31. 07/05/10 <ul><li>Monitoring Period 3 reporting periods (last season and the two preceding seasons) Except first period assessed in 2013/14 which refers to financial statements with closing dates June 30, 2013 and June 30, 2012 </li></ul><ul><li>Aggregate break-even result addition of all “relevant” results within the monitoring period </li></ul><ul><li>Acceptable Deviation Maximum aggregate break-even deficit possible to be deemed in compliance with the break-even requirement - is € 5 mio (materiality!) - can be exceeded to € 45 mio (2013/14 and 2014/15), than € 30 mio only if such excess is entirely covered by contributions from equity participants </li></ul>Key Facts
    32. 32. 07/05/10 <ul><li>In support to the break-even rule will be implemented earlier </li></ul><ul><li>Enhanced overdue payables rule (backward mechanism) no overdue payables as of Dec 31, Jun 30 and Sept 30 </li></ul><ul><ul><li>To ensure that clubs have honoured their commitments when these were due </li></ul></ul><ul><li>Enhanced Future Financial Information ( forward looking mechanism ) </li></ul><ul><ul><li>To monitor clubs’ projected results; </li></ul></ul><ul><ul><li>To monitor that clubs will dispose of sufficient liquidity to continue servicing their commitments in the future. </li></ul></ul>UEFA‘s Fair Play Concept Further components
    33. 33. 07/05/10 May 2010 May 2011 May 2012 May 2013 <ul><li>Creation of CFC Panel </li></ul><ul><li>Development of enhanced requirements </li></ul><ul><li>Consultation process </li></ul><ul><li>EXCO approve new Regs </li></ul><ul><li>Implementation improved licensing criteria (except supporter liaison officer) </li></ul><ul><li>Implementation of break even requirement </li></ul><ul><li>Implementation enhanced overdue payables, enhanced future financial information, duty to update subsequent events and supporter liaison officer </li></ul>Next Steps Gradual Implementation
    34. 34. To Resume 07/05/10 Platini expressed alarm at the &quot;danger to football&quot; of debt, overspending and &quot;rampant commercialism“ Approval of UEFA’s &quot;financial fair play&quot; regulations means there is an alternative to the game being just a plaything of the free market from 2014/15, clubs who wish to play in European competitions must not spend more than they earn ends clubs spending on players' wages beyond their income to chase the dream of success, An individual club must pay their players and other costs out of the money they earn, from TV, sponsorships – and incresasing ticket prices – not from &quot;benefactor&quot; owners.
    35. 35. 07/05/10 <ul><li>The principle to cut/ limit owner donations will decrease expenditures for players and thus clubs‘ losses </li></ul><ul><li>Living within its means is a sound and stringent concept which fully fits in sporting rules because a club‘s drawing potential to generate revenues (not to raise equity!) results mainly from sporting merit in the past </li></ul><ul><li>Football is and should be seen as a primarily public good. Even if clubs have been privatisated or always were private, at least in cases where economic failure occurs they should be partly resocialised again, i.e. an obligation by league statues to broaden ownership and to take new public owners (i.e. supporters trusts, communities) on board who are not required to inject equity </li></ul><ul><li>So you give „voice“ to the stakeholders who don‘t dispose of a „exit“ and who are the most affected (can‘t switch the supplier) by poor club managemement </li></ul>To put this long story Briefly

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