Chelsea Football Club may have forced the Union of European Football Association (UEFA) into re-evaluating its Financial Fair Play (FFP) regulations. Over the last year, Chelsea, under the ownership of American businessman Todd Boehly, has exploited a loophole in UEFA’s Financial Fair Play Regulations while still bringing its total spending to historical levels. Just this January, Chelsea spent an astonishing £323 million on new players, more than the top Italian, German, Spanish, and French football leagues combined.[2] Since Boehly bought Chelsea less than one year ago, the club has eclipsed £600 million in transfer spending. As a result, football critics are questioning the integrity of competition in European football.[3]
In September 2009, UEFA announced its FFP legislation which included its objectives and proposed rules for enforcement.[4] Two years later, UEFA officially implemented FFP for the 2011-2012 season and included the following goals:
To improve the economic and financial capability of the clubs, increasing their transparency and credibility;
To place the necessary importance on the protection of creditors and to ensure that clubs settle their liabilities with employees, social/tax authorities and other clubs punctually;
To introduce more discipline and rationality in club football finances;
To encourage clubs to operate on the basis of their own revenues;
To encourage responsible spending for the long-term benefit of football; and
To protect the long-term viability and sustainability of European club football.[5]
One of the many rules that FFP imposes on European clubs to achieve these goals is that over a three-year period, clubs must financially break even or show a reduction in deficit.[6] Since FFP specifically excludes costs for stadium developments and investments in youth programs, the main costs associated with the break-even calculation are transfer fees and player wages.[7] Over the last 10 years, two clubs, Manchester City and Paris Saint-Germain, have raised eyebrows among the footballing world due to their new owners’ willingness to dig deep into their pockets. UEFA has fined both teams for violating FFP rules.[8]
So, despite spending over £600 million on transfer fees in less than one year, how is Chelsea managing to escape FFP’s crosshairs? Amortization.[9] FFP allows for teams to amortize the cost of their transfers over the length of the contract.[10] For example, if a team pays a £10 million transfer fee for a player and the player is signed to a five-year contract, the team records £2 million per year for five years on the financials that they are required to submit to UEFA. This method of accounting allows teams to prorate the financial impact of transfer fees and therefore reduce the possibility of violating FFP’s breakeven threshold.[11]
In the United States, sport franchise owners are no strangers to signing athletes to long-term contracts. In fact, the top 10 largest Major League Baseball (MLB) contracts range anywhere from 8-14 years in length.[12] MLB owners have been known to hand out lengthy contracts to players to give themselves more financial flexibility and avoid payroll penalties.[13] Boehly, a co-owner of the Los Angeles Dodgers, adopted this strategy by handing out the longest contract the English Premier League has ever seen multiple times over the course of the last month.[14]
In early January, Benoît Badiashile and Noni Madueke both signed 7.5 year contracts, the longest in the history of the Premier League.[15] Those deals were quickly followed by the signings of Mykhaylo Mudryk and Enzo Fernández on 8.5 year contracts, once again setting new Premier League records for contract lengths.[16] Chelsea signed Fernández for a British record fee of £106 million.[17] This amount would surely cause issues for Chelsea if the entire transfer fee was recorded in year one or even spread over a more common contract term such as four years. Yet, by signing Fernández to an 8.5 year deal, Chelsea has exploited a loophole in FFP and created unprecedented financial flexibility.
Following Chelsea’s signings, UEFA have proposed a new rule to go into effect this Summer that would limit the contract length that a club can offer to a maximum of five years.[18] This reaction from UEFA is controversial. By locking promising young talent into longterm contracts, Chelsea has gained an advantage over other top European clubs because those young talents will not be able to move as easily to other top clubs. Especially as clubs enter the second half of the season and fight for spots in prestigious European competitions, locking down top talent with massive transfer fees and long contract terms may prove to be shrewd strategy from Chelsea and Boehly. However, by introducing a contract term limit, all European clubs would become restricted on the future contracts they can offer even though Chelsea has players under contract until 2031 and expenses amortized over that same period. Either way, Boehly’s circumvention of the FFP regulations may prove to be an ingenious move that benefits Chelsea in the short and long term.
References: [2] Mark Ogden, Chelsea's £600m spree seems more scattergun than strategic -- a big risk if it can't deliver on promises. (03 February 2023) https://www.espn.com/soccer/chelsea-engchelsea/story/4868439/chelsea-600m-spree-runs-the-risk-of-not-delivering-much [3] Id. [4] What is Financial Fair Play and how does it work? FFP rules explained (17 November 2018) https://www.goal.com/en-us/news/what-is-financial-fair-play-and-how-does-it-work-ffp-rules-explained/1ihlynh8s59i319l6nxx1z6kg5 [5] UEFA Club Licensing and Financial Fair Play Regulations (2018) https://documents.uefa.com/v/u/MFxeqLNKelkYyh5JSafuhg [6] Karl Matchett, Financial Fair Play: Everything You Need to Know About Controversial Rule (21 July 2012) https://bleacherreport.com/articles/1270442-financialfair-play-everything-you-need-to-know-about-controversial-rule [7] Id. [8] Paris Saint-Germain fined €10m by UEFA for Financial Fair Play overspending (02 September 2022) https://www.espn.com/soccer/paris-saint-germain--frapsg/story/4736289/paris-saint-germain-fined-10m-by-uefa-for-financial-fair-play-overspending [9] Matchett, supra. [10] Id. [11] Id. [12] Gabriel Fernandez, Biggest MLB contracts in history: Where does Francisco Lindor's $341 million Mets extension rank? (01 April 2021) https://www.cbssports.com/mlb/news/biggest-mlb-contracts-in-history-where-does-francisco-lindors-341-million-mets-extension-rank/ [13] Ben Lindbergh, Five Reasons MLB Free Agents Are Signing Longer Deals Than Ever (22 December 2022) https://www.theringer.com/mlb/2022/12/22/23522591/mlb-free-agents-long-term-contracts [14] James Benge, How Chelsea's new spin on long-term contracts aligns with Todd Boehly's approach as Dodgers minority owner (26 January 2023) https://www.cbssports.com/soccer/news/how-chelseas-new-spin-on-long-term-contracts-aligns-with-todd-boehlys-approach-as-dodgers-minority-owner/ [15] https://www.transfermarkt.us/fc-chelsea/berateruebersicht/verein/631 [16] Id. [17] Stuart James, Enzo Fernandez to Chelsea and why this is a British transfer record like no other (01 February 2023) https://theathletic.com/4145509/2023/02/01/enzo-fernandez-chelsea-british-transfer-record/ [18] Mitchell Wilks, UEFA to enforce five-year limit in response to Chelsea's FFP-swerving long-term contracts (23 January 2023) https://www.goal.com/en-us/news/uefa-enforce-five-year-limit-chelsea-ffp-swerving-long-term-contracts/blt310cd045e9d55472