first of all we need to understand the ffp rules. my impression is that a rich owner can get money into his club without all that much trouble, if he really wants. transactions btwn 'related parties' are to match their 'fair market value,' but that only applies to enron type 'accounting.' if man city is owned by a private equity group, only other activities actually controlled by the same entity (and not merely by the same people) are related parties. while the private entity group that owns man city was founded solely to own man city. the emergence of chelsea, or city, or psg is annoying to some because of its sugar-caddy source. but widening the tier of top competitors is a positive in euro leagues. chelsea by now is a legit top club. ucl tv revenues already are sold collectively and shared, but with a big difference from the nfl model. teams in countries that bring more revenue to the competition get a bigger cut. and while it's obvious that united should get more than ael limassol, the system imo goes too far in pegging each and every country to a particular cut. it's hard to say where money comes from these days. as for a super league, just try to figure out what to do once the euro breaks up... iow, i'm not sure the background situation is favorable, at the moment.
The thing about Enron-style "accounting" is that it was illegal. It was illegal and improper under GAAP, which were (and to an extent still are) looser than the European IFRS standards for this sort of thing. If a club tries to pull "Enron-style" transactions, they're not just risking a ban from Champions League under FFS; they're risking fines, tax penalties, jail terms, and if they're public companies, massive lawsuits. No. Read part E of Annex X. If a person has control, joint control, or substantial influence over the reporting entity (the corporate entity responsible for FFP compliance), that person is a "related party," and so are members of his or her family. X.E.2. If another company is controlled or jointly controlled by such a related person, including a family member, then that entity is also related. X.E.3(f). In other words: it's clear that Mansour bin Zayed is a related party; and therefore any company controlled or jointly controlled by him or by a "close member of his family" is a related party. Like I said earlier, how UEFA deals with the Etihad deal will say a lot about whether they're going to read the language of the FFP regs narrowly or broadly. The interesting question to me is, is Hamed bin Zayed a "close member" of Mansour bin Zayed's family? The rule talks about children and spouses; I believe Hamed and Mansour are half-brothers. UEFA may give them a pass on that, which would reduce the scrutiny on the Etihad sponsorship.
control or joint control, yes. but 'control' is a specific financial term. so that: "The following are not related parties: a) Two entities simply because they have a director or other member of key management personnel in common or because a member of key management personnel of one entity has significant influence over the other entity." X.E.5(a). the etihad case is as you describe it. others, however, don't raise the same issue. ownership of a team's sponsor, for example, may be set up so that no 'related party' has 'control,' although such party may be in a position to decide terms of the sponsorship agreement.
btw, the doings by zenit are pretty interesting. i don't know how they fit with ffp, but a team spending that much money in one shot might suggest the rules aren't insurmountable.
It's going to be a few years before these FFP rules are truly enforced. The way they work involved looking at almost a decade of finances (the previous 5 years and the next 5 years). It will be another year or two before we find out if Man City, PSG, and Zenit are punished in any way.
Really the only "punishment" is that they won't be able to play in the European competitions right? So technically a team that only cares about their local league and not the UEFA competitions has nothing to worry about.
Nope, the first line of punishments will be fines. Some expect that Man City will be fined a certain percentage (up to 100%) of what they spend on players (salary and contract purchases) over what they make in revenue. For example, if Man City spend $100 million more than they make, they'll be fined $50-100 million and that money will be distributed to charities, or even other teams in the league. Of course, this punishment would apply to smaller teams as well. UEFA has left themselves a lot of maneuverability. The only thing that's clear about FFP is the crime. The punishments can pretty much be handed out as UEFA sees fit.
sure about that? how is the crime clear if zenit just threw around $100mil on two players and we can't tell for a few years whether it was a 'crime?' sounds pretty fuzzy...
here's another example. marco tronchetti provera is chairman and chief executive officer of pirelli & c. s.p.a., chairman of pirelli tyre s.p.a., and chairman of holding company camfin which is the major shareholder of pirelli & c. s.p.a.. that doesn't mean he controls pirelli. he also sits on the board of fc internazionale milano spa.. but he does not control fci. pirelli is the main sponsor of fci. can anyone exlain how ffp looks at a situation like this? to me it looks like all the 'related party' regulations would not apply. and mind you, it's by no means a unique case.
another example. real madrid doesn't seem to have a 'budget' in any strong sense of the word. basically they're plugged into the main spanish banks, who have been willing to structure certain 'transactions' in ways that keep rm's liquidity wide open. rm, after all, is even something of the king's team. now the spanish banks may be less accommodating than in the past, but that has nothing to do with uefa's new rules. ffp wouldn't seem to address such a case at all.
It's not actually all that complicated. I'm no expert in Italian corporate law--but it seems to me that Tronchetti Provera does control Pirelli in any reasonable sense of the word, as chairman, CEO, and controlling shareholder of the company's controlling shareholder. He doesn't control Inter, but as a member of the Inter board, he is considered to be related to Inter, as are any entities he controls. So the Pirelli relationship is a related party transaction for FFP purposes. It would not be if he just sat on the boards of both companies; it would not be if he just sat on the board of one and influenced the other. Because he sits on the board of the club and controls the company, Pirelli is related. However, it's unlikely that this sponsorship is going to be one that would create a problem anyway. Pirelli is publicly traded on the Italian markets, so it would be difficult for Tronchetti Provera to use it to funnel his personal wealth to Inter. Real Madrid is a company, with a board of directors. It may not have a "budget" in the sense a normal consumer thinks of it, in the sense of a limit on its spending. But like every other company, it certainly does have a balance sheet. I would assume that it has some financial reporting requirements now. Even if it didn't, it would have to start generating standard financial reports to comply with FFP. I don't see what the problem is with holding Real accountable more than any other rich club. If their deals with the banks end up putting them into debt, then they'll fail their FFP audit. If they don't, then they won't.
Because a team can have a deficit one year and reduce spending (or increase revenue) the next year to cover their losses. If they fail to cover their losses in a couple years, then they've violated financial fair play. I have no doubt that a few clubs will "test" UEFA on this. I also have no doubt that many of these clubs will be paying massive fines in the next decade. Its just a matter of time.
i'm not sure where you got the information that tp is 'controlling shareholder of the company's controlling shareholder.' therefore i'm not sure how you come to the conclusion he controls pirelli. 'control' is a legal term. imo you've leaped to a conclusion. ffp rules state: "The following are not related parties: a) Two entities simply because they have a director or other member of key management personnel in common..." tp might well fit under this description. as i say, i don't know where you got the information that he personally owns enough shares to have 'control' of pirelli in the legal sense. businesses may be run by alliances, and unless your ally is your next of kin, ffp misses that target. a person may sit on both boards without making the two businesses 'related entities.' otoh, pirelli's publicly traded status (which you mention) would mean nothing if tp did control the company. real madrid and the banks are not related parties. but the bankers have been ready and willing to create derivative financial instruments that provide real with liquidity. those instruments may be off-balance sheet items. in any case, they aren't transactions btwn related parties. and the banks might book losses, but real wouldn't end up in too much debt. they're not taking on debt. we need to appreciate that loyalty to soccer clubs in europe runs deeper than anything in our parts. big clubs have a circle of financial supporters they can call upon well beyond the trivial and rather uninteresting concept of 'related parties' as defined by ffp.
zenit's expenditures on just two players are above their total revenue for one year. otoh, they're not likely to run into any solvency issues anyway (neither are city or psg). what has happened is that ffp, which was supposed to ensure solvency, has as its most blatant effect that teams backed by more that sufficient wealth and at no risk of financial default, are the first high-profile targets in uefa's crosshairs.
anyway, someone would have to explain to me why a wealthy owner shouldn't spend his 'personal wealth' on a soccer club. how does that highfalutin 'moral' concern connect to the notion of preventing clubs from becoming insolvent? btw, the problem in any case isn't whether this or that individual is a 'related party' to a soccer club, but whether two business are 'related parties' because of the double roles of individuals and/or their next of kin. it's meaningless to say that someone's sitting on the board of a soccer club, in and of itself makes him a 'related party' to that soccer club. uefa might choose to interpret terms like 'control' in the most arbitrary manner. i wouldn't welcome such a move, as it would be highly willful, pbl in the wrong, and sure to unleash harmful controversy, in and out of the courts. i hope uefa doesn't take on the part of calvinist minister, although i realize there are proponents of 'discipline' that would approve every such move...
Platini claims teams violating ffp will lose their European spots. Having people pay a fine and get away with violating FFP will make the entire system a joke. Remove their Champions league spot, and they'll listen. There's too much money for them in Champions League to lose their place inside the tournament.
Control is defined by IFRS 10. As Chairman and CEO and a major shareholder, Tronchetti Provera seems to me--again, without any direct knowledge of the company's books--to meet the test of IFRS 10. If he doesn't, then one of two things have to be true: 1) He doesn't have the power to affect Pirelli's spending, including its spending on the Inter sponsorship, or 2) His own money isn't getting spent on the Inter sponsorship--some other people's money is, either private investors or public shareholders. If that's true, then if Pirelli is overpaying to funnel money to Inter, Tronchetti Provera is either incompetent or criminal and will be removed by the investors. The key word is "simply." Tronchetti Provera is not "simply" a board member or officer of Pirelli. He also seems to meet the test laid out earlier in this annex for a board member of the reporting agency with a controlling interest in another entity. I'm not sure what kind of financial shenanigans you're actually talking about here. It doesn't matter if the investments are off-balance-sheet for the banks or not; only how they appear on the books of the club. And you can't have derivatives without an underlying cash-value, mark-to-market financial instrument, which is going to show up on the club's balance sheet as either debt or equity, both of which are dealt with in FFP. So how, exactly, are you proposing that these bank deals are structured? Which is why related-party transactions are just a subset of the FFS regulations. They account for all of a club's income, equity, and debt. Now, are there ways around these rules? Sure. But it's not as simple as you seem to think. If UEFA wants to enforce FFS, they have the tools to do it.
These fines could be way more costly. If Zennit, with an revenue of $100 million, repeatedly spends $200 million, they liable for up to $100 million in fines. That's WAY more than they'd make in the CL
well, you've reasserted that tp has a 'controlling interest' in pirelli, but i don't see how you can be so sure. and in any case, the ffp regulations don't speak only about being a board member as insufficient to establish 'related party' status for certain transactions. they add that being a 'member of key management personnel' of, in this case, a sponsor, would not make the sponsor/soccer club transactions into related party transactions. pirelli pbl is controlled by a syndicate of investors in which certain banks/financial institutions play a role. that's usually how these interests are structured. i don't know the particular case, but the difference between tp controlling pirelli, and a syndicate of investors controlling pirell (with tp as chariman and ceo) is relevant in terms of ffp rules. tp would serve at the syndicate's pleasure. you're right that tp can't simply spend pirelli's money on fci to any extent he wishes. but pirelli certainly can be generous and reliable as a sponsor. fci was just an example. jeep is the shirt sponsor of fc juventus, and we could debate whether that's a related party transaction (or rather, you might try to assert that). and i still haven't figured out why ffp took it on itself to prevent someone from spending his own money anyway. this puritanical mission imo is ill conceived. there have been media reports about derivatives written somehow on the underlying value of certain players (one can write a derivative on just about anything). bad deal for the banks, good deal for rm. the point, in any case, is that these are not related party transactions, so 'fair value' is not an issue. rm can count on more revenue and that's the end of it. and i can promise you uefa will not go after real madrid, ever, in any case.
I'm not sure, as I said. But whether he is or he isn't is determined by IFRS 10, not by people arguing on the internet, and it's a practical, common-sense test. If he does control the company, then he's limited to fair value by the FFP regulations. If he doesn't, he's limited to fair value because he's spending other people's money. What he can do is spend other people's money as long as he's earning returns for those other people, or his own money as long as it's consistent with FFP guidelines. The only purpose of Annexe 10 is to make sure people don't spend their own money while pretending it's other people's money. Again, I don't understand how any such transaction would have any effect on FFP, or how it would be structured. If the team uses the value of a player's contract as collateral, that shows up on the books. If they sell the risk of a player contract, that shows up on the books.[/QUOTE] Again: the point of that section of the FFP rules is that if it's not a related party transaction, it's not usually necessary to ask if it's for fair value. Billionaires will spend their own money on their team out of vanity. They rarely will spend their own money on other people's teams with no equity return. If you run a bank and you use your bank to funnel money to Real Madrid beyond the value of services or assets they provide to you, that's embezzlement, and the people whose money you're giving away will, it's assumed, not let you get away with it. The question of fair value only arises in related party transactions, because if it's your money, you might let yourself get away with it.
doesn't ffp have rules against a rich owner directly recapitalizing a team? in which case he's not free to spend his own money. if an owner could recapitalize, related party rules would have no bite. he gives himself a dividend from entity 'a' which he owns/controls, and plows 'his own money' into the soccer team. the point is exactly that they don't have any effect on ffp. ffp is stuck figuring out whether 'step-brother' is a related party... i'm afraid in the world of soccer financing, 'not usually necessary' is a bit too sanguine. the real cases often would fall precisely in that space.
i'll hazard a prediction and leave it at that. we'll see a test case down the road brought by uefa against a major euro club, but not quite of the real madrid or chelsea stature. uefa, acting both as attorney and judge, will come down hard on somebody. the controversy will be considerable, puritan proponents of discipline strongly on uefa's side, while moderate observers feel much stronger doubts about uefa's application of the relevant language (not to mention uefa's somewhat confused mission). it's hard to see much good coming out of such a scenario, imo.
UEFA is already withholding CL and EL money (from last season) from 20-30 clubs as we speak as investigations are under way.