Soccer's Faulty New Money Rule Hurts The Clubs It Was Meant To Protect

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Queens Park Rangers are the latest victim of Financial Fair Play, the laudably-aimed yet poorly calibrated rules which are in theory meant to keep teams solvent but in practice keep them from sensibly spending to improve their position, or even from spending money they actually have. Yesterday, English Football League chief executive Shaun Harvey threatened the Premier League club with a triple relegation should QPR fail to pay the League's FFP fines, which the club's chairman is adamant on flaunting. It's a disaster, all around.

The wheels for this current predicament were set in motion all the way back in August of 2011, when Tony Fernandes became QPR's majority shareholder and chairman. The club had just gotten back into the Premier League, and Fernandes pledged to spend in order to keep them there. And spend they did. After barely surviving relegation in their first year back, QPR bought even bigger during the 2012-13 season.


Despite this investment, it looked more and more likely that the team was going to be relegated as the season progressed. Papers started reporting about QPR's player contracts situation: since the newly promoted club was so desperate to sign good players in 2011, they did not include relegation clauses in the contracts of many of their best-paid players.

(A relegation clause is standard contract language that says that if the club gets relegated to a lower tier, the player's wages will be cut to reflect the fact that the team has less money coming in.)


Eventually, that doomsday scenario actually came to pass. Rangers finished the season last in the table, and had to return to the Championship.

QPR were able to shed a few of their big contracts through both transfers and loans, but a big chunk of the previous season's EPL team remained on the books in 2013-14. In light of how difficult it can be to manage finances responsibly when every buyer knows how desperate you are to sell, Rangers decided to hold on to some of those big-name players for at least one more season and try to fight their way right back into the Premier League.

Sure enough—though by no means comfortably—QPR did finish in the promotion play-off places and ended up winning the promotion battle, returning them to the top flight after only one year down. An owner forsaking short-term profits to fight for a better financial position in the long run and a better sporting product—exactly what should be what the rules promote, right?

Well, maybe, but it's not what they actually do promote. As soon as QPR dropped down to the Championship, the Football League—the body in charge of England's second, third, and fourth soccer pyramid tiers—began agitating about FFP compliance. To understand why, you have to know a little about FFP's goals and how it seeks to reach them.


Financial Fair Play's broad mandate is to eliminate the unsustainable spending that is rampant in soccer. Every few years there are stories of surprisingly large and prestigious clubs spiraling into debt-fueled black holes. Almost every Spanish club has had their financial apocalypse scares. England has seen once mega-money clubs like Portsmouth and Leeds destroyed. Scotland's Rangers—that country's version of Barcelona or Real Madrid—were knocked down four divisions after going bankrupt. These stories are even more common in the lower levels and leagues in Europe. Plus, with rich clubs having much easier access to debt, smaller teams are unable to compete with the ever-increasing budgets of their better-monied superiors. Money mismanagement destroys poorly-run rich clubs while strangling the ambitions of well-run smaller ones.

The main way FFP seeks to address the situation is by what is called the break-even rule. It basically means clubs will be sanctioned if they spend more money than they earn over a certain number of seasons. This season we've already seen a couple prominent examples of FFP in action, with UEFA fining Manchester City and Paris Saint-Germain and limiting their transfer and wage budgets for the year. QPR are just another iteration of the same phenomenon.


Is this really the kind of behavior FFP should be punishing, though? Everyone would agree that a well-functioning FFP policy should prevent another Portsmouth or Leeds disaster, but while City and PSG are usually pointed to as the modern examples of All That's Wrong With Money In Soccer, preventing new Cities and PSGs from emerging only protects the existing big clubs.

Soccer, more so than any American sport, is a game dominated by money. The more you spend, the more you win. It's virtually impossible for a team that doesn't compete on the financial front to construct a team that matches up with the rich clubs. The rare times this does happen, it is short lived, as the little team's players are lured away by the smell of money wafting from the fat wallets of others. (Just look at this season's Borussia Dortmund.)


Further punishing ambitious sides wanting to compete on the highest levels, there's no way for a club to generate the kind of money the big boys do without shelling out millions and millions and millions of Euros to buy a good team. Thus FFP has the perverse effect of stabilizing club spending by calcifying the existing soccer hierarchy. If Man City and PSG came into existence today, their successful business plan—throwing all the money at all the players, seeing which ones pan out and which don't, and then repeating the process until it's produced a side capable of regularly making deep Champions League runs—wouldn't work.

The ideal compromise would be something like what Jean-Louis Dupont proposed in an interview with FourFourTwo. Dupont—the lawyer who won the Bosman ruling, basically soccer's Flood v. Kuhn—is currently attempting to challenge the break-even rule as a violation of EU labor law. His problem with it is that it prohibits club owners from spending their own money for the betterment of their team out of a misplaced fear of debt accretion.


Not only should PSG's owners be permitted to stuff the club's bank accounts with their own money—to forbid this is illegal and aggravates the very problem the system is supposed to address. It allows the already hugely-profitable superclubs to continue investing all their revenues into the team while preventing smaller ones from using seed money to spur their own assaults on the status quo. That doesn't help the little guy at all. It protects the deep pockets of City and PSG, if only because of a fluke of timing, and allows them to continue breaking the rules and writing off the fines as the cost of doing business, while snapping shut the wallets of owners who didn't make it under the curtain.

Dupont's solution is to allow club owners to invest as much money as they please into their clubs, so long as they put the money into the club's account upfront. FFP shouldn't allow teams to finance themselves using debt, but if the owner has the cash and is willing to shell it out, it makes no sense to prohibit him. And if you still want some mechanism to punish this kind of over-spending, levy some kind of luxury tax on any money spent above the break-even point.


In this scenario, all the bills would get paid on time, greatly reducing the risk of a financial death spiral. At the same time, a prospective new owner—or an existing one, like, say QPR's Fernandes—would be able to try to achieve his goals by filling the club with the only kind of currency known to work—actual hard currency.

There is a chance that QPR could escape these penalties, though most likely not for long. The Football League has no jurisdiction over the Premier League, so as long as QPR stay up, they will not be beholden to the rules as the League implements them. However, this QPR team isn't a world-beater, so unless Fernandes continues tossing money at new players, they will sooner or later get relegated and face the wrath of the league below.


[World Soccer Talk]