Is Wenger Right About The Impact Of The Financial Regulations?

Ever since the vote on the UEFA Financial Fair Play Regulations there has been an ongoing debate about the impact they’ll have on clubs. There seem to be three broad opinions; the new regulations will change the world of football, the new regulations will have some impact, and there will be no impact whatsoever.

Arsene seems to be in the first category,

It will be a massive advantage to Arsenal Football Club as soon as it’s applied if it’s well introduced.

I guess most of you will have noticed the “if it’s well introduced” bit at the end. That is where the debate is. Many believe UEFA cannot be strict with the rules simply because they cannot afford to leave out the marquee names. Others feel that clubs will find a way around these rules through creative accounting and via some loopholes that seem to exist in these regulations.

Broadly speaking I tend to agree with these arguments. If the clubs want to find a way around it, I’m convinced they can. But to me the biggest question is, do clubs want to find a way around the regulations?

Platini claims that the owners themselves came to UEFA seeking regulations. They don’t want to continue this indiscriminate spending.

It’s mainly the owners that asked us to do something. Roman Abramovich, Silvio Berlusconi at AC Milan and Massimo Moratti at Inter, they do not want to fork out any more.

I believe that makes the more sense than any other argument. You have to wonder how long can the owners absorb losses. We’ve already seen a shift in the transfer policies at Chelsea, United, and to some extent at Milan. While Manchester United don’t have a problem of making losses, their debts are clearly affecting their transfer business.

Chelsea have let experienced players (high wage earners?) like Ballack, Carvalho, Joe Cole, Deco, and Belletti leave while bringing in only a couple of players like Benayoun and Ramirez (significantly lower wages?). They’ve also been looking at the youth market over the last few years, without the kind of success that Arsene has had, if I may add.

United have signed the likes of Smalling, Hernandez, Bebe, Obertan, Biram Diouf, and Pogba in the last two years. All of whom are young, relatively unproven players most probably on relatively low wages. By their standards, replacing Ronaldo with Valencia was a big step down and signing Owen on a free was wheeling and dealing at a Redknappesque level. And all this when they don’t even have a problem with the break even rules. Surely, this is planning for the future with an eye on the new regulations?

Similarly, AC Milan have been shopping for second hand has-beens and bargain buys. While they do have a decent squad, we can see they are no longer spending at the highest levels.

The case of Inter Milan is the most staggering. The excellent Swiss Rambler points out that the club have made cumulative losses of € 509 Million in the last three years (07-09). Overall, in the Moratti era the club lost €1.15 billion with about €730 coming from the pockets of the president.

How long do you think even the richest can sustain such losses?

This does explain why Wenger specifically pointed this out while talking about the financial fair play rules,

I don’t want to go into excuses but you want a business to be run properly and I believe that to lose £150 million a year you don’t deserve a lot of credit to win a competition.

[Meanwhile] we have balanced our books.

Maybe some people think it’s right because they don’t care but if they had to run a business I don’t think it’s right.

For some it’s a force of habit to dismiss everything that Arsene says about the financial issues. But those who do think about it wonder what’s going on. In effect, it’s like saying we have a hundreds of millions to blow, let’s see how you compete with us.

Is it at all surprising that other clubs are forced to spend beyond their means? Ultimately, many end up in the red and flirt with extinction.

This problem is even more pronounced in La Liga. Barca and Madrid have massive incomes. The other clubs have been forced to compete with them by splashing more than they are earning. It has reached such a stage that the Spanish government has been forced into taking some action.

In an effort to tackle reckless spending and rising debts among the 20 La Liga clubs, the country’s top teams will be subjected to financial regulation by a new independent body established by the Spanish government to ensure that teams are living within their means.

Clubs won’t be allowed to spend more than 70% or 75% of their income on player wages or transfer fees under new proposals from Jaime Lissavetzky, the country’s secretary of state for sport, which are expected to come into force for the 2011-12 season and will include powers to exclude offenders from competition.

One might argue that since Madrid and Barca report profits they will not be affected by these rules. To an extent that is correct but we must not forget that these clubs thrive because of La Liga. If the other clubs cannot compete the league itself will be threatened and that will have a direct impact on the big two. I won’t be surprised if they move to some sort of a revenue sharing model for the television rights.

There is a good chance that such a change will adversely impact the revenues of La Liga giants. We’ve already seen that everything is not right at Barca as they had to take out a loan to pay the players’ wages. Any impact on their revenues will directly affect their transfer decisions and wages.

In the short-term Madrid and Barca might be able to spend more than Arsenal, Chelsea, United, Inter, or Milan; but in the long run I see it evening out.

The final case is that of Man City. I think they are planning to spend big right now and will convert most of the debt into equity before the monitoring period begins. After that they will have to find a way of covering the amortization costs and wages by making a significant jump in revenues. I have a feeling if anyone does try to circumvent the regulations, it will be City.

To conclude, the intent of owners and the impact of local regulations will decide the future economy of football. UEFA have come up with a decent set of rules. If the owners decide to abide by these rules, which is in their best interests as well, the football world might see a rapid return to sanity.

If however, there are some who want success at any cost, we will continue to see an inflated market. I have a strong feeling UEFA will take strict action if an odd club like City, who don’t have any European pedigree, try to circumvent the rules. But the governing body will be helpless if all the big clubs continue to break the rules. Given the evidence we have seen I believe the market is already changing, and thanks to our prudence and foresight we are likely to be amongst the best placed clubs.

35 Responses to Is Wenger Right About The Impact Of The Financial Regulations?

  1. PTangYangKipperBang says:

    Great article.

  2. Johnny Deigh says:

    I think clubs will still be able to run huge losses for the first few years of the new regulations.

    • desigunner says:

      I’m not sure what you mean by huge. The regulations have a limit of 45 Mil, if I’m not mistaken, over the first three years.

      We’ll have to see how clubs like Inter and City (if they qualify) fall within that.

  3. majaa says:

    What is the point of saving up. 10 years ago Shearer probably the best English player at that time was sold for a world record fee of 15 million. If you have saved that 15 million over time, can we get another quality player for that amount now? For 15 million you can only get an average player from an unknown country and club.

    • desigunner says:

      Firstly, who is talking about saving?

      Secondly, do you realize how much we have gained in terms of revenues due to the move to the Emirates?

      If you got the idea that this is about saving X amount now so that it can be used in the future then either my article is extremely confusing or you’ve got it all wrong.

    • AnonymousGun says:

      Like Arshavin!

    • AnonymousGun says:

      Or Vermaelen .. But wait.. TV5 is even cheaper D=

    • Bootoomee says:

      Do you have any idea what £15 million ten years ago is worth now? Your comment is either poorly translated – assuming you used a translator – or just plain irrational.

  4. Fazizu says:

    and your point is:…….??????

  5. drvics (mumbai gooner) says:

    Good analysis again Desi. This issue has been tackled by other blogs as well, in some detail I may add, such Untold, Swiss Rambler and even ACLF.
    I completely agree that the regulations are already having an effect as seen during the transfer season. Also, its logical to assume that most big name clubs would welcome these regulations, cause after all who wants to run a business at a loss for any length of time.
    The only point of speculation is that of UEFA acting on its threat or not. I think that most clubs wont risk losing out on Champions league due to a blatant disregard for these regulations. What we will have to see, is how much leeway Uefa gives the big clubs.
    There is no doubt however that clubs will have to overhaul their transfer policies and wage structures.

    We will have to see how this impacts the transfer markets over the year, will there be greater competition for player signings as the price range would now be more ‘affordable’ or will we see fewer transfers like this season and also fewer mercenaries (I can only hope).
    Either way, Lord Wenger’s policies and foresight have ensured that Arsenal lovers will enjoy top flight football for years to come.

    • desigunner says:

      I believe we will see more and more debate on this issue over the coming months. This will continue till the rules are in effect and we actually get to see what’s going on.

      Right now everyone has their own interpretation of the facts but no one can be certain of what will eventually happen.

      I think clubs who have already invested in youth and those that will do so at the earliest will be the strongest because apart from the financial rules we will also see the impact of the squad limits.

  6. Alibaba says:

    Arsene knows what he is talking about, it’s his area of expertise after all, so i put my faith in his word. Personally i don’t care too much what the big clubs do, whether they try to bend the rules or not, i care more about how our own club is run, of which i am extremely proud. Other than that i only hope that these rules bring a positive effect to the majority of clubs in financial distress, bringing them back in line and saving them from disaster. If thats the only thing to come out of it then it’s a good thing.

  7. Kushagra India says:

    these rules are a load of tosh!!
    We wont have any FULHAMS(europa league),LEEDS kinda stories thats what football is all about.Everyone will remain where they are with top clubs ruling the roost as they have more turnover than the likes of fulham stoke sunderland etc.

    • desigunner says:

      Actually I’d say Arsenal are the perfect example that this need not be the case. When Arsene built such a consistent side with far less money than what most others are spending how can they complain about lack of money as the reason for not doing well? They only have to find another Wenger. Good luck with that!

      • MSL says:

        Or a Hodgson! Frankly, Jose Mourinho is a great bargain finder too. He bought Lucio for 5M. I cannot wrap my head around that fact, ever!

  8. Harry Rednapp says:

    F%$# You!!!
    I am not a Wheeler Dealer!!!

    (sorry, couldnt help myself)

  9. Lancer says:

    Great article but one key thing I think you failed to mention is that Barcelona “report” profits. After their accounts were audited for last year, their supposed 9 million profit was actually a loss of 77 million! Their debts are around 392 million, and although nowhere near as bad as Liverpool and Man U, it’s very high. Their wage bill has risen to 64% of their income which is at a very dangerous level. Considering all they have won, and the fact that they still lost 77 million, how can they sustain such high wages in the future? No wonder they borrowed 150 million to pay players in June. Here’s some good articles from untold that go into more detail on Barca’s dishonest finances.

    • desigunner says:

      That’s a good point. I left it out because I wasn’t sure about their financial situation. Untold offer the point that they are in trouble but The Swiss Rambler seems to think otherwise. At least that’s what I got from reading their respective opinions.

      One thing I do know is that if their revenues drop due to TV revenue sharing, Barca will be in a spot of bother.

  10. Ant says:

    Fascinating article. I never considered the view that the high-spending owners WANT the control, so that they aare not allowed to, and therefore cannot be blamed for not spending big, or otherwise in a negative position for not doing so. Having now considered… yeah OK, I’ll buy it, and will think more on it. First fresh perspective in about 18 months for me.

    However… I also read an interesting article recently speculating that Man City would (or could, or would try) buy Premier league victory at all costs, including being financially illegitimate for the Champions league.

    Strnage to imagine tho it may be, picture 2 our of 4 teams NOT careing tha they are outside UEFA regs, mnuliplied across countries.

    Thats a half-strength leagure of unahppy domestic winners getting thrashed by domestic, bankrupt winners.

    • desigunner says:

      I agree with the opinion that City will try to buy the League at any cost. But I’m not sure other leagues have the kind of benefactors they have. Moreover, given the way they are struggling there is no guarantee that their approach is working.

      People have seen how Liverpool and United are struggling after buyouts. They’ve also seen that senseless spending at Madrid and City hasn’t yet yielded dividends. Chelsea are the only example of buying success but it won’t be that easy to replicate because when Abramovich invested his millions the competition wasn’t as high. So you have to wonder how many owners are going to take the risk.

  11. aravindvr says:

    Nice read.A huge overhaul required by others while we continue our Wenger ways.
    A salary cap for the players(or a restriction on total money spent on Salaries) can bring English thugs like Rooney, Cashely and Cheat Terry down to earth from their fantasy worlds.
    Could help generate a more clean global Football environment also.And Footballers could once again be great role models for the kids.

    • desigunner says:

      I’m in favour of a salary cap but not sure if most clubs want that. A total cap on wages wrt the revenues might be a good idea, something they are trying to implement in Spain.

  12. GF60 says:

    Good perspective Desi. One point…wouldn’t ManCity be very hard pressed to convert a loan into equity? From memory their stadium is owned by the council and that would be the largest equity item say, for an Arsenal or Manure. Admittedly marketing of shirts, souvenirs etc and TV income gives substantial amounts of forward cash but there’s nothing really solid in those. Be interested in your thoughts.

    • desigunner says:

      I don’t think converting loan to equity is that difficult. Technically, they’ll just have to issue more shares and as far as I know there is no limit on the amount they can get through this method, at least not till the monitoring period starts.

      The second aspect is that of achieving break even. They cannot cover a big chunk of this with equity on a year after year basis. I think they’ll try to increase the revenues by sponsorship deals.

      They might also buy the stadium from the council, I think they can get equity or debt for this as it’s one of the investments that is seen in a positive light by the new regulations. Then they can generate a good sum with stadium naming rights.

      If these tricks, which are fairly legit, don’t work they could try tweaks like selling players to some club in the middle east and then loaning them back. Not sure if the rules have anything to prevent this.

      I’m sure there will be some friction between UEFA and City and it will be fun to watch.

  13. flyingGooners says:

    Couldn’t agree more Desi. Great post.

  14. Mohamed Zubairu says:

    If it is true that club owners approached UEFA to make these rules, then it means that they are getting tired of playing father Christmas. There is just no way that uncontrolled spending can continue. It does not even make sense to spend money above what you can earn in football given the amount of money it generates.
    Clubs will be forced to comply to these rules. In fact, the rules will save the face of some clubs who have gone in this direction for long. They can just explain to their supporters that they are being hindered by the new rules while in fact, they know that they cannot sustain it. These extra monies belong to banks and ultimately to the customers of those banks. There will certainly come a time when the owners of the monies will want their monies and will use legal means to get it. At that time, the clubs will have to cough it out.

  15. Surferosa says:

    Lot of news about the counter-attacking style Braga will bring tomorrow:

    If thats the case, bring it on. Our defensive vulnerability to the counter has been our ondoing over the past couple of years against the big teams. We must show an improvement here if we are to challenge for trophies.

    Braga knocked out Celtic (not easy given their Parkhead record in Europe) as well as Seville- so clearly they’re no mugs. Should be a good acid test after the last couple of cloggers we’ve played.

  16. Fabarsene says:

    the world saw recession in 2008 and it affected the whole world. but the clubs have still not learned how to run within their means. The clubs just want to win trophies and they are paying a huge cost for it. These rules should have come in, when the world first saw proper club football competitions. All the businesses are run within budgets so clubs should also do the same.

  17. Bootoomee says:

    Great piece Desi!

    Let’s not forget why the big clubs/spenders need UEFA to step in: it’s because they are all hurting each other in the crazy bidding/spending process! And as you rightly pointed out, this can only go on for so long because none of this men have bottomless pockets! Now, I am only waiting for all those who have been insulting AW for his decision to not follow the crazy crowd to start apologising to him, especially that section of Arsenal fans whose sole reason for following the team seems to be to cheer trophy wins. Arsene does know!

    • desigunner says:


      When you mentioned “hurting each other” it reminded me of the crazy arms race from the cold war. This seems to be a similar issue in a different context. And it’s in the interest of all parties to bring it to a quick and peaceful end.

      The Misery Brigade will never accept they are wrong. I don’t think they’ll ever have the sense to understand this even after the whole world of football changes it’s approach.

      Criticism is easy, people can always find a reason to be negative as they have no accountability.

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