Paris Saint-Germain has had quite a summer: signing Messi, Wijnaldum, Donnarumma, and Ramos on free transfers, along with spending 70 million euros on Hakimi. PSG splashed cash all over the place, the bulk of which went towards these free transfers’ wages. Wijnaldum and Hakimi are reportedly earning 10 million euros per season net, Ramos will allegedly net 12 million euros per season, Messi is on 35 million euros per season after taxes, and Donnarumma is reportedly on anywhere between 7 and 12 million euros per season net. When factoring signing bonuses and other performance related bonuses, it’s possible that PSG splashed 200 million euros on new players this summer. This doesn’t include the salaries of players like Neymar, Mbappe, and Ander Herrera, whom all have massive wage packets with PSG. All of this money, new and old, spent while PSG has allegedly lost around 300 million euros in revenue due to the pandemic. Everyone is crying out that PSG is violating Financial Fair Play, without providing any evidence. We look to explore three questions here: 1. What are the Financial Fair Play regulations?; 2. Given the information known, is PSG FFP compliant?; and 3. Is FFP the correct structure for the financial regulation of soccer moving forward?
Financial Fair Play: What is it?
Financial Fair Play is the regulatory system established by UEFA to prevent professional soccer teams from recklessly spending money in current times, only to lead to future financial difficulties for the club. Clubs are bound by regulations that do not allow the clubs to spend more than they earn. The impetus for this regulatory system was a 2009 review done by UEFA, which demonstrated that a significant number of soccer clubs across Europe, including clubs playing at the highest levels, were suffering from financial difficulties, with some clubs in the Big Five leagues facing financial disaster. UEFA recognized that, for the good of the long-term financial health of European soccer, limitations and regulations regarding club spending had to be instituted, or clubs and leagues would risk bankruptcy and financial ruin.
Financial Fair Play takes the previous two seasons of club financial statements into account. UEFA then reviews these financial statements, which includes the club spending, in order to determine whether the club’s spending is fiscally sound given the revenue. Typically, this means that the club is not Financial Fair Play-qualified spending is not greater than its revenue. In order to avoid these financial issues, yet not stunt the development of stadiums and other club facilities, Financial Fair Play only takes certain club spending into account: transfer fees, wages, and bonuses for example.
Financial Fair Play has also had a secondary effect of limiting what some would call “soccer patronage.” Prior to Financial Fair Play regulations, some clubs would have wealthy benefactors or owners. These owners, using their financial resources earned outside of the club, would pay inflated wages or transfer fees for players. These wage and transfer fees would show that the clubs, according to their books, were taking on financial obligations that the club could not possibly repay; however, the wealthy owners or benefactors would then pay off the debt, essentially using their financial power to keep the club solvent. While this may seem like a fair and benevolent idea, the clubs who did not have wealthy owners or benefactors could not financially compete with the clubs who had wealthy owners or benefactors, creating anti-competition issues in both the league and continental play. Financial Fair Play, theoretically, limits the spending so that clubs are limited to only club resources, thereby making the game more competitive. This wealthy owner or benefactor issue is where we find ourselves with Paris Saint-Germain.
Financial Fair Play and Paris Saint-Germain
Paris Saint-Germain is by far the largest team in Ligue 1, which makes sense given they are located in the largest and capital city of France, Paris. However, PSG had an inconsistent history with sporting success, achieving great heights in the 1990s, yet battling against relegation in the 2000s. In 2011, Qatar Sports Investments purchased the team. QSI is the sporting subsidiary of the Qatar Investment Authority, the state-owned sovereign wealth fund of Qatar. This means that functionally, Paris Saint-Germain is owned by Qatar. Qatar, being a wealthy Gulf state with $300 billion in its sovereign investment fund, would be a financial powerhouse in any sporting context; combine this financial dominance with the fact that Ligue 1 is the least financially profitable of the Big Five leagues, and you have a recipe for soccer dominance, or at least domestic soccer dominance. The numbers back this dominance: since 2011, PSG has won the Ligue 1 Title every season except for three seasons: 2011/2012, 2016/2017, and 2020/2021. In the 2011/2012 season, QSI was a new owner, and PSG finished second. In the 2016/2017 season, Monaco had accumulated a number of young talents that were eventually sold including Thomas Lemar, Bernardo Silva, and, most notably, eventual PSG player Kylian Mbappe; PSG finished second in the 2016/2017 season. In the 2020/2021 season, PSG finished second in Ligue 1, edged out by Lille. All of this is a long way of saying that when it comes to financial competition in Ligue 1 there is none: Paris Saint-Germain has the owners with the most financial power at their disposal. Even so, the 2020/2021 season impacted every teams’ finances.
The 2020/2021 season, played during the COVID-19 pandemic, saw international soccer strain under the financial impact of the pandemic. Stadiums were empty, and even the largest teams faced financial difficulty. Barcelona, Messi’s former club and one of the biggest clubs in the world, is 1.2 billion euros in debt, a financial issue of their own making but magnified by the pandemic. And while every other club in the world is figuring out how to reduce costs associated with Financial Fair Play, Paris Saint-Germain is on a spending spree.
Paris Saint-Germain’s financial reports for the 2020/2021 are not publicly available, but suffice to say that UEFA will be inspecting PSG’s wage bill and financial statements closely. A pandemic causes financial losses and the response is increasing the following season’s wage bill by at least 75 million euros net, totaling 300 million euros net (~545 million euros gross)? Some at UEFA may find that suspicious.
The Future of Financial Fair Play
The Messi situation and signing at PSG has caused UEFA to re-evaluate the Financial Fair Play regulatory system and how it interacts with domestic league operations. There are multiple new proposals on the table.
One proposal would see the salary cap in La Liga outlawed by UEFA. The salary cap was the initial impediment to Barcelona re-signing Messi. Barcelona was unable to afford the Argentine international due to the hard salary cap that La Liga sets for teams each season. Other top leagues, such as Ligue 1 (where PSG plays) and the Premier League simply require UEFA FFP compliance. La Liga’s own salary limitations, according to UEFA, could be seen as a serious impediment to La Liga’s competition with other European leagues in the long-term.
Another proposal, which could work in conjunction with eliminating La Liga’s salary cap or independent from any decision regarding the La Liga cap, is the implementation of a UEFA salary cap with a luxury tax for teams who spend over the cap, similar to the NBA’s “soft salary cap.” This proposal, however, does not address the “soccer patronage” issue that teams dealt with prior to UEFA’s Financial Fair Play regulations. Ownership groups or benefactors with massive amounts of wealth would just pay the tax. Let’s use the above example of PSG. Does UEFA really believe that PSG, functionally owned by a sovereign fund worth $300 billion, would be bothered by paying an extra 20 million, 30 million, 100 million, or 200 million euros per year in luxury tax if it practically guarantees that PSG is in the Champions League Final every year. While 200 million euros is a massive sum of money to almost everyone, it’s a drop in the bucket for a sovereign wealth fund that receives money from the state of Qatar every year and is worth nearly double what Jeff Bezos is worth. A “soft” salary cap would only allow for the anti-competitive nature that Financial Fair Play attempted to stop resume.
Whether it be Financial Fair Play or something else, whatever regulatory system that is implemented moving forward needs to both foster competition and have strict enforcement penalties for violators.
Conclusion
We refer back to the three questions we asked at the beginning: 1. What are the Financial Fair Play regulations?; 2. Given the information known, is PSG FFP compliant?; and 3. Is FFP the correct structure for the financial regulation of soccer moving forward?
For question one, Financial Fair Play regulations are financial regulation implemented by UEFA in an attempt to prevent clubs from sacrificing long-term financial solvency for short-term on-field success.
For question two: is Paris Saint-Germain FFP compliant? Without financial disclosures from the 2020/2021 season, it is hard to say. It is important to note that a 300 million euro net wage bill could possibly be FFP compliant under normal circumstances; however, given that there was a pandemic last season and the financial effects of the pandemic could be felt yet again at some point this year, we believe UEFA needs to seriously scrutinize and pay particular attention to Paris Saint-Germain’s financial disclosure.
For question three: Is FFP the correct structure for financial regulation of soccer moving forward? To paraphrase Winston Churchill, Financial Fair Play is the worst form of soccer financial regulation, except for all other forms. That is to say, Financial Fair Play as a regulatory structure has serious flaws, but it’s the best thing UEFA has as a regulatory structure for now. Maybe UEFA will create some other financial regulatory scheme in a year, or two, or ten, or fifty, but for now, Financial Fair Play is the system in place.
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