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Complying with UEFA FFP emphasizes the uncertainties of the emotional economy of football

Chelsea was able to claim a pre-tax profit for the 2011/2012 campaign. Making profits is of consequence not only for the financial well-being of a business but in European football anno 2013 clubs must also strive to meet the requirements of UEFA’s Financial Fair Play (FFP, click here for further info.) regulations, which state that a club must not see financial losses of more than €45 mio. over three consecutive seasons up to 2014/2015. Clubs violating UEFA regulations face the risk of being banned from European competitions, which is a ‘lucrative stage’ for European clubs due to the revenue potential linked to participating in UEFA Champions League (CHL). Moreover, the entire meaning of participating in Europe’s finest club tournament is rewarding as it adds to the overall brand appeal and brand strength of the club with related advantages connected to star player recruitment, talent development, sponsorship, fan growth etc. For instance, top players and those aspiring to be top players are not likely to choose a club, which does not participate regularly in the CHL. Additionally, the lack of CHL revenues may position a club in a vacuum, which seems hard to break if a club (Liverpool FC as an example) are kept out of the competition for a consecutive period – especially if there aren’t other aggressive capital injections in play (e.g. from owners).

 

For Chelsea, success in last season’s CHL also helped to boost the club’s turnover (and to move the club to a no. 5 position in Europe concerning revenues*), which affected the financial situation positively. Another major factor leading to a positive result was the club’s ‘share deal’ with TV company BSkyB. Transfer fees from shipping Yuri Zhirkov to Russia, Nicolas Anelka to China, and Alex to French powerhouse Paris Saint-Germain added to to this year’s result as well. The club’s new identity and economy is reflected by Abramovich’s capital injections and the club saw the culmination of Abramovich’s era when the UEFA CHL title was brought to Stamform Bridge this year. Still, the club still has to find the right balance between success on the pitch and in the financial statement to meet UEFA FFP regulations and the club’s development under Abramovich’s influence is a perfect example of the uncertainties of the emotional economy of football. Although, this year’s profit will help the club in meeting the FFP criteria for this period, readers must also keep in mind that massive investments in players, coaches and other staff around the team drain a club for money (even though Abramovich does not seem to run out of them) and relying on one billionaire owner seems like risky business if he chooses to pursue another hobby. Then insert the uncertainty of winning titles in European football into the equation and you have a cocktail, which entails a common pattern in football economy: a billionaire owner without much patience does definitely not guarantee that you will the Premier League and UEFA CHL again and again. Competition at that level is tough, you face other top clubs with prouder traditions and better strategies, and there are also other hopeful ‘overspenders’ looking to go for the titles.

 

Yes, this year’s profit makes the outlook for meeting UEFAs FFP rules brighter for Chelsea but an early exit from this year’s UEFA CHL season does not spark the revenue outlook for the upcoming financial year. Seen from a local rivalry angle, Chelsea succeeded with this year’s revenues in outpacing Arsenal and hence challenged Arsenal’s argument that controlled spending will bring Arsenal in a stronger position to meet UEFA’s FFP rules. Though, I think that Arsenal’s strategy is the best form of risk-management in that regard!

Sources: www.chelseafc.com & Deloitte

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