UEFA and Financial Fair Play: AC Milan under the microscope and a discussion of the 2018 amendments to the Club Licensing and Financial Fair Play Regulations

**This article was originally written with Philippa Lombardi in June 2018 and published on the Lombardi Associates website**

UEFA’s Club Financial Control Body today issued its decision regarding AC Milan’s infringements of the Club Licensing and Financial Fair Play Regulations (hereinafter referred to as “The Regulations”). The Club was excluded from participating in the next UEFA club competition for which it would otherwise qualify in the next two (2) seasons (i.e. competition in 2018/19 or 2019/20, subject to qualification). This decision may be appealed to the Court of Arbitration for Sport (CAS), in accordance with Article 34(2) of the Procedural rules governing the UEFA Club Financial Control Body, as well as Articles 62 and 63 of the UEFA Statutes.

The AC Milan Case

The Italian Club has been closely watched by UEFA since they were acquired by Chinese investor, Li Yonghong, through his investment company, Rossoneri Sport, in April 2017. In the summer transfer window following this AC Milan spent more than €200m on a number of players. UEFA’s concerns surrounded compliance with the “break-even” element of the Regulations, and the Club’s ability to repay loans, which were taken out to finance the purchase of the Club. An American hedge fund, Elliot Management, is reported to have loaned the Club in excess of €300m, which must be repaid by October 2018, together with more than €40m of interest.  The Club is attempting to recover from years of losses incurred when it was under the ownership of Fininvest, an Italian investment company ultimately owned by the family of former Prime Minister, Silvio Berlusconi. Following concerns raised by UEFA about the Club’s financial situation, the Club had requested to enter into a voluntary settlement agreement but this was refused by the European governing body due to ongoing concerns raised about their finances. UEFA advised that they would continue to monitor the club and assess the situation in early 2018.

Following assessment, UEFA confirmed in May 2018 that: “After careful examination of all the documentation and explanations provided by the club, the CFCB Investigatory Chamber considers that the circumstances of the case do not allow the conclusion of a settlement agreement. In particular, the investigatory chamber is of the opinion that, among other factors, there remains uncertainties in relation to the refinancing of the loan and the notes to be paid back in October 2018.” As such, the Investigatory Chamber referred the Italian Club to the Adjudicatory Chamber of the Club Financial Control Body (CFCB) for breach of the Regulations.

UEFA’s Regulations relating to Financial Fair Play (FFP) were introduced in Season 2012/13 and apply to clubs who wish to participate in UEFA competitions. The Regulations aim to promote and improve the standard of all aspects of football in Europe and improve the economic and financial capability of clubs, increasing their transparency and credibility. Clubs are encouraged to operate on the basis of their own revenues and to spend responsibly for the long-term benefit of football. Of all the provisions contained within the Regulations, none have attracted such debate as the break-even requirement. This requirement states that clubs should have an overall break-even surplus in the monitoring period, with the monitoring period defined as the year of assessment (“T”) and the preceding two years (“T-1” and “T-2”). A surplus is defined as the excess of relevant income over relevant expenses. If instead expenses are greater than income and a break-even deficit is generated, a deviation of €5mio will be tolerated. Furthermore, an excess of €30mio will be tolerated if the excess is covered by a shareholder contribution (not a shareholder loan).

No-Deal Brexit and the Horse-racing industry

Horse-racing is one of the UK's most popular sports and has the potential to be hit the hardest in the event of a no-deal Brexit. The Financial Times reported that between the UK and Ireland alone, 10,000 horses move annually to breed or race, in a trade valued beyond £300 million. Across England, France and Ireland, it is estimated that there were 26,000 thoroughbred movements. 

Currently, as part of the European Union, horses in the UK move between member states with relative ease and very little restrictions with no requirement to pass through border inspection posts. Horses are “goods” for sporting purposes and there are various EU directives that govern not only the movement and import of horses but also genealogical identification, breeding, production and quarantine as well as an EU-maintained database that helps the UK horse-racing industry flourish.

In addition to the above EU Directives, the UK, Ireland and France are also party to a tripartite agreement that pre-dates the UK's membership of the EU (but has since become EU law). The tripartite agreement allows for further streamlined movement of horses with less documents required during the process as a result of high standards of animal welfare. For example, movement of horses between the UK and Ireland requires only the presentation of the horse's passport. 

To allow the free movement of horses between member states, you currently only need two basic documents: (1) an identification document (passport which includes health status and veterinary procedures) and (2) veterinary attestation. 

The Government has recently released information as to what the position will likely look like in the event of a "no-deal" Brexit. If that transpires, the UK will be considered as a third country and thus movement of horses will be subject to third country rules. This means that there will be more stringent veterinary checks (with estimated increased costs in the region of £200-£500) as well as a requirement for more documents which will need more planning in advance from breeders and owners. Thereafter, all horses entering the EU from the UK (and vice versa) will require to pass through border inspection posts. In the UK, there are currently only 3 border inspection posts that are authorised to deal with the import of horses.

Turning to the breeding of horses, UK recognised operations involved in the trade and movement of thoroughbred horses will no longer be recognised operations in the UK. This means that the operation would no longer be entitled to enter their horses into the breeding book in the EU and would lose the right to extend their breeding programme into the EU. However, there is some good news, and special treatment can be even to third country breed operations if they meet particular standards. If a UK breeding operation met the criteria, they would be entitled to make entries in the equivalent EU breeding books or registers. 

However, the effect of a no-deal Brexit will also affect UK transporters working with horses as after March 2019, they will require to appoint a representative within the relevant EU country who would then have to apply to their relevant government department to obtain a valid transporter authorisation. On top of that, transporters will also require a certificate of competence, vehicle approval as well as a journey log. This is currently not the case for UK transporters operating currently to and from EU member states. 

The Government has warned that there is the potential for the UK not to be immediately listed as a third country - this would result in the movement of horses from the UK to the EU (and vice-versa) coming to a complete halt until the listing was confirmed.  

Moving forward, the horse-racing authorities of Britain, Ireland and France (the authorities) have been in discussions as to how to legitimately replace the tripartite agreement once the UK leaves the EU, with fears that Ireland's horse industry in particular could be crippled by a no-deal Brexit. To tackle this issue, they are looking to a new EU law on animal welfare which is scheduled to come into force in or around 2021. The hope is that they will be able to include a "high health category" of horse as part of the new legislation that would allow third countries to enjoy special exemptions in relation to movement of horses. Authorities are reflecting on the tripartite agreement and the fact that it came into fruition because of the high standards of sanitary care, health and welfare applied to thoroughbreds throughout the UK, France and Ireland. It is argued that if you rip up the tripartite agreement and do not replace it with a similar agreement, those high standards are in danger of slipping. The new animal health law is therefore seen as a critical opportunity for the authorities to negotiate provisions applicable to third countries with the introduction of a new category of "high-health horse". This would require countries to meet defined standards in areas such as health, sanitation and traceability. If countries are willing to put the time and effort in to meeting those standards then it is argued that they should be allowed freedom of movement. Such a rule would also extend to other third countries such as Australia, New Zealand and the United States.

The Government continues to stress that a scenario where the UK leaves the European Union without a deal remains unlikely given the mutual interests of the UK and the EU in securing a negotiated outcome. Whilst representatives of the EU have stated that there will likely be a transition period applied to the horse-racing authority, they will not allow it to go on indefinitely. A no-deal Brexit would see heavy restrictions on the movement of horses and continues to be a live threat if negotiations are unsuccessful. Such restrictions will likely be significantly disruptive as well as costly for all those involved in the horse-racing industry. 

HOW AMATEUR CLUBS CAN BENEFIT FINANCIALLY FROM THE TRANSFER OF FORMER PLAYERS

At a time when grassroots sport faces more government cutbacks, it is important that amateur clubs have a sound understanding of other streams of revenue open to them that can potentially be used to develop and sustain their organisations.

In 2001, following the famous Bosman ruling, FIFA introduced the training compensation system which would apply to clubs who were involved in the training and education of young players. The ideology behind the system was to encourage increased and better-quality training of young players by awarding compensation to those clubs who had been involved and invested in their training and education. At the same time, FIFA also introduced the solidarity mechanism system which provides for compensation to former clubs who have provided training and education to a player, each time that player is transferred between clubs of two different national associations in exchange for a transfer fee.