City losses and the Financial Fair Play Regulations - the issues to be answered

Manchester City this week unveiled financial figures showing a £121 million loss for the financial year 2009/10. This is, or at least should be, no surprise to anyone given the investment we know Sheikh Mansour to have made in the club in the two years since his takeover became official. The question facing the club is how this squares with the need to comply with UEFA's so called fair play rules. I haven't had time properly to absorb those rules yet, and so this is something I'll return to in due course to try to analyse it properly. For the time being, though, let's simply look at what the issues are.



The UEFA Rules were adopted in May of this year, and run to 91 pages in a PDF file. Officially called the UEFA Club Licensing and Financial Fair Play Regulations, they phase in over three years a requirement for clubs to break even by the start of 2013/14 if they wish to be able to play in European club competitions. Losses over the preceding seasons will be capped.

City's accounts, laid bare in full on the club's official website, make all too plain the risk for the club. Playing in the Champions League is quite clearly an ambition for the club under Mansour, but - as City fan David Conn made clear in an article in yesterday's Guardian newspaper, the new regulations are cearly a threat to that. City are certainly taking this seriously. As Conn's piece mentioned, the Blues dispatched PR executive Vick Kloss to Switzerland this week for talks with the UEFA hierarchy, and the dialogue will no doubt be ongoing.

Conn notes that the UEFA Rules do allow it leeway where a club has a viable long-term plan, and this may well be of relevance to City. Any exemptions would clearly have to be sparingly applied, or, as UEFA General Secretary Gianni Infantini notes, they would "lose all credibility." But, with land around Eastlands ready to be deveoped, City's model is really exceptional, and I expect community facilities and involvement to feature prominently. This could be the basis of an appeal for different treatment, especially as it doesn't seem too fanciful to suggest that the Sportcity development is crucial to City's future profitability.

One of my favourite football blogs is Swiss Ramble, the author of which is an Arsenal fan and football finance expert resident in the land of mountains, chocolate and cuckoo clocks. He wrote extensively on the Fair Play Regulations as they affect City some ten weeks ago, and anyone with the patience and interest to go through lengthy, detailed financial analysis will be well rewarded. The latest results may not then have been available, but as no one can have been surprised that City's wage bill now exceeds turnover, the conclusion still, I think, has relevance.

For those who don't want to plough through the whole thing, it's as follows:

There is a section in the [fair Play Rules] that may well allow [City] to pass UEFA’s break-even test with flying colours.

As a rule, revenue from non-football operations is excluded from the break-even calculation, but clause B. (k) in Annex X allows you to included revenue from “Operations based at, or in close proximity to, a club’s stadium and training facilities such as a hotel, restaurant, conference centre, business premises (for rental), health-care centre, other sports teams.”

That sounds almost exactly like the £1 billion development that City are planning for the area around Eastlands stadium. Described as a world class sports and leisure complex, it will include a training facility, luxury hotel and restaurant and should provide a very healthy revenue stream. Bingo! Job done.

Of course, I may be a touch over-cynical here. An alternative scenario would have Manchester City cutting back on their investment after they reach the Champions League, replacing expensive imports with cheaper players developed by their academy, and reaching break-even that way.

This all makes sense if you believe Khaldoon, when he explained that the owners had two reasons for investing in Manchester City, “There is a pure football, emotional side to it and a big business side too. Sheikh Mansour is a huge football fan, but we can also create a franchise, a business which will create value over the years and reap a long term return.”

At the moment, the normal rules of business do not apply to City, but strange as it seems, they just might pass UEFA’s Financial Fair Play rules.

'Real life' has prevented me in recent weeks from analysing the Fair Play Rules in the way that I'd hoped, so it's something I want to come back to in due course. It's a pretty safe bet that senior figures within the club, helped by a battery of professional advisers, have been and are currently going through the Regulations with a fine tooth comb. I'd like to do the same.

In the meantime, though, I'll just note that the Regulations have been trailed for a long time, since before Mansour bought the club. I'm informed that he was well aware of the impending UEFA measures, and that his first contact with the governing body pre-dated the acquisition. It's inconceivable that there isn't a plan in place, and I believe that the extract quoted above probably more or less sums it up.

Finally, I'd just like to make a point about the Fair Play Regulations generally. I dispute the appropriateness of the name - to me, Status Quo Regulations seems more fitting. Is the aim really to create fair competition? Or to protect the clubs most able to generate income by denying any less commercially successful rivals the opportunity to make up a shortfall? Well, I suppose if you believe that, as Michel Platini has claimed, Roman Abramovich's support for the measures is purely born of concern for the state of the game, you probably believe the former. Then again, you probably believe in Santa Clause and fairies too.

Apart from anything to do with City, this concerns me as a resident of Russia and follower of my adopted country's football. I wrote about my local club Zenit's funding for the St Petersburg Times English-language newspaper back in 2008, just after the club's UEFA Cup triumph in 2008. In essence, less than 20% of their budget is self-generated. The rest is pumped in by Gazprom, the world's largest extractor of natural gas.

What I'll be trying to work out when I look at the Regulations in detail is whether there's any wriggle room for the likes of Zenit and their successors as UEFA Cup winners Shakhtar Donetsk, who are bankrolled by Ukrainian oligarch Rinat Akhmetov. Is some allowance to be made for clubs like these, who are taking the only possible route to competitiveness for sides from the eastern side of the former Iron Curtain?

Or is UEFA prepared to disenfranchise half a continent to pander to the likes of Abramovich and Berlusconi? They, after all, having hardly abided by the spirit of the regulations to bring their clubs the greatest successes in their respective histories, suddenly want to pull up the drawbridge to stop others from doing the same.

And Platini has the nerve to call it 'fair play'. Laughable.