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UEFA's application of Financial Fair Play regulations won't be rigid

UEFA's Financial Fair Play (FFP) rules are a bit like parenting. You can tell your eight year old that if he doesn't tidy his room by the end of the day you'll take his bike away. But if dinner rolls around and it's not quite neat, but still not the absolute mess it was that morning and you believe he made a genuine effort to clean things up, you may let him keep the bike. Especially if you were really looking forward to that father-son bike ride the next day.

UEFA-bashing is popular these days (especially from Special Ones) but, in fact, European soccer's governing body has approached the Herculean task of implementing FFP with two much needed ingredients: common sense and flexibility.

The basic concept behind FFP is that you can't make more than a certain amount of losses over several seasons or UEFA will punish you by not awarding a license to play in the Champions League or Europa League. This will kick in from the 2013-14 season, when the maximum "losses" (acceptable deviation) will be €45 million ($66.8M) over the first two "monitoring periods," 2011-12 and 2012-13. (If you have time on your hands and enjoy both legalese and accounting, you can download the regulations.)

Now, you may remember that Chelsea announced a loss of €83 million ($123.2M) for the 12 months ending May 2010 and, since then, splurged roughly the same amount on Fernando Torres and David Luiz, virtually assuring a comparable, if not greater, loss for the 2010-11. Or that Manchester City, was around €150 million ($222M) in the red for 2009-10 and that was before splashing out north of €200 million ($296M) over the past two transfer windows. So how on God's green earth can these two clubs hope to comply with FFP?

The answer is that FFP is, at once, stringent and fuzzy. For a start, bear in mind that a club's annual financial statement is not equivalent to what the UEFA Financial Control Panel will be considering in terms of FFP. A whole bunch of expenses and revenue streams get included in a club's accounts which are not included in assessing FFP compliance. For example, much of the investment in youth development or stadium/facility expenditure is not counted toward FFP. For some clubs that can mean as much €20 million ($29.6M) lopped off the annual expenses.

Oh, while we're at it, let's knock one widely held misconception on the head right now. UEFA will be vigilant when it comes to any kind of attempt to circumvent the rules. So, for example, Sheikh Mansour can't buy, say, a used football from Manchester City for €100 million $148M) and then book that as revenue for City. Or, rather, he can, but UEFA will only count what it considers the "benchmark fair value" of the ball as revenue ... probably €19.95 ($29) or so. By the same token, Roman Abramovich can't get one of his companies to sponsor Chelsea for €200M a year: UEFA would look at the "benchmark" sponsorship deals -- probably Barcelona's with the Qataris -- and only count, say, €25M ($37) toward FFP.

Another key factor which is often ignored is that if a club can prove that it's outside the FFP parameters because of contracts signed before FFP came into effect, then UEFA will look the other way. So basically any contract signed before June 2010 which causes an overspend won't be counted. The effect of this rule will, obviously, wane over time, but, initially should provide a decent cushion in reducing the wage expenditure.

Also, transfer spending does not automatically show up in a club's account as an expense. Or, rather, not a full whack, because clubs tend to amortize player acquisition costs. Take Torres, for example. It's not as if his arrival automatically added €60 million ($80M) expense to Chelsea's 2011-12 accounts. What clubs do is spread out the acquisition costs of a player over the life of his contract. In Torres' case, it was five and a half years so Chelsea "only" takes a hit of around €11M ($16.3M) in 2011-12 (plus, of course, his annual salary).

But perhaps the most important factor is hidden away in Annex XI of the FFP regulations. And this is where things get fuzzy. If a club can make a persuasive argument that it's losing money today, but that this is part of a long-term strategy that will lead to break-even or at least FFP compliance, then UEFA may decide to grant a license anyway. Now, obviously it can't be as simple as "We'll make a €500M loss this year but don't worry because we've signed Leo Messi, Cristiano Ronaldo, Xavi, Wayne Rooney and Manuel Neuer and our strategy is to win the Treble every year while selling out our stadium and charging fans a thousand euros a ticket while selling a billion jerseys around the world..." It has to be "credible." But, of course, "credible" can mean different things to different people. (Some of those subprime mortgages looked awfully "credible" to a lot of folks until they blew up in everyone's faces.)

The other factor is that UEFA will consider a club's "trend." (And this may be the saving grace for clubs like Chelsea, City, the two Milan teams,etc.). In other words, if you cut your losses year on year and show UEFA you're moving in the "right direction" then they may license you anyway, even if you don't meet the requirements. A bit like the dad and son bike examples above: show good will, stick to it and we'll be understanding.

Some of the more virtuous clubs will, no doubt, complain, if and when UEFA's Financial Control Panel applies the rules in Annex XI to give somebody a "pass" into the Champions' League. But, in fact, UEFA is using common sense. Make regulations too hard and inflexible and clubs who don't have a prayer in terms of compliance will simply give up (which, incidentally, would weaken the Champions' League appeal). The trick in applying this "common sense" of course will be to do it in a way that seems "fair." Because if you're a little too understanding then your daughter, who always keeps her room nice and neat, might get a little peeved when her brother suffers no consequences and gets to keep his bike when, in her opinion, his room is still a relative pigsty.

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