Same-same, but different? – The Solvency and Stability Requirements in UEFA’s new FSR

Introduction

Football clubs have missed out on substantial operating revenue as a result of the COVID-19 pandemic. Excessive wage expenses only worsened many clubs’ already deteriorating financial performance. During this period, the FFP regulations were criticised as being inflexible and incapable of addressing the ad hoc and myriad challenges posed by the pandemic. With the introduction of the Club Licensing and Financial Sustainability Regulations (FSR), UEFA has sought to bring the regulatory framework of European football into the 2020s, and to adapt to the new reality. In our previous article we considered the impact of the net equity rule. This post will shed light on another of the new measures: the solvency and stability requirements. 

Club Monitoring Requirements

Solvency and stability requirements (together with the cost control requirements) are the main pillars of the club monitoring requirements in the FSRs. The concept is not new to European football, as the previous FFP regulations contained similar rules. 

(A) Solvency Requirements 

The solvency requirements are essentially a replacement of the “No overdue payables – enhanced” requirements which were embedded in the FFP regulations. The rule aims to ensure that clubs perform their payment obligations towards other football clubs, employees and social/tax authorities. The FSR goes a step further than FFP in requiring clubs to settle their payment obligations towards UEFA as well (such as obligations stemming from financial disciplinary measures). At as 15 July, 15 October and 15 January, clubs need to prove that they have no overdue payables with respect to such payment obligations due to be paid by 30 June, 30 September and 31 December, respectively. Accordingly, the cut-off date for those payment obligations is 15 days prior to the testing date. By way of comparison, the “No overdue payables – enhanced” requirements under the FFP regulations were tested only twice a year – on 30 June and 30 September.

The solvency requirements are applicable for all clubs participating in the UEFA Champions League, the UEFA Europa League or the UEFA Europa Conference League (Relevant Competitions).

(B) Stability Requirements 

The stability requirements rule is the successor of the break-even requirement. However, unlike the break-even rule, the stability requirements should be satisfied by all clubs admitted to the Relevant Competitions which have employee benefit expenses in excess of EUR 5 million in each of the last two reporting periods preceding the commencement of the UEFA club competitions.

At the core of the stability requirements lies the football earnings rule. The difference between the relevant income and relevant expenses (each as defined in the FSR) in respect of a single reporting period gives the amount of football earnings. For the purposes of compliance with the stability rule, the aggregate football earnings are taken into account, being the sum of the club’s football earnings for each of the three consecutive reporting periods which comprise the monitoring period (T, T-1 and T-2). The aggregate football earnings can be adjusted upwards for relevant investments (i.e. investments in youth development, community development, women’s football, etc.).

A club complies with the stability requirements if the aggregate football earnings result in a surplus (i.e. positive figure) or a deficit (i.e. negative figure) within the acceptable deviation. The acceptable deviation is EUR 5 million (or up to EUR 60 million, provided that such excess is entirely covered by contributions in the reporting period T or from equity at the end of reporting period T). The acceptable deviation can be further increased by EUR 10 million for each reporting period within the monitoring period in which the club:

(a) has not been subject to a disciplinary measure in respect of any of the monitoring requirements;

(b) is not subject to a settlement agreement with the UEFA club financial control body (CFCB); and

(c) complies with the following financial conditions: (i) positive equity, (ii) quick ratio, (iii) sustainable debt and (iv) going concern (each as set out in Annex J of the FSR).

It’s worth noting a couple of differences vs the acceptable deviation of the break-even requirement in the FFP regulations:

• First, the amount of acceptable deviation covered by contributions or equity has been increased from EUR 30 million to EUR 60 million. Pursuant to the FSR, such contributions or equity increase must be made in the reporting period ending in the calendar year in which the UEFA club competitions commence (i.e. reporting period T). By contrast, under the previous FFP regulations, contributions and equity increase in any of the reporting periods within the monitoring period would be taken into account. 
• Second, the further increase of the acceptable deviation by EUR 10 million for each of the three reporting periods in which the club complies with the given conditions is a new concept introduced by the FSR. This allows clubs which have not been involved in any wrongdoings and with generally stable financial condition to still comply with the stability requirements in case of an unexpected disruption of income generated from football activities (as was the case with the COVID-19 pandemic).

(C) TransitionalProvisions 

It is important to note that the break-even requirement in the FFP regulations will continue to apply to the 2022/23 season. In the following 2023/24 season the new football earnings rule will still not fully apply, and clubs will only be required to submit football earnings information with respect to the reporting period ending in 2023. In 2024/25 the stability requirements will come into effect with some modifications for that season only – only the reporting periods ending in 2023 and 2024 will be considered for the calculation of the aggregate football earnings and for the requirement to submit football earnings information.

Comment

In essence, neither the solvency nor the stability requirement is a new concept for European football clubs. Both originate from equivalent rules in the FFP regulations. Nevertheless, certain amendments have been introduced to meet the demands of the changing football landscape and to facilitate clubs’ ability to overcome the increased market volatility without breaching applicable football regulations. So, while the refreshed solvency and stability requirements resemble certain rules in the FFP regulations, clubs will need to be mindful of the changes and proceed accordingly, in particular as the FSR are expected to come under increasing scrutiny over the coming months and years.

Please contact the authors if you would like any advice on the new measures.

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