Manchester City and the Grasp of Financial Fair Play

By now we all know Manchester City has had a sub-par start to the season. I can’t bear to read another article naming the top three or five issues wrong with the club. The sad thing is that I have written my fair share of those annoying articles.

Look, we get it, City is struggling.  I don’t need to tell anyone the same sad story over and over again. No their season is not technically over, but let’s face it, with the exception of the FA Cup, City has no hope of taking home any hardware this year.

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But the issues for Manchester City Football Club are deeper than what we see on the pitch.

Money has been the center of attention since 2008 when the Abu Dhabi Group purchased the club.  From the beginning it was clear that the goal of the group was to not simply help the club once again compete in England and Europe. They were not settling for the country and continent; they hoped to turn City into a world-wide brand similar to cross-town rivals Manchester United.

To achieve such a lofty goal, one thing would be required above everything else: money and lots of it.

The first step was to purchase some of the best players in the world.  For a team that less than two decades earlier was playing in England’s third division, the quality of players wearing the sky blue kit was a satisfying change for their supporters.

From an outsiders prospective it appeared that City may have invested in a money printing machine or had scientifically discovered a way to grow money on trees. No player was too expensive for the deep deep pockets of the Abu Dhabi Group.

Soon the club had turned their fortunes around and in a matter of a couple years began winning trophies.

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Now you might be asking yourself, where is the problem? A group of incredibly rich people decided to spend money and essential buy their team championships.

Well, there happens to be a new rule in European Football called Financial Fair Play (FFP).  You can think of it as a distant cousin of the salary cap we have in several American sports leagues.

FFP rules stipulate the amount of annual losses a club can incur before punishments are handed down from UEFA.  As explained by ESPNFC:

"“The FFP rules require clubs who play in the Champions League and Europa League to balance their finances, and are meant to curb huge investments by owners and excessive spending on transfers. According to FFP regulations, to avoid penalty, a team’s losses backed by an owner’s own pocket, rather than debt, must be less than 45 million euros in 2013-14 and 2014-15 and less than 30 million euros for seasons 2015-16, 2016-17 and 2017-18.”"

Due to insane amounts of spending, City’s annual losses led to their first FFP punishment back in May 2014.  For starters, the club was required to pay 60 million euros and reduce their squad for the Champions League. But even harsher, City agreed to not spend in excess of 60 million euros during the transfer period.

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Due to their inability to purchase new players, City returned a nearly identical squad for this year’s campaign. And as we all know, these players have yet to match last season’s levels of success.

Now we get down to the real issue. As we currently stand, City looks very unlikely to make it out of the group stage. And failure to make it to the knockout round could have a ripple effect on the club’s finances, their ability to have the FFP restrictions removed and the amount they can spend to purchase new players.

Take a look at the money available to teams through the Champions League:

• Base fee for group stage: €8,600,000
• Group match victory: €1,000,000
• Group match draw: €500,000
• Round of 16: €3,500,000
• Quarter-finals: €3,900,000
• Semi-finals: €4,900,000
• Losing finalist: €6,500,000
• Winning the Final: €10,500,000

After four matches, City has two losses and two draws.  So if we take the base payout of 8.6 million and add 500 thousand for each draw, City has taken home 9.6 million in the Champions League so far this season.

9.6 million euros may be a lot of money but think about how much money they are missing out on.  For a club who’s spending habits have yet to be curbed, they need the additional revenue to turn a profit and escape the FFP restrictions.

Yes the investment of the Abu Dhabi Group brought the club their first top division title in 44 years and a second title two seasons later, but the influx of money has also opened the doors to a slew of financial problems.

Clearly there are other layers within the club’s finances and not all issues would have been resolved through their performance in the Champions League. However, their struggles on Europe’s biggest stage have not provided the sort of financial relief they desperately hoped it would.

In the meantime, the Abu Dhabi Group continues to invest money to grow the international footprint of the club. Man City owned Melbourne City FC began their first season in Australia’s A-League and next year New York City FC will begin play in MLS.

I may have majored in accounting in college, but I won’t pretend to understand all of the aspects related to City’s financials.  But you don’t need to be an accounting major to figure this one out. City’s disastrous performance in the Champions League will only make it harder for them to escape the arms of FFP and the severe grasp it currently has wrapped around the club.