By Professor Fabio Iudica Studio Iudica Milan Italy
On 15 December 2017, the UEFA website reported that the Club Financial Control Body Investigatory Chamber had decided not to conclude a voluntary agreement with AC Milan, within the context of the application of the UEFA Club Licensing Financial Fair Play Regulations (the UEFA Regulations).
What is a voluntary agreement and what role does it play within the financial fair play regime in football?
As from 2010, in addition to the well-established sporting criteria, infrastructure criteria, personnel and administrative criteria, and legal criteria, football clubs qualifying for UEFA competitions on sporting merits must fulfil certain financial criteria set forth under UEFA Regulations (articles 46bis et seq.) which mainly implies that clubs have to prove that they have no overdue payables towards other football clubs, employees and social and tax authorities.
In addition, since 2013 clubs must also comply with break-even requirements, which impose a legal requirement on clubs to balance their expenses with their revenues in order to prevent clubs from accumulating unsustainable debt.
According to UEFA, the main objectives of the implementation of financial fair play in UEFA competitions are:
- a) to improve the economic and financial capability of the clubs, increasing their transparency and credibility;
- b) to place the necessary importance on the protection of creditors and to ensure that clubs settle their liabilities with employees, social/tax authorities and other clubs punctually;
- c) to introduce more discipline and rationality in club football finances;
- d) to encourage clubs to operate on the basis of their own revenues;
- e) to encourage responsible spending for the long-term benefit of football; and
- f) to protect the long-term viability and sustainability of European football.
UEFA assesses the compliance of financial fair play requirements through a monitoring process carried out by the UEFA’s Club Financial Control Body (the CFCB) over an assessment period of three years.
In essence, clubs can have a break-even deficit up to €5 million per assessment period (which can be exceeded under certain guarantees, namely if such excess is entirely covered by contributions from equity participants and/or related parties) and in case of non-compliance with the financial fair play requirements they shall be subject to measures and sanctions imposed by the CFCB.
These sanctions may vary,
inter alia, from warning, reprimand, deduction of points, prohibition on registering new players in UEFA competitions, up to disqualification from competition in progress, exclusion from future competitions and withdrawal of a title or award.
Although sanctions may be very harsh, UEFA has declared that the objectives of financial fair play in football can be achieved by a rehabilitative approach rather than a punitive one, which has led to the conclusion of settlement agreements between clubs and the UEFA CFCB. The scope of this kind of agreement is to combine certain financial contributions with numerous restrictive conditions, providing clubs with a plan, in order to comply with break-even requirements in a short period of time.
As an alternative possibility, according to Annex XII of the UEFA Regulations, which was lately introduced in 2015, under certain circumstances: “
A club may apply to the UEFA Club Financial Control Body investigatory chamber to enter into a voluntary agreement with the aim of complying with the break-even requirement”.
A club is eligible to apply for a voluntary agreement if:
- i) it has been granted a valid licence to enter the UEFA club competitions by its national licensor but has not qualified for a UEF A club competition in the season that precedes the entry into force of the voluntary agreement; or
- ii) it has qualified for a UEFA club competition and fulfils the break-even requirement in the monitoring period that precedes the entry into force of the voluntary agreement; or
iii) it has been subject to a significant change in ownership and/or control within the 12 months preceding the application deadline.
Providing that one of the previous conditions is met, the club must,
inter alia, submit a long-term business plan and “
submit an irrevocable commitment(s) by an equity participant(s) and/or related party(ies) to make contribution for an amount at least equal to the aggregate future break-even deficits for all the reporting periods covered by the voluntary agreement. The irrevocable commitment must be evidenced by way of a legally binding agreement between the licensee and the equity participant and/or related party” and, if required by UEFA, it must also be accompanied by a guarantee payment or other form of security as the investigatory chamber considers satisfactory.
Going back to the case involving AC Milan, as it has been reported by the press, the club’s debt towards its investor Elliot, apparently amounts to approximately €303 million (123 AC Milan; 180 Rossoneri Sport Investment Lux).
Considering the extent of AC Milan break-even deficit and taking into account the requirements under Annex XII above, it seems that the Club has not provided any escrow account or any other form of security in order to satisfy UEFA CFCB with respect to the compliance with its financial obligation, while the condition for the application for a voluntary agreement requires clubs to give tangible evidence that they are able to become compliant with the relevant financial fair play requirements within a short period of time.
Furthermore, according to the information released through the UEFA website: after reviewing the application of the Italian Club for a voluntary agreement pursuant to the UEFA Regulations and after careful examination of the documentation and explanations provided the chamber “
considered that, as of today, there are still uncertainties in relation to the refinancing of the loans to be paid back in October 2018 and the financial guarantees provided by the main shareholders. AC Milan will continue to be subject to the ongoing monitoring process and the situation will be assessed again in the first months of 2018”.
Thus, it seems that AC Milan’s financial woes continue despite claims by its Chinese Owner and President, Li Yonghong, that his finances are sound and that recent media reports about financial difficulties are irresponsible and fake news!
Professor Fabio Iudica may be contacted by e-mail at ‘This email address is being protected from spambots. You need JavaScript enabled to view it.’
