Uefa financial fair play rules may not survive the row with Manchester City

Vincent Kompany hoists league trophy on May 11. Lynne Cameron/PA

Lurking behind the jubilation of Manchester City winning a second Premier League football title in three years has been their dispute with Uefa over the financial fair play (FFP) regulations. The club faces a fine of around €60 million (£50m); reductions in the size of the squad they can nominate for the Champions League next season; and possibly restrictions on their wage bill and transfers. It is difficult to recall a harsher punishment being imposed on a club.

They have to decide whether appeal to the Court of Arbitration for Sport in Lausanne, but they could incur a heavier penalty as a result - including the possibility of being thrown out of the Champion’s League next season. And if the sanctions are perceived to be too lenient, other clubs such as Arsenal who have set considerable store by the implementation of FFP could appeal against them.

City are affronted by the imposition of sanctions against them as they consider that other clubs such as Paris Saint-Germain have shown a more blatant disregard for the rules. But Uefa is determined that its rules should be taken seriously and to make an example of particular clubs who are seen to have breached them.

No ladder, no opportunity

The rules are based on the so-called break-even requirement, which requires that a club’s relevant expenses do not exceed its relevant revenue. They are intended to rein in overspending by European football clubs, particularly on player wages, and to prevent clubs with rich owners from gaining an unfair advantage. In some respects, though, what the rules do is reinforce the dominance of existing top clubs like Bayern Munich and Real Madrid.

It offers them a means of pulling up the ladder behind them so that clubs like Manchester City – which were not competing with the top clubs until they were bought by Sheikh Mansour six years ago – can no longer be funded in a way that enables them to do so.

Man City owner Sheikh Mansour explaining 4-4-2 to HRH. Dan Kitwood

Uefa has been sceptical about City’s sale of intellectual property rights to help cut their losses. This means that Uefa views the club as being £99m in the red, more than twice the £37m figure permitted. The sponsorship of the Etihad Stadium may also have been regarded as too generous, while rules relating to wages paid on historic contracts may not have worked to City’s favour.

Many clubs hope the financial fair play (FFP) regulations will create a more level playing field and end the era of heavy spending. What this does not take into account is that both the European and the domestic regulations that have been implemented to reflect Uefa’s rules are likely to be challenged in the courts when a club is given a severe sanction – if this doesn’t turn out to be Manchester City, it will probably not be long in coming.

Indeed a number of Championship clubs have already engaged a solicitor to write to the Football League to warn them of the possibility of legal action – illustrating that this is not just an issue for the biggest European clubs. It is also possible for individual players to bring legal claims and this may be the route by which the issue enters the courts, as it did with the far-reaching Bosman judgment when it fundamentally changed the transfer system.

Is the law lawful?

If the regulations came before the courts, at the very least their implementation would be held up, but it also looks potentially likely that the legal challenge would succeed. There are some differences between domestic and European law in the relevant area, which could add further complications, but I am not sure they would matter much at the end of the day as European law ultimately has primacy over that of a member state in matters covered by European treaties.

The main issue is competition law, covered by article 101 of the treaty of the functioning of the European Union. The fair play rules risk breaching this by outlawing collusive action that erects barriers to entry – this would affect domestic schemes such as that developed by the Football League, which runs the second, third and fourth tiers in English football.

The rules are concerned with the long-term financial stability of club football. But it is doubtful whether this can be considered as a legitimate objective under EU law, which does not justify restrictions on competition.

Neither is it enough to show that European football is suffering from financial difficulties. In particular, it has to be shown that there is no alternative, less restrictive means of achieving the objective such as a luxury tax on top clubs – a move would be deeply unpopular with the Real Madrids and Bayerns and would probably have been more difficult to persuade them to vote in favour of than the rules that were agreed.

Financial fair play may also violate the free movement of workers within the EU – the basis of the Bosman judgment. There are issues in this connexion around articles 15 and 16 of the EU’s Charter of Fundamental Rights, which are respectively about the right to choose an occupation and the right to conduct a business.

There may be other ways of achieving the objective of restraining spending that are lawful, but they will take time to devise. In the meantime, Manchester City could well become the test case that begins to pull financial fair play apart.