Sponsorships and other forms of advertising in sports takes root in the 1950s when a Uruguayan soccer club decided to use their jerseys to market a consumer brand. A handful of clubs in European countries such as France, Denmark, and Austria soon followed suit, but used their jerseys to increase their revenue, asking brands to pay them for a chance to use athletics as an advertising platform. In the last 40 years, sponsorship deals have become major sources of income for soccer clubs, especially in larger European leagues. In the eleven years from 2000 to 2011, sponsorship revenue in Europe’s top 5 leagues doubled from 235 million euros to 470 million euros. (Allen 2014)
In reality, the inflation of sponsorship deals can be credited to another trend that occurred in soccer over the same period of time, which is the propensity for uber-wealthy club owners to use personal funds to develop their club. This was most famously done by Roman Abramovich, the owner of Chelsea F.C., who notoriously spent nearly 2 billion pounds on the club with a large majority going towards transfer market acquisitions. However, with the introduction of the Financial Fair Play regulations in the 2011-12 season, continuing that trend would require owners to exploit a loophole in the rules of Financial Fair Play.
Central to Financial Fair Play is the breakeven rule, which states that a club’s expenditures may not exceed its income and that it must be able to balance its books over the course of three years (Goal 2017). Among other reasons, this rule was primarily introduced to try to prevent soccer club from burdening themselves with excessive debt (Bryan-Low & Bergin 2018). Historically, soccer clubs would run up huge debts in an attempt to secure contracts with great players, and that caused many clubs to become financially unstable (Bryan-Low & Bergin 2018). This pattern threatened the economics of professional soccer, and had to be addressed through regulation.
However, while the breakeven rule was able to force clubs to stabilize their financials, it didn’t take into account the manipulability of a club’s sources of income. Wealthy club owners took advantage of that loophole and began to inflate the values of sponsorship deals through businesses to which they were linked, effectively inflating a club’s income and allowing them to spend more money while still complying with the rule. As a result, the clubs with the wealthiest owners were able to outcompete the smaller clubs in the transfer market, and any other venues that involved leveraging income to impact results. Outside of player competition, the larger clubs were able to better invest in themselves with the vast amount of wealth they acquired from their owners. Worried for the league’s competitive stability, UEFA updated the regulations within Financial Fair Play to allow for assessing the fairness of a club’s income levels. Specifically, UEFA placed additional scrutiny on how sponsorships are valued and introduced regulations to define how clubs are allowed to profit from them and what level of influence owners may have in acquiring them (Goal 2017). Upon suspicion that a sponsorship deal violates the rules, UEFA is allowed to investigate the deal and determine what the fair market price would have been for it (Goal 2017). Following the investigation UEFA may update its calculations of the break-even result to only include revenue from the deal that is considered to be “fair value” (in other words it limits the club’s expenditures to what the “fair value” of the deal should have been) (Goal 2017).
Admittedly however, this “punishment” doesn’t make clubs forfeit any of the revenue they gained by bending the rules, and still allows clubs to gain a competitive advantage. Even though they can’t spend that money in areas that can immediately impact performance such as player transfers or salaries, clubs still have the freedom to invest that money in infrastructure, training facilities, or youth training. The first two areas of investment can most certainly be used to attract players to the club or sway the decisions of players choosing between clubs, and the last area can be used to expand another avenue for recruiting and developing new talent.
Not only is the stipulation added to Financial Fair Play lenient in this area, but it seems to have no effect on clubs exploiting overvalued sponsorship deals as sponsorship deals keep climbing in value.
Allen, Scott. “A Brief History of Jersey Sponsorship.” Mental Floss, 20 Mar. 2014, www.mentalfloss.com/article/27776/brief-history-jersey-sponsorship.
Bryan-Low, Cassell, and Tom Bergin. “Special Report: How Top Soccer Clubs Clashed with Rules on Financial Fair Play.” Reuters, Thomson Reuters, 2 Nov. 2018, www.reuters.com/article/us-soccer-files-fairplay-specialreport/special-report-how-top-soccer-clubs-clashed-with-rules-on-financial-fair-play-idUSKCN1N7230.
Goal. “What Is Financial Fair Play and How Does It Work? FFP Rules Explained.” What Is Financial Fair Play and How Does It Work? FFP Rules Explained | Goal.com, 18 Nov. 2017, www.goal.com/en-us/news/what-is-financial-fair-play-and-how-does-it-work-ffp-rules/1ihlynh8s59i319l6nxx1z6kg5.