UEFA to get tough on clubs reporting losses
Fri 8th Jan 2010 | Money & Finance
UEFA is in the process of formalising regulations that stipulate that football clubs cannot continue to report losses after getting big financial backers and is said to be thinking in terms of a three and half year time frame for breaking even. Chelsea and Manchester City may well have to worry about being excluded from the Champions League if they do not recoup from the big losses, totaling over £130m, that they both announced in the last week. The Guardian reports that UEFA is thinking in terms of having the regulations in place for the 2013-2014 season and this is an effort to give the clubs a "soft landing."
UEFA proposed regulations are a direct effect of the remarks made by Michel Platini in August about the financial plans of football clubs. He said, "If a club gets a lot of money or subsidies from a big backer and is still in deficit in two years then it is a problem and we don't want that." The European Club Association (ECA) has approved Platini's proposal and UEFA is basing its financial fair play rules of the same proposal. So, clubs who do not comply with this will not be allowed to participate in major competitions. "There needs to be a business model for breaking even within three and a half years. The deadline is what it is and we will stick to it; we have tremendous support from the clubs."
This will need some big changes in the clubs as Ron Gourlay of Chelsea has spoken of breaking even as an aspiration rather than having a specific deadline for it. UEFA is sounding enthusiastic about enforcing the rules although it will be tough to take action against big revenue-producing clubs such as Chelsea and Manchester City.
Manchester City owner Sheikh Mansour bin Zayed al-Nahyan's move of converting his interest-free loans to the club into equity in this last week may be significant in the face of these proposed regulations. His move has amounted to his writing off almost £400m of the club's debts. The announcement yesterday that the club had net losses of £92.6m in the first year with Mansour was tempered by this announcement of his having turned loans into shares. It has been a strong statement of his commitment.
If the Abu Dhabi owner of Manchester City walks away from the club, the Eastlands organisations is not left responsible for vast sums although there is a £40 million bank facility still in the accounts. But £40m is debt is likely to look a lot better than a £440m debt to commercial investors should the club need the investment.
According to the Telegraph, It is important to remember that the club is still very dependent on Mansour in that Manchester City's wage bill made their operating expenses exceed the £87m turn over last year and without the owner's help this gap could not have been bridged. While Manchester City's overall finances are probably in better place than the Glazer family-owned Manchester United, the latter is able to make wage payments from revenue even though the operating profit is going for loan interest payments. The Glazer family is looking to refinance the £699m debt through a bond issue.
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