Why are UEFA getting involved?

• Simply because Villa are now playing in Europe and have been caught up in the UEFA Club Licensing and Financial Sustainability Regulations approved in 2022 and set live in 2023.

• These regulations are split into three 'pillars'

  • Solvency

  • Stability

  • Cost Control

• Solvency is a quarterly check to ensure clubs are paying their creditors on time.

• Stability is covered by a PSR type regulation with allowable losses of €180m over three years.

• Cost Control is covered by something called SCR. It's SCR that we cover here.

• Clubs also need to have net positive equity in every reporting period, even if the consequence of that such as an equity injection means they fail on any of the three pillars.
  
  What does SCR stand for and what is it?

• SCR is the acronym given to UEFA's squad cost ratio as defined in Annex K of the UEFA Club Licensing and Financial Sustainability Regulations

• In essence SCR is UEFA's version of the Premier League's PSR (Profit & Sustainability Regulations) but it is only applicable to clubs active in UEFA competitions: the Champions League, the Europa League and the European Conference League
  
  How is SCR calculated?

• SCR is calculated in two elements, one is the numerator 'squad cost' as defined by UEFA's own rules and the other is the denominator 'adjusted revenue' also defined by UEFA's own rules.

• SCR is calculated over the calendar year, not the financial year.
  
  How does SCR differ from PSR?

• Well firstly, UEFA have their own PSR called 'Stability requirements'. That is the second of the three UEFA pillars of which SCR is the third.

• The 'Stability requirements' work in a very similar way to PSR but rather than a £105m aggregate loss over three seasons, UEFA allow a €180m total loss over a similar period with an extra €30m leeway available for good behaviour.

• But whether it is PSR, SCR or Stability it is intended to do the same thing - prevent compeititiveness in the organisation's competitions ... sorry to ensure the financial stability of clubs participating in the organisation's competitions.

• However the punishments under UEFA's regulations are quite different from those under the Premier League's PSR.

• Whereas the risk of PSR is points deduction within a League format, that is not possible under UEFA competitions and so the punishment in SCR is entirely financial.

• Of course both courses of action, whether directly or indirectly, utimately impose more financial instablilty on a club accused of risking a competition's economic fabric with financial instability.

• Which is pretty daft.

• But like PSR, SCR exists, and the affected clubs have to abide by it.
  
  What is included in the squad part of the squad costs?

• UEFA are very prescriptive in exactly what and who should be included, but in simple terms:

• Squad costs are the sum total of all benefits paid by the club, or its entities to any player that is a) male b) registered to the club at any point during the period or any player past, present or future who has received any sort of remuneration over the period as well as any head coach(es) (regardless of how they are titled).

• Each of the above become known as a 'relevant person'.
  
  How is the squad cost calculated?

• The gross income of any relevant person.

• The employee benefits of any relevant person.

• Any form of bonus, signing on fee, contract termination payment or settlement fee of any relevant person, in fact any sort of incentive payment you can imagine regardless of the form it takes and that includes crypto, NFTs etc.

• Any post employment benefits of any relevant person.

• Any image rights payments (where a contract exists between club and relevant person for this).

• Any cost incurred by a third party for appearances, sponsorship, endorsement or merchandising unless this is provably not an arrangement involving the club.

• This latter one specifically addresses some of the Manchester City accusations whereby players remuneration was allegedly topped up by sponsors 'related' to the club.

• So basically every player or former player on the financial books at any time during the period whether they have kicked a ball or not and any person who as acted as the primary coach of the club are included in the calculation.
  
  Anything else?

• Any cost of intermediaries or connected party of any sort where it is not already covered in the relevant person's costs are also included.

• That could be a legal entity where the relevant party has more than 20% beneficial ownership, an agent, wife, child, uncle's milkman.. literally any payment physical or otherwise to any party that has a connection with the relevant person during which time he is on the financial books of the club.

• Amortisation and impairments in line with the club's accounting procedures must be used to reflect an appropriate portion of transfer fee - somewhere Chelsea have been 'clever' in putting players on 200 year deals, now proscribed by UEFA.
  
  Is there any offsetting available?

• ​If the relevant person's tax liability exceeds UEFAs tax multiplier this can be discounted.

• UEFAs tax multiplier is calculated every three years against the prevailing tax system in the top 5 UEFA member association countries and a relevant person's tax liability cannot exceed this multiplier. Where they do that excess cost is discounted.
  
  This sounds like an admin nightmare

• It is, much more so than PSR, which for all its faults is a simple mechanism extracting from standard accounting procedures allowable expenses, revenues and pre-tax losses.

• In effect with PSR clubs have to just produce accounts by the deadline and highlight the required elements for the Premier League to pass judgement on.

• SCR however requires the club to collect, hold and disclose a granularity of data that would ordinarily be an input into rather than a published output under general accounting rules.
  
  So that's the Costs in squad cost rato, what's the other side?

• A club's revenue or more accurately 'adjusted operating revenue' i.e. what UEFA wants to see not what the club necessarily publishes in their accounts

• Again UEFA have been very prescriptive in what they term adjusted operating revenue.

• Adjusted operating revenue is not as simple as taking the published revenue of the club from the company accounts.
  
  How is the adjusted operating revenue calculated?

• Gate receipts

• Sponsorship and advertising income

• Broadcasting rights income

• Commercial income (net of costs of merchandise)

• UEFA solidarity income

• UEFA prize income

• Any other operating income for non-footballing activities
  
  But can't clubs just make it up... mentioning no names?

• All of the above are subject to UEFA's fair value calculation.

• Where overstatements are found, anything exceeding the fair value calculation will be adjusted down accordingly

• Any operating income for non-footballing activities that has no connection to the club will also be removed

• Any exceptional items are inadmissable so the sudden income injection from the rich benefactor, sale of hotels to your sister company and flogging your women's team to the Chairman's wife will be out of the calculation

• We need to see if those exceptional items really will be excluded and how that stands up to the inevitable legal challenge.
  
  Anything else?

• Clubs need to factor in any net profit or loss on the disposal of any relevant persons registration i.e. did they sell the player at a loss or profit

• This however is treated differently from all the other inputs to the squad cost ratio as the total net profit or loss on player sales is calculated across the previous three years and pro-rated to the 12 months.

  • Net profit or loss on disposal of relevant persons’ registrations must be recognised

  • the 36 months to the 31 December during the licence season, prorated to 12 months, for element v) above.

• On the face of it this would seem to undermine the idea of a true 12 month picture whilst also raising questions of whether clubs, not active in Europe throughout that three year period, should have to submit for the periods they were not in European competition.

• There is also a hoover up mechanism that catches those transactions, costs and income outside of the capitalisation and amortisation method of accounting
  
  So then what happens?

• UEFA take their 'squad cost' number and divide it into their 'adjusted operating revenue' number and produce a percentage.

• That percentage needs to be below the figure defined in Article 94 set at 70%
  
  70%? That's not what I've read?

• To confuse matters, prior to the imposition of the new rules, UEFA released a statement suggesting that: 

  • "The gradual implementation will see the percentage at 90% in 2023/2024, 80% in 2024/2025, and 70% in 2025/2026)"

• However since the advent of the new rules Article 94 has always expressed the limit at 70%, to support this the figure has been consistent across the three issuances of the UEFA Club Licensing and Financial Sustainability Regulations since its introduction, with the documents published in January 2023 and July 2023 together with the current version dated June 2024 all referencing 70%.

• Both may be true but it is unusual to not see an appendix table setting out the tapering within the first three years of operation and to have no reference whatsoever to this leeway anywhere in the regulations.

• That's not the only thing that the press statement suggests to be true but which is not reflected in the regulation.

• The statement suggests that the reference periods relate to football seasons (in 2023/2024, 80% in 2024/2025...) however the regulations in Article 92.04 state:

  • The relevant periods for the calculation of the squad cost ratio are:

  • the 12-month period to the 31 December during the licence season for elements i) to iv) above

• Ultimately none of this may matter and the taper might be as written and the regulations operate exactly as they are written but it's less than helpful for UEFAs flagship cost control measure to be so poorly collated, intepreted and reported by UEFA themselves.
  
  OK is your rant over? So let's assume it is 70%. if you've broken that limit what happens?

• UEFA will pursue a 'financial disciplinary measure' against any errant club

• That measure will be dependent on:

• a) how much the club is over the threshold and

• b) how many times the club has been over the threshold and by how much over the three preceding periods
  
  What is the 'financial disciplinary measure'?

• This is where things get a little murky,

• ​Having been very prescriptive to this point UEFA are a little more opaque when it comes to how and who they will find culpable.

• They do provide some guidelines but within these guidelines there is significant scope for manoeuvre by UEFA.

• The breaching club is not 'fined' a sum of money, rather any punishment will see UEFA solidarity payments and prize money otherwise due to the club being witheld equivalent to the value of the 'fine'.

• The punishment therefore isn't a cost, it's a reduction in revenue and that is highly controversial as it has a direct impact on PSR.

• Only if the punishment exceeds the sum of money due from UEFA for a club's competition participation will a fine become payable and a cost incurred by the club.

• The timescales for that to crystallise however are not prescribed so it could be an immediate excess fine or one five years down the line.

• And that's not the end of the rather uncertain processes following SCR calculation.

• Technically, under the rules, UEFA could decide arbritrarily whether they want to punish a club or not.

• They could also choose a different financial disciplinary measure to be imposed from a fairly wide spread from club to club even if it's for the same offence.

• In an effort to bring some sort of hierarchy of offence, UEFA have created the concept of a significant breach
   

• So what would be defined as a significant breach?

• UEFA define a signficant breach as a first time offending club being more than 20% above the threshold, so an SCR of more than 90%

• Or a club being more than 10% above the threshold, so an SCR of more than 80% but where the club also failed SCR once in the previous three seasons.

• Or a club being above the threshold, so an SCR of more than 70% but where the club has failed SCR twice or more in the previous three seasons.
  
  What are the punishments for a significant breach?

• This is where things get very weird.

• Despite the concept of a significant breach being a cornerstone of UEFA's punishment regime there is no separate or defined punishment mechanism to deal with significant breaches,

• Rather there is simply a sliding scale of breaches driven by the number of percentage points above the 70% limit and the number of breaches committed in the previous three seasons.

• Quite why UEFA haven't carried through the concept of significant breach into their financial disciplinary measure grid is unclear but the lack of it certainly undermines its claimed importance.

• The punishments are defined in the financial disciplinary measure grid (see below)

• Concerningly, the financial disciplinary measure grid begins with as little a breach of more than 0% over 70% for a first offender - hardly something you would expect to be termed 'significant breach'.
   

• How much are we talking here?

• For a first time breacher, with a SCR of 70.1%, UEFA 'reserve the right' to withhold between 10% and 25% of solidarity payments and prize money that would otherwise have fallen due.

• Not only is that a tiny tolerance to the limit, the punishment itself contains a massive spread. 

• For comparison there is an unwritten leeway with PSR that allows the £105m threshold to be exceeded by 10% or more without action.

• That is a massive spread and worryingly suggests UEFA can choose their punishment on a subjective rather than objective basis.

• This is especially the case given UEFAs wording in L.3.3 that they will simply "take into consideration the table" when deciding punishment for a club deemed in breach.

• This lack of granularity in breach / punishment combinations is the driving force behind the concerns of many participant clubs.