Les Jeux Qu'ils Jouent: How PSG Could Game UEFA's Financial Fair Play Regulations
By: Gabe Lezra
In February of 2015, the Premier League sent shockwaves through the global sports media market when it announced an astonishing three-year broadcast deal worth a whopping 5.136 billion pounds. The deal altered the footballing landscape, gifting English sides, on average 71 percent more revenue year-over-year over the course of the three-year contract. The ramifications of the transaction on the broader footballing universe are hard to overstate, though one obvious result is the vast inflation in the value of player contracts: Liverpool, for example, recently announced the signing of 26 year-old Dutch defender Virgil van Dijk from Southampton for GBP75m, smashing the world record fee for a defender.
One interesting secondary beneficiary of the Premier League’s windfall could be the current home of the world’s most expensive player, Paris St. Germain. In the summer of 2017 PSG outspent even Milan and splurged on two attackers whose combined transfer fees could reach well over €400 million: French wunderkind Kylian Mbappe (€180 million from Monaco in 2018), and Brazilian superstar Neymar (€222 million from Barcelona). These superstar’s salaries, combined with those of the other high-paid stars on their rosters, makes PSG among the highest spenders, year over year, in the history of competitive football.
In 2011, UEFA began to discuss a series of regulations that would, at least in theory, force European clubs to be more financially stable. UEFA President Michel Platini noted how well the American professional sports leagues had weathered the 2008 financial crisis, and wanted to design a system that would “protect” clubs from flighty billionaire owners who may cut and run should a team begin to flag. As these rules were implemented, a number of commentators complained that they essentially enforced a pre-existing hierarchy: clubs with more diverse revenue streams in place (read: the old guard of Real Madrid, Barcelona, Manchester United) would not be punished, while the sides backed by football’s “new money” (read: Manchester City and PSG) would suffer the consequences.
These critics have a point—one that became especially salient after the two nouveau-riche clubs mentioned above were fined by UEFA for FFP violations. However, as the regulations have evolved in practice, clubs have worked out new financial strategies that allow them to continue to spend huge amounts of money while shirking FFP. In particular, PSG, due to its corporate structure, ownership and media entanglements, should be able to structure its finances in a way that will allow it to continue to evade FFP scrutiny every year.
The basic premise of FFP is that teams should not “spend more than they make”-that is, that teams’ year-over-year annual losses should not exceed 5 million euros per three-year period. While UEFA has added a number of caveats and closed some loopholes, this basic structure remains in place—and it should be obvious why this regulatory structure is highly beneficial to the old guard, teams with stable, diversified revenue bases, as opposed to teams recently purchased by a billionaire (or, in the case of PSG, a sovereign wealth fund).
Newly rich teams rarely have as diverse an international fanbase as older, established sides do; this, in turn, means less revenue from endorsements, media, friendlies, etc., Yet they need to spend heavily to acquire the talent necessary to develop a deep, loyal, and diverse fanbase. Because of its three-year-running profit-loss calculator, FFP, at least theoretically, discourages heavy investment up front. This structure was thought up, at least in part, after American venture capitalists purchased Liverpool and proceeded to pile the team with debt in order to increase its share price and force a sale—a quintessentially American corporate maneuver called a leveraged buyout.
So, why might PSG be able to avoid FFP sanction as its expenditures on player salaries and transfer costs skyrockets? The answer is actually quite simple: they drastically increase their year-over-year revenue through financial chicanery.
PSG is uniquely positioned to game the FFP regulations because of its corporate and ownership structure. Unfortunately for us, the structure is rather complicated, so I’ll do my best to explain.
PSG is currently owned by a sovereign wealth fund called Oryx Qatar Sports Investment or, QSI. QSI, which aims to “contribute to the rapid growth of sports investments in Qatar and abroad”, is chaired by Nasser Al-Khelaïfi, a friend and close associate of the Emir of Qatar, Tamim bin Hamad al-Thani, its monarch and head of state. Mr. Al-Khelaïfi has also been the president of PSG since 2011 (when QSi purchased the ailing club (possibly as part of a series of incredibly shady quid-pro-quo deals with then-French President Nicolas Sarkozy and then-FIFA official Jerome Valcke, but I digress). In 2014, the major media conglomerate Al Jazeera spun off its sports media group, Al Jazeera Sports, into a separate corporation after it acquired the newly-formed Qatari media LLC, beIN Media Group. beIN Media Group LLC was formed by Nasser Al-Khelaïfi. Mr. Al-Khelaïfi currently chairs beIN Media Group, which is an aggressive player in the market for television rights for top-flight football through its national subsidiary organizations, all variously called beIN Sports.
So, aside from being incredibly shady, how does this corporate structure allow PSG to game the FFP regulations?
There are two related answers, and they both stem from the immense wealth of PSG’s SWF owners, QSi. First, after backlash to the original FFP rules (which heavily punished any debt spending), UEFA has issued updated guidelines that allow club owners to inject capital into their clubs as long as they can offer a business plan that shows how they will reach the FFP break-even threshold (€5m). Under the new rules, clubs are encouraged to proactively approach UEFA to explain how and what they plan to invest and show how the investment will eventually allow them to break even. For example, Milan attempted to meet UEFA’s threshold with projected revenue from Champions League qualification – but that failure, friends, is a story for another day.
This is a boon for sides with capital-rich owners like PSG. QSi is one of the world’s largest SWFs given the immense wealth of the Qatari government. QSi, then, could literally give PSG millions of euros to cover investments until infinity and beyond, as long as they’re able explain to UEFA how they plan to balance their books.
Second, and more importantly, UEFA’s new FFP rules include an updated calculation of revenues and expenses that will significantly benefit PSG. Clubs are allowed to conduct essentially unlimited business with “related entities” so long as the deals are structured according to the nebulous notion of “fair market value” (defined as “the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm’s length transaction”). This is essentially the regulatory structure that allows multinational corporations to move profits from subsidiaries in high-tax jurisdictions to subsidiaries in low-tax jurisdictions.
PSG, QSi, and beIN could do much the same thing: a sample transaction, for example, could include a deal where QSi or another Qatari fund pays PSG to play a friendly somewhere, and beIN purchases the rights to distribute the friendly from QSi. This transaction would have the effect of transferring up to several tens of millions of euros to PSG (chaired by Nasser Al-Khelaïfi) from QSi (chaired by Nasser Al-Khelaïfi) and beIN (chaired by Nasser Al-Khelaïfi)—thus shifting profits from the immense wealth of the Qatari government to PSG to offset any outlays on transfer fees or player salaries (and avoid the limits on direct investment).
Additionally, QSi and PSG could also use some modern financial machinations to maneuver income and debt (and thus interest payments on the debt, which are almost universally tax-deductible) into favorable jurisdictions. In the FFP context, interest payments on debt are considered when calculating yearly losses, but the total debt load is not; additionally, these interest payments are likely tax-deductible in France. So, a sample transaction could include a large loan from QSi to PSG with very favorable terms—in this case, PSG could both tell UEFA that the debt is able to be forgiven or restructured (so it will count less against any FFP calculation) and deduct the interest payments made to QSi from its French income tax. In this scenario, not only is QSi locating its debts in a high-tax jurisdiction (which is the preferred outcome of international tax planning), PSG would likely not need to account for its full debt load to UEFA, while deducting the interest payments it makes (to its own owners!) from its French taxes.
Importantly, however, the theoretical friendly match described above represents only a miniscule amount of money compared to the other area where PSG could generate revenue through related party transactions: media rights. This is where the precedent of the Premier League’s Euro5.5billion contract is so important: theoretically, beIN Sports could purchase something close to a monopoly interest in the distribution rights of the French league for a period of, say, three years (or the runtime of the FFP breakeven cycle). Because beIN is a “related party” for FFP purposes, they would need to abide by the nebulous standard of “fair market value” for these media rights. However, because the market has set the value of the Premier League media rights so high, it would follow that a similarly-termed contract would constitute “fair market value” for FFP purposes. Thus, should Mr. Al-Khelaïfi so choose, he could theoretically negotiate a contract wherein he transfers close to a billion euros from one of his companies to another—from beIN to PSG. These are just two examples of the myriad possible transactions (from sponsorships to product placement to what Ernesto Alvarado termed Qatari “soft power”) that can buttress PSG against the forces of international football regulation. So, if something like this theoretical media rights transaction comes to pass in the near future, PSG knows exactly who to thank for the windfall that will allow them to circumvent FFP review: the Barclay’s Premier League.
 I’m going to quickly plug the series of Let’s Fix Football Episodes that my colleague Evan Mateer and I have recorded with our friend and Paris-based Foreign Corrupt Practices Act attorney Ernesto Alvarado about, variously, corruption at FIFA, PSG’s issues with FFP, and the current corruption investigation into Mr. Al-Khelaïfi. If you’re really interested in this topic, subscribe to the podcast!
 See the long list of factors in FFP Regulations, Annex X, Part F. Suffice to say all entities herein discussed are related.