What Next: The Drawn Out Case of AC Milan, UEFA, and Financial Fair Play

As the dust settles on an unsettling week for AC Milan, we take a deeper look at the progression of Milan's relationship with FFP and the way forward.

What is Financial Fair Play (FFP)?

Over the past decade or so, FFP has become a central topic in European football however the title is extremely misleading. Financial Fair Play actually is a set of regulations created to prevent football clubs from spending more than they earn in pursuance of success. There are sanctions imposed if a club exceeds spending limits such as exclusion from UEFA competitions. This came about from a number of reports in 2008/09 that pointed out the un-sustainability of the debt being held by football clubs. A report to the House of Commons in the UK in 2010 - in particular - called for drastic changes to football governance given the propensity for clubs to ‘gamble’ on huge signings with little chance to win.

The History of Milan and FFP

In April 2017, AC Milan was sold to a Chinese Consortium and a month or so later they ended the campaign in 6th place thus securing a possible return to European football. Milan made it through the preliminary round to secure a spot in the 2017/18 Europa League following a huge summer spending spree amounting to €200 million. With this, FFP came knocking.

At the time, Milan was being investigated as the FFP regulations allow for a €30 million or so in losses over a three year period. Milan were recording huge losses that amounted to €78 million over the past full year. At this point, Milan took the option to find a voluntary agreement with UEFA as the team was under new ownership. Milan’s voluntary agreement submitted by Marco Fassone was laughed out of the building and Milan’s business plan was publicly ridiculed, especially regarding the projected merchandising profits from Asia. As a result, Milan were forced to seek a settlement with UEFA in 2018.

In June 2018, Milan were eventually excluded from playing in the Europa League for a breach of FFP regulations as they did not meet the break-even requirement between 2014 and 2017. This announcement came after UEFA rejected Milan’s proposed settlement agreement. Milan decided to appeal the decision at the Court of Arbitration of Sport (CAS) and in July the decision was overturned due to a huge boost of Milan being taken over by Elliot Management following missed payments by the Li Yonghong. Milan was allowed to participate in the Europa League as the decision to ban them was seen to be disproportionate.

In December 2018, FFP was back withholding €12 million from Milan as an immediate punishment for breaches as well as a limit on squad numbers in Europe for 2019/20 and 2020/21. CAS did note a significant improvement in the club’s financials after the Elliot takeover but received penalties nonetheless and were on track for another Europa League exclusion.

The Current Case

So, what transpired this past week is Milan’s attempt at righting their past misdeeds with FFP. Milan entered a deal with UEFA that gets them kicked out of the Europa League for past infractions in exchange for the ending of proceedings against Milan’s overspending. This is not the end as Milan are still hoping for a favourable ruling from UEFA over breaches of FFP between 2016/17, 2017/18 and 2018/19. Moreover, this is a huge public relations win for UEFA due to all the headlines that read “UEFA kicks out Italian Giants AC Milan over FFP.” Most importantly, this move gave Milan the extra time needed to balance their books as without the exclusion Milan would have needed to break-even by 23:59 tonight otherwise face another breach.

The Way Forward

There a five major things Milan needs to do now to make the predicament worth it:

1. Make profits on the sale of players

Milan have not made good gains on sales in the past decades often receiving less than they paid. Moreover, Milan have not sold at the right moment thus barely get noticeable sums for promising youth players. Milan have to make capital gains on signings. If they were to sell right now Donnarumma, Suso, Cutrone and Calabria would be optimal as they count as pure profit.

2. Boost Sponsorship and Merchandising

Milan need to look to PSG, Manchester City and Real Madrid to observe the impact of sponsorship and merchandising. Sales of Milan merchandise and the linkage of Milan’s brand with other companies through licensing and sponsorship can infuse quite a bit of money into the club. A focal point should be the acquisition of a sponsor for the new Milan stadium that would significantly boost Milan’s income.

3. Spend Sustainably

Milan spending was egregious under the final Berlusconi years but the spending since has been wayward and excessive. Milan spent over €200 million in 2017/18 and over €170 million in 2018/19 but did not sell enough nor did they win anything to offset their spending. Milan have run net losses on most of their outward transfers and need to spend wisely on more impactful players who have a resale value.

4. Manage Wages and Fees Well

On major area where Milan needs improvement is its ridiculous wage bill. Milan consistently had one of the highest wage bills in Italy throughout the period where the club was stuck mid-table and this has continued with the rise into European spots. Milan need to reduce the wage bill and ensure they do not keep paying high wages for dead weight on the bench. Also Milan needs to manage the fees they are paying to agents as this was a huge part of the crazy 2017/18 summer spend.

5. Qualify for the Champions League

The only improvement that really matters is the on-pitch performance. Milan have not played in the Champions League since 2013/14 and they really need to get back. A UCL spot means more income from the tournament and TV rights, more global exposure, more bargaining power with players and an overall net benefit to the club. Milan must do everything to ensure that they finish in the Top 4 in 2019/20.