Great piece from Gab Marcotti explains this quite clearly.
Pasted below, link to article here: http://espnfc.com/blog/_/name/espnfcunited/id/13759?cc=3436
Q: OK, so we've been hearing about this for a long time. When will something actually happen?
A: Well, stuff has been happening behind the scenes. For the past 18 months or so, some two dozen UEFA internal guys plus a veritable army of auditors and bean counters have been combing the accounts of 237 clubs to see which ones comply with FFP's "break-even" requirement.
Q: What does that mean?
A: Well, broadly speaking, the regulations have a requirement: In the first two years (or "monitoring period," as they like to call it) you can't have total losses of more than 45 million euros ($62 million) though there are exceptions, which we'll cover in a bit.
Q: Exceptions? Like what?
A: Well for a start, if you're a little club with less than 5 million euros of income or expenses, you're not subject to FFP. So, in fact, 104 clubs were automatically exempted, leaving 133 who were closely monitored. And in February, UEFA announced that 57 of them met the requirements, with 76 requiring "further investigation."
Q: What? More than half the clubs failed the FFP test? More than half are being thrown out of the Champions League and Europa League?
A: Relax ... It's not quite like that. Some of those clubs ended up in the "further investigation" file simply because they operate on a different financial year (calendar year as opposed to seasonal accounts). And for others, the auditors had to look at some of the other "exceptions" I mentioned earlier.
Q: Oh yeah, what are they?
A: Some costs incurred for spending on infrastructure, like a new stadium or training facility, are generally not counted toward FFP's "break-even" requirement. Neither are some expenses for youth development and other costs, which UEFA considers "virtuous" as a long-term investment in the game. Once the auditors looked at those, they reworked the numbers and found that more met the requirement.
Bear in mind, too, that it's not a cut-and-dried thing. Annex XI of UEFA's FFP has a clause that implies that as long as a club is moving in the right direction and shows a clear and credible plan for meeting the requirements -- which, incidentally, will get stiffer next year, as the limits shifts to 45 million euros overthree years -- it can be given a pass. As one UEFA executive put it: "The idea is to get every club over the finish line. Some are already there, others have a long way to go. We understand that, we want to make sure they're moving towards the finish line."
Q: So how many of those 76 are in breach, even with the allowable expenses and UEFA's generous "finish line" discretion?
A: We don't know yet but the word is fewer than 20. And don't ask me which ones, because it's a closely guarded secret. In fact, I'm pretty sure the clubs in breach have not yet been told themselves, though given the fact that they've been talking to UEFA's accountants for the past 18 months, they probably have a pretty good idea.
Q: Why all this back-and-forth with the clubs?
A: Partly to figure out which expenses are allowed. And in some cases to deal with related-party transactions, situations where a club owner or somebody linked to them also provides sponsorship. Everybody talks about Paris St. Germain and Manchester City but there are others, like Zenit St. Petersburg or Bayer Leverkusen. I suspect that's been the tricky part.
Q: Why?
A: Well, because some owners have been accused of using bogus or inflated sponsorship to pump money into their clubs. Paris St. Germain springs to mind. They argue it's a legitimate sponsorship deal; UEFA's auditors need to establish if they're right.
Q: How do they do that?
A: They have a range of methods. They look at what sort of brand exposure the sponsor would have had if it had spent the same amount on other media like newspapers, TV, the Internet, outdoor advertising or whatever else is available. They look at what other clubs of comparable size in comparable markets (but without related party sponsors) got for similar deals. And they go to marketing companies -- folks whose job it is to pair sponsors and clubs -- and ask them what they think a sponsorship is worth.
Q: OK, back to the clubs. Fewer than 20 are in breach you say. What happens to them?
A: UEFA will tell them they're in breach, as I said. And by the first week in May, the CFCB's Investigatory chamber will make a "settlement offer."
Q: What the heck is that?
A: It's like a plea bargain. You know how in police procedural shows the prosecutor and defense lawyer will cut a deal to avoid going to trial? Similar concept.
Q: Right. So UEFA tells them what their punishment is and they take it and that's that?
A: Yes -- unless one of the other clubs complains and finds the punishment too lenient. If that happens, they'll go to the other CFCB body, the Adjudicatory Chamber.
Q: Sounds scary.
A: It is. The Adjudicatory Chamber will look at the case and make a judgment, most likely by mid-June. It will also rule on those cases where the club turns down the settlement offer.
Q: Who sits on these chambers? Can I get a job there?
A: Probably not. The Investigatory Chamber is mostly economics professors, accounting types, that sort of thing. And the Adjudicatory Chamber is judges. Proper judges, guys from the European Court of Justice.
Q: Gotcha. So is the Adjudicatory Chamber's ruling final?
A: No. Clubs can then appeal to the Court of Arbitration for Sport in Lausanne, Switzerland. They've promised to deal with all cases by early August, and they have to because next season's preliminary rounds in European competition will be kicking off around that time.
Q: Any appeal after that?
A: Nope. Not legally in the sense that you're not really allowed to sue UEFA (or FIFA) for that matter in a civil court. The jurisdiction ends with CAS. I guess somebody could try. Maybe a team will try. But, if it does, it risks the wrath of UEFA.
Q: Right. So what kind of punishments are we talking about?
A: They're in the FFP regulations, which I'm sure you've read closely. I doubt anybody will be thrown out unless they have unpaid bills or try to deceive UEFA. But I'd imagine you're primarily looking at fines and limits on the size and makeup of Champions League rosters next season.
So, for example, maybe a club might be allowed to register only one or two new players for the Champions League. Or perhaps they'll limit the aggregate wages of a club's Champions League roster, meaning that some stars need to be left out.
And there will be a hefty fine too. In fact, one idea gaining traction recently sounds a little like this: For every dollar you go over the limit, you get a dollar's worth of punishment.
Q: A-ha! So a luxury tax, like the NBA?
A: Not quite. Because Michel Platini doesn't want owners with limitless funds to simply pay fines and do whatever they like. So straight fines would only be part of it. Say you're $40 million over, and so you get $40 million worth of punishment. Maybe you'd get a straight $20 million fine and then $20 million worth of Champions League roster limitations. Like, for example, having to shave $20 million off the total value of the wages of your Champions League squad list. That way, the thinking goes, clubs are punished both in financial terms but also in sporting terms.
Q: Does all this sound like "Fair Play" to you?
A: Depends what your idea of "fair play" is. One of the criticisms is that it ends up favoring those clubs that are already wealthy and make a profit and, effectively, leads to stagnation. UEFA denies this; I think it's wrong. I think the rich will stay rich. You're already seeing the gap between the haves and have-nots increasing in almost every European league.
But if your benchmark is whether FFP is being applied fairly, it's a more complex answer. We'll know only once the sanctions come out, but they cannot be slaps on the wrist. That much is clear. Given that UEFA's president, Michel Platini, is French -- and has admitted to supporting Qatar's World Cup bid in 2022 -- does him no favors here. If PSG are found to be in breach -- personally, I don't see how they can't be -- the punishment will have to a real one. Otherwise he'll lose a lot of credibility. But the same goes for other clubs.
Frankly it's going to be tough to get the balance right. And what's more, it's not as if Platini is sitting there deciding the punishments himself ...
Q: No?
A: No. The Investigatory Chamber, the one that offers the settlements, may be under UEFA's control to some degree in the sense that these guys are outsiders who have been brought on board and who will work with the auditors. But the Adjudicatory Chamber is pretty much totally independent. These are bigwig judges (in the real world, not the football world). They don't like interference.
What's more, they haven't been given sentencing guidelines and there is no jurisprudence or precedent for them to fall back on. I actually think that's a risk UEFA has underestimated: the possibility that the Adjudicatory Chamber will be far harsher (or more lenient) than UEFA would want.
Q: OK. So what's your gut feeling about what will happen?
A: My guess is that at least three or four clubs -- the worst offenders, the ones who have effectively ignored UEFA's auditors or been a bit too creative with some of their accounting -- will have the book thrown at them. Those who have at least tried to move toward compliance will be given a pass.
Any other outcome, in my opinion, would mean failure. And that would mean a major FFP rethink.
