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(Yonhap Feature) S. Korean pro football league looking to implement financial fair play system

All Headlines 09:00 May 17, 2018

By Joo Kyung-don

SEOUL, May 17 (Yonhap) -- For most South Korean pro football clubs, winning matches and staying in the first division is their most important season agenda, but in the near future, they may have to pay attention to another thing: staying in the black.

The K League last week announced that it has completed a rough draft of its financial fair play (FFP) system, which aims to improve the financial health of South Korean club football and create sustainable environments for front offices to run their clubs.

"We've been working for a year to make a draft of our FFP system," said Kim Jin-hyung, who leads the public relations team for the K League. "We believe that all K League clubs understand the purpose of this system."

In this file photo taken on Feb. 27, 2018, players from K League 1 clubs pose for a photo during a media event in Seoul. (Yonhap)

Football fans may have first heard about FFP when the Union of European Football Associations (UEFA) introduced the system in 2011. Under its FFP rules, European clubs that qualify for UEFA competitions need to prove they don't have overdue payables and are required to meet the UEFA's break-even requirements. The UEFA also encourages clubs to make "sustainable investments" such as spending money on stadiums, training facilities, youth development or community projects through its FFP system.

Non-compliance with the regulations leads to disciplinary measures, such as fines and even disqualification from competitions.

Kim said the K League is currently working on the details of its FFP system, including penalties that will be imposed on those who fail to meet the standards.

"We first thought we just needed to adopt the system that is already used by the UEFA or Japan's J.League," he said. "But it turns out we need to have our own FFP system that can cope with our football environment."

Kim said a "Korean-style" FFP system will first focus more on K League clubs staying out of the red. According to 2017 data by the league office, the 12 clubs in the top flight K League 1 had revenue of 19.98 billion won (US$18.55 million) and expenses of 20.28 billion won on average. The situation in the second division K League 2 wasn't much different. The 10 K League 2 clubs had average revenue of 9.03 billion won, but they also spent 9.34 billion won last year, marking a 300 million won deficit.

This file photo taken on Jan. 15, 2018, shows a K League board meeting at the Korea Football Association House in Seoul. (Yonhap)

"Before we introduce FFP, we'll have a special body that will assess the financial conditions of each club," Kim said. "We haven't decided when our FFP system should take effect because we want all the clubs to get ready before they deal with such a rule. We'll listen to the clubs and find ways that can best help them before we initiate FFP."

Kim said another goal for the FFP system is to help clubs achieve financial independence from their owners. He added that the league wants the clubs to diversify their revenue sources.

In South Korea, pro football clubs are run by either conglomerates or municipal governments, and they finance their teams with corporate sponsorships or grants. According to K League data, municipal grants on average accounted for 48 percent of second division club's revenues in 2017.

"The biggest problem in the K League right now is that these clubs can't set long-term plans because they don't know how much money they can spend or make," he said. "We want clubs to secure long-term investments and use their money to expand their fan base."

This undated photo provided by the K League shows its officials meeting with customers at SPORTELAsia, a sports marketing and media convention in Singapore. (Yonhap)

The K League clubs, however, raised their eyebrows at the league office's FFP proposal, saying it doesn't comply with reality.

"I think the league office is making a mistake if it thinks setting an FFP system is the most urgent matter at this moment," one K League 1 club president said on the condition of anonymity due to the sensitivity of the issue. "For those clubs run by municipal governments, there's a structure problem, such as getting approval from the city council, and the K League should first deal with those issues before talking about finance."

An official from a corporate-owned club in the second division said the league office should first come up with ideas to boost the popularity of the K League.

"In theory, all K League clubs can stay in the black because they just have to secure money from their mother company or municipal government and record it on their balance sheet," the official, who also asked for anonymity, said. "The real question will be whether FFP can lead to financial independence, but that has more to do with the league's popularity and its fundamentals. I think FFP could block clubs from spending money for their own good."

The K League emphasized that FFP is not about limiting clubs' expenditures but about helping them spend their budget wisely and have transparency in financial transactions. Since 2013, the K League has been asking clubs to disclose their financial performance data, players' salaries and paid attendance figures.

"FFP is not a regulation but a tool to help front offices run their clubs in a safe environment," Kim at the K League said. "We want the K League clubs to think that we're establishing a financial consulting service."

This file photo taken on March 1, 2018, shows players from the Suwon Samsung Bluewings and Jeonnam Dragons competing in their K League 1 match at Suwon World Cup Stadium in Suwon, Gyeonggi Province. (Yonhap)

Some football pundits said that FFP may hamper South Korean clubs' competitiveness in international competitions.

"I'll welcome FFP if the Asian Football Confederation (AFC) comes up with such a system and make every Asian club follow those rules," Hahn June-hea, a football commentator at local broadcaster KBS, said. "If K League's FFP system makes the clubs spend less money on their players' wages and team operations, we could see departures of some star players and prospects to foreign leagues."

The K League said its FFP isn't likely to include a salary cap clause but that local clubs need to lower their spending on players.

"Players' wages and team operation costs account for more than 75 percent of clubs' overall expenses on average, and that's just too much," Kim of the K League's public relations team said.

Industry watchers said the K League should concentrate on bringing more investments into the league instead of regulating money usage in the league.

"We're not in Europe where football is one of the largest industries," said Kim Jung-youn, a director at WesleyQuest who has experience providing marketing consulting services to South Korean football clubs. "This FFP rule seems to shrink the size of the pie that the K League has."

Kim suggested that the K League should give benefits to those who make large investments to football clubs. Considering that the K League clubs find it difficult to generate revenue at current attendance levels, Kim said Korean-style FFP should include ways for the league to bring more fan attention and media coverage.

The K League saw its average attendance for the first division reach only 6,486 last year, which was a sharp drop from 7,866 in 2016.

"Other leagues mostly get their money by selling broadcasting rights, but the K League doesn't make big money from television deals, and its ticket sales also aren't great," Kim said. "We must think about what really brings fans to the stadium and makes them open their wallets for pro football. No one roots for a club for its financial health."

In this file photo taken on April 25, 2018, Jeonbuk Hyundai Motors head coach Choi Kang-hee (R) shows respect to his supporters after his team beat Gangwon FC in their K League 1 match in Chuncheon, Gangwon Province. (Yonhap)


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