Hey, big spender

Paris Saint Germain have spent over €200 million in transfers in one and a half years. It's a staggering amount given that UEFA's Financial Fair Play rules require clubs to take steps to break even on their balance sheets.

Under UEFA's new law - applied from this season - clubs are allowed to make losses of no more than €45 million over two years - with sanctions for offending clubs due to be enforced from 2013/14.

The maximum permitted loss then falls to €30 million from 2015/16 and will be further reduced from 2018/19.

"Financial fair play means that clubs operate transparently and responsibly, to protect both sporting competition and the clubs themselves. Financial fair play means clubs not getting into a spiral of debt to compete with their rivals but rather competing with their own means, i.e the resources they generate." - UEFA.

The severity of the sanctions is wide ranging and, dependent on the gravity of the offence, range from the light such as a warning, to the strong like withholding a UEFA license which is essentially an indefinite ban.

Where do PSG fit into this picture?

At the moment: they are in the safe zone - but they have a lot of work to do to stay there. If we were sitting in a pub I would probably - seeing as I am not a fan of the Ligue 1 outfit and this combined with the liberating effects of alcohol - start ranting and raving about how PSG are ruining football and that UEFA needs to take a hard-line stance with the club.

The truth is though, PSG are allowed to spend €200 million in transfers as long as they can come up with creative ways to increase their revenue to the point where they fit - for the time being - within UEFA's initial Financial Fair Play margins.

That'll be the job for QSI, an investment arm of Qatar's sovereign wealth fund owned by the ruling Al Thani family. They bought 70% of PSG in May last year (they acquired the remaining 30% in March) and appointed Nasser Al-Khelaifi as club president. Under the Qataris, PSG have not been afraid to splash the cash and some of their larger transfers have included Thiago Silva (€42 million), Javier Pastore (€42 million), Lucas Moura (€44.5 million), Ezequiel Lavezzi (€26 million) and Zlatan Ibrahimovic (€20 million).

On the pitch, the Qataris hope these star names will deliver PSG's first Ligue 1 title in almost two decades. However, it is off the pitch where we are more interested in seeing how PSG can comply with UEFA's Financial Fair Play rules.

Different avenues

The sad reality we all need to remind ourselves is that football is a business - a huge one. And the clubs we love as well as the ones we loathe are all actually companies. Football has been this way for a long time now but the introduction of UEFA's Financial Fair Play rules only serve to make this point more evident, particularly in how the major clubs operate.

Companies need to make money to survive in the long term and therefore must rely on their product and the marketing to bring in this revenue. UEFA wants to ensure that football clubs do not spend more money than they make, which is logical.

The excellent Swiss Ramble blog - an expert analysis on the business of football - has put a projected loss figure for PSG at €170 million (€100 million for 2012, €70 million for 2013).

A loss of €170 million is nowhere near the €45 million buffer zone UEFA put out to help ease clubs into their new system, but PSG are counting on increasing a number of different revenue streams to help them balance the books.

The first one is obvious. PSG can make some money by selling the players who they no longer deem part of their project - and there will be a few players out of favour given the recent influx of star power. The next three also need hardly any explanation. PSG can expect to grow the revenues which flow into the club from TV, gate receipts, and merchandising if they achieve better performances on the pitch, in Ligue 1 and the UEFA Champions League.

The next point is where it gets more interesting.

Marketing or sponsorship is an avenue which the big European clubs are increasingly exploring with greater imagination. I purposely used the word imagination because the financial strains of modern day football have forced the top clubs to get creative with how they approach this area.

To stay competitive, Europe's football elite can no longer simply rely on increasing their kit sponsorship fees (although PSG can certainly now command a much larger deal than in the past given their new standing in football).

Manchester United, for example, have in recent years adopted a clever strategy of exclusively selling their sponsorship rights on a market by market basis as opposed to restricting their brand to global arrangements. This is a clever idea for two reasons: (i) It allows Manchester United to maximise the revenue of their brand and (ii) it allows local brands who cannot afford to shell out the sums of money needed for global sponsorship deals to form a marketing alliance with United while the English club also gains a firmer foothold in the market by its association with a strong local brand.

Using South East Asia as a case in point, United signed a five-year sponsorship deal with communications group Telekom Malaysia in March 2010. The deal made Telekom Malaysia the "Integrated Telecommunications Partner" of the Old Trafford club in Malaysia.

PSG do not have the fan base yet in Malaysia to be able to sell something similar but because of the influence the club's owners have in Qatar don't be surprised to be see commercial developments happening there in the near future. Already we have seen Middle East-based broadcaster Al Jazeera shell out cash for the rights to broadcast France's Ligue 1 - PSG president Nasser Al-Khelaifi (pictured) is also the owner of Al Jazeera.

The club also recently ended a long term partnership with sports marketing agency Sportfive after declaring its intention "to market its rapidly developing brand in-house".

"Paris Saint-Germain's new strategy sees the club take direct charge of the development of revenue and internalise the commercialisation of its own marketing of rights and hospitality."

What if Paris Saint-Germain fail?

UEFA will punish Paris Saint Germain if they fail to adhere to the Financial Fair Play rules. European football's governing body and its president Michel Platini, who has publicly championed the new regulations, will lose too much credibility if they do not.

Why would UEFA, when they were not under any pressure to do so, make all the effort of introducing the regulations in the first place unless they fully intended to see the entire process through?

Therefore, for me, it is not a question of will they; it has more to do with how hard does UEFA want to enforce their new rules in the initial stages of its rollout?

The answer to that is they must take a soft approach first for it to work and avoid a situation where a majority of clubs push back in retaliation - and I think UEFA knows this.

UEFA has agreed eight possible sanctions for clubs that break the rules: they can issue a warning or even go as far as withholding prize money, offending clubs can expect to be docked points in the group stages of a competition, be restricted by the number of players who can take part in competition, be disqualified from a competition currently in progress as well as the ultimate sanction of withholding a UEFA license.

The varying degrees of punishment show that UEFA acknowledges the difficulties the new system poses to its member clubs. So while PSG should expect some form of punishment if they fail to meet the new guidelines it is very unlikely to be sanctions from the more extreme end of the scale. Furthermore, observers have pointed out that UEFA seem to have inserted something of a get-out clause in the freshly implemented regulations (All of which can be accessed and read on the UEFA website in PDF form). It states that an improving trend in the annual break-even results "will be viewed... favourably".

This shouldn't be viewed as UEFA backing down on its stance - it's merely a safety net to avoid a catastrophic scenario where a handful of leading clubs in Europe just fail to make the €45 million buffer zone.

In England, Manchester City and Chelsea are the most at risk of sanctions.

Just last month we saw Chelsea announce that they had tied up a three-year deal with Gazprom which made the Russian company the club's official Global Energy Partner. If the name Gazprom sounds familiar it's because Chelsea owner Roman Abramovich used to own a controlling stake in the company.

And, of course, Manchester City were able to pen a 10-year sponsorship arrangement with Etihad Airways 13 months ago worth an estimated £400 million. Etihad are controlled by the half-brother of City owner Sheikh Mansour and as a result this deal is reportedly being looked at by UEFA.

UEFA's rules demand clubs must not accept inflated sponsorship deals from "related parties". However, as Europe's top football clubs look for ways around the Financial Fair Play regulations, the governing body has the tough task of trying to enforce its rules in a manner which is hard but importantly also seen as fair.

And PSG will need to do their part as well by continuing to grow their brand value through sporting as well as marketing achievements.