FIFA Takes Steps to Reverse $369 Million Loss

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The Fédération Internationale de Football Association (FIFA), the international body governing the sport of European football (soccer), posted significant losses of $369 million in 2016, according to its latest financial records cited by Tariq Panja of Bloomberg. FIFA insisted that many factors, including new accounting policies, fueled these massive losses.

Discover what happened and how the organization is taking steps to reverse its $369 million loss.

Get the Facts Surrounding FIFA’s Losses

A FIFA flag.

FIFA blamed many factors for its financial loss, according to Panja. A new accounting policy, increased investments in the game (including a new soccer museum in Zurich), and “one-off extraordinary expenses” were all believed to contribute to the organization’s poor financial standing. While FIFA did not elaborate on the “one-off extraordinary expenses,” Panja explained that these expenses were likely the nearly $130 million FIFA spent on legal fees since corruption allegations rose to the surface in 2015.

FIFA’s new accounting policy is likely the most interesting aspect for accounting professionals and others with an interest in financial matters. This new financial system places emphasis on profits recorded upon the World Cup’s completion instead of looking at the time contracts connected with the event become signed. Panja explained that under the new accounting system, most of FIFA’s revenues will be counted in the last year of the four-year World Cup cycle. According to FIFA, the organization will receive a $100 million net income boost after the 2018 World Cup.

Despite the promise of substantial future income, FIFA claimed the new accounting policy is the chief cause behind the 2016 losses. However, according to Fox Sports Australia, accounting experts believe these changes would amount to only about 9.5 percent of the loss, with scandal-investigation payments and the millions of dollars lost on its investment in the Zurich museum accounting for much of the rest of the losses.

FIFA Rests Its Hopes for Financial Recovery on the FIFA World Cup

In June 2018, FIFA will stage the next World Cup in Russia. Historically, this event has been the most watched in global sports and according to FIFA, the 2014 World Cup attracted 3.2 billion viewers, with the final fetching 1 billion of those viewers.

According to Paul Sargeant of BBC News, the World Cup alone brought in USD $4.826 billion of the USD $5.718 billion FIFA made during the 2011–2014 cycle.

FIFA claims that it has already booked more than three-quarters of the USD $5.5 billion in revenue that the organization expects to generate in the current four-year World Cup cycle, according to Panja.

However, Panja also noted that FIFA might not be able to generate the remaining money before the 2018 World Cup kicks off in Russia, citing the fact that many of its sponsorship and broadcast deals are not yet finalized.

Adrian Pettett, the chief operating officer at Havas Sport & Entertainment, explained to The National that many factors may have come together to cause FIFA’s sponsorship woes.

“Doubtless some existing FIFA sponsors will have used the bad publicity as a reason to exit their deals or not renew. Others will have looked at the venues for 2018 and 2022 — Russia and Qatar — and pondered their ability to activate effectively in those markets and gain a return on the considerable investment,” he explained.

Pettett also added that the current situation that FIFA faces could help new sponsors negotiate better deals. “This has left space for new entrants,” he said, “of which there will be plenty.”

Major Russian broadcasting networks such as Channel One, VGTRK, and Match TV have refused to sign a broadcasting deal. The networks claim that FIFA is demanding nearly four times the amount paid for 2014 World Cup broadcasting rights, according to Russian news agency TASS. Fatma Samoura, the secretary general for FIFA, told TASS a “middle ground” compromise was likely to be reached. However, as of the date of this writing, a broadcasting deal still was not finalized.

Cleaning House: A New Era for FIFA

FIFA may hope that its new president Gianni Infantino, who replaced Joseph “Sepp” Blatter in February 2016, will usher in a new era of integrity and financial stability. While recent losses occurred under his management, he stated that his first year in control represented “the first and vital steps to restore trust,” according to Bloomberg. “This includes employing a responsible and transparent way of managing revenue and expenditure.” Infantino hopes these “first and vital steps” will lead to a new era of fiscal responsibility, free from corrupt officials.

Eliminating corrupt officials is one essential part of this new responsibility for Infantino. In April 2017, FIFA’s ethics committee suspended Richard Lai, an audit official and president of the Guam Football Association. Lai reportedly pled guilty to wire fraud conspiracy charges after taking close to $1 million in bribes, according to Aditi Prakash and Brian Homewood of Reuters. Lai himself was responsible for verifying FIFA’s financial accounting. By cleaning up corruption, FIFA hopes to prevent such dishonesty and subsequent loss from happening again.

In May 2017, Infantino also dismissed FIFA ethics officials judge Hans-Joachim Eckert and prosecutor Cornel Borbely, according to Andrew Das of The New York Times. Infantino has not fully disclosed why he dismissed two such high-profile ethics officials, but the decision may be another attempt to move the organization forward from a time marred by corruption and restore trust in the organization. However, the departing officials expressed disappointment that they could not continue their work and have suggested that their removal could cause more people to lose faith in FIFA.

In addition to removing corrupt officials, Infantino is also attempting to reverse loss by collecting a smaller salary than his predecessor. Joshua Robinson of The Wall Street Journal noted that Infantino’s annual salary stands at 1.5 million Swiss francs, which is about USD $1.5 million, less than half the money Blatter received. This smaller salary could help FIFA recover more quickly from its financial losses and advance improvements of public trust in the organization.

FIFA hopes to kickstart their new era by finishing 2018 with record reserves of $1.655 billion, according to Graham Dunbar of The Associated Press. These reserves sat at $1.048 billion in April 2017, and Dunbar expected them to fall by $605 million by the year’s end. FIFA will count on a successful World Cup to grow its reserves to expected levels.

If professionals want to learn more about the mechanisms behind financial losses like this one and want to assist organizations in maintaining prudent accounting practices, an advanced accounting degree can help. The New England College – Master of Science in Accounting online degree program can help prepare students to receive the education and apply their knowledge to practical applications for helping companies navigate financial loss.

Sources

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https://www.usnews.com/news/sports/articles/2017-04-07/fifa-losses-hit-369m-in-2016-1b-targeting-in-2018
https://www.bloomberg.com/news/articles/2017-05-11/fifa-president-says-ousted-governance-officials-were-failures