Explaining the Juventus mess: what they did wrong and what it means

Friday, Juventus were Found guilty Transfer irregularities and a 15-point docket by the Italian Football Federation’s sports tribunal, a decision that pushed them from third place to midtable. Also banned were 11 current or former Juventus directors, including former president Andrea Agnelli (two years), former chief football officer Fabio Paratici. Tottenham Hotspur (2½ years) and sports director Federico Cherubini (16 months).

It’s a huge physical blow for the Turin club, so here’s a Q&A to understand what it means.

Q: What exactly were they convicted of?

A: Essentially engineering transfers, usually swap contracts, where little or no money changed hands but the club attracted an accounting profit (on paper).

This is the magic of purification. If you offload a player to another club for a fee of 10 million, you will record that 10 million as revenue. But if you spend 10 million to acquire a player and he signs a five-year contract, you can spread that 10 million evenly over the life of the contract.

Q: So if I get one guy for 10 million and offload another for 10 million, I’ve magically made 8 million profit? Ten lakhs in and two lakhs out, why am I spreading the expenditure of one crore over five years?

A: On paper, yes. In real life, no. And, of course, you still have to account for 2 million each year for the life of the contract. But in the short term, in your scenario, you can show a capital gain of 8 million.

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It is not illegal and this is how pretty much every single club in Europe does their accounting. The problem arises when two clubs engineer a swap deal and increase the value of the players involved. Officially, they are two separate contracts, but in practice, they mirror each other and because no cash changes hands, you can put whatever valuation you like on the player.

So in the example above, if you acquire a player for 100 million and transfer a player to the same club for 100 million – presto! — You’ve made 80 million (and have another club).

Q: Was Juventus already accused of this and not cleared?

A: Yes, they and eight other clubs (Genoa, Sampdoria, Empoli, Pro Vercelli, Novara, Pescara, Parma and Pisa) were charged and eventually cleared. They successfully argued that no one can make an objective assessment on a player and therefore, no one can say the transfer fee – or, more precisely, the valuation you place the player on in the swap – is inflated. In other words, the market values ​​the players, and the courts agree with them.

Q: So why was the case reopened? That sounds like double jeopardy to me, being tried twice for the same crime…

A: Prosecutors successfully agreed to reopen the case because they say new evidence emerged. That evidence comes from a separate, criminal investigation known as PRISMA, and the allegation is that they didn’t create these fraudulent swap contracts at inflated prices, but that it was part of a systematic effort to cook the books. Oh, and according to wiretaps and written evidence (including handwritten notes), they knew what they were doing was not above board.

This is a criminal investigation because Juventus is listed on the Italian stock exchange and has strict reporting requirements – according to investigators, it amounts to accounting fraud. Sports prosecutors did not have this evidence available to them when they cleared Juve and other clubs, hence why the case was reopened.

Q: OK, but if two clubs engaged in a fraudulent swap deal to fatten the books, shouldn’t they both be punished?

A: That’s a fair question, and it’s another element of Juve’s defence, given the fact that they’ve already been clean of it. Based on the court proceedings, the difference seems to be the sheer number of such deals, the fact that they have evidence – thanks to the Prisma investigation – that it was clearly organized and planned, and that they knew it was wrong. .

That said, there are other clubs that appear in evidence that Prisma collected — not just the original eight that were cleared — and that could still be charged. Some conversations suggest that even they knew what they were doing was not above board.

Q: However, I still don’t understand. If, as Juve say, there are no rules to prevent it, why should they be punished?

A: Well, there are no specific rules in the field of sports. There is a special rule about being transparent with shareholders, especially if you are a listed club, although this is a matter for criminal investigation.

Prosecutors are also arguing that they breached Article 4 of the Italian FA rules, which covers fairness and truthfulness, and Article 31, which covers false accounting. (This, Juve might say, begs the question: if these contracts are not illegal, how can they amount to false accounting?)

Q: So what happens next?

A: Juve will wait for “written reasons” to support the court’s reasoning on punishment. Then, they will file an appeal ItalyThe Sports Guarantee Board, which is basically the Supreme Court. They will not judge on merit, they will only judge whether the sports court followed procedures and applied its own rules correctly. That means they can either confirm the sentence or overrule it, they say, to give Juventus a lesser punishment.

If the decision is upheld, Juve will have a final shot at the Court of Arbitration for Sport in Lausanne. But it’s going to be a busy time for their lawyers, as there are many investigations going on…

Q: Like?

A: Well, there is the Prisma investigation itself, which could theoretically lead to a custodial sentence. It covers not only alleged systematic transfer irregularities; It also includes incorrect accounting for salary cuts taken by players during COVID.

Essentially, it was officially reported that the players voluntarily reported giving up four months of salary when, in fact, according to the allegations, most had made side deals to get those salaries back. This enabled Juventus to shift costs from one accounting period to another.

In some ways, this investigation is more serious because it is a criminal investigation and Juventus is listed on the Italian stock exchange, which means they have strict reporting requirements. This is why the Agnelli family replaced its entire board in November. That’s a criminal investigation, and they can face a sports investigation in that, too.

Then there is the fact that they are being investigated by UEFA for possible Financial Fair Play violations. If they have engaged in incorrect accounting in previous years to meet FFP requirements, they can be sanctioned for that as well.

Finally, the Prisma investigation uncovered questions surrounding swap agreements with other clubs that were not covered in this investigation because they were unaware of the evidence at the time. It may also lead to new charges.

Q: One thing I don’t understand is that, while the prosecution asked for a penalty of nine points, the court docked them 15 points and gave them a tougher punishment…

A: Yes, that seems a little strange to me. The explanation, apparently, was that for the sentence to be meaningful, it would have had a significant impact on the club – enough to deny them, say, a place in the Champions League. When they were charged, nine points seemed sufficient. Then they went on a run of good results and moved up the table, so the court was even tougher.

I guess because there is no clear precedent or jurisprudence in this regard, they feel that there is nothing to stop them from going hard. But it is certainly unusual for a judge to exceed a prosecutor’s request.

Q: And what are the effects on the pitch?

A: Not good. Juventus posted a Serie A record loss of more than $250 million last year, breaking its own record of $210 million the previous season. Some of that, obviously, was COVID, but remember that those losses come with the benefits of these supposedly questionable transactions. If the penalty means they won’t be in the Champions League next season – and it will be much harder to score 15 points on the pitch – then that’s a further loss of revenue.

Oh, and Juve’s shareholders have already injected around €700 million in new capital in recent years.

This is part of the reason why Juve’s new president, Gianluca Ferrero, has made it clear he is moving on. And this is likely to translate into greater reliance on youth academies and, of course, lower spending.

Q: A final point for Tottenham fans: What happens to Fabio Paratissi, who is now Spurs’ managing director in charge of transfers?

A: Well, first he has those two appeals pending, so you’re innocent until proven guilty. His ban will not take effect until he exhausts those appeals. If the ban stands, it also depends on whether FIFA and UEFA decide to extend the ban globally and that remains to be seen.

Of course, this whole affair doesn’t do him any favors, so it really comes down to the club and how they feel about him if he cleans up.

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