The Current State of Ownership Regulation in English Professional Football
By KEVIN CARPENTER, PRINCIPAL (@KevSportsLaw)
The finances of English football clubs were again thrusted (or perhaps jolted) back into the spotlight again last week when English Football League (‘EFL’) Championship club Wigan Athletic was placed into administration by its owners. This has prompted an outcry from stakeholders, ranging from the fans all the way to Members of Parliament, about how such a seemingly well-run club could find itself in this situation in what is already a highly volatile season due to the COVID-19 pandemic.
Given one of my main areas of work and research is governance in sport, I have been approached for comment a number of times this year on the mechanisms the football authorities in England have in place to try and regulate the ownership of their member clubs. Unlike the majority of people (who I would hope have more interesting things to read), I have been keeping track of and reading the various reports that have been done into this area since the tragic demise of EFL League One (tier 3) side Bury FC in August 2019.
The purpose of this opinion piece is to highlight some of the key points to have arisen from these various sources, as well as to provide my thoughts on where English football goes now.
Key recent critiques
Since 2011, the Digital, Culture, Media and Sport Select Committee (‘the DCMS Committee’), which monitors the policy, administration and expenditure of the Government’s Department for Digital, Culture, Media and Sport, has taken an active interest in the governance of football, holding a number of inquiries into different aspects. Following the collapse of Bury FC, the Committee took oral evidence from key stakeholders on the “administration of football clubs”. The outcome of this was an open letter sent by the Chair of the Committee to the Executive Chair of the EFL, Chairman of The Football Association (‘The FA’), the Minister of State for Sport, and Jonathan Taylor QC, who had been hired to perform two separate reviews for the EFL. (‘the Letter’)
The first independent review ordered by the EFL to be carried out by Bird & Bird LLP (‘the Review Team’), led by the aforementioned Jonathan Taylor QC, was into its own processes and structures. The final terms of reference were agreed on 11 November 2019 and the report produced on 14 January 2020 (‘the EFL Governance Report’).
The second independent report was into the circumstances leading to the withdrawal of Bury FC’s membership of the EFL. The terms of reference were agreed on 11 November 2019 and the report produced on 14 January 2020 (‘the Bury Report’). The outcome of this that grabbed the headlines, and was not well received, read “Ultimately, therefore, while I understand (with respect) why the Digital, Culture, Media and Sport Committee considers that the EFL ‘had multiple opportunities to intervene, but did not do so in an effective or timely enough way to prevent the club’s problems from escalating’, in my view nothing else that the EFL might have done under its Regulations as they currently stand would have made any difference.” [para 8.5] However, the substantive analysis contained in the Bury Report was far more informative on the reform required in the regulation of club owners.
Section 4 of the Bury Report also helpfully sets out, and provides commentary on, all of the provisions of the EFL Regulations that relate to the regulation of club ownership. [pages 4-11]
Regulating ownership and solvency
One area of focus for the DCMS Committee in its Letter, which had also been included in its 2011 report on Football Governance, was that a formal system of licensing should be introduced for English football to promote good ownership and sustainable business plans.
They went on to say that the licensing and regulatory authority should be independent, with the key parts of the licensing system it administers being:
- That prospective owners have to obtain prior approval from the licensing authority, rather than the current situation where a person can take over football club and then apply for regulatory approval within 10 days of the takeover. All financial information required from owners of clubs should be received, scrutinised and approved before a club is able to participate in the league under new ownership.
- Crucially given what has happened to Wigan Athletic and the owner suddenly stopping funding, that owners should be required to pay a bond to the licensing authority that would be forfeited in the event of a default in payment of wages suppliers or taxes.
- The licensing authority would have the ability to impose a compulsory sale of an owner’s interest in a club when they fail to meet the required standards.
All of these provisions of the proposed licensing system are inter-related and would mark a considerable shift in the power of the governing bodies of football as against their member clubs.
The second element of broader governance issues in football addressed by the DCMS Committee in its Letter was to strengthen the Owners and Directors Test (‘OAD Test’) which is targeted at individuals rather than the legal entity involved in the ownership or running a football club.
Alongside the EFL’s own struggles in respect of the regulation of club ownership, the Premier League has also been facing scrutiny in relation to the controversial proposed takeover of Newcastle United by the Saudi Arabian Public Investment Fund, which the government of Saudi Arabia owns and controls. Much of what the Letter and Reports say about regulating individuals involved in club ownership applies equally to the Premier League as to the EFL, as they both have similar Owners and Directors Tests.
The key points made by the DCMS Committee and the Review Team to strengthen the OAD Test:
- Once again, they point said that such a test needs to be passed prior to any sale / change of control of a football club being completed.
- The ‘disqualifying conditions’, that currently only apply a limited set of objective criteria, must be expanded to provide further assessment as to the suitability (financial or otherwise) of an individual to own or manage a club. This would include factors such as previous experience in business, relevant skills and capabilities, and the motives for acquiring a club.
- Owners should be required to publish business plans prior to acquiring a club, and ahead of each season.
Introducing subjective elements to the OAD Test has been resisted previously due to a lack of certainty and/or consistency in application. However, the DCMS Committee Letter covers this off, “We recognise that [the proposals] will depart from the current objective ‘pass/fail’ nature of the test and introduce and element of subjective judgment; however, the effective functioning of regulatory systems in other industries, such as broadcasting, demonstrates that this is not a barrier to a fair and robust test.” [page 3]
Roadblocks to reform
One thing that all stakeholders in English football must remember is that the EFL in particular is not a governing body in the sense that it can impose regulation on the clubs. It is in fact a members’ organisation which acts at the ultimate direction of those clubs, who are disparate in many respects. This is highlighted in the EFL Governance Report by the list of matters which are reserved for the clubs in the EFL’s constitution, these being the most significant regulatory issues. [Section 4, pages 4-6]
This is why in the Bury Report, it is made clear that although the EFL Board has on a number of occasions sought to implement many of the changes highlighted in this opinion piece, they have found no support to do so from the clubs themselves, “From September 2017 to May 2018, the EFL conducted a review of the regulations it had in place to deal with unacceptable conduct by owners of Clubs. There was no support among Clubs for making any changes to the OAD Test, or for creating an offence of bringing the EFL into disrepute, or for introducing a power to intervene in the operations of a Club whose financial difficulties were having an adverse impact on the EFL (e.g., sending in external consultants to review financial records and/or restructure debt).” [page 9] In the alternative, the EFL adopted the ‘Policy on Taking Action Against Individuals’ but this lacks teeth. For example, charges laid against Sheffield Wednesday’s owner and senior executives relating to the club having breached the Championship’s Financial Fair Play Regulations were dropped by the EFL.
The lack of support from clubs for change is presumably because such changes would impact the ability many clubs to spend and therefore their on-pitch performance, but the integrity and sustainability of the league should sit above all else.
So if a consensus cannot be found between the necessary number of clubs to bring about change in the EFL Regulations, then can, as suggested in the DCMS Committee Letter, the UK Government intervene and bring forward legislation to dutifully independent system of football licensing and regulation? Well, this step, which the author would favour, would instantly attract the attention of the international governing body FIFA. FIFA, along with the rest of the international sport federations, believe football should be left to operate autonomously. Where a government has intervened in the running of football in a particular country, there is always a threat by FIFA that they would suspend the particular association from membership of the international game. Would an independent regulator and licensor of football clubs and their owners fall within the remit of what FIFA considers to be unacceptable government intervention? Also, if such intervention only affected the levels of professional football outside of the top tier (the Premier League), then would FIFA be interested in stepping in?
The author cannot see how there can be any future sustainability in professional football in England, particularly in the EFL, without the introduction, of as a minimum, of the need need for current and prospective owners of clubs to submit a substantial bond to the league as security in the event of running into financial difficulty (for whatever reason).
Lessons have not been learnt by the clubs following the infamous collapse of ITV Digital in 2002 and the percentage of spending on wages, particularly in the Championship, is wholly unsustainable and encourages reckless governance across the board. The author hopes that one of the few positives to come from the coronavirus pandemic, in the context of sport, is that some financial sanity returns to football and that all of the owners, most of whom are successful business people in their own right, will wake up and realise that losing millions of pounds a year is not responsible stewardship of a club, even if that means a potential adverse effect on on-field success. Ideally in the author’s view, a prudent regulatory system in professional club football must focus on clubs working towards a break-even point for the good of the entire football community in England.
However, the author would also support the radical suggestion in the Bury Report, “One solution…to require Clubs to live within their means, funding player wages and other operating costs out of operating income, and using owner funding to finance improvements to the ground, training facilities, the academy, and other infrastructure projects, which would then generate greater income and so boost the Clubs’ spending power. Undoubtedly there would be difficult transitional issues, and some Clubs would become less competitive on the field of play and so drop down the pyramid. However, all Clubs would be financially sustainable, and the risk of loss of a Club from membership of the EFL because of a financial crisis would greatly diminish. The tension between the two potentially competing models of club ownership would be resolved, and the EFL could monitor the Clubs’ financial affairs and help to prevent any problems from developing, instead of being forced into crisis/rescue mode. Ambitious owners could still put money into their Clubs, but to build academies and other infrastructure that would generate promising young players and sustainable revenue streams to support increased spending on players. Clubs could therefore still strive for promotion up through the divisions, but based on a solid and sustainable financial platform, not dependent on the continuing financial support of a wealthy owner.” [para 8.6.1]
Finally, the author hopes that this period of financial pain and uncertainty, will also lead to a realisation by the key stakeholders in English football, that The FA, as the actual national governing body of the sport, must step-up and attempt to take back some power from both the leagues and the clubs to properly regulate the sport, as outlined in this piece, for the ultimate benefit of the supporters of clubs and their communities.