Football Governance

Written evidence subimitted by Merthyr Town FC (FG 25)

Submission sent by Merthyr Town F.C, elected into the Western Football League on June 8th 2010.

Summary of submission

1. Merthyr Town – brief history

2. Arrival of owner 1999

3. Owner’s local business interests

4. Growth of club debt

5. Decline of club’s finances

6. Growing involvement of Trust

7. Trust offer to take club over

8. Club placed in administration

9. Club liquidated

10. Club reformed by Trust

11. Club becomes a Community Mutual Sports Club

12. The threat to clubs’ existence from large debts

13. Suggested deterrent to growth of unsustainable debts

14. Support for the Supporters Trust share holding model

15. Support needed for Supporters Trusts by new Governance rules

16. Likely impact on players wages

Formed in 1909, Merthyr Town F.C participated in the (primarily English) Southern League, alongside a number of other Welsh clubs, including Cardiff City, Newport City and Swansea Town. At the outset of World War One, the club were in the Southern League First Division, which meant that when the Football League expanded to form a Third Division in 1920, Merthyr were invited to compete. Despite a promising start, the club fell into decline and eventually ceased to exist in 1934, having been voted out of the Football League four years previously. In 1945, football returned to the town in the form of Merthyr Tydfil F.C, who began in the Welsh League but soon returned to the Southern League, winning five titles between 1948-1954. However, the club were consistently denied entry to the Football League, something that appears scarcely conceivable to a modern football audience. Arguably the club's finest hour came in the 1987: having won the Welsh Cup for the third time, they qualified for the European Cup Winners' Cup, where they were drawn against Atalanta, who had played in Serie A the previous season. The first leg at Merthyr resulted in a famous 2-1 victory for the home side, and although the second leg saw them eliminated on aggregate after a 2-0 loss, it was a a momentous event for the club. They were finally admitted to the Football Conference in 1989, after winning the Southern League for a record sixth time. However, by 1995 they were back in the Southern League once more. (1)

The arrival of Wyn Holloway as Chairman in 1999 can, in hindsight, be seen as the beginning of the end for Merthyr Tydfil. Holloway, a businessman with no ties to the local community, was initially fairly quiet as an owner, however a culture of overspending and shoddy financial planning at boardroom level soon emerged. As the club continued to compete in the Southern League, Holloway oversaw a period of inflated wages which, combined with a distinct lack of understanding in terms of attracting revenue, precipitated an initially unobtrusive but nevertheless discernable accumulation of debt. (2)

Around the same time that Holloway became involved with Merthyr, the Coalfields Regeneration Trust (CRT) was established. Merthyr as a town is of course inextricably linked with the rise, golden age, and eventual decline of the mining industry. The CRT describes itself as "an independent regeneration organisation", aiming to "make coalfields sustainable, prosperous, viable and cohesive without support." The Trust awards grants to companies and organisations who wish to redevelop sites left redundant by the mining industry. During the 2000's, one such company emerged with grand plans to regenerate Merthyr. Merthyr Village Ltd. (MVL), owned by Mr Holloway, devised a multmillion pound scheme that would have radically altered the appearance and economy of the local community. Around 2,000 new homes, as well as a business park, leisure facilities, and a shopping complex were envisaged for a 550-acre site in the Rhydycar area. MVL declared that the project would potentially create up to 2,000 jobs, as well as long-term economic regeneration. (3)

In stark contrast to the talk of regeneration and redevelopment that permeated the offices of MVL, Merthyr Tydfil F.C were quietly sinking into a financial quagmire. As of 2006, the club's debt was estimated to be upwards of £500,000, yet Holloway (who had by now already turned to the Martyrs to the Cause Supporters' Trust for financial relief) showed little willingness to address the situation. Soon after this, the MVL project ground to halt as the Welsh General Assembly rejected the proposals, with the crux of the issue apparently worries over the level of costs required to make the coalfields suitable for housing, as well as an uncertainty about how the town's numerous sites of historical interest would be affected. Local Assembly Member Huw Lewis stated that the absence of town centre regeneration in the plans also played a role. (4)

With his club facing mounting debts, Holloway's behaviour became increasingly erratic. Martyrs' Trust Chairman David Webb was banned from Penydarren Park in 2007 – this despite the fact that the Trust had been providing financial assistance to the club for some time! 2008 bought a winding-up order from HMRC over an outstanding tax debt of £20,000. Having realised that there was no future for the club under Holloway, the Trust submitted an offer to assume full control of the company, despite the unknown levels of debt – accounts had not been submitted to Companies House since 2006. In return for this (and assuming responsibility for those of the club's debts, not personally guaranteed by Mr Holloway), the Trust asked that Holloway and his board resign and transfer at minimum a controlling stake into the hands of the Trust. Despite the seemingly reasonable nature of the offer, Holloway and his board rejected it out of hand, with the demand for a controlling stake apparently the sticking point. The sense amongst the Trust membership was that Holloway wished to remain in control whilst the supporters continued to subsidise the club, for no return. In a press release, the Trust expressed our grievances and aims:

"It is time to end the culture of living hand to mouth, of only just getting by. The fans and community of Merthyr deserve better. When we look to the likes of AFC Telford United, we know it is possible." (5)

The Trust sought the assistance of Supporters Direct, and as the club continued to slide towards administration as the 2008/09 season got underway, began to pave the way for future containing a more positive community-based club. Unlike the Holloway administration, the Trust set about implementing fundraising initiatives, maintaining links with the local community, and providing members with regular updates on their activities. We also continued to contribute £300 per week towards the club wage bill. Despite this, 2009 brought little in the way of good news. Amidst a backdrop of debt, unpaid wages and the removal of utility services from the club, the Trust released a statement reminding the Holloway administration of the 2008 offer, and reiterated our intention to transform the club into a co-operative, supporter-owned organisation. Another HMRC winding-up order arrived on May 6th, although an adjournment was secured by the Trust. However, having continuously refused to enter into negotiations, Holloway threw a spanner into the works on later in May, with his declaration that he had received an offer to buy the club. The Chairman stated that:

"The person I've had the offer from is looking at the fact that, if he wanted to get a team in the league, it would cost him a lot of money. The gentleman wants to get into the English pyramid system. To start from the beginning and go through what we have would take time and cost. This deal would be a short cut to where we are. You would start with a ground share then after two or three years take it elsewhere." (6)

The final sentence of that declaration in particular was an irrefutable indication of Holloway's true intentions regarding Merthyr Tydfil F.C (if there were any lingering doubts amongst supporters). Whilst the most obvious solution at this juncture would have been to form a new club independent of Holloway's corrosive influence, the issue was complicated by the fact that the Football Association of Wales (FAW) had previously shown a strong reluctance to allow Wales-based clubs to compete in the English pyramid system. Any new club would clearly have been unable to assume the additional costs that potential legal action would have created. It appeared that the best option for the Trust was to continue the fight against the 'franchising' of our club. (7)

This battle was handed a significant boost on June 12th 2009 when the club was finally placed in administration, the High Court having accepted the application of the Trust. General Secretary John Strand described the appointment of MB Insolvency as "absolutely necessary", and the Trust set about rebuilding what was left of their club. However, it soon emerged that the Wyn Holloway era had left Merthyr Tydfil F.C essentially insolvent. It is here that the contrary state of UK Company Law in regards to football clubs can clearly be seen. Under FAW rules, the club were unable to sell their few remaining assets, as to do so would be deemed as trading whilst insolvent. Yet at no time had the FA, FAW, or British legal system been able to prevent the club from sliding into the state that required such drastic action. The Trust found ourselves unable to do what was necessary to save the club. (8)

Meanwhile, the Administrator was unable to satisfy the FA of the continuation of football at Penydarren Park for the 2010/11, and the club were excluded from the Southern League, despite finishing eight points above the relegation zone in 17th. In retrospect, the very fact that the club managed to finish the season without going under was a major achievement in itself, having cut costs to the bare minimum. However, the inevitable end of Merthyr Tydfil F.C came through liquidation during the close season, with the continuing legacy of the Wyn Holloway era exacting a final toll. Whilst the club were forced to depart from Penydarren Park, a ground share with Taffs Well F.C was secured, and the presence of Roman archeological remains underneath the stadium ensured that the land would not be sold for redevelopment. Merthyr Tydfil County Borough Council, who own the freehold to the ground consistently intimated to the Trust that they would not sell the freehold to the ground, which made the sale of the remaining lease, held by the administrator, not viable. (9)

At this point, the Trust were left with a dilemma: under the rules of the game, starting a new club from scratch would likely have meant a drop down to the lowest organised levels, something that would have naturally had major implications for the club going forward. However, with the assistance of Supporters Direct and the FAW, the Trust were able to ensure that the newly-named Merthyr Town F.C were elected to the Western League for the 2010/11 season. Despite this positive outcome, the whole episode was indicative of a general failing on the part of the various governing institutions. By not granting the club re-admission into the English pyramid, the FAW would have set themselves a precedent that could prove to be a ticking time-bomb: what if a giant of Welsh football (such as Cardiff City) were to go out of business? Would they, and their fanbase, be required to enter the lowest rung of the Welsh ladder? In the event, common sense prevailed, and a place in the Western League was secured. Credit must go to the FAW for acquiescing, but the absence of supporter representation at the very level of the game where they are most needed (particularly now that insolvency triggers an automatic demotion to Step 7 of the pyramid) remains a worrying state of affairs. (10)

Merthyr Town F.C amended its constitution on July 17th 2010, registering themselves as a Community Mutual Sports Club. This represents a positive step forward for both the supporters and the wider community, despite the club's continued exile from Penydarren Park. Shortly after the beginning of the current season the County Borough Council granted the club a new lease, but the application to return there immediately was rejected by the Western League and that decision was upheld by an FA panel on January 10th of this year. The club has continued to deepen its links to the Merthyr community, and is run on an accountable and democratic basis. (11)

The conclusion that we draw from this sequence of events is that the greatest threat to the development of a healthy economic environment at football clubs is the growth of unsustainable debts. It is clear that this problem puts the very existence of many clubs at risk. The clubs most susceptible to such threats are those owned by one or two individuals, who often put money into clubs when they first arrive, but treat those cash injections as loans. This was the case at our club, where the owner lent money to the club and personally guaranteed other loans, none of which were ever repaid by the company. This resulted in the company, and therefore the club, being liquidated. (12)

The current FA rules penalise clubs that go into administration or are liquidated, by deducting points or demoting teams. This is intended as a deterrent to clubs living beyond their means, but is in fact often closing the stable door after the horse has bolted. Once a club has been liquidated, debts often go unpaid and supporters may lose their clubs. A more effective deterrent would be rules which penalise clubs who incur debts which exceed an agreed percentage of turnover. We would suggest a points deduction for clubs who exceed a limit at the end of each season. This would have the effect of reducing the likelihood of capital injections being treated as loans, and would deter clubs from building debts for short term success. An exception could be sustainable debt for the purposes of improving facilities. (13)

We strongly recommend the Supporters Trust share holding model as a sustainable reasonable way of organising football clubs. It has the advantage of encouraging only people who are interested in developing clubs for the benefit of players and supporters, and discourage the involvement of those who have ulterior private business objectives, as was the case at our club. In practice, clubs like ours are largely administered by volunteers, regardless of who owns them. In our case those volunteers, after financially supporting the club in recent years, now own the club. (14)

The development of the Supporters Trust model could be better supported if the current Governance Rules were relaxed. At the moment clubs which are liquidated and reformed by Supporters Trusts are treated in the same way as clubs mismanaged by individuals, who might even be involved in the reformed or new club. It would help the development of supporter run clubs, if they suffered a less severe punishment after liquidation. (15)

The outcome of the sort of changes recommended here would contribute to a slow down in the unsustainable inflation of players’ wages, which is occurring even in non league football, often at the expense of many creditors who are never paid. (16)

January 2011