Football Governance

Written evidence submitted by Professor Richard Giulianotti (FG 29)

1. Summary

1.1. This submission of evidence draws on over twenty years of social scientific research into football at local, national and global levels. The submission is structured around six main questions or issues that were initially highlighted by the Committee.

1.2. The submission states that:

- Clubs should be treated differently from other commercial organizations, for political, social and economic reasons, particularly with regard to the public benefits of football clubs, and how supporters understand their attachments to the game.

- Governance rules need to be changed to improve the financial management of clubs, and to promote the wider engagement of different stakeholders, particularly supporters, in running clubs.

- Debts in football are far too high, hence tighter regulations need to be in place to restrict borrowing and to improve financial management.

- The Supporters' Trust movement has a positive mission and has had many notably achievements over the past decade; there is substantial scope to build on these achievements.

- Government intervention may be directed towards promoting supporter representation and ownership at clubs; enhancing wider social access and participation in football; and, strengthening the financial management of clubs.

- There is much to be learned from alternative governance models in other nations and in other sports; in football, models of club governance that involve full or partial control by supporter cooperatives provide one way forward.

2. Background

2.1. This submission of evidence has been written by Professor Richard Giulianotti, Head of the School of Applied Social Sciences, Durham University.

2.2. The submission is derived from personal research into football at local, UK and global levels, which has been undertaken since the late 1980s. Research has been conducted across the UK, Ireland, mainland Europe (notably Italy, Germany, Spain, Sweden, and Norway), South America (notably Brazil, Argentina, Uruguay, and Paraguay), North America (USA, Canada), East Asia (South Korea, Japan), Africa (Zambia, Zimbabwe) and the Middle East (Jordan). This research has comprised mainly fieldwork and interviews with football supporter groups, diverse decision-makers and officials in national sport systems, journalists, academics, and public commentators. Much of this research has explored continuities and differences between local and national football systems and cultures across the world. A significant strand of this research has examined different models of governance and economics in these football systems. This research has been published in various outlets, notably my authored or co-authored books: Football: A Sociology of the Global Game (Cambridge, Polity Press, 1999; also translated and published in Brazilian Portuguese); Globalization and Football (co-authored with Roland Robertson; London, Sage, 2009); and, Ethics, Money and Sport (co-authored with Adrian Walsh; London, Routledge, 2005). This research has also been published in various articles in peer-reviewed journals and edited books.

2.3. The following submission of evidence is structured around the six main questions or themes that were highlighted in the Committee's initial Call for Evidence

3. Clubs and Commerce

3.1. The Committee asks: "Should football clubs in the UK be treated differently from other commercial organizations?"

3.2. I agree that clubs should be treated differently from other commercial organizations; I believe that this should be the case, for political, economic and social reasons.

3.3. First, like many other key sports institutions, football clubs are able to deliver many public 'goods' which should be protected from the vagaries and uncertainties of the market. These goods include providing for general community association; developing fitness, health and sport education among community members; socializing children and young people into community life; promoting civic and regional identity; enabling social relations and interaction with diverse peoples drawn from other cities, regions and nations; and, promoting diverse social inclusion initiatives, such as anti-racism campaigns, education among disadvantaged groups, and social activities for the elderly.

3.4. Moreover, football is generally understood to be a vital component of the UK's cultural heritage and social life. Football clubs are intrinsic to the game's national standing, and provide the everyday focus for public interest and involvement in the game. Arguably, given this public status, football clubs should be treated differently to other commercial entities.

3.5. Second, as we have witnessed in the UK and elsewhere in recent years, relatively unregulated commercial environments do not provide a sufficiently secure setting for the long-term survival and development of football clubs.

3.6. Third, key stakeholders within the football community do not see their clubs, or elite football in general, as an essentially commercial domain that is driven by profit-seeking and consumerism. For example, many supporters object strongly to being referred to as 'customers' or 'consumers', for the simple reason that club attachments and loyalties are based not on market interests but on deeper emotional, biographical and social ties. Many supporters point out that they cannot conceive of switching their allegiance to clubs in the same way that consumers switch brands of washing powder or toothpaste. It is worth noting that these non-commercial aspects of football are also often referenced by new owners when they take over clubs, for example when stating that they are also 'true supporters' of the relevant team, or respectful of its traditions and identity.

3.7. Fourth, over the past 15-20 years, there have been substantial expressions of public unease regarding the status of commercial interests in football. This unease is centred on a variety of issues, including: the levels of debt, as reflected in the large number of clubs that have entered administration since the mid-1980s; the growing financial and competitive differences between professional clubs in the football league system; the volume of money at the top end of the game, as reflected in transfer fees, salaries, and payments to agents; the lack of sufficient investment in facilities and coaching at lower levels of football; the long-term escalation in costs for attending fixtures; some groups being 'priced out' of football attendance, as reflected at some clubs by the relatively high proportion of spectators who are middle-aged, male, and high earners; the restricted distribution of tickets to high prestige fixtures among ordinary supporters; and, the costs of football merchandise and paraphernalia. Public concern on these issues is often underpinned by the view that the commercial influences within the game need to be controlled and restricted by tighter regulations. These views are also influenced by growing supporter awareness and experience of how football is governed in other nations. For example, there is greater knowledge of the mutual or cooperative model at clubs like Barcelona, and also the large crowds and low ticket prices at fixtures in the German Bundesliga.

3.8. For these reasons, among others, it could be justifiably argued that football clubs should be treated differently to other entities that are in the commercial sector. This treatment would also reflect the use of non-commercial principles for assessing the strengths and successes of club football. In other words, the success of club football would not be measured in terms of its economic value or annual economic growth, but according to a wider range of criteria, such as crowd sizes and social composition, social accessibility (e.g. with reference to ticket prices), community and outreach schemes, national team successes, and the scale and vibrancy of public participation in football (e.g. as qualified coaches, players, officials).

4. Governance Rules

4.1. The committee asks, "Are football governance rules in England and Wales, and the governing bodies which set and apply them, fit for purpose?"

4.2. Arguably, these governance rules need to be tightened and enforced more rigorously. In recent years, there has been substantial public concern over several issues in regard to football governance. These issues have included:

- Corruption in the game, for example in regard to hidden payments to managers, agents, directors and players during transfer negotiations. Internal investigations by the football authorities failed to alleviate fully public concern, while further allegations of corrupt practices subsequently emerged.

- The extent to which the 'fit and proper' test for club owners has been applied on ethical or financial grounds. For example, in recent years, concerns have been raised about the human rights record of one English club owner, while there have been relatively limited checks undertaken on the full backgrounds of international investors. There is therefore a clear public interest in a far more robust process of scrutiny being introduced with regard to club ownership and investment.

A related point here is the extent to which adequate or appropriate financial plans are produced by prospective investors. Thus, there is a compelling case – on the grounds of public interest, and protecting the club's financial security – for preventing prospective owners from using leveraged buyout schemes to fund their takeover of clubs, as occurred in recent years at Manchester United and Liverpool. Moreover, in the context of individuals owning or holding substantial stakes in clubs, a strong case may be made for reintroducing the rule that such individuals should not seek to profit personally from these share-holdings.

- Financial transparency and effective budgeting at clubs. Cases such as Leeds United and Portsmouth in recent years – as well as many clubs in the Football League – illustrate the problems. To ensure financial transparency and proper planning, there is a strong case for following some other nations which require clubs to submit their budgets for independent scrutiny on a six-monthly basis in order to secure their registration.

4.3. Two broad principles should inform the modernization of these rules.

4.4. First, the rules should promote stronger systematic engagement and dialogue with a wider range of stakeholders associated with the game, notably different spectator groups, as well as players and match officials. Indeed, these interests should be formally represented on key decision-making bodies within football. This engagement and representation would promote more positive social relations, and greater senses of partnership and trust, across the game's stakeholders. It would also enable football's diverse governing bodies to draw on a wider pool of expertise within the game, and would serve to enhance the public image of football in England and Wales at international level. Ideally, in the longer-term, this engagement and dialogue would be best facilitated through clubs being converted fully or substantially into cooperative institutions that are fully or largely owned and controlled by individual supporters.

4.5. Second, there needs to be a tighter array of checks and controls on investments in football, with particular regard to 'fit and proper' and 'public interest' criteria. The importance of these criteria is underlined if it is agreed that football clubs should be treated differently to other commercial organizations. If the first principle here – concerning greater systematic engagement and representation of more stakeholders – is also accepted, then there is a stronger likelihood that the sources of these investments will be more rigorously scrutinized.

5. Debt

5.1. The Committee asks, "Is there too much debt in the professional game?"

5.2. There is clear evidence that there is too much debt. A UEFA report last year indicated that, for the 2007-8 season, English Premier League clubs accounted for 56% (£3.5 billion) of the net debt of all European clubs – a grossly disproportionate figure. Recent figures also reveal that several clubs have debt levels which are more than 2.5 times their annual turnover. Clubs in the Football League have also encountered enormous debt problems in recent years, as reflected in the high numbers that have entered administration or which have struggled to ward off winding-up orders.

5.3. These debts have different causes, such as leveraged buyouts, large investment in capital projects, and heavy spending on player transfer fees and wages (often, funded by large loans from club owners and share-holders). In the case of many Football League clubs, borrowings were financed on the back of future television revenues which failed to materialize after ITV Digital collapsed.

5.4. These levels of debt have a negative effect on football clubs. They undermine the long-term security of clubs. They also put pressure on clubs to maximize their revenue streams from supporters, for example by charging high season-ticket and seat prices, and directing a large number of tickets to prestige fixtures towards corporate clients or wealthy fans.

5.5. There are various regulations which may be introduced to control the debts and losses reported by clubs. The UEFA 'Financial Fair Play' rules from 2012 onwards – which seek to control and ultimately, to eradicate the losses that clubs report each year – should have an impact for clubs which are pursuing European competition. Further measures in England and Wales may include prohibiting leveraged buyouts; placing a ceiling on club borrowings and/or wages relative to turnover; and, submitting club budgets to close independent scrutiny on a six-monthly basis.

6. Supporter Trusts

6.1. The Committee asks, "What are the pros and cons of the Supporter Trust share-holding model?"

6.2. The mission of the Supporters Direct movement is a positive one, in promoting supporter representation and participation in the governance of football.

6.3. The achievements and successes of the 'Supporters Direct' movement should be underlined, as reflected in the agency's own reported figures: Trusts are in place at over 160 clubs; there are over 120,000 members; Trusts contribute board directors at almost 60 clubs; and, Trusts own or control 15 clubs. Trusts have also played a key role in the survival of several clubs that have been placed in administration. This kind of proximity to club owners and directors should allow supporters to convey their specific views regarding, for example, ticket allocations and prices, club expenditure, and security in stadiums.

6.4. Some weaknesses in the the Supporter Trust system, as it stands, may centre on its uneven influence. For example, some of the largest clubs either do not have Trusts or, where they exist, have little impact on the club in terms of how it is run or how it treats supporters. The trend among the top clubs towards complete takeovers by individuals may mean that Supporter Trusts will have fewer opportunities, under current regulations, to exercise influence in the management of clubs.

6.5. Arguably, there is substantial scope for Government to intervene, to enable supporter movements and associations to build more fully on the mission and achievements of the Supporters Direct movement.

7. Government Intervention

7.1. The Committee asks, "Is Government intervention justified and, if so, what form should it take?"

7.2. The question of potential Government intervention is a delicate one, as FIFA is concerned to restrict the involvement of national governments in running football.

7.3. However, intervention is justifiable, largely for the reasons which have been set out above: that football contains a number of public goods which extend far beyond the commercial realm; that supporters should have the opportunity to exercise greater influence over their clubs, ideally through a form of mutual or cooperative ownership; that clubs currently on the whole do not engage sufficiently with all stakeholders, particularly supporters; that clubs carry excessive levels of debt; and that, while recognizing its achievements, the current Supporter Direct model does not go far enough for the achievement of these objectives.

7.4. Intervention might take several forms. First, the Government should offer more substantial and tangible support for supporter movements which seek to establish forms of mutual or cooperative ownership of clubs, along the lines of other sport clubs, such as in Germany, Spain (e.g. Barcelona), or the United States (e.g. Green Bay Packers). Consideration should be given to a form of intervention that empowers supporters to mount a collective bid for a substantial share, or a takeover, of a club, according to an independently agreed valuation.

7.5. Second, the Government should introduce some regulations to ensure that the board of directors on each club includes some representation from supporter groups and movements. These supporter representatives should ensure in turn that they maximize their engagement with the wider body of supporters, notably different supporters' clubs.

7.6. Third, the Government should ensure that stronger regulations are introduced in regard to ownership and large shareholdings in clubs. A 'fit and proper' test should be more rigorously applied on financial and ethical grounds. Prospective investors should set out adequate financial plans for their running of the club. The rule that owners or shareholders should not seek to profit personally from their financial participation in clubs should be reintroduced. Leveraged buyout schemes should be banned.

7.7. Fourth, the Government should introduce a series of regulations to stabilize the financial position of clubs. Clubs should be required to submit budgets on a six-monthly basis for independent scrutiny. The levels of debt which clubs are able to take on should be restricted.

7.8. Fifth, the Government should introduce policies that promote social access to football. It should explore how measures may be introduced, in order to restrict or limit the price of match tickets or season tickets; and, in order to ensure that clubs try to diversify their spectator composition, notably in regard to age, gender, and ethnicity.

8. Alternative Governance Models

8.1. The Committee asks, "Are there lessons to be learned from football governance models across the UK and abroad, and from governance models in other sports?"

8.2. There is much to be learned from the governance models that are apparent in football and other sports in different parts of the world. Moreover, different stakeholders in football – including supporters – are increasingly aware of these different models, hence it makes sense to engage fully with this issue.

8.3. There are various illustrations in sport of leading clubs that are at least partially or wholly owned by their supporters. This has provided the traditional model of club governance in much of South America, Spain and Portugal, and, in different ways, also Germany. In North American sports, the Green Bay Packers are a highly successful, community-owned, not-for-profit club.

8.4. Care should be taken to place these models within their distinctive sporting and cultural contexts. For example, in American football, revenue-sharing and the draft system for allocating players help to reduce the impact of budget inequalities between teams. In South America, the effective management and financing of football clubs have been chronically affected by massive debts and bankruptcy, mismanagement of finances by elected officials, and corrupt relations between officials and supporter movements.

8.5. In recent years, several nations in mainland Europe and South America have amended their regulations for the governance of clubs, thereby enabling individuals and corporations to acquire ownership or more substantial shareholdings in clubs that had been either entirely or principally founded on cooperative models of ownership. Thus, several models of club ownership co-exist in individual nations, as is the case in Germany, Portugal or Spain.

8.6. It is likely that a mixed model of ownership would be the most practical strategy for clubs in England and Wales. For example, at an individual club, this would involve individual shareholders and supporter associations holding substantial stakes in clubs, with potential for local authorities to also participate. Close consideration may be given to how supporter associations may hold 51% of shares, as has been the case at some German clubs. These models of ownership should include regulations that are intended to avoid the problems found in other nations, for example regarding financial mismanagement by club officials.

8.7 A wider issue here concerns the governance structures of football as a whole, which feature numerous individuals with ties to the FA, Football League, or Premier League. The wider aspirations of football in England and Wales – for example, in regard to winning bids to host future mega-events such as the European Championships or World Cup finals – would be significantly assisted by the integration and stream-lining of these structures, while ensuring that key stakeholders, including supporters, are fully represented.

January 2011