Football Governance

Written evidence submitted by Bees United, the Brentford FC Supporters Trust (FG 31)

1 Summary

· Bees United, (the Brentford Supporters ’ Trust) is the majority shareholder in Brentford Football Club.

· The financial model currently adopted by the majority of professional football clubs is unsustainable and unless there are changes to the regulatory regime , financial problems including insolvencies will remain commonplace.

· Current regulation is backward looking (i.e. imposing penalties for financial mismanagement). This app roach should change to become forwa rd looking aimed at prevention.

· The need to preserve the integrity of sporting competition and the key role football clubs have in their local communities mean they should be treated differently to pure commercial businesses. Financial and social responsibility should be i ncentivised through a new licensing regime.

· Debt levels are excessive at too many clubs and limits should be applied to encourage a long er term, sustainable approach.

· Supporter s ’ Trusts can assist in adopting this sustainable approach combined with greater transparency and stronger community links. However their financial resources are limited and they require encouragement and support.

· Government intervention is justified as a catalyst to facilitate the introduction of new regulation focused on reducing debt levels and encouraging longer term financial prudence combined with greater supporter involvement and transparency.

2 Background

2.1 Bees United is the trading name of Brentford Football Community Society Limited, an Industrial and Provident Society for community benefit, which is the supporters ’ trust for Brentford Football Club. Bees United has been the majority shareholder in Brentford FC since January 2006, when it acqu ired a 60% shareholding from previous owners, Altonwood Limited.

3 The Situation at Brentford FC

3.1 Brentford FC owns the freehold of its stadium, Griffin Park, where it has played for over 100 years. Griffin Park lacks modern facilities for spectators and for non-football revenue generation. The club finds it virtually impossible to generate sufficient revenue to break even with a playing budget that enables it to compete successfully at its current level in League 1.

3.2 As the stadium is in a residential area, hemmed in by housing, it is not a suitable site for developing a modern stadium with sufficient capacity and associated commercial revenue generating facilities to enable the club to compete on the pitch and break even.

3.3 This is typical of many clubs and in common with many others the shortfall between revenue and expenditure has traditionally been met either by cash injections from dominant owners or increasing levels of debt, owed to banks, shareholders or wealthy supporters. Prior to the Bees United takeover in 2006 the club had run up a bank overdraft in the order of £5m, secured against the stadium freehold and guaranteed by the previous majority shareholder. Bees United have refinanced this debt twice with the help of a generous wealthy supporter (Matthew Benham) and in 2010 concluded an agreement with that supporter to provide substantial equity funding for a 5 year period in order to stabilise the club until a new stadium could be developed.

3.4 In spite of the club’s financial challenges over the past 25 years it has developed a fantastic range of community based activities which have won it widespread recognition as a national role model for a community club. This includes Football League Community Club of the Year awards in 2006 and 2009 and Business in the Community’s Community Mark.

3.5 The community activities, in sport, education and social inclusion reach around 30,000 young people in four London boroughs and are highly valued by the local authorities and the people they serve.

4 So what’s the problem?

4.1 The financial situation at Brentford, which is typical of many other clubs, is not sustainable.

4.2 When Bees United took control of the club, the trust’s strategy and business plan were focused on responsible financial management and developing a new stadium at a nearby site in Brentford to achieve long term sustainability.

4 .3 The economic crisis, associated credit crunch and housing market downturn have rendered the new stadium project unviable . T he club has to find ways to survive with limited income whilst trying to compete in a League with clubs who are pursuing unsustainable strategies, which are not in the long term interests of the clubs, their support ers or their local communities.

4.4 The economic and regulatory environments in which we operate m ake it difficult for clubs that want to behave in a financially and socially responsible way to surv ive and compete with clubs that choose to take a traditional, high risk, short-term, ‘sugar daddy’ approach.

4.5 The current regulatory regime provides little incentive to break even and/or limit debts to realistically serviceable levels. To compete, we are forced to live beyond our means or suffer potentially terminal decline for adopting a responsible approach. The resulting instability and uncertainty is evidenced by the number of clubs failing to pay their taxes, entering administration, and generally attracting adverse publicity.

4.6 The existing governance regime does not aim to prevent clubs from getting into difficulties. Instead it relies on imposing penalties after the event. T he token points-deduction for entering Administration is shutting the gate after the horse has bolted.

4.7 These risks do not just damage the clubs themselves but also impact on the communities they serve and their ability to achieve the positive social impact that is a feature of the best examples, such as Brentford FC with its Community Sports Trust and Griffin Park Learning Zone. Football has the power to change lives and contribute to the delivery of public services and social policies. Clubs should be encouraged to grasp such opportunities to contribute to the big society.

5 So what’s the solution?

5.1 The only hope for clubs like Brentford to prosper in the long term is to incentivise financial responsibility, level the playing field and reduce barriers to community stakeholders by developing a regulatory regime, including the licensing of all professional clubs, that balances sporting, commercial and social objectives.

5.2 The new licensing regime must have the aim of preventing clubs from getting into difficulties rather than relying on retrospective penalties. Prevention is better than punishment.

5.3 Our aim is a set of professional football leagues with more stable, structured regulation, including financial moderation that prevents excessive debt funding, and therefore ensures financial stability for clubs which are stable community assets that produce economic and social benefits, and where Supporters Trusts can compete on a level playing field.

6 Should football clubs in the UK be treated different ly from other commercial organis ations?

6.1 The answer will depend on one’s vision for the professional football industry, which at each end of a spectrum could be characterized as either of the following:

A. A strictly commercial business which attracts new money, and suffers the same pressures and is treated no differently from any other entertainment business, ie let clubs go bankrupt without support, accept that clubs come and go.

or

B. A " community asset " - a core element of British society which benefits the country, the clubs and players, as well as society, communities, local interest groups etc, in which case it must be treated differently, must be governed for continuity and stability, and the flip side of that coin is that it must be restrained from undertaking more severe financial risks

6.2 As a supporters’ trust, Bees United believes in aiming towards the community asset model.

6.3 Football clubs should be treated as any other enterprise in respect of general statutory requirements, company law, fiscal regimes etc.

6.4 There is a need, however, to recognise their differences from other types of organi s ation in respect of the specific sporting and community aspects of their activities. These special dimensions should be regulated via a licensing regime that will ensure a level playing field for responsibly run clubs in terms of sport ing competition. The proposed UE FA licence for Europea n clubs wanting to play in the Champions League and Europa League competitions in future seasons is an example of how such a scheme might work.

6.5 Financial responsibility should be incentivised by the imposition of sporting sanctions for breach of clear and appropriate financial benchmarks as in the U E FA proposals. To avoid anomalies when clubs move by relegation and promotion between league competitions, the licensing regime must enable a coherent system of sporting sanctions across the industry.

6.6 A fundamental difference between sporting clubs and any other business is that most businesses try to kill the competition – to end up as a monopoly is a good objective in their eyes. In sporting clubs if you put the competition out of business you have no-one to play and your own business fails. T he in tegrity of the competition is as important as the success of the club.

6.7 Social responsibility could be encouraged by requiring each club to appoint a member of the club board with responsibility for community relations, with defined objectives. This could be similar to the U E FA requirement for each club to appoint a Supporter Liaison Officer. The proposed licence for all English professional clubs could broaden the concept of a supporter liaison officer to embrace wider community values and social responsibility.

7 Are football governance rules in England and Wales, and the governing bodies which set and apply them, fit for purpose?

7.1 The short answer is no , as evidenced by recent and in some cases continuing chaos at so many clubs from large to small that have been subject to controversial ownership issues, winding up orders, administration and general lack of confidence in their ethics.

7.2 Governing bodies? – no, there is no independence – they are all self-interest groups in one form or other, and often with limited power and/or archaic governance/leadership.

7.3 Is the governance fit-for-purpose? – no, but in which direction depends on your vision. There is little or no governance that supports stable delivery of football as a core element of society, whereas there is plenty of opportunity to maintain mismanaged clubs in their unwar ranted league positions (ie it’s not a true commercial model either).

7.4 In addition to clubs with crises that become public knowledge there are numerous clubs that perennially teeter on the brink of financial disaster. Over s ixty clubs have entered administration sinc e 1992. An industry suffering so much adverse publicity and actual or potential crises should be subject to greater public scrutiny.

8 Is there too much debt in the professional game?

8.1 Pursuing a "community asset" model the answer is clearly yes, as the inability to repay debt is the single biggest threat to the stability of clubs and competitions.

8.2 There is too much unsustainable debt. Brentford is typical of others, where historic debt has been accumulated to fund losses incurred in pursuit of short term sporting success. However, the business fundamentals of expenditure exceeding income in all but exceptional years determine that there is little prospect of this debt being repaid.

8.3 I nterest bearing deb t should be limited to a level at which it can be serviced from normal operating income in all but exceptionally poor years of business performance.

8.4 In many cases debt is owed to club shareholders and/or directors on interest free or soft terms and conditions, which can be just as dangerous. Often this cash is put into the club to cover short-ter m cashflow problems arising from a risky and over optimistic approach taken with an inflated playing budget in order to pursue short term success.

8.5 The danger for the club arises when the owner or directors concerned lose their enthusiasm or their capacity to maintain funding and want their debt repaid. This debt is usually secured against the freehold of the stadium as the club’s only major fixed asset. Repayment can therefore only be achieved by selling the stadium or the owners selling their shareholding in the club to the next willing ‘sugar daddy’ who refinances the loans and promises to inject fresh capital. If there are no willing buyers for the club the potential sale of the ground (or, if the club does not own its stadium, the lack of a realisable asset) puts the continuing existence of the club in jeopardy.

8.6 This was the situation at Brentford prior to Bees United’s acquisition of the club . The trust was able to assemble a £5million funding package to re-finance the club’s bank overdraft and relieve the previous owners of their bank guarantee. Prior to this the previous owners were planning to sell the Griffin Park stadium for housing and groundshare at a non-league stadium (Woking or Kingstonian) in an area well outside the club’s traditional community and catchment area. In order to avoid a future owner of Brentford being able to asset strip the club, Bees United has subsequently negotiated a golden share with rights which prevent a stadium sale under certain circumstances.

8.7 To reduce such risks , the proposed regulatory regime should impose limits (via the professional club licence conditions) on the level of debt that can be carried on a club’s balance sheet. T o ensure transparency t he measurement of debt should be clearly defined in terms of information required to be provided in p ublished audited accounts .

9 What are the pros and cons of the Supporter Trust share-holding model?

9.1 Pros: The biggest strength of the trust model is a true, long-term interest in the sustainability and success of the club . P ros include:

· Less short-termism: Supporters’ t r usts, conscious of the risks of short-term pursuit of glory , take a longer view as they care about the club’s ability to continue for the benefit of their children and future generations. This contrast s with wealthy individuals, whose time horizon is usually measured in a short few years.

· Responsible stewardship: As trusts’ access to financial resources is limited, they naturally focus on delivering a sustainable business plan based on realistic objectives, responsible financial management and sensible stewardship of assets. I n contrast , wealthy individuals can be driven by short term pursuit of glory to take reckless risks fund ing unsustainable playing budgets. Trust ownership ensures alignment between the interests of the club and the owners.

· Transparency and accountability: The democratic nature of supporters’ trusts as Industrial and Provident Societies encourages an open approach to information sharing whilst still maintaining necessary commercial confidential ity. At Brentford , the financial and corporate structure, details of debts and full annual accounts for the football club are all published and open to debate. There is no mystery a bout who owns the club, how it’ s funded or what major deals are done. A golden share held by Bees United, means it will not be possible for any future majority shareholder to sell the club’s stadium without the agreement of the trust members that the sale is reasonable. At the very least this will enable an open debate about the merits of any proposal to sell the club’s major asset.

· Strong relationships: The community ethos of the trust facilitates good relationships with communities and public bodies, particularly local author ities. At Brentford, the club and the trust have excellent relationship s with London Borough of Hounslow, which provided an interest-bearing loan of £0.5million to help facilitate the trust’s acqu isition of the club in 2006. The loan is conditional on the trust remaining the majority shareholder in the club.

· Social value: Whilst many clubs, regardless of ownership, have community-based activities , the specific objectives of supporters’ trust s ensure that where a trust is involved at board/ shareholder level, community work is se en as ‘must do’ rather than ‘nice to do’. Local communities can gain substantial social value from the work promoted in association with football clubs (see the Social and Community Value of Football report dated June 2010 published by Substance on behalf of Supporters’ Direct.). The continuation of such valuable work will be less vulnerable to waning support from the club if its supporters’ trust is actively involved in the club’s governance .

· Strategic continuity: Continuing ownership by a trust should ensure that a high-level strategy of responsible management and sustainability is consistently maintained over the long term, regardless of changes in the individuals involved. This contrast s with the uncert ainty introduced every time new owners take over a club and impose their personal objectives and preferences. Continuity is provided by the trust as a responsible democratic organis ation rather than being dependent on individuals.

· Broad resource pool: At Brentford the trust can draw on a wide range of skills and experience among its membership base. This has given the club access to highly valuable business expertise on a voluntary basis.

9.2 Cons:

· Limited financial resources: Unless all clubs are incentivis ed to operate within their means as sustainable businesses, trust-owned clubs will always be at a competitive disadvantage when playing in a league against clubs that have access to high-risk speculative funding when such access is unrelated to the club’s ability to sustain such funding. Responsible trusts cannot comp ete with reckless sugar daddies .

· Uncertainty of expertise: T he democratic nature of a supporters’ trust means the individuals leading it will change periodically . Its effectiveness as an organization will depend on the types and levels of expertise poss essed by those leaders , and their presence in the trust’s wider membership. To provide some mitigation it is highly desirable to have a strong centre of excellence in Supporters’ Direct to support trust development and share good practice.

10 Is Government intervention justified and, if so, what form should it take?

10.1 If you believe in a "community asset" model then absolutely – it is critical before the future of the game is jeopardized. The intervention should govern the financing of football clu bs such that they do not take on debt that cannot be serviced, even if the club is relegated from its current d ivision.

10.2 Government should act as a catalyst to force the industry to get its house in order by facilitating the development of an appropriate regulatory regime that balances sporting, commercial and social objectives.

10.3 Government should adopt a policy of introducing enabling legislation to establish a licensing regime with a suitable body to regulate the industry. Detailed proposals should be developed in consultation with experts, including Supporters’ Direct.

11 Are there lessons to be learned from football governance models across the UK and abroad, and from governance models in other sports?

11.1 Yes. The Bundesliga model has made German football stable, sustainable and successful. Bundesliga clubs hav e to be owned over 50 % by members and fans can watch top teams for as little as €12/€13 (£10/£11).

January 2011