Football Governance

Written evidence submitted by Stephen Temple (FG 61)

Introduction

1. I welcome this government inquiry into the governance of professional football clubs and the opportunity to be able to comment on the key questions being asked by the Department for Culture Media and Sport (DCMS) Committee.

2. The subject area is of particular interest to me as a Chartered Accountant, a member of the Board of the Supporters’ Trust for Watford Football Club. Having been a supporter of said club since 1977, I am only too aware of the positive and negative impact that clubs can have on their local business and social communities and their own fan base.

3. In recent years, the high profile coverage given to the events at Liverpool and Manchester United has placed this subject into sharper focus. It is a disappointment that has taken these two events to trigger this inquiry. The recent history of the game contains numerous examples of club owners taking excessive financial risks and creating emotional and financial burden on local businesses, communities and the fanbase. These incidents have led to the establishment of a number of supporters’ organisations which recognise that local communities and fans of football clubs have been and will be around for longer than the owners of the clubs themselves.

4. In writing this submission, I have responded to each of the questions being addressed by the DCMS Committee. In drafting this response I have also sought the views of my colleagues on the Board of Watford Supporters’ Trust and fellow Watford fans on one of the main supporters’ forums (the Watford Mailing List).

Should football clubs in the UK be treated differently from other commercial organisations?

5. A football club (or any professional sporting club) is a commercial organisation that has stronger roots in the local community than any other commercial organisation. If a team is performing well, then the local community is often lifted by that success and there is an opposite effect if the team is struggling.

6. There are very few companies that can affect that number of people in one community in that way. While companies regularly go out of business, the impact of such an event does not tend to go much beyond the immediate suppliers and the employees and their families. It would be particularly interesting to compare the social and economic impact of a football club and similarly size business (in terms of turnover and number of employees).

7. As commercial organisations, football clubs should operate as businesses and be run professionally. Directors and staff should follow the law of the land and treat their employees, creditors and customers equitably at all times. Of particular contention here is the "football creditors" rule. This enables clubs to settle football related debts ahead of monies owed to (for example) HMRC, non-playing staff employee salaries and local businesses. Recently highlighted cases of where local St Johns Ambulance staff have not been paid on time only serve to illustrate the inequity generated by this rule. Further, the rule reinforces the short term mindset of many club owners who continue to increase football related debts (and therefore overall debts) in the pursuit of competitive success. While this has always happened throughout the history of the game, its frequency is increasing and many boards appear to over-ambitious to the point of risking the existence of a club in a gamble to get promotion or European qualification. In this context, I’ve welcomed the HMRC’s recent challenge of the "football creditors" rule and I believe many supporters feel the same way.

8. The "short-term" mindset mentioned above is further reinforced by the punishments available to the football authorities. While the authorities have the ability to deduct points if a club goes into administration, this punishment often punishes the fans and the new owners of a club rather than the owners that created the difficulties.

9. Having said that football clubs should be treated the same as other commercial organisations on a financial basis, sight should not be lost of the fact that clubs are a vital part of their local communities. If a professional football club were to go out of business, it will affect tens of thousands of lives emotionally and financially. Clearly, a number of clubs have been lost throughout the history of the league but the potential impact is now magnified because of the national and international popularity of the game in the UK. In a sense, there are similarities here with the impact that a banking failure can have on a local, national and international level.

10. Therefore, any new governance arrangements within football need to reflect the social responsibility that owners have for running a sustainable club, as well as their financial responsibility.

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

11. Ever since the formation of the Premier League in 1992, there has been an increasing feeling amongst fans that the league is self serving and not in the interest of the national games of England and Wales. There is no doubting the quality of the football in the league, its high standard in comparison to leagues in other countries, its popularity or its financial success.

12. However, a national level I don’t believe the league is putting enough into its foundations to help ensure the game continues to be as successful as it is. There are a number of examples of how current governance arrangements go against the long-term interests of the game:

a. The lack of apparent co-ordinated strategy whereby the FA, Premier League and Football League work together for the good of the national game and the success of the English and Welsh national teams

b. The ability of wealthy benefactors to put money into clubs and take it out again at a moment's notice, or indeed to raise finance off the back of a club’s assets to acquire a club, leaving the club in financial jeopardy.

c. The lack of effective pro-active governance controls that are able to prevent situations occurring or able to react quickly to punish those at fault. The imposition of a points deduction for going into administration is a good example of this as it damages those who are left behind to pick up the pieces.

13. From a fan’s point of view there is very little scope to influence the rules or know what is going on at their club, voice an opinion or raise concerns. Instead it feels that all decisions are made by those who are far removed from the ordinary fan. It also appears that the FA is too influenced by the interests of the big and powerful clubs at the expense of the rest.

14. I am disappointed that many of the recommendations coming out of the Burns Review have not been forthcoming particularly when it comes to the governance of the F.A. and I worry that without Government intervention this review will collect dust and not be implemented as others have done before. In addition to revisiting Burns comments about the F.A. I’d like to see an independent review into the governance models of the Premier League, and the Football League and consideration of whether their combined effect is in the interest of the national game (and the national economy). I suspect that there are instances where individuals have dual memberships of key boards and committees and there are numerous conflicts of interest. This creates the impression of a nepotistic governance culture with a lack of demarcation lines. In addition, there does not appear to be a clear flow of strategy from the three bodies to football at a grass roots level.

15. In conclusion for this question, I’d like to see a lot more transparency in the game and would fully support a new governance model where clubs are independently inspected in areas such as financial control, financial strength, player development, and corporate governance (for example, remuneration committees, audit committees, internal audit). Clearly not all clubs should be expected to run the same types of controls as available resources differ so widely. Therefore, the independent assessments should be undertaken against a controls maturity model which recognises that clubs in lower leagues do not have as many resources to implement many controls. In effect we would have a licensing system which would need the ability to stop a club competing in the league before the start of the new season if these criteria weren’t satisfied.

16. Initially these assessments should be undertaken annually and made publicly available; in a similar way in which annual reports are made available. In time, the governance model could be risk based whereby well run and stable clubs are inspected less often.

17. For detail of how this type of governance regime could operate, I would suggest looking at aspects of the inspection processes of regulatory authorities such as the Financial Services Authority, Monitor (in the NHS) and Ofsted.

Is there too much debt in the professional game?

18. The general view of fans is that there is too much debt in the game and this view is based on the number of clubs who have been in financial trouble in recent years. My view is that debt is only bad if it is unsustainable. Where debt consists of external lending then commercially the lender will have taken a risk based decision to lend the money and will often have the opportunity to secure that lending.

19. However, many clubs appear to be irresponsible in the way that they manage their finances with respect to player contracts. At Watford and Portsmouth there have been recent instances where players are prevented from playing because further games trigger, for example, further payments to another club or automatic contract extensions. Unfortunately in addition much of this lending seems to be against the assets of the clubs, and predominantly the ground which results in countless clubs now either becoming homeless, paying high rents to play at a ground they once owned and/or having to raise vast sums of money to buy back the stadium. In most cases the people who have got them into this mess are long gone and often pocketing a tidy profit for their work.

20. My view therefore is that it is not debt per se that gets most clubs into trouble, but poor financial management, poor cash flow predictions and poor understanding of the short and long term financial commitments that clubs have made.

21. Clubs which have overly burdensome financial commitments clearly give themselves a temporary competitive advantage; an advantage which is only removed if they generate sufficient success or, more often, have to undertake radical cost cutting. Financial revenues at many clubs are highly variable (particularly for those clubs involved in relegation battles and promotion campaigns). Because of this, it would appear only right that there should be more transparency of club finances to the supporter and to potential suppliers.

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

22. Because of the importance of football clubs in their communities, it only seems right that supporters have a mechanism which they can use to organise themselves, voice opinions and be what is generally recognised as the "critical friend".

23. For the current climate, I believe the Supporter Trust model through Supporters Direct has the right aims and objectives, namely:

a. campaigning for the wider recognition of the social, cultural and economic value of sports clubs

b. working to ensure that clubs are run responsibly and are financially sustainable

c. creating conditions in which supporters can secure influence and ownership of sports clubs

d. providing guidance and support to Supporters Trust groups

e. promoting the value of supporter ownership to sports fans, empowering them to set up supporters' trusts or become members of existing Trusts

24. Supporters Trusts are encouraged to acquire shareholdings in clubs to help ensure they can be in a position of influence. The positives of this model are:

25. For smaller clubs, the Trust model can be highly effective at keeping supporters close to the operation of the club. I know of instances at a number of smaller clubs in football and ice hockey where the Trust is actively engaged in running the day to day operations of the club and has enabled the club to keep operating. However, these have only been successful where the members of the Trust have had the required skills to run a club.

26. The negatives of this model are:

a. Trusts can only acquire significant influence if they can acquire a significant shareholding in their club. Without a significant stake, it is debatable whether there is merit in having one at all.

b. There are limits to the amount of capital that Trusts can raise, and therefore the amount of influence through this route alone

c. Where clubs shares are quoted on the stock exchange it is very easy for the value of the shareholding to be eroded.

d. There is difficulty in finding and replacing Trust officers and volunteers. The time required can be significant and it can be hard to find genuine and capable people, particularly when conditions aren’t favourable for the Trust to succeed and in some cases the Trust is portrayed as an irritant by the club to deflect what the Owners are doing.

27. Not having a shareholding in a club does not prevent a Supporters Trust from being effective. Alternative models can exist where the Trust can have a positive influence on the club. These include:

a. A Director of a Supporters Trust being on the Board of Directors of the football club. The purpose of such a role could be in a Non-Executive capacity and be there to bring expertise to bear, be a "critical friend" and so help ensure that the fans are considered when structural or day to day decisions are being made. At present, clubs appear to pay lip service to this and seem to assume that supporters don’t have the necessary expertise, skills or business knowledge.

b. The establishment of regular contact between the Supporters Trust and key decision makers at the club. In this respect I believe that all clubs should have a designated supporter liaison role whose responsibility should include communication with the Supporters Trust. This role should be in the remit of a Board Director or other senior officer.

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

28. From a personal viewpoint, I welcome this enquiry by the government as the stability of the football industry has caused significant frustration for fans and financial problems for the taxpayer. The evidence shows that this instability has been growing in recent years and that the football authorities have either allowed the situation to develop or have been unable to act with sufficient strength or speed.

29. I suspect long term Government involvement would create more difficulties than benefits. However, at present it is clear that football has consistently shown that it is unable to effectively govern itself so the question is more about the form and longevity of Government involvement as apposed to whether it needs to step in.

30. If the government is committed to its "Big Society" principles of devolving power then it would seem logical that these principles should be applied to football, with a requirement for fans to be consulted.

31. At a macro level, I’d like to see the government lead an initiative to build an international consensus on the reform of FIFA. There is significant dissatisfaction with the recent decisions to award the World Cups to Qatar and Russia (less so). This dissatisfaction is not just around the independence of voting but also on the seeming waste of taxpayers money as many are questioning why the UK bothered bidding in the first place.

32. I would also like to see the government involved with ensuring the proper implementation of the UEFA’s Financial Fair Play measures. In March 2010 the Premier League negotiated concessions to these measures and my concern is that they will continue to push for such concessions rather than recognise the precarious state of football finances.

33. At a micro level, I’d like to see the government facilitate a process that helps give football back to the fans. One obvious example of this is to reconsider the rules regarding all seater stadia by allowing the creation of safe standing areas.

34. Overall I am keen that supporters are given more influence in the game as it is clear that the football authorities can not govern themselves, so I would welcome Government intervention to ensure it does happen. When the government gets involved then I’d been keen to see that any new committees formed involve people in touch with the grass roots of the game.

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

35. Unfortunately, my knowledge of other governance models in other sports or in football abroad is not of sufficient depth to be able to comment on this question.

36. I am aware that the German governance model contains a number of the governance features mentioned above, with a licensing system linked to assessments of club liquidity. This is a system far in advance of the UK and while German clubs have been less successful than UK clubs in European competition, their international team has had much more success.

37. In terms of developing natural talent, we are not producing enough Premier League/International/World Class footballers. There needs to be a 10 year plan put in place which addresses the issues. It might not be the solution for all, but Watford's Academy structure is starting to produce positive results for pupils and graduates of the Academy. Maybe, this is the way forward for some clubs, but it is a huge financial commitment and requires a long term view - i.e. 11 year olds will take at least 7+ years to break through into First-team football. The short-termism in the game does not suit this development, which until addressed will always leave us lagging behind other countries.

About the Author

38. Stephen Temple qualified as a Chartered Accountant in 1991 and has worked with a wide range of organisations in both the public and private sector on risk management and governance issues, mainly around Information System implementations and security, but always in the context of governance frameworks such as the Combined Code and the FSA handbook.

39. Stephen has been working with Watford Supporters’ Trust for the last 18 months. Watford FC was close to being placed into administration in December 2009 and, at the time of writing is the subject of a potential takeover bid.

January 2011