Football Governance

Written evidence submitted by Co-operatives UK (FG 77)

About Co-operatives UK

1. Co-operatives UK works to promote, develop and unite cooperative enterprises. It has a unique role as a trade association for cooperative enterprises and its campaigns for cooperation, such as Cooperatives Fortnight, bring together all those with a passion and interest in cooperative action.

The co-operative economy

2. There are already over 4,990 cooperatives in the UK, owned by more than 11 million people – and these numbers keep on growing.

3. Co-operatives are business that exist to serve their members, whether they are customers, employees or the local community. They work in all parts of the economy including retail, banking, food and farming, design, renewable energy and football. Cooperatives also deliver a range of public services including housing, social care, sport and leisure, recycling and healthcare.

4. Members are the owners, with an equal say in what the cooperative does. So, as well as getting the products and services they need, members help shape the decisions their cooperative makes.

5. Further information about Co-operatives UK and the co-operative sector can be found on our website www.uk.coop

General comments

6. Co-operatives UK welcomes the opportunity to comment on the Culture, Media and Sport Committee inquiry into the governance of professional football clubs. Co-operatives have, at their heart, a commitment to promoting democratic involvement as well as ensuring there is accountability, openness and transparency at every level.

7. The Committee’s inquiry to look at the scope for enhancing supporter involvement in decision-making within football clubs is based on a subject we, with others, have long championed and a co-operative structure can go a long way to ensuring clubs exist for the local community rather than solely to generate profit for a handful of owners.

8. It is arguable that it is a hollow point to complain of private investors rigging loans in their favour or selling the rights or interests in community facilities when this is what the investor model is designed to do. If investors own a firm, they can appropriate the profits and benefit from increases in share values.

9. However, when an organisation is co-operatively owned, the interests and incentives of the corporate body and its members can be aligned.

10. There is a new public appetite for greater ownership by fans as a result, no doubt, of the pioneering work of Supporters Direct in assisting the formation of over 170 supporters’ trusts, based on a co-operative ownership model, over the last decade.

11. Clubs need to run in sync with their true nature and need to be owned by those affected most by the decisions, who respect the club’s history and heritage and – crucially - must trade on their own resources. When and where people make key decisions, they need to be accountable for the decisions they make.

12. As mentioned above, co-operatives have, at their heart, a commitment to promoting democratic involvement and a model based on a co-operative form of ownership ensures these objectives can be met.

13. A survey conducted by Co-operatives UK in 2010 asked respondents if they thought their club would be in better hands if it was owned co-operatively by the fans. The results were clear: 83% of Manchester United fans and 72% of Liverpool fans who expressed an opinion felt their club would be in better hands if it was owned co-operatively. Across the country, 56% of fans who gave an opinion felt the same way.

14. Our research also confirmed for the first time that fans would be willing to put their money where their mouth is and invest in the club to take it into co-operative ownership. Manchester United supporters would be willing to invest an average of just over £600 each to buy their club. If all the club’s supporters in Great Britain did this they would be able to raise £2.34 billion – more than enough to buy the club.

15. This challenges the assumption that the only way to get rid of one billionaire is to find another. For less than the price of a Premier League season ticket, fans could share in ownership of their clubs and ensure that they are run in the long-term interests of sport.

16. If the supporters are the people who own football clubs, or who should own them, this does raise question of who actually does.

17. This sense of ownership, critical to all spectator sports clubs, has been maintained by cricket and rugby clubs in the United Kingdom, who chose co-operative forms of incorporation to ensure that the members – the supporters – retained control of the enterprise, and made the key decisions about the club’s strategy.

18. Unfortunately for British football fans, privately owned companies were the corporate vehicle chosen, which has ensured that private objectives reflect not the commonly agreed plan of the core community of fans, but instead the individual wishes of a particular club’s owners.

19. Supporter ownership in football is not a new concept - Germany’s Bundesliga, for example, which has over taken the Premier League as the world’s most profitable league in 2010, already has co-operative structures in place.

20. Given English clubs’ net debt is more than the rest of its European contemporaries combined, the fans are, inevitably, the ones most likely to foot the bill for the suicidal expenditure of English clubs.

21. In countries like Germany it is the co-operative model of ownership by fans rather than the shareholder model that is established and flourishing. Many German fans treasure their system, believing it has been instrumental in keeping German football close to its fans, even in the modern commercial environment.

22. No Budnesliga club has entered administration in its 42 year history. Since 1986 there have been 68 cases of clubs in English leagues becoming insolvent and this shows no signs of receding in the near future.

23. Several Clubs in the UK, from Portsmouth to Cardiff City, have faced a daily struggle to survive with the reality of debts and the threat of administration hanging over them. There is a real chance that a vital community asset could be lost in many of these instances.

24. Where this has been a real threat, due primarily to the failure of previous ownership models, such as at Exeter City, the co-operative model of ownership by fans has been used to great success. There are also instances of new clubs being formed and owned by their supporters trusts due to unacceptable events at their former clubs, such as the case with FC United of Manchester.

25. The 170 plus supporters trusts set up in the UK are registered as Community Benefit Societies with the Financial Services Authority, the registrar of Industrial & Provident Societies (IPSs). IPS legislation has a number of unique attributes that make it an ideal form for community initiatives.

26. The legislation governing the IPS legal form ensures democracy is enshrined and the protection of members' rights - whilst it is possible to state a company should be one member, one vote this can be overturned by the members. An IPS has to be one member, one vote - regardless of the number of shares owned. In an IPS members have the right to appoint and dismiss directors and determine the affairs and rules of the society.

27. Additionally, the amount of interest payable on shares held must be limited to what is ‘necessary to obtain and retain enough capital to run the business’. This is set out in statute and ensures that IPSs must ensure they can remain as viable going concerns.

28. IPSs set up as Community Benefit Societies have the option of including a statutory asset lock, similar to those asset locks available to Community Interest Companies (CICs) and charities. This prevents the IPS being sold and the proceeds distributed among members.

29. The IPS legal form also ensures a supporters trust can exist for a social purpose but can achieve this purpose through commercial trading, reinvesting any profits back into the IPS and ensuring there is accountability, transparency and ensuring that, if dissolved, the assets and interest in the assets are passed on to a third party organisation with similar aims and objectives, ensuring individuals cannot benefit materially.

30. This unique combination of attributes means that IPSs can be treated differently when raising capital in the form of withdrawable shares from their members (known in some areas as ‘community shares’). When an IPS undertakes to issue withdrawable share capital, this is not a regulated activity subject to the Financial Services and Markets Act 2000 (FSMA).

31. There have been a total of 40 new schemes undertaking this form of share issue in 2010 alone. The registration of new Industrial and Provident Societies more than doubled in the last quarter of 2009 and recent initiatives have raised more than £42, 000, 000 from over 30,000 community investors across the United Kingdom.

32. The issue of withdrawable shares has a number of benefits that are unique to IPSs. It provides societies with a less expensive and less burdensome form of borrowing than bank borrowing. However, it also reinforces the member commitment to the society as the capital is risk capital: If the venture fails, the members can lose their investment.

33. Many investors in ‘community shares’ will be motivated not only by the financial return on offer (which must be limited in any event), but also by the potential social impact of their investment, as well as the fact the investment is also wholly contingent on community engagement. Nowhere is this more evident than in the case of FC United of Manchester.

34. As a member owned club, FC United of Manchester are undertaking a unique development in English Football: building a football stadium and community facility at Ten Acres Lane in Manchester, part funded by an issue of community shares in the Club. The Rules of FC United also contain the statutory asset lock, which cannot be removed by the members, so the interest in the stadium cannot be cashed in.

35. The FC United Community Shares initiative goes from strength to strength with investments received of £830,000 towards the £1.5 million figure, with pledges taking that figure to well over a million pounds.

36. This has undoubtedly been helped in part by the fact the initiative has been granted Enterprise Investment Scheme (EIS) tax relief eligibility from HMRC, ensuring investors can reduce their tax liability by 20% of the amount invested. EIS and other such tax relief incentives are integral to engaging investors in community owned enterprises and this should be acknowledged if communities are to fill the void when having to provide their own services and facilities.

37. UEFA and Supporters Direct have called for Football clubs to be governed in ways that prioritise sporting objectives above financial ones, allied with the involvement of fans in the democratic running of clubs. As the Committee have identified, there is evidence to suggest that a model based on a co-operative form of ownership ensures these objectives can be met.

38. A recent report published by Co-operatives UK, Good business? Public perceptions of co-operation , shows that organisations organised and operating as co-operatives are viewed as local, honest, trusted and a good way to run a business. A model of ownership based on a co-operative form of ownership goes a long way to ensuring these ideals are not simply exercises in public relations but are fundamental and integral to the way an organisation is operated and owned.

January 2011