Football Governance - Culture, Media and Sport Committee Contents

Examination of Witnesses (Question Numbers 56-109)

Greg Clarke and Andy Williamson

15 February 2011

Chair: This is the second session of the Select Committee's inquiry into football governance. I welcome for the first part of this morning's session, Greg Clarke, the Chairman of the Football League, and Andy Williamson, the Chief Operating Officer.

Q56 Mr Sanders:. On balance, has the introduction of the Premier League weakened or strengthened the football pyramid?

Greg Clarke: On balance, and this is a personal opinion, it has strengthened it. I think we have some of the best club football in the world. We have some of the most valuable media rights in the world on the back of that. I have worked all over the world, working for large corporations and running large corporations, and everywhere you go you can see English football on the television. That is a big strength, but with every big strength there are some downsides too.

Q57 Mr Sanders: And what are the downsides?

Greg Clarke: There is the usual sort of club versus country conflict. If you have teams largely full of the best players in the world, not all of them are going to be English. That means on occasion that English players get into first teams later than they could have done, but that is a classic club versus country issue that many countries have.

Q58 Mr Sanders: That is not an issue of the pyramid, is it? That is a separate issue.

Greg Clarke: You could say that. I am only bringing it up because the pyramid, when you don't get English players at the top of that pyramid they don't get into the national teams quickly.

Andy Williamson: We have had to rise to the challenge that has been set, effectively. I was there before the creation of the Premier League so I know what those days were like. Indeed, at the point that the Premier League was formed in 1992 there was a lot of uncertainty. At that time, we lost two clubs, in Aldershot and Maidstone United, but it is fair to say that we have risen to that challenge within the Football League and we have seen the popularity of the game get back to the days of the immediate post-war period.

Q59 Mr Sanders: When Aldershot went, effectively, bust and Maidstone went bust, Aldershot have come back, but remind me, did they drop down into a lower division or did they just go out altogether and start again at the bottom?

Andy Williamson: They went out of business altogether as Aldershot FC.

Q60 Mr Sanders: My next question is about parachute payments, which exist from the Premier League to the Championship. They also exist, very helpfully, for some clubs who drop out of the Football League into the Blue Square league. But is there a danger that those parachute payments distort competition, both in the Championship and in the Blue Square?

Greg Clarke: That is one of the most contentious issues that the Football League has debated, the extent to which parachute payments distort competition. Currently, the Premier League gives its relegated clubs £16.5 million in the first season and in order to equalise the playing field somewhat they give £2.2 million to the other Championship clubs. If we get a situation where the clubs that are relegated are automatically promoted, that is not in the interests of a fair competition because you just cannot win unless you have access to Premier League funding.

  Interestingly, the trend is changing. This season, because of the large debts some Premier League clubs have, they spend quite a lot of that parachute payment servicing and paying down their debt. If you look at the current three relegated clubs, and one that was relegated a couple of years ago but still gets parachute payments, none of them is in the automatic promotion slots or the play-off slots. Most of them are mid-table; some of them are down towards the bottom.

Andy Williamson: Just to put the parachute payments at the bottom of the Football League into perspective, the amounts paid to the clubs relegated from the Football League is considerably less, of the nature of £170,000, so it does not create, in our experience, any significant difficulty at that level.

Q61 Mr Sanders: But isn't that just a reflection of the distribution of the funding from the top to the bottom that the payments are so small and yet for those small teams they can make a big difference, even though they are tiny payments?

Andy Williamson: Certainly they reflect the distribution of wealth, if you like, within the professional game.

Q62 Mr Sanders: If you are a small league two team, possibly with a turnover of a couple of million, then £175,000 is a significant amount of money.

Greg Clarke: I do not think we are here trying to convince you £170,000 is not a lot of money. What we are trying to do is convince you it is not as good as £16.5 million.

Q63 Mr Sanders: I think what some of us are thinking is that £175,000 is not enough for the small teams and more should trickle down. Is the redistribution of income from individual Premier League clubs to Football League clubs, for instance through transfer payments and compensation for youth development, fair and equitable?

Greg Clarke: I think it has become accepted that clubs under the current scheme can get fair value for their players. If a small club spends money on player development, brings in youth talent and develops that talent, the current system means that the tribunal usually gets fair value about right. The club selling will think it is not enough, the club buying thinks it is too much, so arguably it is probably about right. We have serious concerns about youth development. Should we be forced on to the FIFA model, which is designed in a completely different way, the amount smaller clubs will get could decrease markedly, which could once again seriously prejudice the finances of smaller football clubs and potentially force many of them out of youth development. Currently, only two of our 72 clubs have no youth development facilities. Should they become less and less profitable, because many of them make a bit of money selling players to big clubs, they will not be able to afford youth development. Some of them, for example Crewe, make about £1 million a year from youth development because they have a real investment in both people and facilities. If that is undermined by the new proposals it will change the business model for a lot of small clubs.

Andy Williamson: In terms of the transfer system, I was aware that comments were made about the lack of redistribution of wealth that the transfer system once did. It is fair to say, however, that there is still profitability for Football League clubs, which in the main are selling clubs in that area. For example, on the domestic market the profit that is made collectively by the 72 Football League clubs in their trading with 20 Premier League clubs is still £62 million for the last complete contractual year ending 30 June 2010. It is still considerable, but it is perhaps not as good as it should be. Given the amount of money that there is in the game and the redistribution mechanism that it once represented, it is not as effective as it once was. Obviously the Bosman ruling had an effect on player registrations, and more recently, of course, the introduction of transfer windows had a similar effect. We comment in our submission to this Committee that that is one area where we would seek the support of your inquiry, Chairman, to try to inject new life into the domestic transfer market.

Q64 Mr Sanders: Why was the transfer window brought in?

Andy Williamson: That is a very good question. Going back to the intervention from the European Commission which was looking at the validity of the transfer system around the turn of the millennium, ultimately an agreement or accommodation was reached, it is fair to say, following political intervention, between the Commission and FIFA. That involved the creation of a number of changes in the universal transfer system that applies across the world and is governed by FIFA rules. But at the same time, FIFA chose, I think with the encouragement of UEFA, to introduce transfer window restrictions, and we have received confirmation in writing from the then Culture Commissioner at the European Commission, Viviane Reding, that that was not at the insistence of the Commission, it was a football invention. So it was FIFA and UEFA who chose to include transfer windows as part of the package that came out of those negotiations.

Q65 Mr Sanders: Do you subscribe to the view that perhaps the transfer window has weakened the position of League clubs in the transfer market and that they have not benefited as greatly as they might have done had there not been a restricted period for transfers?

Greg Clarke: I do. I think that when there is an economic imbalance between buyers and sellers, the pressure to get a deal done within a limited period of time can favour the buyer, usually in the larger club, usually the Premier League club.

Q66 Mr Sanders: The £62 million you mentioned earlier is of course not evenly distributed, is it? It is terribly unevenly distributed. I think there is a great danger in this inquiry that we get given a lot of statistics that show a fairly rosy picture, but when you start to unpick it, there is an enormous amount of difference between a small group of clubs and the vast majority.

Andy Williamson: Those are the receipts from transfer sales of professional players, effectively, and that is the profit from the dealings between the 72 members of the Football League as against their counterparts in the Premier League. The total turnover when transfer fees are spent and re-spent within that domestic market is in the order of £350 million. If you add in the amount that is spent abroad, I think the figure for the year ending 31 January this year, the closure of the transfer window, was something in the order of £600 million. So, it is a significant amount of money that is being spent by football clubs on transfers, either at home or abroad. That might produce a mechanism, for instance, for funding future youth development and perhaps a levy on transfer fees overall could provide the funding going forward.

Q67 Mr Sanders: That was going to be my final question: what can be done to help fund these developments outside of the premiership?

Greg Clarke: The levy that Andy has talked about, which could potentially be a levy on transfer fees, would allow reinvestment in the game because the Football League spends in excess of £40 million a year developing talent, and if the new system envisaged by the Premier League reduces that number markedly, many of our clubs will not be able to do that.

Mr Sanders: Will that be a percentage on the gross transfer fee?

Greg Clarke: We believe that would be a good idea to fund youth development throughout the game.

Q68 Dr Coffey: Is that not the role of the FA though?

Greg Clarke: We are not claiming credit for it. I met with the new chairman of the FA, David Bernstein, and said, "Look, we want a constructive fraternal relationship with you. We want to work together and support you in getting change into the game." So we are happy to support initiative from the FA on that.

Andy Williamson: There is already a levy on transfer fees to fund the players' pension scheme. Strangely enough, it has just been reduced from 5% to 4% because 4% takes care of the premium that is required for that purpose. But that single 1% with a £600 million turnover would produce £6 million on its own.

Q69 Damian Collins: Mr Clarke, you were critical about the elite player performance plan in reports in today's newspapers. Would you like to say more about that to the Committee?

Greg Clarke: Of course. I fundamentally buy into the proposition that we need to do more to develop our youth talent, but I am a businessman. I have spent 30 years working for and running large public companies, so I try to start from where do we need to be in five years and what do we need to do to get there and examine the parameters of the problem, because I am always frightened of unintended consequences of action. If, for example, we attract all the best talent to the Premier League clubs and cut off youth development inadvertently, because I do not think the Premier League are trying to put the small clubs out of business, I just think they have not thought through the economic consequences. Some clubs are good at developing talent. Middlesbrough are good at it, Southampton, Charlton, Crewe. If the economics of that proposition goes away so they can no longer afford to do it, you are forced into a model where a few clubs will develop our top talent. I believe it is better for the game that all clubs embedded in the community develop their talent. Of course the top clubs will have an advantage, I accept that, but I would not want to see them create that advantage, then abuse it by undermining the economics of the smaller clubs, because I think that would be bad for English football.

Q70 Damian Collins: What do you think is best for the development of young players?

Greg Clarke: The first thing we need to be cognisant of is the well-being of the young lads being trained for football. It is all right looking at this as productivity, economics, games, returns, net present values, cash flows and all the other rubbish we talk about, these are human beings, most of whom end up on the football scrapheap and never become a paid professional footballer. We work very hard, for example, with the PFA, with League Football Education, to try and keep them in education, to try and make sure they have qualifications outside the game. I would like to see a real emphasis on making sure we develop well-rounded, successful human beings who, great, if they make it as a professional footballer but their life is not over if they do not.

Q71 Damian Collins: But the current rules would mean that David Beckham would not have been able to sign for Manchester United's youth team, for example.

Greg Clarke: Yes, and I am not necessarily against scrapping the geographic limit. For example, we have lots of clubs who are good at youth development in London and they are just around the corner from Arsenal or Tottenham or West Ham. If you are going to take a young child out of their community and send them a couple of hundred miles away to a boarding school where they are educated with the objective that they are going to be a professional footballer, what happens if they do not shape up or if they break their leg? Do you just dump them back where they have got no friends and no network? I would just like to see all the welfare issues around children factored into this in case we become too economically grounded in our analysis.

Q72 Damian Collins: But presumably these are decisions that are taken by the children themselves and their families and so the bleak picture you paint—I think you referred to kids being dumped back on their council estate at 16 with no friends or future—seems a bit dramatic.

Greg Clarke: Well, as a guy who grew up on a council estate, I have got some form in that area and I know what it is liked to be dumped on a council estate, and I know what it is like to kind of be beaten up on the way back from the chip shop. What I was trying to say is, once you come out of that and you lose your friends and your network--let's not put kids in the position where their only value is football. That is the only point I am making. I am not saying I am against the geographic idea; I am saying the first issue on my agenda is the welfare of the kids.

Q73 Damian Collins: Around the discussion of the elite player performance plan, the idea of establishing a programme of 10,000 contact hours with the young players, do you think the investment that is required to run programmes like that inevitably means that it will be only the big clubs that can afford that type of investment?

Greg Clarke: That is the paradigm that I am concerned about. If it is only the big clubs that can afford to develop talent, we are fundamentally changing our game. I return to my remark about unintended consequences: are we sure about what that will do for small and medium-sized professional football clubs in the communities? Do we want to lose them as a consequence of that or can we protect what is good in the Premier League proposals but not undermine the economics of the clubs, smaller clubs, and the welfare of the kids?

Q74 Damian Collins: I think you are right to focus on unintended consequences. I am sure it is not the intention of the Premier League that it has a financial consequence there. But another question might be put to the Football League that are you seeking to influence the way these rules are established for the financial benefit of the Football League clubs primarily and the development of the players is a secondary issue?

Greg Clarke: Don't get me wrong, we are absolutely trying to look after the financial welfare of the Football League clubs. I am happy to talk about that in detail, but there is nothing like—I am a Leicester City fan, we've had our ups and downs. Nothing excites the crowd like having a lad that grew up in the city and came up through the youth team making it into the first team. I can still remember Emile Heskey, Gary Lineker; having one of your own you have seen in the bus queue actually playing for your local football club is a great feeling and I don't want to lose that.

Andy Williamson: We need to emphasise that all we are looking for in terms of compensation for schoolboy players is fair compensation that continues to incentivise clubs, those same clubs, to continue to develop. If there is no incentive then they may as well give up, but what we have presently is a very broad-based scheme that has the benefit of uncovering the best talent. You see in the present England setup some of the players who have been either developed partly or wholly by Football League clubs, and that we want to preserve. The participation of as many Football League clubs in this process as possible is what we want to encourage, but at the same time we need to ensure that they are adequately compensated if clubs higher up the ladder come in for some of their younger players. Going back to the distance rules, many Football League clubs are already close to Premier League clubs in their own region and suffer that effect in any event. Clubs in London have to compete with Tottenham, Arsenal and Chelsea, for example; clubs in the north west compete with Manchester United, Manchester City, Liverpool, Everton.

Q75 Damian Collins: It is a two-way street though, isn't it? There are plenty of players that have been developed by the Premier League clubs who end up playing in the Football League.

Andy Williamson: There are, and one of the keys here is to ensure that there is adequate provision for players who are developed to graduate into first team football. That is one of the critical areas and we can provide the solution to that dilemma, both in terms of clubs in the Football League producing their own players and getting them into their first teams that much earlier, which is the experience. Debuts in the Football League very often are at the age of 17 or 18. So they are getting into Football League teams that much earlier and being introduced into competitive football that much sooner so their development is enhanced. The danger with development football is that players are not prepared, even in their late teens, to move back into competitive men's football because they have never been exposed to it. That is one of the problems that we can help resolve.

Q76 Jim Sheridan: Still on the question of youth development, could I ask specifically about these compensation payments for youth players? The reason I am asking is parliamentary colleagues in Scotland are asking the same question: kids as young as eight years of age are entering into contracts, and indeed the Children's Commissioner in Scotland has already expressed concern about people as young as this entering into contracts. Certainly when the footballing authorities in Scotland were asked the question about compensation payments for youngsters, they accepted there was some concern but they did say that the problem was even worse in England in terms of the payments that these children get paid. Could you give us a flavour of the criteria for these contracts or how much money do the kids get paid and when do they get paid?

Andy Williamson: Under the rules of the FA, the Premier League and ourselves, schoolchildren and their parents are not allowed to be offered incentives. Those are the very firm regulations that are long standing. In terms of the compensation that we were referring to earlier, we are talking about compensation paid for the time spent in training a youngster by one club if and when that player moves on to another club, and that is the fair compensation that I was referring to. But in terms of payments to individuals, that is strictly against the rules.

Q77 Jim Sheridan: So no kid or their family gets any direct payments?

Andy Williamson: Only travel expenses for attending coaching.

Jim Sheridan: That seems to contradict what the footballing authorities in Scotland are saying.

Q78 Chair: Obviously one of the major sources of revenue into the game is the sale of broadcasting rights. Now, the Football League has had a slightly chequered history in terms of its income from broadcasting rights, but can I just ask your reaction to the opinion of the Advocate General about the legality of using foreign broadcasters' decoder cards in this country? Do you think that has implications for you?

Greg Clarke: It certainly does. It has multiple implications. Our main issue is that if you imagine a small football club, Macclesfield or Chesterfield Town or Notts County, who are trying to get 2,000, 3,000, 4,000, 5,000, 6,000, 7,000 people to turn up to their game on a Saturday and pubs around the corner are showing Manchester United versus Liverpool live on the telly using a foreign decoder, it strikes me that that is making life more difficult than it needs to be. The agreements we have with the broadcasters at the moment are that Premier League football, like Manchester United versus Liverpool, is shown either early or late so it doesn't coincide with the kick-off. One of our major concerns is that people might find it so easy to watch top-quality Premier League action at the same time as League 1 and League 2 are kicking off that it is just easier to stay in the pub, have a pint and watch the game, and that will undermine our football.

Q79 Chair: So you regard the 3 pm blackout as absolutely critical?

Greg Clarke: We do, absolutely.

Q80 Paul Farrelly: I want to come on to debt but, while we cannot stray too widely on this Committee, part of the issue is how fairly money is shared out and we were talking about young players and player development. To what extent is it right to ask whether money is shared out as well as it could be to support academies, to support your league clubs, even sponsoring schools as academies to develop young players? Is that a relevant question to ask about the purpose to which money is put in the game and is shared out?

Greg Clarke: I think the question of fairness in football, in its economic sense, is an interesting question. I have given this a lot of thought since I joined because I come from, as I say, a business background.

Paul Farrelly: But on the specific worthwhile point.

Greg Clarke: Yes, the specific worthwhile issue. Each Football League club makes a decision on how seriously it is going to take youth development. Some we have talked about, like Crewe, Charlton or Southampton, spend a lot of money and they have a lot of well-qualified staff working with a lot of kids, artificial pitches, indoor facilities, so they can train and get the best out of the kids. Some of them, such as Hereford or Morecambe, do not have youth teams at all. They have decided that they just cannot afford to be in that business; the business model is too tight. There are funding allocations from within the game that help those clubs stay in the youth development business and they are vital because it gives smaller professional clubs within the Football League a leg up so they can afford to develop their local talent. We see that as vital to maintaining fairness in the game.

Q81 Paul Farrelly: On debt, is the inability to service debt through cash flow a problem in the game and to what extent?

Greg Clarke: I think it is the problem in the game. If I had to list the 10 issues that keep me awake at night about The Football League it would be debt, one to 10. Let us take Deloitte's, which—you have all seen it—is quite a good analysis, and just take its figures, because then we do not have to argue about where they came from, we can just all talk about the same figures. It talks about debt in the Football League this year in excess of a third of a billion pounds. That for a football league that, if you aggregate across all the clubs, makes no profit. You are trying to service a third of a billion pounds worth of debt with no positive cash flow and no profit. If we were a commercial organisation, we would be out of business. As a board and as an executive within the Football League, we're saying, "Okay, where will we be in five years?" Just extrapolate trends forward, "What if we do this?" and then we can do a what-if analysis. If we can cap the wage budgets, what would that do? If we adopt UEFA fair play rules, what would that do? If we can find new sources of commercial revenue, what would that do? It gives us the ability to do a what-if analysis. The board are taking the results of that to our chairmen's conference, where we get all the chairmen together in June, because we are only part way through, which will say in five years this is where we will be if we don't tackle the problem.

  The thing that I would encourage you to focus on is that there is a real misperception in football, which is that football clubs go out of business. Actually they do not, largely. It is owners that go out of business. When owners go out of business, you then get into, "We better get a fit and proper persons test" because sometimes bad people turn up trying to own football clubs but they always turn up trying to own distressed football clubs that are desperate for the owners. You end up talking to fans and they say, "Why are you trying to stop us save the football club? Why can't we just have Fred or Bill or Mary owning the club?" We're saying, "Well, actually, they're not the sort of person we think should own a football club." But then there is a tirade of, "Well, if it's either a bad owner or no football club, we'll take the bad owner", because we are putting the fans in an awful situation.

  If we do not tackle the fundamental economic problems of our game, all the issues about not being able to pay debts, insolvencies, bad owners, all that sort of thing will get worse and worse. The one thing we have learnt from the global financial crisis, whether it is countries or corporations or households, is that people who have too much debt end up in a lot of trouble. It is a good proxy for risk. The level of debt within the Football League is absolutely unsustainable, and we have got three working parties, one for each division, working really hard on how we bring our level of debt down.

Q82 Paul Farrelly: Would you like to see your rules incorporate provisions that would mean that anybody involved in insolvencies previously, either personal or corporate, subject to rights of appeal, should not be appointed as directors of football clubs or be able, either themselves or through proxies, to take significant stakes in football clubs?

Greg Clarke: We have some quite good rules in place. We innovated back in 2003, because what we try to do in the Football League is get ahead of the game. Andy will talk you through how the fit and proper persons test morphed into the owners and directors test to make sure that we get a hard look at who is going to take over our clubs.

Andy Williamson: Indeed. We do have, coming to your question, a two strikes and you're out policy in relation to previous football insolvency events, not looking at the wider business record, because there are people obviously involved in businesses that rescue companies for a living and have been involved in various insolvency events previously that clearly wouldn't be appropriate to exclude. But we have a policy in relation to people who have a record in the game and also if they have a poor record in other sports, and so those are a couple of examples of the disqualifying conditions that are embraced into our what was fit and proper persons test and is now called owners and directors test.

Greg Clarke: May I just add a subsidiary point, which may be useful? I have done business in Pakistan, Colombia, Saudi Arabia, Australia, all over the world. I have just come back from running an Australian multinational for seven years. I used to run Cable and Wireless. When we used to do business with people, if we were setting up a joint venture in Russia or in Saudi Arabia or doing a major development in one part of the world, the first thing you do is absolute complete due diligence on your partners because you cannot afford to undermine the ethical foundation of your business. If people do business in a different way to you, you will have a problem at some point in the future.

  We used to use agencies like Control Risks and Pinkertons and the main accounting firms to go and say: who are they, where did they get their money from, are they ethical people, do they have a good track record, do they treat their employees right, they don't pay bribes, could they sign the Foreign Corrupt Practices Act? The average project that we did cost between £300,000 to £500,000 to get those answers.

  Now, if you're doing projects on average in the £1 billion to £5 billion range as we did, that was just a sensible thing to do. Trying to get Football League clubs to come up with sums like that to back up the owners and directors test is just never going to happen. So, largely our process is self-certification by owners. If we find out they have lied or misled us we kick them out, but we have to take their word on a lot of issues because largely we can't afford to go to a country and dig into their background.

Q83 Paul Farrelly: I have been involved in the due diligence business all my life. I just want to come on to a couple of things that you have mentioned, very briefly. But firstly, you agree rules, you agree protocols, but what about deterrents? Do you think strengthening the nine points deduction—even to the extent of you go bust, you start at the bottom—would be a deterrent, or would it be a penalty for supporters because of bad ownership?

Greg Clarke: Well, the Premier League deduct nine points, we deduct 10. There is a slight difference there, but your point is absolutely valid. We had a very lively debate at our last chairmen's conference. I had been in the job about four weeks last May when we had the conference, and there was a motion from the floor from a very respected chairman of a Football League club. He has been a long time, high quality owner who said, "I'm sick of bad owners going out of business and besmirching the game and what we should do is automatically relegate by two divisions anybody who can't pay their debts and is insolvent". There is a lot of sympathy for punishing people who don't pay their debts, but the vote did not pass, and if I can try and give you a thematic approach to why it didn't pass rather than quote lots of different people who had nuanced arguments. It was because you aren't actually punishing the people who screwed up the club. You are punishing the football club and the fans and the community, because the guys who have gone out of business have gone, largely. We were in a situation of how much do we want to hammer a local community and football club who largely have been mismanaged by a bunch of people who have moved on and left the club in a mess. There are a new bunch of owners, so they are trying to raise money to refinance a football club, which may be impossible if you relegate them into the Conference. Largely we felt that the 10 point deduction was the best solution to not penalising the club and the fans.

Q84 Paul Farrelly: Let's take a specific example, just to give us an idea of how you can or do get your hands dirty. Let's take Crystal Palace. Crystal Palace does a sale and leaseback of its ground to a property financier whose company subsequently goes bust. The terms of that sale and leaseback are so onerous in terms of rent that Crystal Palace goes into administration because it can't pay it. Then the property owner goes into administration as well. To what extent do you look at those sorts of deals and get involved, or can't you?

Greg Clarke: Philosophically there are two issues here: there is the practice of what we do, which Andy will talk about in a minute, and then there is the practicality. When I hear of a financial restructuring of a football club, which involves the ground going one way and the football club going another way, all my hairs stand up on the back of my neck and the alarm bells start ringing, because when a football club loses its football ground usually bad things happen. It can happen for many reasons. It can happen because, actually, this isn't someone trying to buy a football club, it is a property play and if they can shed the football club at some point in the future and end up with a nice property development, they are very happy. That is not in the best interests of the club, the community and the fans.

But sometimes you sit down with owners. I sat down with one the other week. I have been to 60 clubs in 10 months, because I am trying to do 72 in the first season. I am going to Torquay tonight. When you talk to them they are all under phenomenal pressure, and sometimes the last thing they can do is take a mortgage on their ground to release cash flow to keep the club going. I go to a lot of clubs, the majority of clubs where good, decent local people are putting a significant amount of their net worth to keep their club alive, and they are in situations where they just can't do any more. They haven't got any more. What they have to do then is give someone—they take a loan from somebody who takes a security over their ground. Sometimes I can't think of a better idea for them to keep them out of administration. The practicalities are, for every time we come across a slightly dodgy owner there are another 20 doing their best to keep their club alive in the community and sometimes they have to mortgage their ground.

Q85 Paul Farrelly: Internationally, what lessons do you think you can learn from the German licensing model on insolvency, and also with respect to UEFA? Do you think you might move towards adopting financial fair play rules yourselves in the Football League?

Greg Clarke: I am hopeful that financial fair play will be a way of managing our businesses into a cash flow breakeven. The good thing you can say about a cash flow breakeven model is your debt stops growing at that point, providing you're sensible. If we can stop the debt growing we are halfway to getting a sustainable business. If we can start paying the debt down we can maybe have businesses that can stand on their own feet and be less distressed.

  The UEFA financial fair play model is quite interesting because I believe it offers a template potentially for the Championship to adopt, to say if we have to break even on a three-year period that is just a soft way of introducing a wage bill cap because that is your biggest amount of disposable cash, what you spend on your wage bill. But just to be clear, I am not advocating a wage cap of individual players. I think we had that battle 50 years ago, and you can't tell people what they should and shouldn't earn. What you have to say is how much can a club afford to spend in total on its wages, and not just on players but highly paid executives, for example. Let's make sure we treat everybody fairly. How much can we afford? If they have to break even over a three-year period there is a reasonable chance that the biggest lever they have to achieve that is to drive their wage bill down. I believe we should do that.

  I was at an airport watching one of the financial channels, I can't remember whether it was Bloombergs or one of the others, and they were interviewing a New York banker about the new Basel III regulations for banking. He said, "We'll have to find a way to work around—I mean, with these rules." We all laughed in the departure lounge thinking, "Here we go again," It is the same. There will be smart people trying to figure their way around whatever set of rules are in place. So our job is not just to put a way in place of driving this business on to a sustainable economic model; it is making sure we have the sanctions in place to get the people who cheat.

Q86 Paul Farrelly: My final question: you have gone some way in League 2 on salary protocols. Can you give us a flavour of how that has worked and tell us how many clubs have gone into administration in League 2 since that has been introduced? More broadly, as you try to encourage it further up the pyramid, having secured, hopefully, the base, under what circumstances do salary caps work?

Greg Clarke: Do you want to do the details?

Andy Williamson: Certainly, yes. We introduced the 60% ceiling based on turnover in League 2 as long ago as six years now, so it is well embedded. I think it is fair to say the salary increases in League 2 are much lower than they are elsewhere, so there is evidence that it has worked in terms of ensuring that clubs are sustainable. In terms of the clubs that have still suffered financial difficulty, because at 60% you can still lose money, and Darlington were one club, in fact the only club, that were a resident League 2 club that got into difficulty during that period. Other clubs that had been relegated from League 1 and came down with the problem may have also caused us problems along the same lines, but only one resident League 2 club has fallen into difficulty since the introduction of that salary cap. So it does work. Now we are seeking to shadow those processes in League 1 and, as Greg mentioned earlier, we have working groups looking at cost controls across each division on an ongoing basis.

But it is also fair to say probably there isn't a single solution to this problem. We do have to look at different solutions because there are different circumstances at play in the different divisions. We have already mentioned, for example, the parachute payments that come down with relegated clubs from the Premier League in the Championship, so that creates a different dynamic at that level. So we have to look, perhaps, at a different way of approaching financial viability and, more importantly, sustainability of clubs at Championship level. There isn't likely to be one single solution, one panacea that could be applied across the whole of football.

Greg Clarke: The psychology of football is quite interesting because in business, and many of us have worked in business, you are taught that you have to be better every day, the culture of continuous improvement, otherwise your competition is going to eat your lunch if you get lazy. We can all think of great corporations of 30 or 40 years ago that don't exist any more. Imperial Chemical Industries: where did they go? But football can be a bit backward looking and when you engage senior people from within the game there is a penchant not to change, and when you talk about the problems of debt and the problems that we need to deal with, whether it is salary costs, management protocols or financial fair play, it is, "Yes, but we've always had these problems, life goes on". You get them in a room and they will say, "Yes, we must do something about this" but they never do. One of the reasons we are spending so much time generating our five-year plan with numbers and with a vision is to show them where you will end up if you don't do something and say, "This is not an intellectual exercise and it has always been like this so don't worry about it, the problems will go away. We are heading for the precipice." We will get there sooner than people think and we will hope to catalyse change when we validate that, share it with our chairmen and say, "This is where you are going unless we change now."

Paul Farrelly: I hope we can have a look at a draft before we finalise our report.

Q87 Damian Collins: With regards to the salary cap operating in League 2, are all the clubs in the division complying with that protocol?

Andy Williamson: They are indeed. If a club reaches the 60% limit then they are immediately registration embargoed, so they can't increase that exposure. There is no facility for them to exceed it because those—it is a self-reporting process but we obviously now have the experience over six years of understanding individual club turnovers and we have a plethora of information to validate the projections that are submitted. We keep a tight rein on the amount that is spent on the player budgets and I am pleased to report that there aren't any that have reached the 60% currently.

Q88 Damian Collins: The fit and proper persons test has been in place since 2003; how many people have failed that test?

Andy Williamson: I don't have the figure. Certainly some have.

Q89 Damian Collins: Would it be 10, more than 10?

Andy Williamson: No, it will be single figures, but I think what we will never know, of course, is how many people have been deterred by that test, who have been frightened away because of the rigours of that test. I am not saying it is the be all and end all, but it certainly has created a different approach to people coming into the game and they are aware. We now have a pre-approval process as well. If ownership of a club changes they have to seek our approval. In fairness, that is a procedure that we copied from the Premier League so maybe they have inherited some of our ideas and likewise we have inherited some of theirs.

Greg Clarke: I can give you an example of that. Last week a chairman and chief executive of a reasonably large Football League club asked to see me at short notice. I said, "Sure, come on in." They said, "We were approached by this group of people to do some attractive financial deal and we know they have approached another two clubs in the London area and the guy leading it is on his third alias and has a conviction for fraud". So we just put the word out, all the clubs were phoned up and said, "Watch out for this lot", because they sound compelling and there are a lot of clubs who would like to hear an easy story to get their hands on some more revenue and they're a bunch of crooks. So we do try to deter at an early stage

Our biggest problem isn't necessarily people in the UK, because you can phone around in the UK and you can get a reasonable off the record view of most people. What if someone pops up from—let me pick a country at random where we haven't had anyone from, so they can't say, "Hey you're talking about him"—the Philippines. How do you find out about someone who has made some money in the Philippines? You can phone up the embassy and they'll say "Oh well, don't know much about him."

Q90 Damian Collins: We had evidence submitted by Steve Beck on behalf of York City Supporters Trust. He is a former chairman of York City, and he said, "I had personal experience of dealing with an owner who went on to try and obtain ownership of at least three other League clubs over a period of years and would have passed the fit and proper persons test after almost bankrupting my club." Quite a serious charge about the test. Do you think the test is stringent enough? Do you have enough power to enforce this, given the bleak picture you have painted about clubs going into administration and some of the business practices that put these clubs right on the edge?

Greg Clarke: Let me say that I am hoping that over time all of our tests and our penalties get stricter, because I believe in a well-regulated business environment that we have here, with real duties to the stakeholders, like the fans and the communities and so on. But the issue is we also have to protect natural justice. If we have any evidence we will act. I mean, for example, if someone comes into a nearly bankrupt football club in good faith and tries to save it and it still goes over the edge does he become a bad person because he has got an insolvency to his name? The nuances here of real hard evidence and looking at intent and having the resources to dig into every person who wants to be part of a consortium to buy a football club just provide practical barriers. They are no excuse for lack of performance and we are trying to do better all the time.

Q91 Damian Collins: In our previous session, there are some business practices people have been critical of. Olswang, the law firm who worked with a number of football clubs, raised one of these, which is the use of VAT money basically as working capital on behalf of football clubs. They said, "In any other industry, this is an incredibly serious event that leads quickly to a winding-up petition and personal consequences for those involved, but this seems to be not just one or two clubs involved in these sorts of business practices but a big problem." Do you think that is something that you, as the League, should take a position on?

Greg Clarke: I think we should, yes. We at the League and the clubs that drive the League—because the Football League doesn't run the clubs, the clubs run the Football League; we are a democracy; there are 72 votes and they all count the same--are vehemently supportive of HMRC. We sat down and came up with a set of measures about people start using the taxpayer's money as a bank—because, to be frank, without declaring any form of political opinion, the Government has got better things to spend its money on than football clubs at the minute. If people don't pay their tax bills, for example HMRC say they haven't paid their PAYE, what we should do is immediately put a transfer embargo on them so they can't sell players. That is a big stick in The Football League. If you ask me would I support extending that to VAT, yes, absolutely I would. We need to improve our sanctions all the time to stamp out bad business practices.

Q92 Damian Collins: Sorry to hurry you but I know there are lots of people who have questions. The last thing I want to ask about is the football creditors rule. If that rule went, for example if you were a football club and the football creditors rule did not exist, would you be less likely to sell a player to another club that you thought was in financial difficulties because you might know that you might not get that money?

Greg Clarke: Let me just tell you a slightly expanded answer to your question. I came in here from a corporate background thinking the football creditors rule was an outrage. I came in thinking the sooner we see the back of that shoddy practice the better off we will be. When you talk to club owners and you would say it they would say, "Okay, we are a private members club. We play each other in league, we play football together. Would you be a member of a club who didn't pay its bills? Would you support their ongoing membership?" I said, "No, probably not". They said, "What happens is, if they don't pay their fellow football clubs we will kick them out of the Football League. They will cease to exist. We won't have them."

Q93 Damian Collins: Gordon Taylor, who is coming in next, said in his evidence, "The football creditors rule protects the integrity of the game and ensures that the club cannot achieve success beyond their financial means." But that is what they are doing. They might be protecting each other in the way they do that, but that is what they are doing.

Greg Clarke: What I am trying to say is, we are searching—I mean, for example, there is a lot of debate within the Football League and the Football League board, for example, the Football League policy is to support the football creditors rule for the reason that the default position is if the club doesn't pay its other football clubs they will kick it out of the League and it is gone forever. It can maybe start up round the corner on a park and rebuild itself.

Q94 Damian Collins: Sorry to interrupt, but if the football creditors rule didn't exist, would it help the clubs to police each other? They would be more aware when dealing with each other that if I'm buying a player from another club and they are in financial difficulties or are selling to another club, I might not get my money, and therefore they are helping to regulate each other, but at the moment there is no such incentive at all because they can take each other's money. They know the transactions are protected and that if the club goes into administration they won't be the ones that will lose out; it will be a local business that supplied that football club.

Greg Clarke: Let me answer specifically your question, because it is a fair question. Some of the biggest organisations in the world mispriced counterparty risk over the last three years. They lent to organisations that could not pay them back. Expecting half of our football clubs to quantify counterparty risks--the football clubs--where they don't know what their finances are, what assets they pledged, what securitisations they have got in place; what that will do is stop them selling to each other because they don't have the resources or the information to make a well-informed decision on counterparty risk.

Q95 Damian Collins: My original question was if the football creditors rule didn't exist would clubs be more careful about buying and selling players to each other. Would they?

Greg Clarke: Absolutely. I think there would be a lot less buying and selling.

Q96 Damian Collins: Given one of the pressures in the game seems to be inflationary pressure on player salaries and on player signing fees, that might be quite a good thing. It might be a helpful way of helping clubs be more sensible about how they do business with each other.

Greg Clarke: Andy will say a few words in a minute. I would be loath to leap to that position without a thorough analysis because the unintended consequences could be horrific. But they might be good, and let's work our way through it because we are looking for a better way.

Q97 Damian Collins: Would you lead an analysis like that from the Football League? Would you say, "This is something we should do", because a lot of people are questioning why this rule exists?

Greg Clarke: One of the scenarios we are generating as part of our five-year plan is what happens if we move away from the football creditors rule. What does it do to the game? What we are trying to do is have a way of testing ideas and finding out where we end up if we adopt them rather than just saying, "Let's give it a go and see."

Q98 Damian Collins: The final question on this—I have probably taken up quite a lot of the Committee's time—is that you have spoken a lot about something I think we all agree with: football clubs, particularly Football League clubs, are a key part of their local community. People are right to ask the question of why is it that if that club goes into administration, its debts to other Football League clubs and other parts of the country are taken as a priority, while its debts to local suppliers that it probably deals with are not. It is the local businesses in the community that football club serves that are more likely to suffer if a club goes into administration than a football club 500 miles away.

Greg Clarke: I cannot construct an argument that allows me to defend the morality of football creditors and we are working hard to find a more palatable substitute.

Q99 Paul Farrelly: Just on this very briefly, you say in your evidence if the football creditors rule is removed, there is a greater risk of clubs ceasing to exist. I would say, "Up to a point, Lord Copper." It is post facto preferential treatment of creditors, and it is simply an extra obligation and condition that a buyer has to take on, and therefore it will reduce the price they are willing to pay for the club and therefore the surplus is available to other creditors. Is that not the case?

Greg Clarke: In any normal business that statement would be true. If you go through the last restructurings that Football League clubs went through, and there are plenty you can get on the public record, the price paid for a club, largely, people pay you to take it off their hands. If I had sat next to just one chairman who said, "If I could find a good owner who would give me a quid for this place I'd take it tomorrow." The banks take a haircut, the creditors take a haircut. It is a situation of it is not a compelling asset to own. Largely good owners see it as, "I've made some money and I'm going to pay it back into my community and I am going to try and keep the local football club going".

Q100 Jim Sheridan: The last question I asked about compensation for young players; what kind of money does change hands for compensation for young players?

Andy Williamson: That varies enormously. Under the present system, clubs are left to mutually agree the level of compensation. If they can't agree, it would go to a compensation tribunal.

Q101 Jim Sheridan: What kind of figure is that: £1,000, £10,000?

Andy Williamson: It could range from £1,000 to several hundred thousand. I think in recent times there have been figures as high as £500,000 or £600,000, but I was on one of these tribunals as long ago as maybe 10 or 11 years for a player called Jermain Defoe. He moved from Charlton Athletic as a 15-year-old, and that tribunal set a base figure of £400,000 as long ago as that with build-up payments. In fairness, I think he is testimony to a pretty accurate decision.

Q102 Dr Coffey: Very interesting about debt but we must turn to governance. Perhaps I will make a controversial statement. Lord Triesman last week sometimes had the tone of a jilted lover having had a lover's tiff, but the Football League has brought in two independent directors, including a new chairman, and six people involved formally in football. What benefit has that brought to your governance and do you think the FA and the Premier League could benefit from adopting your board model?

Greg Clarke: I have been sitting on public company boards for large corporations for the last 16 years. I was on the board of Cable and Wireless, I was on the board of BUPA, I was on the board of Lend Lease Corporation, in Australia, and the independents are there to see fair play. They are there to balance, because there are always conflicts of interest. For example, if the chief executive wants to be paid more money, you have to balance the good of the chief executive versus the good of the shareholders: what is the right balance? The committees that make those decisions are largely composed of independent directors.

  The Football League took the decision well before my time that they would have a senior non-executive director and an independent chairman who were independent of football, who had been football fans, had maybe worked in football a long time ago, knew what football was all about, but came without any vested interest to any divisions or any clubs and could balance the needs, because we do have differences of opinion between League 2 and League 1 and the Championship. I spend a lot of my time trying to find common ground, along with Ian Ritchie who runs Wimbledon, the All England Lawn Tennis and Croquet Club, I think it is called. We spend a lot of time trying to broker agreements so we can move forward, because when you have a number of stakeholders in a decision-making forum it is really easy to default to nothing ever happens because nothing can be agreed. You end up with anodyne statements that we are all going to work together to solve the common problems of X, Y and Z, and nothing happens. That is why you need independent directors, and we have been very forceful in our opinion with the FA that they need not just independent directors but if independent directors see bad things happening on that board, they can stand up, make a fuss and be noticed, and if they resign that is a big issue, not, "Oh, we'll just get another one."   We made that point in our submission and I have sat down with the new chairman of the FA and encouraged his desire to get independent directors and pledged the support of Football League to that initiative.

Q103 Dr Coffey: You have two seats on the FA board, I believe.

Greg Clarke: We do indeed.

Dr Coffey: In the recent change where David Bernstein came in, were you opposed to that, because he still had formal links in a way with football?

Greg Clarke: I was not consulted, and rightly so. Let me tell you what happened. One of the problems you get in football is everybody wants to know what is going on all the time, and the FA board were exceptionally good at keeping their deliberations to themselves so there weren't leaks about Fred, Mary or Bill is going to get this one. That was on the basis that each member of the decision-making forum, of which we had one, was sworn to absolutely secrecy and Tony Kleanthous, who is chairman of Barnet, who is on the FA board, was our nomination. Tony came to me and said, "Greg, these are the conditions. Are you happy with those?" I said, "Tony, you have my support in keeping absolutely quiet but when you make a decision just let me know." He phoned up straight after the board meeting, when it had been announced, and said, "It's David". I said, "Oh great". So, I support the process. It is a tough job running the FA, don't get me wrong, and the best person, a really, really good person is going to find that job tough. I looked into David's background and he is a tough guy. He has worked in real businesses. He has managed fractious boards and shareholders. He has been around the block and he will have our support, but it's not going to be easy.

Q104 Dr Coffey: What about those structural reforms that you have introduced in your governance arrangements, that without question the FA are not doing today, that you think could make a visible difference into the future running of the FA, whether that is the development of grassroots sport or whether it is the success of the England team?

Greg Clarke: I met Lord Triesman. I think we overlapped by a couple of weeks. I was there a week and the CEO left, I was there another couple of weeks and the chairman left. I thought, "Crumbs, I better not start planning my pension in this job." I sat down with him and I asked him what he thought his role was and he told me. I said, "Look, I'm here to try and build a constructive working relationship to get things done, so why don't we all sit round a table and just say what are three or four important things and let's get them done." Go through a confidence building exercise and say, "Hey, we can get things done" and move on to even harder things.

I invited him, because he didn't come to any Football League games, and I said, "You've got to build—" because one thing I know about football is you have to build a support base. I have done 60 clubs, not because I like spending five days a week travelling. I am going to Torquay tonight; I was at Rotherham the other week; I was at Bradford. I do five games a week because I need to understand what is important to football and I need to build a support base. I said to him, "You don't come to any of our games. You've got to get out there. You've got to build a network. You can't be seen as a remote figure." I didn't see him as a bad man; he just lacked the common touch of getting out there and moving people his way. What I have told David is he will have our support. We will try and drive things forward. We are willing to attack the contentious issues together in good faith. We are not going to brief against him; we are not going to undermine him. We are going to be a proper partner and if we have an issue with what he is doing we will sit down in private and hammer it out with him.

Q105 Dr Coffey: I think you said the new chairman has a desire to bring independent directors on the board. So that is stated?

Greg Clarke: Before he took the job he was one of the people saying we need that. I would be amazed if he doesn't drive hard for independent directors. I am not here to speak for him, but he comes from a background where it is normal to have independent directors. We are not talking about, "Shall we go into genetic engineering of humans" or something beyond the pale. We are talking about something that the civilised world has accepted as a normal way of running these sorts of organisations. Why wouldn't we do it?

Q106 Mr Watson: The former League club Kidderminster Harriers nearly went into administration last week. Do you think there is more you could do to work with supporters' trusts to help lower League clubs or former League clubs improve their governance model?

Greg Clarke: I am a big fan of supporters' trusts. I am not one of these people who just says, "Oh, they're great but we don't want anything to do with them." Let me give you an example. When we were rescuing Leicester City we did that in partnership with the Leicester City Trust, and the supporters' trust put £100,000 into the rescue and nominated a director who sat on the board. I sat down personally with the management committee of the Trust and said, "Look, I'm not being patronising but you have to understand there are duties on a director of a company and if you breach those duties there are sanctions that will be applied by the DTI. You have to understand the Companies Act, not in detail but broadly what you are supposed to do and what you are not supposed to do. We encourage you to put forward somebody who can understand how to be an effective director and understand what he can and what he can't tell the membership at the trust meetings." They appointed one of the senior partners of one of the biggest law firms in Leicestershire. He was a cracking director but he got in all sorts of trouble with the trust; not nasty but they would say, "Well, who are we going to buy then in the transfer?" and he would say, "Well, I can't tell you". They would say "What good are you doing if you can't tell us what is going on?" It is a tough job to have because the person who can discharge those responsibilities has to say no to a lot of questions from the people who put him in the job.

Q107 Mr Watson: Let me just ask you two practical points. Do you think there is more you could do to enable these kinds of trusts, whatever model they take, to take a stake in their clubs? Presumably, given the comment you have just made, you wouldn't agree with some rules around transparency so that supporters' trusts could see the accounts of the club, for example?

Greg Clarke: I think every business should publish its accounts and be transparent. For example, if I am going to sell my club pies I would like to know that they have some working capital next year. If I was going to put supporters' trust money into a club I would like to make sure that club has plans to remain solvent before I put my money in, otherwise I would be breaching my duty of care to the people I was looking after in the trust. So on transparency of football clubs: the more we get the better off we will be.

Q108 Mr Watson: Is there a role the Government could play in making that happen?

Greg Clarke: I am not temperamentally inclined to heavy duty regulation in football but we may come to a point where, if football does not make enough progress to get its house in order, we will need to go down that road.

Q109 Mr Watson: Presumably if we can help you find some practical ways the trusts can take stakes and improve transparency, do you think the trusts themselves might need to be governed at some point?

Greg Clarke: Once you are dealing with sums that run into hundreds of thousands of pounds—for example, I was with a club that was in all sorts of financial difficulty and I was talking to the person who was trying to help them out about two weeks ago. He said, "I'm talking to the trust. They've got £300,000 in the bank." I said, "Let me get this straight. You are £4 million short of staying in business. Are you taking their £300,000 unconditionally or part of a £4 million package?" He said, "I'm just taking the £300,000." I said, "I wouldn't do that if I was you, because if that keeps you in business for another 10 days and they lose all their money I will be really unhappy about that." I had no power to enforce that but at the time he didn't do it. We will need ways of protecting well-meaning supporters from losing all their money in a fragile football environment. Once we get football on to a sound footing, if football trusts want to invest in steady state businesses that can stay in business that is great, but at the minute I am not sure all the trusts have the expertise in place to diligently understand what they are getting into.

Chair: I think that is all the questions we have for you. Thank you very much.

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© Parliamentary copyright 2011
Prepared 29 July 2011