Examination of Witnesses (Question Numbers
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
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
Q58 Mr Sanders:
That is not an issue of the pyramid, is it? That is a separate
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.
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?
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.
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?
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
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.
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?
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.
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
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.
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
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 paintI
think you referred to kids being dumped back on their council
estate at 16 with no friends or futureseems 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
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 likeI 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.
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.
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?
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
Q77 Jim Sheridan:
So no kid or their family gets any direct payments?
Only travel expenses for attending coaching.
Jim Sheridan: That seems
to contradict what the footballing authorities in Scotland are
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
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
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, whichyou have
all seen itis 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 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
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
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 deductioneven to the extent of you go bust, you
start at the bottomwould 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
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 someonethey 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
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 aroundI 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?
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?
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 thoseit
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?
I don't have the figure. Certainly some have.
Q89 Damian Collins:
Would it be 10, more than 10?
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 fromlet
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 Leaguebecause 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 bankbecause,
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
Greg Clarke: What
I am trying to say is, we are searchingI 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 thisI have probably taken up quite
a lot of the Committee's timeis 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
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
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?
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
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
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
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
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 poundsfor 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.