Football Governance - Culture, Media and Sport Committee Contents

Examination of Witnesses (Question Numbers 225-246)

Lord Mawhinney and Henry McLeish

8 March 2011

Q225 Chair: First of all, I thank Lord Mawhinney and Henry McLeish for having sat patiently through the first part of this morning's proceedings. I welcome Lord Mawhinney, a former Chairman of the Football League, and Henry McLeish, obviously a former First Minister but also the author of a recent review of Scottish Football. Could I start by asking Lord Mawhinney whether he thinks the introduction of the Premier League weakened or strengthened what is known as the football pyramid?

Lord Mawhinney: It strengthened it, but I will come on to the present in a moment. It is a phenomenal success. I have sat in Beijing and watched Premier League games. I have sat in Boston and watched Premier League games. The future income of the Premier League is more and more shifting towards overseas media rights and whenever they launch their own television channel that will have another additional effect. It is a great success.

I think the difficulty is that it has created a problem about the handling and distribution of money. It has generated so much money that it has skewed, or is in danger of skewing, the system. The Premier League is one of the country's great advocates for a free market and I pay tribute to it. The problem is that the Premier League is not a free market; it operates in a closed market. What happens at the Premier League affects the finances of not just other Premier League clubs but clubs right down through the Football League, and what happens in the Football League affects what happens in the Conference.

Going back to the earlier questioning, every time Mr Rooney or Mr Torres gets a salary settlement, that cranks up the whole system. Agents note it and they add a little bit to the value of their player. Other clubs note it. Whether that is good for the medium-term football pyramid I think is very debatable.

Q226 David Cairns: Henry McLeish, you have written this football review. It is a big review; it has 89 pages and makes lots of recommendations. Can you just encapsulate what you think are the key one or two recommendations that you would really like to see implemented from this review?

Henry McLeish: The position in Scotland is in some respects very, very different, especially in terms of scale and the financing of the Premier League in Scotland, and in terms the fact that we have 5 million people rather than 60 million. In that sense, I would, first of all, say that the context is very different. That said, as someone who has a passion for the game and who has played the game, I found that the football authorities in Scotland were really not fit for purpose—and I will be as sweeping as that at the start—because in a sense in both England and Scotland we are looking at two of the oldest associations. We are talking about history and about legacy, about a preciousness and exceptionalism that I think you only find in football, and about an insularity that is safeguarded in some respects from the outside world. In that sense, they were not fit for purpose—this is the SFA.

Then you take the Scottish Premier League and the Scottish Football League, as the two other institutions. I could find no good reason, for example, why they had been separated, because our SPL operates at a very modest level compared with England. That said, we had a fragmented game, there was lack of trust; there was a whole series of problems that had clearly accumulated over decades without anyone from the outside suggesting that things should be changed and without any momentum from the inside suggesting things should be changed.

After the review, and after speaking to an enormous number of people, the first thing I wanted to do was to improve significantly the governance of the game as exhibited by the Scottish Football Association. This involved a major overhaul of its committee structure, which was fine for the start of the last century, but not fine for the start of this century. They had too many people on the boards and a whole breakdown and fragmentation of their approach. Of course, there was also a severe lack of confidence in their ability to oversee the game and regulate the game. I suspect that, in terms of the FA in England, part of this is going on.

What I recommended was, first, sweeping changes to the structure, composition and modus operandi of the Scottish Football Association; secondly, the reintegration of the Scottish Premier League and the Scottish Football League, in no way stepping on the toes of either but bringing them together to collectively take the game forward; and then, thirdly, an acknowledgement—I think this is one of the issues that I think is interesting in England—that the game is bigger than the Premier League. Now, we can say that in Scotland because I think it is a more modest Premier League. That said, it was to talk about the fact that, in terms of the gap between national aspiration and national achievement, the gap was enormous. We were asked: should we reduce our national aspiration? Now, in Scotland that would have been heresy because we are a passionate country, although not always successful. We wanted to keep the aspiration alive, so what we had to do was to raise the expectation.

What I think has now come forward is a growing embrace of change and a growing of confidence that the game needs to move forward together, which means that football as a sport has to be resurrected as a game. Therefore, the whole emphasis should not be on the Premier League in Scotland and what it wishes to do. That can be accommodated and, of course, within our Premier League structure we have two clubs—maybe they do not need to be mentioned today—which are certainly the subject of much debate in Scotland in terms of dominating the Premier League. All in all, there was a recognition that the game is enormous and that the SPL has a part to play. As in England, however, you may have the best Premier League in the world, as we have heard this morning, but your national side does not reflect that in any particular way. Our effort in Scotland was to look at this in a more integrated way from the very grassroots talent elite development right through to make sure that we have the best Premier League that we can muster at the present time.

Q227 David Cairns: Talking of Celtic and Rangers, then, isn't the problem that we are trying to organise a league in Scotland that has two great behemoths, two massive world cups, a few teams in the middle that are perfectly respectable, well-run clubs that have intermittently done quite well in Europe, and then this very long tail of amateur clubs or part-time clubs that we do not see in England, but we are still trying to keep the whole panoply of a structure as though we were in the same scale as England? This is not one of your recommendations, but wouldn't it just be better for everyone—and it is not going to happen—if the Old Firm were playing in the English Premier League? You would have a much more rational structure than Scotland and the Old Firm wouldn't be as constrained as they feel they are by the pitiful amounts of TV revenue that they are getting compared to what is happening in England.

Henry McLeish: I suppose the simple answer is no, and that is why it was not a recommendation. The realities are that Rangers and Celtic will continue to play in the Scottish Premier League. I think you are right to suggest that we have great difficulty now supporting the four divisions involving 42 clubs. That said, part of the recommendation was to acknowledge that, in terms of the community interest and community development, some of our clubs would be looking more at that than they would be in terms of a normal business model for development.

Secondly, within the structure of the SPL with the 12 clubs, which may go to 10, Rangers and Celtic are accommodated, although they are huge. 65% of all the attendances over the last 10 years in Scotland have come from Rangers and Celtic. We are aware of that, but on the other hand, even if you wanted to think that Rangers and Celtic could be involved down south, I think you are up against UEFA rules because it would allow you, for example, as a separate association to have the people from the German Bundesleague or others seeking to join your Premier League as well.

I think it is impractical. The politics and the possibilities are certainly to see Rangers and Celtic as a major asset in Scottish football but to ensure that some of the excesses we have seen recently are curbed. But that said, we have a very particular set of problems that in some respects, Chairman, do not really reflect what is happening down south.

Q228 David Cairns: Your key recommendation, then, is to merge the SPL and the Scottish Football League and to tackle the labyrinthine committee structure of the SFA and the blazer brigade there. How have these recommendations been received and how confident are you that they will be taken forward?

Henry McLeish: They are being taken forward and the board of the SFA has accepted most of the recommendations and, in fact, they have been approved by the board. One of the problems is trying to make sure that change does take place in other areas of the game. For example, we are keen to make sure that we work with other sports; with a bit of modesty acknowledge that while it may be the top game in Scotland we have a lot to learn from others. I was interested by the submission the FA made to you that because of their uniqueness it was very difficult for them to learn from others. That is flatly not the position because one of the problems your FA has compared with the Scottish FA is that you have very, very similar problems, which are a product of legacy, a product of history and a product of being inward looking.

Change and specific recommendations, I think, are going forward. But what we are up against in Scotland is a huge financial problem; not some of the issues that were raised earlier in the evidence session, but in terms of broadcasting, fan base and sponsorship. These are the three key issues in which we are trying to keep involved to generate more cash.

Q229 Dr Coffey: Just to each of you, how important are the solidarity payments coming from the top division down to the lower divisions, Premier League to Football League in a particular case, and, in particular in England, how important are the parachute payments and do they end up distorting competition in the Championship?

Lord Mawhinney: The help that the Premier League gives in a variety of ways to the Football League is significant and, up until recently at least, has been much appreciated. The parachute payments were instigated because the salary levels in Premier League clubs were so much greater than in Championship clubs that, without some transitional funding, Premier League clubs that got relegated would simply just head straight into administration or just tumble down the Football League and that did not seem to be fair. There was an agreement, which we supported, that a certain amount of money should be made available by the Premier League to Premier League clubs that were going to be relegated.

Chairman, can I just, if you will forgive me, make it clear that Mr Clarke and Mr Williamson spoke on behalf of the Football League? I am expressing my own view, albeit as Honorary President of the league. In my view, the present level of parachute payments are going to undermine the integrity of competition in the Football League. They are going to do that because the amount of money—£16 million, £16 million, £8 million and £8 million over four years—bears very little relationship to the salary issue that was the original case. I tried to persuade the Premier League at one point to link the parachute payments to the specific salaries of players that came down and as that player got sold or moved on, so that bit of the money could drop out. That seemed to me to be coherent with the original philosophy. That was totally rejected. We now have a set of circumstances where the Premier League will tell you that they are being very generous to the Football League and at one level they are being very generous, but the strings attached and the effect on the integrity of competition are both issues that cause me concern.

Q230 Dr Coffey: Roughly how much does the Football League now get from the Premier League?

Lord Mawhinney: Well, that is really quite a complicated question, if you do not mind me saying so.

Q231 Dr Coffey: Ballpark figure, is it £50 million?

Lord Mawhinney: We get solidarity payments. If the Premier League were here they would include all of the parachute payments that go to their clubs—

Dr Coffey: Just the solidarity—

Lord Mawhinney: No, I am trying to be helpful. The figures here are very easily misunderstood because the Premier League, up until the time I left, were saying they gave about £120 million a year to the Football League; but two thirds of that were parachute payments to their own clubs, they were not to us. About £25 million is what is sort of estimated comes to the Football League through the involvement of Premier League clubs in the Carling Cup, for which we are enormously grateful. There is some generation of money to Football League clubs from Premier League clubs in the context of transfers, though that has dropped off as the Premier League has shifted its gaze more toward Europe and the rest of the world than to the league below it. It is really quite hard to answer that question and I do not want to mislead you. You might want to ask each of the two leagues, add it together and work out an average.

Q232 Dr Coffey: The only reason I ask is that surely the Football League had come to its own arrangement by not including the parachute clubs in certain other redistribution of income within the League. I understand Middlesbrough is about to restructure because it has come to the end of its parachute, but is there an ongoing implication for viability of clubs leaving the Football League?

Lord Mawhinney: Dr Coffey, that is exactly the point that I was making about integrity of competition. If, in the Championship, you have two clubs each season going in with £16 million extra against the amount of money that goes partly from solidarity payments from the Premier League of about £2 million and the Football League allocation to a Championship club, which is about £2 million, you have two clubs with £16 million and the rest with £4 million. Next season there will be four with £16 million and 20 with £2 million and, if you believe what you have been hearing, money is what makes a football club successful. Personally, I think fans want sustainability as well as success but there is no doubt that the football industry mentality links money with success and that raises questions about integrity of competition.

Q233 Ms Bagshawe: This is a question that applies both to England and Scotland respectively. On the distribution among the individual Premier League clubs, and down to clubs below them, do you think that the situation is fair and equitable in terms of transfer payments and youth development payments? Do you think those individual payments have been handled properly, respectively?

Henry McLeish: On the last question, there are problems with parachute payments, as they are not sufficient. There is a different scale of costs, a different series of financial problems, so in Scotland the current reconstruction proposals are about creating an SPL2 or a kind of Championship type of league. That is going to involve more money coming from the SPL into that. Also they are seriously looking at a significant increase in parachute payments.

Overall, because of the lack of broadcasting income and the difficulties of sponsorship, we are dealing with more meagre budgets. So in that sense there isn't really a dispute between the Scottish Football League and the Scottish Premier League about distributional aspects. It is more a joint league or a joint effort to try and get more money coming into the game overall.

But what we have done in my recent report is make some suggestions about the elite talent/youth development side, because in many senses we do not have the young players coming through. It is quite clear that within the SPL and within the SFL, the SPL in particular, the investment of young people is not bearing fruit to the extent it should. What we are looking at then is a wider pooling of both responsibility and resource across all the authorities, including the SFA, to try and tackle that particular problem. In that area, we are also seeking further investment from the Government as one of the leverage points, the very few leverage points they have, to do something for elite, talented young people, which would be in the national interests as a justification for involvement as well as to the benefit of the clubs.

Lord Mawhinney: As far as England is concerned, frankly you pay your money and you take your choice. The Premier League have a ladder system but their clubs voted for it. So I guess those who are toward the bottom end of the league don't feel that the differential is so big as to create a problem. In the Football League there is equality of distribution within the division. Within the Premier League the effect of money generated through playing in the Champions League has a significantly more distorting effect in the context of your question than the ladder arrangement.

Q234 Mr Sanders: On these parachute payments, given the sort of scale that you have set out, the number of clubs that would be in the Championship with that financial backing, it occurs to me that if you are a League 1 club and you get promoted you are automatically at a disadvantage within that new league that you have entered and that there is then an incentive to overreach yourself if you are in the Championship, having come up rather than having come down. I am wondering if there isn't a direct link between those parachute payments and the situation of Plymouth Argyle, at the moment in administration, who possibly overreached themselves, having gone up into the Championship and unable to compete with clubs that have those parachute payments.

Lord Mawhinney: You will forgive me if I don't comment about a specific club. There are probably management and governance issues and all sorts of other things, so forgive me if I don't do that. But as to the core question that you raise, it is a good one but, Mr Sanders, it is not just when a League 1 club goes up to the Championship. As part of the latest what is called solidarity package, I told you about the parachute payments and the just over £2 million a year to the Championship clubs, the other part of that package is that the League 1 clubs get £300,000 and the League 2 clubs get £200,000, give or take a few bob.

The very solidarity packet enhances the differential even before you get into the position of what happens to the promoted clubs. It is a real problem. If I had to identify one thing that I learned about football, I would talk about two things: I learned it was sometimes quite tricky to get all 72 chairmen pointing in the same direction at the same time, but the main lesson I learned was that if the Football League doesn't defend the integrity of competition, absolutely nobody else will. The integrity of competition is, for me, easily the most important issue. It relates to sustainable debt; it relates to the behaviour of agents; it refers to transfer windows. There is a whole range of things that fall under the broad heading of "integrity of competition" and I very much hope, Chairman, that this is an issue that will commend itself to the Committee in fairly robust terms when you produce your report.

Henry McLeish: Can I just add a postscript? I think Lord Mawhinney is right in describing it as a closed market. You can take the clubs that occupy the Premier League in Scotland and say they are businesses, they are in a marketplace, but the operation of the League is not in a marketplace. I think that whether you call it solidarity or protectionism then you do find that there is a lot of problems peculiar to football that have developed over decades into the situation we have got. I don't think, certainly in Scotland, they are anti-competitive in that regard. On the other hand, the precarious nature of relegation and promotion is such that there is no great outcry in Scotland about some of the excesses or perceived excesses of that process. As I said, more of a concern that if we can generate more cash from a better product on the pitch that would be the biggest objective to be pursued.

Q235 Mr Sanders: Can I ask you for a quick answer to this? You mentioned Celtic and Rangers, and that one of the reasons for not coming into the Premiership was the impact on the Scottish international position. But how does that work when you have Welsh teams playing in English leagues—possibly one of them going into the Premiership this year—and yet there is still a Welsh professional, semi-professional league, and a Welsh national team?

Henry McLeish: We have Berwick Rangers playing in the Scottish leagues as well, so we are quite friendly with our English colleagues on that. I raised it in reply to David Cairns' point merely by saying that if two clubs of sufficient stature were to seek to move between international associations then I think it might ruffle a few feathers and, quite frankly you don't have to do a great deal to ruffle the feathers of either UEFA and, in this case, it would be FIFA. I think there is a more serious point, which is that while David Cairns has quite rightly outlined the issue for Rangers and Celtic in a small league where attendances are not good, their competition is not sharpened every week. This is just the historical reality we find ourselves in. In terms of not agonising in a report or in discussions and dialogue about where Rangers and Celtic are going, they are part of Scottish football and I think that is how we want to deal with the problem.

Q236 Mr Sanders: Lord Mawhinney, can I ask about the Football League and whether it ought to be doing more to support and reward youth development programmes run by Conference clubs?

Lord Mawhinney: I have to be honest and say I don't understand what the basis of the question would be. Most of the clubs that I had the privilege to represent think that they have a major task getting their own youth development programmes up and effective and defending, as is now commonly and widely reported in the media, the increasingly good youth development programme in the Football League against the sort of comments that you heard from the representatives of the Premier League who gave evidence earlier. On the whole, I think it would be reasonable to say that most of the Football League chairmen think that those two things constitute enough of a challenge on youth development without taking on the job of trying to handle youth development for the Conference.

Q237 Mr Sanders: So you think it ought to just be something for the league clubs to do? I mean league clubs have, as you hint, a difficult enough job maintaining a youth development programme. It is the first thing they tend to cut back when they are in money trouble. But shouldn't it be something that League ought to look at right throughout the pyramid, that every club that is professional or semi-professional ought to be encouraged to have some form of youth development?

Lord Mawhinney: The answer to that question is undoubtedly yes. Thirteen of the England team who played recently against Denmark received most of their youth training in the Football League. We have, as Mr Clark and Mr Williamson, particularly, told you, a good and burgeoning system in the Football League for youth development. It is now under challenge by the Premier League—that will be a matter for the two leagues to sort out among themselves—but I am proud of the strides that have been made over the last seven years as far as youth development is concerned and that is not a bad English statistic.

Q238 Paul Farrelly: I want to just come on briefly to finances, but just on that strand on youth development. One of the things that has struck when I went to Germany was not so much the 50 plus one rule, because that can obviously be negotiated around, but it was a sense that they had an ethos in Germany that seems to be missing here, particularly vis-à-vis, the Premier League and the FA and the Football League. They said that when they lost very badly in Euro 2000 they decided collectively to do something about it and, in particular, youth development was strong. They put a strong emphasis on youth development. You have seen the results now with the young German team and their performance in the World Cup. Is there any sense that we can learn from Germany in youth development and developing that ethos, sharing some money in the game but making it in the national interest as well as the game's interest and home-grown players? Is this a fruitful line of inquiry for us?

Lord Mawhinney: Yes, I think it probably is; perhaps in the context of whatever you may choose to say about the future of the FA. It is a matter of record that Trevor Brooking and I didn't see eye to eye over youth development for years and we didn't see eye to eye because our clubs were putting £40 million into youth development, the FA was putting in a minimal amount and they simply wanted us to hand over our £40 million and our young players and they would decide what to do with them. That never struck me as an attractive option but, in an attempt to be helpful, a few years ago I had Sir Trevor here for lunch and I invited him to take a clean piece of paper and write down what he would like from the Football League and I would do my very best to persuade the Board to deliver. I am guessing that was three years ago, maybe four years ago, and I was promised a reply within a week and it still hasn't come.

Paul Farrelly: Maybe we can follow that up.

Henry McLeish: Can I just make a postscript, because I think this is one of the most important issues facing certainly Scotland and I have no reason to doubt that within the FA structures it is the same problem in England. We had listened to the SPL talking about youth development. We were clearly talking a good game but the delivery element was missing. What I think we had to rationalise there was that if we're looking for young Scots to be nurtured, the talent they have, so they can appear with the clubs or internationally or with the Scottish team, we virtually had to remodel what we were doing. One of the things that we tried to do in this report was ask, if you look at everyone concerned in the game, what is the purpose of football in 2011? What is the national mission? Why should a Committee of the House of Commons want to be involved?

I think that the Chairman said when he launched this inquiry that he wanted some strategic involvement and to strengthen self-regulation, and essentially I thought that he was talking about the FA. If there is one broad area where there should be a growing consensus it is that we are not doing enough. If you look at some of the figures on coaching, and qualifications for coaching in either country, and then look at Portugal or Spain, you can see why at international level we are not doing well. At least you guys qualify; we rarely qualify these days. But, on the other hand, as to youth development, Germany is the classic example; they took it upon themselves to say this mustn't happen again. So, therefore, in terms of procedures, finance, co-ordination and an integrated approach to youth and talent development, that is where we are now heading in Scotland, and it seems to me that that argument might be applicable here.

Lord Mawhinney: Our young people should go into proper training at a far younger age and the FA should shift away from making them play on full-size pitches and make them play on much smaller pitches, so that they can develop their skill base.

Q239 Jim Sheridan: Can I just ask a supplementary about youth development, particularly in Scotland? You did say earlier that the youth development programme has more or less failed. We are no longer producing the Billy Bremners of this world. There may be a simple or significant reason for that, I don't know. One of the issues I have picked up, which is probably applicable to England as well, is that when youth clubs play the Old Firm in Scotland and a young boy shines, the Old Firm then take them away. While such a boy might shine in a moderate club, in among the Old Firm—with "superstars" as we call them—he might not shine, so he loses the game, the game loses him, and he just fades away. I wonder if there is anything that can be done to stop big clubs in England and, indeed, Scotland, from poaching these young players away.

Henry McLeish: I am sure the simple answer to Jim Sheridan's comment would be no. On the other hand, however, what we have looked at again in Scotland under the duty of care issue is that—again looking to strengthen the capacity of the FA down here—we want to strengthen the capacity of the Scottish FA to have a duty of care. Therefore, we understand the competitive nature and if the youngster is excited by the prospect of going to Rangers or Celtic or Man United, parents often get involved and it is difficult to stop the process. On the other hand, the great wastage rate is approximately 95% of young people at the age that Jim Sheridan is talking about will go to a club and will never make it.

The tragedy about that is you could argue that people are not picking talent properly but a lot of these young people, children, youths, are lost to the game. Also, if they had been dealt with differently and more effectively at the local levels they may have sustained, developed later and still had a good career in football. We, again, as a part of the package of the recommendations on the duty of care issues, want the SPL, the SFL, the SFA to get together with also the wider youth development to make sure that opportunities are still available for children and families but—"constrained" is not the right word—they are conditioned by a better framework, which means there is more success and less wastage.

Lord Mawhinney: As far as England is concerned, the danger is if it is going in the opposite direction. If the new youth development proposals are enacted there will be four categories. The biggest clubs in the Premier League will be in the top category and they will be allowed to set up training arrangements in towns and cities all around the country, sometimes in competition with Premier League or, more likely, Football League clubs in the same town. So the direction of travel is being promoted as a new elite structure for developing kids but the danger is that it is going to go in exactly the opposite direction, Mr Sheridan, to what you have suggested.

Q240 Paul Farrelly: Let me just cover finance briefly. The figures are stark. In the last 18 years over half of Football League clubs have been subject to some form of insolvency and, Lord Mawhinney, under your tutelage, division 2 introduced some restrictions on wages. Do you think those have been successful and, if so, is there any prospect with such differing agendas that these or similar forms of financial control can be implemented up the pyramid in English football?

Lord Mawhinney: The problem with football is not lack of money. It is lack of cost control. You heard the Premier League chairmen talking about agents in the Football League a few years ago initiated the publishing of how much money each of our clubs gives every six months to agents. That has had an effect. We did the first ever deal, the only deal so far, with HMRC to ensure that we could work with HMRC and insist that our clubs pay their National Insurance and PAYE on time each month and stop using the Treasury as an unofficial bank. You were given some evidence earlier that I suspect is not totally right. It was right inasmuch as I think it was Mr Scholes who said the Premier League have a similar arrangement. They don't. The clubs have to tell the Premier League but my understanding is the Premier League have not followed our lead in terms of coming to an arrangement with HMRC itself.

That was hugely important but there are other cost control issues. One of them, I guess, would be football creditors. I hate to say, Chairman, that I inherited a football league policy very supportive of the football creditor rule and when I left the football league policy was still very strongly in favour of the football creditors rule. We did debate it a number of times and I got outvoted every time in the Board, but my personal view is that it is not defensible. Mr Collins pursued my successor on this issue. If you will forgive me, I think you are absolutely right. I do not know how you defend the local community where local businesses that you are supposed to be the football club of don't get paid for services rendered while a football club hundreds of miles away gets protected.

There is no doubt that the football creditor rule cranks up expenditure and you are right again to say that it would make far better due diligence if it didn't exist and you persuaded my successor, while defending the football creditor rule, to say that he could see no moral basis for it. I share that view. I don't think there is any moral basis for it. It may be of interest, Chairman, for the Committee to know that just before I left the chairmanship of the Football League made a charity donation to St John Ambulance of more than £40,000, purely as a charity donation, which covered all of the administration losses that the St John Ambulance had on its books that were outstanding as a result of clubs going into administration.

Henry McLeish: In Scotland the creditor rule applies, but it is not a major issue because there have been no particular problems with it at this stage.

Q241 David Cairns: Just on this issue in relation to Scotland you have a situation where one of the Old Firm clubs is essentially now controlled by the bank, not owned by the bank, and found itself in a situation where, in the transfer window, they had to sell their best player—possibly scuppering their chances of winning the league; of course, let's hope they're still in it—essentially because the bank told them to. If this isn't a sign that there is a fundamental problem in how we are structuring the game then it's hard to think of a bigger sign where the oldest, biggest, most successful club in Scotland is having to sell its best players because the bank is telling them to do so. If this isn't making a case for fundamental change, what is?

Jim Sheridan: How bad is the indebtedness in Scotland?

Henry McLeish: The problem of indebtedness is significant, but let me put into context both points. The creditor rule is separate, in a way, because it's an issue that is more closely linked between HMRC and the Scottish Premier League, in particular, and to how we deal with things. There has been a much closer coming together in dealing with financial issues and SPL itself under its new chairman has been very active in trying to make much more sense of the finance. But I have made no effort to try and disguise the fact today that the financial condition of Scottish football is not a good thing. In that sense, there are many, many examples that I could put forward. But what I think I would draw the Committee's attention to as a piece of evidence is the PricewaterhouseCoopers' annual report of financing of the Scottish Premier League, which is published every year, and 2010 was particularly interesting because I think it celebrated the 21st anniversary of that publication. So there is a lot of data going back over the period and reinforcing some of the concerns that have been expressed on both sides of the Committee room this morning.

Q242 Damien Collins: Lord Mawhinney, you have anticipated the question I was going to ask about the football creditor rule, so I won't go to that ground; your answer to the Committee is very clear. I just wanted to pick up on what you said earlier about the integrity of competition with regard to the financial standing of the clubs. Do you think the Football League requires greater scrutiny of its member clubs, their financial performance, and maybe even moving to a scheme similar to what you see in Germany where clubs have to have their books effectively audited by the League to make sure that they can meet their obligations for the season ahead?

Lord Mawhinney: Mr Collins, the first thing we did was to recognise that when a club goes into administration, which the law of the land permits, it wipes out a whole bunch of debt and that gives it a competitive advantage over the other clubs in the division because, while they are having to use their resources to pay interest, the club that has gone into administration doesn't. That is an integrity of competition issue and we addressed that by introducing the sporting sanctions and 10 point penalty, which the Premier League subsequently followed by nine points and the Conference followed as well. There is always a debate as to whether 10 points is the right amount or whether it would be better just to relegate a club; that is an ongoing debate, but we took serious action.

We have also, over the years, strengthened the financial reporting requirements of our clubs to the centre, and that is of some significance; as long as you bear in mind that the Football League, of which I can speak with some authority, is a trade association. We don't run the clubs. It is the clubs that decide what the regulations will be and they have so far responded to providing more financial information, I guess. There may be a point at which they baulk and say we are going too far, but that hasn't been reached yet.

Henry McLeish: I think reporting arrangements have been hugely improved in Scotland over the last three or four years. There was a period 2007/2008—and this is in the PricewaterhouseCoopers report—where some of the ratios, for example, of wages to turnover were just simply remarkable. A lot of effort has gone into trying to reign that back in. Reporting arrangements are much, much better and both the Scottish Football League and the Scottish Premier League have taken a much more hands-on approach to the individual clubs, especially if they are facing jeopardy or if there is a suspicion that there are concerns. The other interesting point in Scotland is that there is a better rapport between HMRC and the clubs than there has ever been. Slowly there is a realisation that a number of the issues that have been raised by yourselves today have been taken seriously because it is a protected market; but, on the other hand, you still have to have rules and regulations and parameters and all of the clubs now have acknowledged that has to happen.

Q243 Damien Collins: Lord Mawhinney, we have heard from other people, people in the Premier League, who concur with your observation that the problem with football is not lack of income but too great a level of expenditure. Most of that clearly goes on players' salaries and transfer payments. Has the Football League ever discussed internally the structure of the competition and whether it would be better in terms of the financial viability for smaller clubs to go back to the old structure of a north and south bottom two divisions?

Lord Mawhinney: Yes, from time to time; but I have to say that there is no positive strength of feeling within the Football League to go back to that. I think partly because that would be perceived to be diminishing the status of the clubs. That is how the clubs would see it. So I don't think that is going to happen.

Q244 Damien Collins: I just wanted to ask a final question relating to the structure of the FA and, within that, I would like to touch on the youth development questions that were raised earlier. Lord Mawhinney, I would be interested in your views on the structural reforms you think the FA should consider undertaking to make it a more effective governing body. With regard to youth development, there is the ongoing debate about the role of youth development. But some people would see that there was, I think, 2007 the Lewis report on youth development, which produced a lot of interest in it and it sort of went nowhere. Was that a failure of the structure of the FA to take that forward or was it the wrong report?

Lord Mawhinney: It was a failure of the structure of the FA. On the broader question, I think I was the first person in the management hierarchy of football in this country to say on the public record that I thought the FA was dysfunctional and that remains my view; though I want to put a caveat in by saying that I welcome the appointment of David Bernstein. I think he has the potential to initiate change across a wider front and I have made it clear to him that, although I am not actively involved anymore, if I can help him in any way I would be happy to do so.

But for the last few years the record of the FA is pretty terrible, to be honest. I know that the new chairman—there was an element of common ground in the earlier testimony, although there was a good deal of hedging going on—would like to have two non-executive directors appointed to the Board and I would support that if it was to happen. If Lord Burns had taken the advice of some of us before he produced his report we wouldn't be here today, we would be having a different conversation; but he didn't and he has now told you that he regrets he didn't. I regret he didn't, but he didn't.

The big problem is that people should not assume that appointing two non-executive directors to the FA Board is going to solve the problems of the FA. The FA's problems are much, much deeper and more radical than that. Lord Triesman was right; there is a poor relationship—and I use my diplomatic language because I am testifying before Parliament—between the FA and the Premier League. The council is among the more conservative bodies with which it has been my privilege to work in the last 30 years. There needs to be change in both of those areas and the FA needs to reassert its authority as FIFA's representative in this country. It hasn't for years, and I hope it will, but none of those three issues are going to be resolved by adding a couple of non-executive directors and making the board 14 instead of 12.

Henry McLeish: Just on the structure, some of the points I made earlier. Again I concur with Lord Mawhinney about the structural change but I think what we also do—and this was the Chairman's initial context about improving self-regulation—you have to give the confidence and the capacity to the FA to do that. They have to win it back, in my regard. It is a similar problem in Scotland because the real question within the SFA was, "Well, what is our role?" A Premier League that is kind of there and doing a reasonably good job; an SFL, all the youth. I think they have grown in capacity, grown in confidence, they want to move forward.

The other issue is that it is from top to bottom. In Scotland what we have suggested, and hopefully you will read the report in detail, is to take things from the very council, on which I agree with the comments made, right through the Board structure, and we are talking about 12 to seven; we are talking about nine committees to two. In a sense, that is the structural issue; that is the armaments that they can use to deploy what they want to do. But the other thing is just changing the ethos and to me the confidence issue is absolutely sound because in Scotland now it is club, it is community and country. For far too long it seems to be the emphasis has been club, understandably. That is where the big players are, this is where the issues are. But in Scotland I think we are trying to say, "Okay, but there is a country issue," which is the thing we have talked about in terms of youth, and also to acknowledge that there is a community issue about getting some of our clubs on to different business models and different ideas of where we can go. Again, as Brian Mawhinney says, in relation to geography, they still want to be part of the heart of football. Therefore any suggestion of becoming a community club diminishes that; it is something they frown upon. You have got be careful in that.

Q245 Jim Sheridan: A major part of this inquiry is about the relationship between the support roles, the authorities, clubs, and so on, and you would have heard the Premier League's response to the question about club ownership and should the fans know or not know who owns a club. I'd ask if you concur with that. Secondly, still on the question of supporters, if I can ask Henry, in particular, I know that the footballing authorities in Scotland are doing their best to try and improve the game, improve the product. But the popular press obviously the move to attain a team in a league is not very popular, so I wonder how the authorities in Scotland will square that circle if they are to genuinely listen to the fans?

Henry McLeish: On the latter point, there is this ongoing battle between what would be the best league structure financially. I mean in the report that I prepared I said that 10 made sense if you looked at the financial context, because what that means is 12 goes to 10, 10 take on board what 12 were getting and it is all about the broadcasting; it is all about the fans tripping down the league.

On the other hand the fans instinctively want bigger leagues because they are sick and tired of other clubs playing each other too many times. I am not sure how it is going to work out in Scotland because the SPL are still debating that particular issue, but I suspect they will probably end up with the 10. It still begs the question of what is the best model for Scottish football. Clearly, in the financial context, I think that may be the right one but it certainly doesn't solve the fans' problem.

Can I just say before Lord Mawhinney comes in, on the wider issue of fan base, I think things have improved in Scotland but for a lot of clubs the fans are welcome because they come through the turnstiles and they pay and they watch, and that is the fan base. But there has been a bit of a reluctance to involve the fans in a much more dramatic way. There are problems with that, especially if it is about fan takeover in terms of ownership of the Board. What I see in Scotland is that the Scottish Football League clubs, the 30 of them, will move to different models, as some of them are doing with community interest companies and so on. So there will be a bigger involvement of the fan base. They will be part and parcel of developing the club and, if they have access to resources, that might help that out. On the other hand, the clubs are desperate for resources anyway. So I see there are prospects there, but currently not a lot of progress has been made.

Lord Mawhinney: Football, in one respect, is quite bizarre. It is very difficult to keep a secret. I have had business appear on the media while the board meeting at which it was being discussed is still going.

Jim Sheridan: You've not a PLP as well?

Lord Mawhinney: Listen, tell me about it. Some of the most skilled exponents of that in the media are taking an interest in these proceedings. At one level it is very hard to keep a secret and yet there is, running through football, a huge secrecy non-transparent core. I remember, Mr Sheridan, when I went to see Geoff Thompson, then chairman of the FA, to tell him that the Football League was going to introduce a fit and proper person test, he told me I couldn't do it because a fit and proper person was the remit of the FA and it wasn't a league issue, and so I couldn't do it. We had, what I guess is known even in here, a full and frank exchange of views and we did it. Then the Premier League followed us and then the FA did something. But the instinct is not to be open. For Members of Parliament that is harder to grasp but it is a reality.

You weren't given the name, it is a law firm I believe. The Football League doesn't use it because it can't afford to, it doesn't have the money. I was surprised that you weren't simply told, "We are not going to publicise it because if we do we would have to publicise the rejections and that would open everybody to legal challenge and law suits and all the rest of it". That is a serious issue in the world of football. But we have been moving to transparency; publishing agents' fees as I mentioned earlier was an example of transparency. My guess is that more will come over the years. I think this is unstoppable, but football is a very, very conservative—small "c"—industry and it moves slower than the average.

Q246 Dr Coffey: Building on what Mr Sheridan said, Lord Mawhinney and Mr McLeish, it is about the supporter and community ownership of football clubs. There haven't been that many examples of where it has led to great success in terms of moving up the divisions. Do you think that the sentence that went in the coalition agreement was just, "Why is it there?" It is an interesting one and we are trying to offer something for the Government to respond to, but did we all just jump on a bandwagon last March, Labour party included, when they said they were going to arrange for everybody to be able to buy a stake in their club?

Lord Mawhinney: I can't tell you why it is in the coalition agreement. I have no idea why they put it there and they certainly didn't consult at least some of us who might have had a constructive thought. Just as, if you will forgive me saying so, I don't think your manifesto probably was the result of deep consultation with the members of your party who might have been able to make a contribution. I don't know why it is there.

York City was extremely important because the supporters trust in York City deserve an enormous amount of credit for saving that club from going out of business. I think that created an emotional environment and I think I am the first senior administrator in football who went and spoke at the supporters annual conference. But, given the present business model where so many clubs depend on the benevolence of rich people, supporters clubs are probably not the answer. But if and when football gets itself on a more sustainable basis without having to depend enormously on the beneficence of rich people or rich companies, then the supporters trust might become a more effective model—except that as Mr Williamson pointed out to you—and it has been our experience—supporters trusts pick a director, put him on the Board and then expect him to tell them or her to tell them what is going on at the club and, of course, fiduciary responsibilities stops that happening and it all ends in tears.

Henry McLeish: From my point of view, I think I agree with the latter point about the degree of tokenism that goes on in a very secretive football arena. That said, if you take Scotland, it seems to me that big progress will be made with the Scottish Football League clubs. There are 30 of them and there is a lot of enterprise, a lot of initiative. There is actually quite a lot of investment by the chairman in some clubs. But the main thing is they are trying to take the clubs forward in the sporting context.

I went to see the Sporting Club Lisbon just as a visit and what we are trying to get football to do, especially in those leagues, is to make sure they are interfacing with other sports as a community focus, as a community hub, as a sporting hub; again watching that they don't feel they are being squeezed out of football, but at the end of the day, the different business model—and as I said, one of the business models is this Community Interest Company, the CIC, which allows, because of the structure and status of the organisation, for them to obtain finance and possibly obtain some grant funding that they wouldn't have been able to get in their old classification as a public liability company. There is a lot on the move, but I think it needs encouragement. It is happening but it is going to happen very slowly.

Chair: The Rt Hon Lord Mawhinney, the Rt Hon Henry McLeish, thank you very much indeed for your evidence.

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Prepared 19 July 2011