Football Governance - Culture, Media and Sport Committee Contents

Examination of Witnesses (Question Numbers 247-322)

Shaun Harvey, John Bowler, Barry Kilby and Julian Tagg

15 March 2011

Q247 Chair: Good morning, everybody. This is a meeting of the Culture, Media and Sport Select Committee as part of our inquiry into football governance and I would like first of all to again thank Burnley Football Club for hosting us this morning and looking after us yesterday evening.

I should also say that I have received apologies from the Chairman of Leeds, Ken Bates, who is unable to be with us since he is suffering from bronchitis, but I am grateful to Shaun Harvey, the Chief Executive of Leeds who has agreed to take his place on our panel, and I would also like to welcome on the panel Julian Tagg, the Vice Chairman of Exeter, Barry Kilby, the Chairman of Burnley, and John Bowler the Chairman of Crewe Alexandra, and I am going to invite Damian Collins to start.

Q248 Damian Collins: Thank you. The first question to Barry Kilby; could you tell us why you got involved with Burnley Football Club and what is your motivation for being Chairman?

Barry Kilby: It's where I come from, it's our club. My dad brought me here as a lifelong supporter I suppose is the correct answer, and also in a town like Burnley I think the football club really is one of the central pillars of the culture that I come from, so when I got the chance to take over and strengthen that and move it on that's what I chose to do. It's as a super supporter that I took over as Chairman.

Q249 Damian Collins: Mr Harvey how did you become involved with Leeds United?

Shaun Harvey: Leeds United is my third job in football, having previously worked at my profession at Scarborough and Bradford City, so every failed footballer's dream. I was an amateur player at school, always loved football, so what better way of earning a living than actually being involved in the professional game.

Q250 Damian Collins: How long have you been with Leeds United?

Shaun Harvey: This is my seventh season.

Q251 Damian Collins: Mr Bowler, how about you?

John Bowler: I moved to Crewe from London on business, had a young family; what to do at weekends? So we thought we'd go and support the local football club. I probably then made the mistake of suggesting how they could run it a bit better and was invited to join the board and ultimately asked to take over as Chairman, so it started as a supporter and went on from there.

Q252 Damian Collins: Mr Tagg?

Julian Tagg: My involvement started as a coach in youth football at Exeter. I started off the Centre of Excellence from nothing and built that up. When the club got into trouble, as a born and bred Exeter person—and I'd seen the trust beginning to evolve into something that was credible—I saw the football club getting into such a terrible situation and condition, owing so much money. I'm not sure I knew the full details when I got involved, but the football club was very pressured. But it's more important; it's not just about football, it's about providing something for the city, and that was probably my main motivation—whether that might have been the rugby club or the football club—providing something for the city alongside those people. I thought the trust were beginning to become organised and looking like something that could help us; that's the primary reason I got involved.

Q253 Damian Collins: Barry Kilby, you are the Chairman of Burnley Football Club. Could you tell us something about the ownership structure of the club?

Barry Kilby: Yes, essentially there are four directors—five directors—on the club. Between us, we have about 85% of the share capital. I'm the largest shareholder with about 35% of the company, but we have over 200 shareholders, many holding one or two shares. Some have been held since 1936 and held in families, so we have a wide shareholder base and essentially the directors of the club control the company with the majority of shares.

Q254 Damian Collins: The other directors, are they people like yourself, so local businessmen?

Barry Kilby: Yes, certainly four were born here. Two have businesses down in London, but they still remember their Burnley roots and want to support it. Two others live up here, but all of us have been Burnley supporters since we were boys. Our fifth director came up here in the 80s and he has been a director for 25 years as well, so essentially we are local people who support the club.

Q255 Damian Collins: Mr Harvey, could you tell us something about the ownership structure of Leeds United?

Shaun Harvey: Leeds United Football Club is owned via a holding company. The majority shareholder is a company called FSF Limited who are based in Nevis and own 73% of the issue share capital.

Q256 Damian Collins: Could you tell us something about the majority shareholding?

Shaun Harvey: FSF Limited is owned by three discretionary trusts that are all managed by trustees out of Switzerland. There are two management shares issued that are held and it's those people who are responsible for Leeds United Football Club.

Q257 Damian Collins: Who are the individuals who are the major investors in those trusts?

Shaun Harvey: The question is the discretionary trusts. The trustees have appointed two members to run the trust's interest in Leeds United Football Club; Mr Patrick Murrin and Mr Peter Boatman, who asks Mr Ken Bates to chair the board and look after their interests in Leeds United Football Club.

Q258 Damian Collins: So is Ken Bates answerable to those two trustees?

Shaun Harvey: That's correct.

Q259 Damian Collins: So they would have the power to remove him as Chairman or put a new Chairman in?

Shaun Harvey: They must have by definition.

Q260 Damian Collins: Do you know that?

Shaun Harvey: Well they must do. They are the shareholder or the trustees to the shareholder, so that must be a power that they have.

Q261 Damian Collins: You know who the trustees are, but do not know who the shareholders are.

Shaun Harvey: Correct. They are discretionary trusts.

Q262 Damian Collins: So you cannot point to a named person and say those people are the owners of Leeds United?

Shaun Harvey: No, and that's why the ownership statements that have been made are made in the way that they are because they are a true and accurate reflection of the ownership structure behind Leeds United Football Club.

Q263 Damian Collins: Do you know personally who they are?

Shaun Harvey: Do I know personally who the trustees are?

Q264 Damian Collins: No, do you know who the trustees act on behalf of? Do you know the people who are the owners?

Shaun Harvey: No, I don't.

Q265 Damian Collins: You do not. As Chief Executive, you do not know who the major investors in that trust are.

Shaun Harvey: I don't know who the beneficiaries of the discretionary trust are, no.

Damian Collins: Okay.

Q266 Damian Collins: You have worked at other football clubs, so do you not find that slightly strange?

Shaun Harvey: Not particularly. If I was the Chief Executive of a football club that was quoted on the stock market I wouldn't expect to know every single shareholder.

Q267 Damian Collins: Does Ken Bates know?

Shaun Harvey: Not to my knowledge.

Q268 Damian Collins: Right, well he obviously has not told you. Do you have any relationship with the trust other than through the trustees?

Shaun Harvey: No, my responsibility is to deal with the trustees who represent the trusts.

Q269 Damian Collins: But is that something people in Leeds are concerned about?

Shaun Harvey: It depends on your definition of "concerned about". At the moment, we're fifth in the Championship, everybody seems to be relatively comfortable with how the club's proceeding. We've gone from a very low point and are ascending the ladder of success. That's not to be translated as we've achieved anything yet, because there's still nine games to go this season, but the reality is, it's the Board of Directors that are responsible for running the football club, not the shareholders.

Q270 Damian Collins: But so long as the team are doing well the fans don't care.

Shaun Harvey: I wouldn't be quite as bold as to make that statement, but if things are going well and there are positive results, then that's what a Board of Directors are there to try and ensure, within its powers.

Q271 Damian Collins: But is there any sense of commitment for the trust for their investment in Leeds United? Could they withdraw it at any time? Are they committed for a number of years?

Shaun Harvey: The football club has got no debt, so they hold the shares and, yes, they are committed. There's no indication that they have any desire to move away from their investment.

Q272 Damian Collins: Given the financial problems Leeds United have had, do you think there is a legitimate concern about the transparency of the financial organisation of the club and its ownership?

Shaun Harvey: It depends how far you want to go back in time. If we go back to the year 2000-01 when the club was owned by a plc and competing in the Champions League European semi-finals, then there was a vast array of owners of the club run by its directors. Yes, the club got into trouble under the plc board first and foremost, and sold through a group of local businessmen, which is the model that you've heard Barry Kilby explain to a certain extent as to how Burnley's arranged. Without speaking for John Bowler I think, Crewe was the same basically, but he's capable of confirming that himself.

That got into trouble very quickly. They bought it from the administrator of a plc, so it was in trouble very, very quickly, because they didn't have sufficient funds to run the business. So, yes, there has been a potted history and a concern, but I'm convinced now that the light of the Elland Road tunnel is in fact the way out, rather than a train coming in the other direction.

Q273 Damian Collins: Yes, I understand that, I think there will be a concern with the nature of the football club. In the case of Burnley, it is very simple to understand where the money comes from, who the investors and directors are, and with a club like Leeds United the majority shareholding is owned by a sort of mysterious trust and we don't know who the investors are, and I think that's a legitimate concern for a football club.

Shaun Harvey: You're entitled to draw that conclusion.

Q274 Paul Farrelly: Just one question, because we are looking at the application of fit and proper rules and I don't want this to be dominated by the controversy of the Leeds mysterious shareholders, but does the Football League know who the beneficiaries are?

Shaun Harvey: The Football League have exactly the same information that has been made public, and the statement that has been made complies with every single part of the Football League's regulations, as indeed every single football league club has to do.

Q275 Paul Farrelly: Just one follow-up. If you are fortunate enough to get promoted to the Premier League, do you expect the Premier League to ask you the same question about the beneficiaries?

Shaun Harvey: We expect to be able to comply with the terms of the Premier League's rules at the time and the statement that we'd be making is no different from the statements made public now, because it is a true and accurate record of the ownership structure of Leeds United.

Q276 Chair: True, accurate and also rather uninformative.

Shaun Harvey: Well, you can't answer a question that's not got a direct answer; there is no individual. That's the nature of discretionary trusts, which are a perfectly legal and a much used ownership structure in many different industries, not just football.

Q277 Mr Watson: I'll allow Mr Harvey time to take breath. If I could go on to John and Julian; how far up the English football pyramid do you think your clubs can realistically go?

John Bowler: We would hope to certainly play regularly in League One, and we would hope to be able to challenge to get a place in the Championship. To stay there is difficult because of the financial pressures that come along with running a Championship club.

Julian Tagg: Our journey started in the Conference, and we got ourselves to League One, which was our target, in five years. In ten years, our target now is to establish ourselves in that league, which in our second year seems exactly what we've done—we avoided relegation on the last game last season. This season, we've probably already established that, so we've made that progress. Our target will be to get in the Championship and do the same. I think that's the compelling thing about football; it's always possible with the right kind of management, with the right kind of—I mean Crewe particularly and ourselves—with the right kind of youth policies behind us, it is possible, I believe it is. If I didn't think it was possible, I don't think I'd be sat here, unless there's some purpose. If we got to the point where anybody in our club said that, you know, we're happy where we are, that's the time I think my involvement would—I would always support the youth side—but I would probably stop unless there's some target. That target is the Championship, the next stage then will be, as everybody here knows—pardon the vernacular—it's bums on seats that count.

If our ground gets to the point where that stops us going any further, say in five or ten years' time, that is where we look again for the next step. I believe our city is big enough to take a club that will go even higher. Blackpool have done it, and as I say, football is compelling in that sense. So, yes, I think it's possible. It may take a little bit longer to get there and I would be looking once we did to take the next steps.

Q278 Mr Watson: Okay, Barry and Shaun could I ask you, is the measure of success for Burnley and Leeds a Premiership place? Staying in the Premiership?

Barry Kilby: Yes, we've tasted it once. I think we want to go back there again, to be in the top tier of English football. So I think our supporters' aspirations are that we should see Blackburn, Bolton as clubs we're on a par with. So I think it is realistic for us, if we could just set ourselves right, to think we could compete in the Premier League. How far we could climb up that ladder is open to question, but certainly I think it's realistic that we could on that level perform in the Premier League, and that's our aim.

Shaun Harvey: Yes, Leeds United's objective on the field is relatively simple—it is to get promoted as quickly as is practically possible.

Q279 Mr Watson: Shaun, I don't want to revisit the mysterious trust question, but your Chairman is quite a remarkable character in the sense that he took Chelsea from the Third Division to second in the Premiership on a sustainable budget and appears to be doing that with Leeds, whatever the financial arrangements. Do you know what the secret of that is?

Shaun Harvey: Hard work, dedication and experience, I suspect. There's no magic formula. If there's a magic formula of how to make a football club successful, there'd be a lot less clubs who have suffered financial problems and there'd be a lot more success around. It's about maximising every possible element of income and hopefully surrounding yourself with a manager and coaching staff who have got the ability to maximise a return from players.

Q280 Mr Watson: You said earlier that you are a sort of professional Chief Executive in football. Would you like to outline what the difference is between working for the Chairman of Bradford and the current Chairman of Leeds?

Shaun Harvey: I actually said it was my profession. Others are probably better placed to judge whether it's professional or not. The answer is the Chairman of Bradford City and the Chairman of Leeds had some similar traits. They had very small boards with the ability to make answers quickly. The one thing for certain is the quicker you're able to make decisions—and effective decisions—in the knowledge of the full circumstances that surround the issues you're dealing with the easier it is to be effective.

Q281 Mr Watson: So would you say a strong agile board structure is vital to the success of a club?

Shaun Harvey: I would say so, yes.

Mr Watson: That's interesting.

Q282 Mr Sanders: Why have so many football league clubs gone into administration in recent years? Who would like to have a stab at that?

Julian Tagg: I can only talk from personal experience—and I would imagine it's the same elsewhere—it's all anecdotal across the board, because every situation is so different. I believe our club was in quite considerable difficulty and the people in control at that point then wanted anybody to take it from them, and they passed it to some people who put it into a ridiculous state of problems and debt, and that's part of the danger. When a football club does get into trouble the people who are responsible at that time are very keen to, as you can imagine, offload that responsibility to anybody.

The fit and proper person is very, very sensible from personal experience. Hopefully that's beginning to solve that problem to a degree. It's usually, in terms of Shaun's point about managers, about wages in the end. Getting the success with a wage bill that you can't maintain means you go down a league, get lower numbers, and so the whole thing escalates. Usually underpinning it is a wage problem.

Certainly in our situation, we were paying wages in the Conference because of the football creditors rule that you wouldn't even considered having to pay—it was probably commensurate with two leagues above—and I think there are a number of clubs that are in a similar position. They suddenly drop out from the Championship for instance into League One and that is a big gap. Same all the way down. If you're paying players from the division above or perhaps even the top wages for players who could play in the division above that and then suddenly you find yourself two leagues down but with a contract in place you're pinned to that. There's probably more experience at the other end of the table, but that's what we are so very, very careful of avoiding; that's where we think the major pitfall is.

Barry Kilby: I think they are different, but there are the more spectacular ones. Last season, Portsmouth, a Premier League team with their revenues coming in well over £50 million, still went into administration. The reason to me was that it was saddled with debt, but it was irresponsible debt—the debt on the club. I think there is a danger sometimes with the foreign owner who can walk away if it doesn't work out. Really, it didn't cost them that much—it was the club that suffered and there was no responsibility.

There are other examples, and I believe that when Leeds went to administration that all stemmed back to an extremely ambitious set up that was all geared towards being in the Champions League and at the top of the Premier League. When that kicked in, there were problems there. So really it is clubs getting into trouble and being saddled with debt that they can't get out of.

Shaun Harvey: There is a combination of two things. There are two common denominators—relegation or failure to reach the levels at which you're budgeting; and players' wages. If the incomes you're expecting from your success on the field aren't realised, the players' wages have to be reduced accordingly, otherwise those are the factors that get football clubs into trouble.

Julian Tagg: There's one other factor which is probably in capital investment. Often, people will stretch to build a stand. The capital aspect is sometimes something that stretches people too far, and when you're trying to do both things, you're trying to maintain the pitch or gain success on the pitch and you're trying to reinvest capital, then certainly from experience I believe that was another indicator of why they got into trouble.

Q283 Mr Sanders: So what lessons have you learned from the Exeter experience?

Julian Tagg: Don't build another stand for the moment. That's what we're trying to work out; the way forward without taking those risks. Everybody has a different background in terms of their ownership, and our model and how we raise the capital that goes with it is the one that's taxing us at the moment. But at the same time, it's about having a manager who understands the nature and ethos of the club, which he does very well, and has good control of what is actually happening, not necessarily just on a one-year basis but perhaps on a two or three-year basis. You need a budget if this happens and a budget if it goes in the other direction, and that's how we tend to plan. We try and plan in the middle by being pro-active rather than retro-active and it's when you get into that retro-active situation it sometimes becomes a spiral that you can't get out of, so as Shaun was saying, it's about planning and hard work.

Q284 Mr Sanders: Have you passed any of this advice down the A38 to Plymouth?

Julian Tagg: We have an excellent relationship with Plymouth. We're always there. We will specifically be helping them to try and raise money, so even though they're our major rival we'll help them. I personally haven't been asked but certainly members of our trust have been down there to help their trust to try and form something. So yes, we have helped wherever we can and we'll continue to do so even though they are a bitter rival.

Q285 Mr Sanders: What's been learned from the administration that Leeds went into in 2007?

Shaun Harvey: The 2007 administration fortunately is traced back, as I spoke about earlier, to the time of the plc board, who raised circa £60 million by the securitisation of ticket seats. The 2007 administration was the final action of a board trying to resolve the financial issues with which it was left, but the source goes back to those days. The answer is we always stated from the start that we believe Leeds United could trade profitably if it wasn't saddled with the financial burdens of the past and the trading since 2007 is proof of that.

John Bowler: The other issue is that—and this has been referred to—we have to recognise that running a football club as a business is not a difficult task in comparison with other businesses. One of the big issues I think that a lot of football clubs face is this demand for success, and the demand for going forward and getting results. We live in a very results-oriented environment today. It's not a long time ago when a manager of a Premier League club said to me, "John, you do realise that coming third in the Premier League is failure", and it's this balance between running a tight ship and yet trying to satisfy the demands and the wishes of the supporters to take the club forward, be ambitious, try to get up to that next rung up the ladder. The problem is if you do outstretch yourself then it's very difficult and you've got a rough period if you come back down again.

Q286 Mr Sanders: Is financial prudence rewarded in the football league? Should it be rewarded in the football league? Is the emphasis too much on places or positions in tables and trophies in cabinets? Should there not be some reward for being a well-run club?

John Bowler: I don't think that that really is the issue. I think the football league is working hard, as all football league clubs are working hard. They recognise that with the various salary capping mechanisms, the reporting that we do is encouraging that well-run football club, and I think that is the way to approach it. That won't in any way offset what I'm talking about and that is the demands and the encouragement that supporters give to their football club to go on and to be even more ambitious and that's when the trouble starts.

Q287 Mr Watson: Just a supplementary; sorry to come back to you, Shaun, but you talked about the plc days. When Mr Ridsdale was living the dream at the turn of the century is it your contention that the club failed because of the plc structure itself, or because of poor financial management, or both?

Shaun Harvey: I think it was poor financial management. The gamble was too big in essence and it's that that saddled the club ever since, until the administration in 2007.

Q288 Mr Watson: So you wouldn't actually argue against a plc structure per se.

Shaun Harvey: Not at all, it's the management inside it that's actually the key issue.

Mr Watson: Okay, thank you.

Q289 Chair: Can I just ask Barry; you've tasted Premier League success, but you've also kept your feet firmly on the ground and you didn't go out and spend huge amounts of money on players. You said to me that you did invest in a pitch, but did you come in for criticism for not doing so? Did your fans suggest to you that actually if you'd gone out and bought a couple of really star players you might stop in the Premier League?

Barry Kilby: Yes, that's always there. The word "ambition" always crops up—lack of ambition is one of the usual ones you get in the phone-in programmes. You've just got to be careful you don't bet the ranch on this and I think it is easier in the Premier League. It was easier if somebody came up with a Championship team, so you could improve the wages, and it was still very manageable. If you get to a second year that's when you start swimming in the waters of established players in that league, and the costs do tend to start to rise. Fans want you to win matches. We all should have prizes for good government—we don't, and that's what sets the theme and the pressure is enormous.

When we got up, it was a bit easier at first. We were new, we hadn't been in the Premier League for 30-odd years, so perhaps it was easier to keep the fans' expectations; we are being sensible, we're clearing our debts, if we do go back down we'll be able to handle it. I think they did understand, but I've a feeling if we had been in another year or so the pressures would have built to spend more. We've just lost five-nil to Liverpool at home, Match of the Day says you're a load of clowns and jokers, and that's the sort of pressures you come under. The big problem is that players' contracts don't just last the season you buy them. You have a three-year commitment, and there's a big difference between the two divisions. So we did opt for prudence and I think the fans more or less did realise that, being our first season in there, but I know the pressures would have built up as time went by.

Q290 Chair: You are a very successful businessman with a good business brain, and ultimately you have the final say. Other clubs would have been less prudent. Essentially would you say that their problems stem from poor management?

Barry Kilby: Yes, poor management or a reluctance to look ahead; maybe not face facts and thinking it'll be all right on the night. I think that subtle bit is pushed into the future—"We'll deal with that when it comes round". Unfortunately it does sometimes come around and you've got to keep a weather eye. Essentially it's your players' wage bill, it's 80% of your costs or whatever you want to make it, but it can get as high as that and you're committed to that. It's just knowing to keep a weather eye on where we might be in two years' time.

Q291 Damian Collins: Just a follow on from that question; if you wanted to keep a club like Burnley in the Premier League, become a kind of Wigan or Stoke or a club like that that's broken through and stayed there, how much money on top of what you get from gate receipts, prize money, TV money, do you think the directors would have to put in every year to a club like this so you could compete?

Barry Kilby: In the Premier League you're now starting to get into really big money, £40 to £50 million on top, and even that doesn't make a big impact. So I think with a Championship Club it is directors' loans and so on. Once you get into the Premier League it is getting exceptionally rich people who can put their own personal money in so you try and work it within the revenues that are there normally and commercially.

Q292 Damian Collins: So for a club of Burnley's sort of size, and there are other clubs that are similar, unless you've got benefactors putting tens of millions of pounds every year on top of the income the club can earn, you can't sustain being in the Premier League.

Barry Kilby: Certainly most clubs do have quite big debts. Clubs of our size in the league now have benefactors who are owed quite a lot of money. I think you can keep within that. It's more the problem if you come down. You can afford a wage bill of £45 million to £50 million, the way the Premier League is set up with the TV money and the normal trading of the club. The big problem is if you come back down—how to deal with it; that's the real thing. It is difficult, because essentially in the Premier League you're competing sometimes against people who don't care. They don't even care about the economics of the thing. If I'm Joe's Corner Shop, and Marks & Spencer's is next door to me, at least we both have to make do and make sure our income's in front of our expenditure. In the Premier League, you come up against people who don't care, so that's really difficult to rationalise in a way, and how do you compete with that.

Q293 Damian Collins: In one of our previous evidence sessions, the Chairman of the Football League said that he could find no moral argument in favour of sustaining the football creditors rule. Do you think he's right?

Barry Kilby: It does seem unfair on the face of it that some people are protected within the industry and some people aren't, but it is a difficult one. It is almost like the rules of a private members club, and certainly I know if there had been no protection—the football creditors rule—clubs would have disappeared because they could only survive with the league members. I think it's quite fair to say, "Look, if you want to play in our league you've got to pay your dues". So nobody's comfortable with some people being protected and others not, but there's a proper reason for it in the football family. You know players need to be paid, transfers paid. If that went, I think the competition would be in great jeopardy and everybody would shrink into their shell and it wouldn't happen.

Q294 Damian Collins: Heaven forbid that Burnley would be in this position, but what would you say to your local suppliers—you know, the caterers, printers and their staff; local businesses that would not be covered by the football creditors rule—if the club went into administration, and you are paying the football debt say to Charlton Athletic. However, a firm in Burnley won't get paid or will only get pennies in the pound. What would you say to a local business like that?

Barry Kilby: I don't think you'd be comfortable, but for creditors to get anything we need to remember that that club would be worth nothing if it couldn't play in the leagues. It needs to have credibility and to be able to play, for anybody else to come across and have a CVA. Maybe they might get some more money down the line if it's worked properly. I think if you've got to pay everybody, then it would just disappear.

Julian Tagg: Damian, can I make one comment? There are lots of those and we've had that situation where a lot of people weren't paid—a lot of those people are within our business now and major parts of that business. They realise what it brings to the city and they would rather have 10p in the pound, and have the money that's come over the last 10 years and the trade that they're able to do because the football club is still there. So there is that side to it. The second side is that if it weren't there probably some clubs wouldn't exist in the end.

I can't justify it. You're quite right, I'm not going to sit and justify it; I'm just going to say that there are reasons. The point is that lots of those companies that you're talking about are major sponsors of ours and are still involved as suppliers, whereas if that club weren't there they wouldn't be supplying. So nobody can sit and say that that's right; not paying anybody is wrong. I think the rules as they've tightened are closing in on that, but those companies that have been stung, for want of a better word, or have not been paid, are still integrated in the football club. We've gone a long way to make sure that they were looked after at that point for those very reasons.

Q295 Damian Collins: But in that case football clubs are effectively using local businesses like a bank and using that money to artificially sustain their level within the league to the detriment of the clubs they play against.

Julian Tagg: Bad ones are; you're correct—I'm not arguing against that.

Q296 Damian Collins: Mr Harvey, if you would like to comment on that I would be grateful for your views. I just want to ask, as you've been at Leeds for a number of years, Brian Mawhinney told us that he tried on a number of occasions to accept or ask for league clubs to end the football creditors rule and continually failed. I would be grateful for any insight you can give on that.

Shaun Harvey: Just to deal with the issue of football creditors to start with. Football creditors exist in football and don't just crystallize in the period of insolvency. The football creditors principle runs through every club throughout its membership. So if, for example—and using people round the table—Leeds United owed Crewe some money on a transfer fee and didn't pay it, then Crewe have the right to collect that money from money that would otherwise be sent essentially to Leeds United Football Club. I understand the rationale for why to focus on the end—i.e. the insolvency situation and why it appears that one set of creditors are being treated preferentially—but the football creditors principle is of football clubs that are working day in, day out, allowing each other to sell tickets, which is massively important. If Leeds defaulted in this example on a payment to Crewe, which meant Crewe had to sell their players to keep in business, that cannot be a fair and rational position for Crewe to be put into, particularly when it's a closed industry. The only people we can trade with on a football level are a professional football club. Nobody else can buy or sell a registration of a player. Normal businesses if they get into trouble would sell an asset. The only people a football club can sell their asset to is another football club, so that's why I think the principle of the football creditors is massively important.

I will come back to the comments and the report you've made reference to from the former Chairman. I think coming from an area from outside football, looking in, I can say that the Crown lost its preferential status with the advent of the 2002 Enterprise Act. There was preference as well as football creditors, so it's only recently with the change in law that this has become an issue, and the law says that businesses do go insolvent and the Enterprise Act is there to bring them back. Why do I think he would have been unsuccessful in bringing the matters forward? Because the integrity of the competition and not gaining an unfair advantage over the clubs that you are competing with on the field on a Saturday afternoon was of paramount importance to all those clubs.

Q297 Damian Collins: But do you not think the rule does help artificially to sustain competition for clubs, because they can be involved in transactions with other football clubs and those clubs have got the security of knowledge that they will get paid even if other people won't?

Shaun Harvey: Well, they'll get paid in an insolvency provision when the club re-enters the football league, which is usually via a new company. So it means that they can't gain an advantage over the other clubs, and the justification is difficult. St. John Ambulance are often quoted as the party that has been affected, and that case is usually cited because, whilst it's still very significant, the amount is usually small in comparison to the overall debt. When Leeds went into administration, 49% of the debt at the time was to the investors.

Q298 Damian Collins: When the Premier League Chairman and Chief Executive gave evidence to us last week, their view was that without the football creditors rule, clubs would be more responsible about buying and selling players to each other; they would take a greater interest in the balance sheet of other football clubs because they've got more commercial risk, and in terms of business practice that sounds like a sensible thing.

Shaun Harvey: Yes, and I think that's borne out of a position of looking down on everybody else from a lofty height. The ability to say that also comes from the fact that the majority of the transactions are for player transfers; it's not just player transfers, there is day to day trading between football clubs as well which often gets glossed over—a lot of that's going overseas. If you sell a player to an overseas club, you take your life in your hands sometimes in relation to getting paid and certainly getting paid on time.

John Bowler: Yes, I was just going to say the other important issue is that transfer fees very often are a means of, if you like, trickling funds down to smaller clubs. To use Shaun's example, we sell a player to Leeds, but if we've bought that player from another club there is often a sell-on clause for the other club, and so the transfer fee mechanism does in actual fact feed other clubs rightly with money and with funds available to them. My belief is that if that creditors rule was not allowed, then there could be a number of occasions where a football club might go into bankruptcy, but it would also take probably two or three other clubs with them because of the fact that the transfer money that ought to have come down to those other clubs hasn't come.

Q299 Damian Collins: We are going over the same ground, but in a world without it, clubs might be more cautious about entering agreements where they're taking payments from another football club if they're not certain whether that football club can afford to honour them or not and that might help spread best practice.

John Bowler: I accept that point, but on the other hand, I think that the information available to a club when it's selling a player to another club makes it difficult to decide whether in fact the club that you're selling to is as financially sound as it might be.

Q300 Damian Collins: Perhaps getting rid of the rule would create an incentive for clubs to be much more up front about their money, and where it comes from.

John Bowler: I don't think it would. I think in actual fact the information there is often not available for you to assess just how financially sound the club is that the player is being bought from. Don't forget some of this trickling down of funds could go on for a number of years. Players move on from one club to another. All I'm saying is don't underestimate the value that the creditor rule does provide as a means of feeding funds down through the football pyramid.

Julian Tagg: Really the rules that the Football League are putting in place—they have done it with League Two and are attempting to do with League One—are about that due diligence that you talk about. The Football League are trying to do it on our behalf to strengthen those clubs up for that reason, which, if you were expecting clubs to do that every time you did business you'd spend a lot of time doing that due diligence. It seems to me that that's what the football league clubs themselves are signing up to. Certainly League Two have done it and I think League One has an appetite to do the same.

Q301 Paul Farrelly: Not to get hung up on this, but surely the football creditors rule rewards poor financial management. If you are not a member of the club, it discriminates against Nantwich Town or Stafford Rangers does it not?

John Bowler: Why?

Q302 Paul Farrelly: Because they find it far harder to get into the club.

John Bowler: I wouldn't have thought so. I think the other thing that the football creditors rule does in terms of the fact that those football debts have got to be paid off is that the people probably coming in to take over a club that's gone into administration do their due diligence, and in fact recognise the rightful debts that they've got to face before they come in, rather than taking it out on the cheap.

Julian Tagg: I think one of the things—and it's a very difficult one—is the risk of what you might lose. As we said, a company might lose the opportunity to trade, whether or not they are one of the ones that have been defaulted against. You also leave a large hole in the community, and I think that's huge. What football clubs do across the country for that community; that's the risk of what you may lose. If that club does disappear for that reason because they're no longer allowed in the family, as Shaun has explained, that is the risk. I see those two things certainly from a personal point of view and from personal practice as hugely, massively important. I would be worried about supporting what you're suggesting because of the risk, whether it be my club or whether it be Leeds or anywhere else. Knowing as I do what happens, what those clubs mean to and do for the community, it would be a big risk to start to lose some of those.

Q303 Damian Collins: I hear what you say. On that basis, any kind of rule, any kind of practice that all clubs employ which people might question can be justified on the basis that while the club might go into administration the community might lose their club. Therefore let us do almost anything we can to avoid that no matter how "morally dubious"—to use the Chairman of the Football League's words—that might be.

Julian Tagg: But certainly from a personal situation, it is the people who came in from outside who were wilful in what they did and how they did it, and that was nothing to do with any supporter, nothing to do with anybody in that city, and it's perfectly feasible that it could happen again. So a couple of individuals could do something to a football club, rip it out of the middle of that community and the rule would no longer be there to protect that community. So I absolutely take your point and I don't feel good about it at all, but in terms of the balance between the two that would be something I would hate to see somebody else lose, knowing how important it is.

Barry Kilby: If a club went out of existence there is no football creditors rule—we all lose the club; if it disappeared, that's it. It's surely right for us to say to the new club coming back in, which wants to get back into the league and play alongside us again, "Listen, you've got to make sure that you honour those contracts if you want to come back and play in our league". That's the real reason there. I mean certainly if it disappears, if Burnley Football Club is owed a million quid if that club goes, that's it, full stop. It's only when the new club that's coming back in its place wants to take its place in the league that we can say, "Well if you want to come back into the league it's only right that you make sure your players were paid and you were dealing with your debts before we allow you to come back in".

Q304 Damian Collins: I think we'd all agreed with that, it's just a question of whether it should be at the expense of other creditors.

Shaun Harvey: Chair, I sense you're keen to move on and I think one or two over here are happy for you to move on as well, but I think the biggest element of football creditors that is carried forward to a new company is actually the players' wages. It's the players' contractual obligations. They're employees. Employees are preferential creditors certainly for arrears, usually to, I think, about an £800 limit. But that's the biggest liability that is taken on by a new company. If players don't have that level of security of contract, then I suggest the asset value of their registration and the arrangements that are in place with the PFA could well be put into question. It's a bigger question for you to take up with others but it's just worthy of leaving you with.

Chair: Right, thank you. Paul.

Q305 Paul Farrelly: John, a question for you. Crewe are legendary. I think Dario Gradi took over from the late and great Tony Waddington as the longest serving manager in football history and he's renowned for spotting players and youth development. Do you think there's a lesson that we can learn in football development from the likes of Crewe that the Germans have learned and the French have learned that might involve the bigger clubs sharing a bit more money out for what might be at the end of the day in the national interest?

John Bowler: Yes, but I think every football club has got to decide how it's going to run its business. When I first got involved with Crewe 30-odd years ago, we had a record that we'd applied for re-election more than any other football club in this country and therefore we were still in existence but only just, and we took a long hard look at, as a business, what the future held for us. We don't have a large catchment area. We have a lot of very well known clubs around us that attract traditional family support outside of Crewe and therefore despite whatever we could think of, one thing became apparent and that was we couldn't generate the commercial revenue and the support that would sustain us going forward anywhere other than in the bottom league.

You're quite right, Dario joined us at that time and his passion was youth development, and therefore our business strategy was simple. It was, look, the only way we're going to kick on here, the only new revenue that we can find is to concentrate on youth development and developing young players; firstly to populate our own team and secondly for those who were going to play at a much higher level than we could play at, then hopefully that would generate commercial income. Through his success we've been successful there. Over those 30 years that he's been with us, he's been responsible for generating transfer income that redeveloped our stadium. That built our academy and has got Crewe to where it is today. There was always going to be some calculated risk, but we were prepared to support a budget loss situation on the basis that we would have sales coming through to offset that and that's how we balanced the books.

We have been grateful for the support that we have received from money handed down to us from the Football League, the FA and so forth. It is a struggle today and I think that if we want to have the kind of community clubs Exeter is talking about, and if we want to sustain community clubs and smaller clubs, then there is no doubt that against the competition that we have, yes, we would welcome more central funding being provided to us and through whatever mechanism there is. It doesn't tend to feed its way down as efficiently today as it used to do.

Q306 Paul Farrelly: Is there anything we can learn from other countries—perhaps the legalities of being able to contract young people, which would mean that smaller clubs got a fairer crack of the whip or is that too esoteric a question?

Julian Tagg: I think the system actually as it stands at the moment, like anything, can do with improvement. Everything can be improved, everything can be bettered, but I think the system is there and across the board, pretty much every club is involved in it and what I see from first hand is a lot of people striving constantly to improve and to do that, and I think the system is very much in place. I think the focus at a national level often is the England team and why isn't the England team winning everything. I think if you look at the under-17s, under-19s, under-21s, you'll see that a lot of the boys who have been developed, not only in the League but also in the Conference, and that's where players have come from. There's a lot of very, very good work going on, which again I do understand can be improved, but the systems that are there I believe are working quite well. They can be improved upon, but I don't think there's a massive amount that needs to be fixed. Perhaps the coaching and the levels and ability of those coaches can be worked on, and certainly the focus that there has been recently on the number of hours and so on, without going the whole way of what is being suggested, I think there's mileage in that too.

Q307 Paul Farrelly: How does it look from Yorkshire?

Shaun Harvey: Youth development policies are different at every single club, and again there's no one magical formula that says do this, this and this and you generate a professional footballer at the end of it. For me, the system only breaks down when clubs lose the opportunity to develop the players in their academy to the full potential, and that means where another club's come and taken them out of your academy at a young age to place them in their own. If that happens, by definition what you're actually losing are the best players, because a Premier League club would not come and scout a player from another club's academy or centre of excellence unless they believed they are going to better the players that they've already got in their systems, who are supposed to be the best anyway.

So I think the biggest challenge that we all face is ensuring that there's an adequate compensation system in place that actually protects the interests of the clubs that are developing players from the youngest age. Statistics prove that each club can bring through one player per season who becomes a regular first team player—and this is defined as being 25 first team appearances by the age of 21—but because there's no magic measure, if new systems are put in place for compensation that doesn't accurately reward the investment that's made in the whole system by that club, many clubs will stop their youth development policy because it is no longer economically viable for them to have one. John described the model at Crewe, and a lot of clubs have lived on running the senior team by the proceeds of income generated from the sale of younger players, and there is absolutely nothing wrong with that.

There are two measures; getting players to play in your first team and producing players to sell to move on for a transfer fee. Both are equally valid arguments, and if we aren't careful and that particular mechanism is affected negatively, what we will see is a lot of clubs stopping youth development, running community-based schemes and then picking up players who have been cast aside by bigger clubs and Premier League clubs at the end. The sort of social effect that has on the players that are released is anybody's guess, so we are playing with dynamite at this moment in time.

Julian Tagg: There is a deeper effect as well when you develop your players and you have three or four in your team, you know by definition as they've come through, their wages are lower. That's been the focus a lot of the time about the wages, so if you have developed two, three or four players that have come through, if you were a club that wasn't developing and you're bringing in players from outside they would cost you probably three or four times as much. When you have one that's a significant saving but if you get two or three into your first team, never mind whether they're sold or not, which of course hopefully they are, that's a significant saving which would make life much more difficult for the lower end clubs.

Q308 Paul Farrelly: Barry, maybe you can help me on this, without being naïve and taking everything that we're told at face value, we did get a sense in Germany that there was more of a collective ethos about their game that's perhaps not evident here, in that there was a very strong statement from lots of people we talked to that the German performance in Euro 2000 was absolutely rubbish and was a national disgrace and they needed to do something about it, and they did it with youth development. We've seen that with the young German team that ran England ragged but got caught out with the maestros from Spain, but still they are where they are. Bayern in particular said, "Okay, we can't just not pinch players because otherwise Arsenal will come calling and nick all the best talent", but there's a gentleman's agreement to not be aggressive about it. Where are we failing in our game?

Barry Kilby: What we're talking about is the success of the national team, and I think on the whole the Football League does very well in nurturing its talent and coming through. One of the problems for the England team as opposed to Germany is that the Premier League hoovers up the very best talent. The big problem the Premier League has is that once they get to 19, 20, those real vital years of football development, there are so many foreign players in here—and it's even imported foreign young players—that players are not getting that chance to develop as they would do in Germany, where they would have a much easier chance. Those are really vital years where you get match intelligence and a strong mentality. I don't think it matters that much if we spend even more hours on trying to trap a ball or whatever—it's those vital years that are being missed in the national team.

I don't think you can go back and say the youth system's failing. I think the players are there, it's that vital competition that they're missing now. The famous Manchester United—Beckham, Giggs, the Nevilles; the famous one when Alex Ferguson in the early 90s put those lads in and they came through to be top players for twenty years—wouldn't happen now. It's so foreign dominated. We can't say we might have one season where we will finish tenth and then we'll pick up again; success has to be there and the best way is to import ready-made talent. I think that's more on the national team than what you start doing by messing around with what the clubs are doing in the football league, which I think is an excellent job.

Julian Tagg: I think I mentioned before, you're doing exceptionally well at under-17, under-19 and under-21 from a European perspective, so something's not going terribly awry. I'm worrying whether some of what's suggested is going to exacerbate what Barry just describes; players getting to the top end and getting frustrated with no situation or no opportunity to play in real football. It would seem that the clubs at the very top are actually bringing them back down into our divisions—the Championship and One and Two—to, whether you call it blood them or educate them. They're going to take them away, yet they want to bring them back, so unless there's another opportunity where they can get that kind of experience I think what's being suggested, that's going to be its flaw.

As I say, you get the 17s, 19s and 21s. The other comment you made about was that there seems more unity, and of course even with the process that's going on here—and I've been part of the Youth Working Party—the Premier League are driving it quite rightly, because they're trying to improve and I applaud that, but that's not been done with the FA and the Football League and the Premier League all sat around the table. All those people have interest and so it becomes—you're quite right, Paul—disparate rather than a unified group of people trying to achieve something. It may have been a faster process and a more effective one were that not the case.

John Bowler: I think my own personal perspective too is that, yes, we are concerned about the growth of foreign ownership in the Premier League, and will that foreign ownership have as much interest in the future of the national game and all that goes into this wonderful sport that we've got, which is our national game, and the wellbeing and development of it. I think we're in a changed process, with new ownership and foreign ownership coming in to the Premier League. The Premier League have been very supportive of us so far but I think a number of us have got concerns about how will this relationship nurture itself and develop in the future, so I think the concern that you raise is a fair concern.

We've got to be sure that we want the finest Premier League in the world. We want to be sure we've got a very strong and successful national game, but we have to try to ensure that we don't lose the family of football, because the family of football really does depend on making sure that the grass roots are taken care of, so we must make sure that as many of the local communities nationally spread throughout this country have their own football team and hopefully their own league football team. That's what we need to ensure.

Julian Tagg: Many of those England footballers are coming from Conference Two, One, all the way up. I can't quote them specifically but that broad base, which is what's happening in the footballing communities, is hundreds and hundreds of children starting off. They go into development centres, advanced development centres, into the centres of excellence. There's a massive amount of work that goes on before these children get to 12 years old, and the depth and breadth of that is hugely important. Some of the proposals might close that off and the pyramid at the bottom wouldn't be so stable, and, if that wasn't there and those children weren't doing that, they would be doing something else. Hopefully they'd become a great rugby player or a swimmer or something else, but if we're concerned about football, it is that base—and keeping that base strong—of football in the community that raises all the way through with the football clubs' involvement, and will ultimately be the strength of the England team end, because that, if you pardon the pun, is the grass roots. That's where they're coming from.

John Bowler: And to support what Barry was saying, in our experience of developing young players, the most successful players or the players who have had the most success that we've developed have actually left us during their first two years as professionals after playing in our first team, rather than those who have left us during their academy years. That is an important issue that we mustn't lose sight of.

Q309 Chair: We need to move on because we are lagging behind. Can I ask you a quick question? It appears likely that the sale of exclusive broadcasting rights on a territorial basis within the EU may be declared illegal. That's obviously going to have a huge impact on the money coming into the game but it also may mean that the existing three o'clock blackout can no longer be maintained. How serious would it be for your clubs if that blackout at three o'clock no longer applied?

Julian Tagg: Just from seeing what happens on a Tuesday night when Manchester United or Arsenal are playing, we feel that direct effect on our gates. Every time we lose a Saturday game and it comes back as a Tuesday one, we know that's quite a considerable drop in income, because nine times out of ten there's a football match on the TV that people would want to watch, and I don't blame them in a way. If that were to happen on Saturdays it would have serious ramifications from a financial point of view to every football club.

Shaun Harvey: It's the floating fans. A Crewe fan will always be a Crewe fan, a Leeds fan will always be a Leeds fan and they are going to hopefully go and be able to turn up and watch their team play live at the stadium of choice. The floating fans are the problem, those who want to go and watch football and pick and choose a game. Why pay to go and watch a game through any stadium turnstiles if you can watch arguably a higher profile, greater quality, higher division game on TV? So I think three o'clock on a Saturday afternoon has to be tried to be kept sacrosanct for the purpose of getting people through the turnstiles at their local clubs.

From a financial point of view and the value of the loss of exclusivity to the TV companies, whether we like it or not, Sky effectively acts as paymaster general to the world of football as it stands. The TV rights are where income is mainly generated and anything that fundamentally affects that will have a bearing on every single club. As I said earlier, what causes clubs financial problems is loss of income, usually created by relegation in the examples that we're talking about, but with a significant loss of centrally distributed income without sufficient time to adjust, we will see problems. ITV Digital proved that when it went bust, at football clubs. With a loss of income that clubs had been told realistically they could expect and plan for, you saw a spate of administrations. It was also an excuse in some circumstances but it is a real fear that fundamentally it could affect the very fabric of football.

John Bowler: And don't forget that really the drive that a lot of clubs are making now, particularly smaller clubs, is to encourage the new supporters, encourage families. As Shaun is saying, for the die-hard Crewe fan, he'll come and it doesn't matter what's on television, but we're really interested in encouraging schoolchildren to be coming, families to be coming, and to have that competition when we're playing could not only have a serious impact today but it can have a serious impact for the future.

Q310 Mr Sanders: You're familiar with the idea of limiting clubs' spending on player wages to 60% of turnover, which is now the practice in League Two. Do you think a similar rule should be brought in to other divisions?

Julian Tagg: I'll give you a quick answer; yes. We experienced it in the Conference, experienced it in League Two and not in League One, but, yes, I would invite it and there's already a lot of discussion, a lot of work and analysis that's going on with financial committees within the football league to achieve that and I hope they do and will be voting for it.

Q311 Mr Sanders: The quick answer was yes.

Shaun Harvey: I'll give you as quick an answer as I can but with an example; 60% of our turnover would mean we could spend approximately £16 million a year on wages. We spend nothing like that.

John Bowler: I was originally against it, because I felt that football clubs have really got to take responsibility for running their own businesses and running them prudently and profitably. I've changed my position on it because I think it's just part of a package of things that the football league is looking at to try to ensure that we do have good financial governance and to encourage best practice, and therefore I accept that that is one of a number of measures with which the football league is putting its house in order to ensure the wellbeing of the sport overall.

Barry Kilby: I'm slightly wary of it somehow—just that little bit of straightjacket coming from above that you must do this and do that. The season we went up, when we were getting close, we increased our spending a bit and that was directors' loans. We knew what we were doing and how we'd cover if it didn't come off, so there's a little bit of flexibility there. It just seems very rigid to me for somebody to say, "Whatever your circumstances you cannot do X". I'm a little bit worried by that. It's very sensible, 60%, I think it's a decent percentage of your wage bill that the club can handle, but everything by diktat, I'm just a bit uneasy with.

Q312 Mr Sanders: Do you think it's more complicated between Championship and Premiership than perhaps between Leagues One and Two?

Barry Kilby: There has always been that thing where some benefactor might come in and give a club a boost. It's a bit rigid. Leeds—that's £13 million, but for us it would be a lot less, and that would be forever. Whereas sometimes you might get a son of the city or the place who decides to give money, and that's gone on in football since time began, with somebody funding the new centre forward and so on. I'm just a bit wary of it being in all circumstances a straightjacket and it's imposed from above. It would tend to reinforce the status quo.

Q313 Mr Sanders: It's interesting that two members of the panel who have experienced this are in favour of it but the two who have not fear it, and of the two who've experienced it one of them said he feared it before it came in.

Shaun Harvey: Yes, I think just to support what Barry is saying, it's not how much you're paying that's the issue, it's your ability to meet that debt, and as long as you've got the ability to do it and the football club isn't in a worse position as a result of it, then that should be the measure. That is more along the lines, shall we say, of a financial fair play model that UEFA have got than a fixed salary cap. If you can fund it, if you can manage it, if you're prepared to spend it then you should be allowed to do so as long as the patient at the end of the day is not the football club.

Q314 Mr Sanders: It's been suggested to us in this inquiry that the Premier League's parachute payments for relegated clubs distort competition in the Championship. Do you think parachute payments should be reduced or even abolished? They are at the end of the day a reward for failure.

Shaun Harvey: You can either view them as a reward for failure or a mechanism to try and self-adjust you back into normal life. We talked earlier about the players' wages, which I think we've all identified are probably the single biggest issue that you have to manage, and coming down from the Premier League it takes time to adjust with those players.

Q315 Mr Sanders: Well, why don't you have contracts that say, "In the event of us being relegated I'm afraid you're going be paid less"?

Shaun Harvey: In principle, there's nothing wrong with that statement, but I'd challenge anybody to sit in front of an agent and a player and say to them, "We want to sign you for three years. We're a Premier League club. We're going all out to stay at this division. However, if we fail we want to reduce your wages by half". To which the player and his agent say, "Well you're not really that confident that you're going to stay in the Premier League then are you?" "Well, yes, we're going to give it every go." "But that's contradictory to what you're asking my client to sign up to, and Club B down the road will do this, this and this", because it's a competitive market. Now the model is fine. I understand it and it's something we all try to do. In practice, it isn't as simple as that and those players do get injured periodically.

Barry Kilby: I think it does distort the market, but the answer is that the gap is massive, and as I said before average teams now in the Premier League have a wage bill of £50 million. How do they handle that when you come down? I'll back up what Shaun says there; it's competition, isn't it? They say, "Well, we want you to halve your wage if we come down". If somebody else is in the market for a player, they might drop that, and they don't operate that clause. It's terribly, terribly difficult in the market place to force that through.

Q316 Mr Sanders: But isn't this actually all linked back to this creditors rule that the reason they do this is because they're on a no-lose situation?

Barry Kilby: Again, I just come back to the Premier League, and sometimes you're competing against people who don't care. They've got billionaires who are prepared to lose £600 million about that. You're competing in those circumstances. They won't care about the relegation clause—it's very difficult. Last season, we came up from the Championship and the players got an increase. It's easy to say, "Well, if we go back down it comes back down." That follows a logic that is easy to enforce. If you're trying to get an established Premiership player, it's very difficult to say, "You do know if we go down we halve your wages". That's not an easy one to pull off. But I agree, I think it does distort the competition somewhat, but I would say it's not always guaranteed that the ones that come down with the parachute payments with that advantage are able to go back because invariably they're shedding players, still with the parachute payment, and they've got to try and get their house in order and get back on an even keel.

Shaun Harvey: If you get relegated from the Premier League or any league, the only players other clubs want to take off your hands or your books are those they believe represent better value for them. By definition, you end up with the players in your squad that nobody else wants to take off your hands and they're not arguably the ones who are best equipped to get you back out of the division that you're in.

Q317 Mr Sanders: So it didn't pay offering them contract in the first place did it?

Shaun Harvey: It didn't, and if we all had hindsight we would be a lot better off.

Q318 Mr Watson: Just to wrap up—and I will take you last on this, Julian—I will get to fan involvement. Could you tell me what role if any should supporters' trusts play in the governance of their clubs?

Shaun Harvey: You heard me say earlier that I think the best model is a small dynamic board that's able to make decisions quickly and on that basis, that's the view that I would support. Consultation's fine but when it comes to the decision-making process, for me it needs to be left in the structure that I described earlier.

Q319 Mr Watson: So no fan on a small agile board.

Shaun Harvey: Not for me, no.

Q320 Mr Watson: Okay, John?

John Bowler: I take a different view, but that probably relates to the difference in size of clubs. I think that smaller clubs like ourselves that are hopefully making a major contribution to the local community and have a big community involvement would like to see a Supporters Trust with about 25% of the shares with a seat on the board. I have to say, because it's me who's been leading it rather than the supporters, it's not been easy to put into place. We have regular meetings with our Supporters Association and we have good relationships with them, so I started with them, but we couldn't find a group of people who wanted to take it forward, because it's no mean task setting up an efficient Supporters Trust and there are a lot of bodies in the cemetery already where it hasn't worked.

So my recent approach has been to try to get a group of local business people and the local professional people to work with supporters to see if that's a way of putting it together, on the basis that we think it will have a good chance of success and getting established. So the answer is yes for us, but we've got to be sure that we do set it up properly and it runs properly rather than paying lip service to it.

Barry Kilby: We have fans on the board—that's our directors with their own money, quite a lot of it—and we have the Clarets Trust. If you buy enough shares in the club you can have a seat on there. I do agree with Shaun, but I must come back when you say, "a fan on the board". There are some tough decisions to be made that most fans wouldn't like, so where do we stand on that one? If we do any guarantees for a financial deal, is the fan going to put his house on the line and say, "Yes I'll join in that one". I think there's nothing better than people having a big financial stake in it. We do have the Clarets Trust, we have meetings with them, quite often very interesting and they make good points, but also we must remember the wide shareholders thing—we've got over 200 shareholders. We are responsible to them and they do criticise, but we are talking about an actual somebody imposed on the board who's not there on the same footing, which is essentially the shareholding in the club, and him putting his money in there. If he's a representative of the Trust, who is he and what's he like and does he want to tell everybody what the team is the next day, do we sack the manager, do we all go back and have a vote on that? There have to be quick decisions made, and with the responsibility of money there's nothing better that makes that decision.

Q321 Mr Watson: Julian, Shaun takes a slightly different view from you on this, I suspect. He's happy for the fans to be shareholders in a mystery trust running out of Switzerland—I'm joking Shaun, I'm joking—but you've got a slightly different model. You've heard criticism from Shaun and Barry that essentially if the wrong kind of fan ends up on a board they can reduce the ambition of a club. Would you share that view?

Julian Tagg: I submit that it's very possible from personal experience that the advantages and disadvantages are at the other end of what Shaun's actually described. Of course the disadvantage is the slow decision-making and taking everybody's opinion—with the bigger decisions, sometimes that makes things very, very slow. You need to evolve as a football club as you improve what you're doing; you evolve on the pitch all the time. The analogy is a good one that is understood, and beginning to be understood better by the fans, and it is that we need better people—more experienced, with the right kind of skills—as the football club progresses and the board needs to evolve. Certainly the club board and the board of trustees as we call them, which is where the ownership of the club stands, are also important.

The other thing that becomes a disadvantage is the constant need for information. If you give some information then it means there's another question for some more information and so it goes on, so that's something that we do our best to handle. We have financial groups that meet, we have trust groups that meet, so those three things are the upside of it. It gives us particularly long term security, and I think one of the things that attracted me in the beginning was that it's not going to come along later on, something's going to go wrong and it's going to fall into different hands. All that work and effort of the community, with lots of volunteers involved, gives us an ethos which is a very useful one to have—a lot of people want to be involved. I think there is a culture in football that we talk about all the time; the fans want you to improve, they want the best centre forward, but they want the prices at the gate reduced, and it is about trying to find the balance.

Our model in our club is changing the culture a little bit in the sense, as the fans sing proudly "We own our football club", and there are fans who literally can come off of the terraces and can go into that board. Ultimately, if they're the right ones, they can come on to our board, and there are two of them. That's the way the flow goes, and the closer they get to the responsibility of it going wrong, the more realism there is. There's still a long way to go; there are still the fans' forums saying "We want to do this immediately", and are vociferous about it, but the majority and the wider change in the culture of what we're actually beginning to achieve, it would seem, is that you can lose a game and it's not the end of the world and we don't want to sack the manager, and that we need to be prudent financially rather than gambling money that we don't have in the hope of moving up the league. So there's still the same thing that runs underneath it but I believe the nature of the club is beginning to change.

Q322 Mr Watson: So you're describing a situation where you have to explain your decisions more thoroughly to fans but it doesn't seem to me slowing you up in making tough decisions when you need to. Does that characterise your argument?

Julian Tagg: It has slowed us up and there are a number of things that we've tried to change. It's been really difficult to make those changes—something that becomes very obvious because you're in a boardroom. These things need to be changed and you have to go back via the trust board—we've got a large board of 16—and convince them, so we're far from perfect, I think everybody realises that. There's no blueprint for this. We've made it work. Sometimes those two boards come to a head and they clash. We have a mechanism which we call the Joint Boards. We have four from each side if you like—I never used to call it sides but I do now—we have a group of four and there are no minutes to that and we try and thrash out what the club really requires. At that point, if you can get some kind of agreement that we need to change a certain aspect, whether it be the Chairmanship or whether it be who sits on the boards or whether that be the club board, then that's where you really make the real progress.

Then of course the rest cascades out in the normal day-to-day business, but a lot of the time, I'm taking a lot more care to make sure people know what's going on in advance, as opposed to the decision-making. They want to know that it's happening before it happens rather than necessarily, "Why didn't I know about that? Why don't I know?" That's probably the most difficult thing because they're keen fans and it's a good job that they do care that much about it.

Chair: I think that probably leads us neatly on to our second question session, so can I thank the four of you very much?

previous page contents next page

© Parliamentary copyright 2011
Prepared 29 July 2011