Football Governance - Culture, Media and Sport Committee Contents

2  Context

The old model

8.  The key characteristics of the English model of football governance changed remarkably little from their Victorian origins up until the 1980s—the abolition of the maximum wage for professional players in the 1960s being the notable exception. Aston Villa Director William McGregor proposed the formation of a Football League (inaugural season 1888) which quickly contributed to the game's growing popularity. This in turn led club owners quickly to invest in stadia to accommodate the additional supporters. They adopted a commercial limited company model to limit liability when investing in stadia. Club owners did not expect to reap financial reward from their involvement in football; indeed a Football Association (FA) rule (Rule 34) prevented this. This restricted payment of dividends to 5% of the nominal face value of shares and prohibited payment of directors. If a club was wound up, any surplus had to go to another sports club or a charity.

9.  The intense competition engendered by the new League structure encouraged owners to invest in their clubs to secure sporting success, establishing a private owner funding model that remains the dominant model today. To guard against one club becoming too dominant, and hence safeguard the popularity of the competition, the model also contained a strong redistributive element, with match day receipts—the predominant source of revenue for clubs at the time—shared between the competing teams. Although the percentage shared by the away team reduced over time, up until 1983 the away team still received 20% of the gate for League matches. When the first TV rights deals were negotiated in the 1960s, introducing a new revenue stream, the same redistributive principle applied with the new revenue shared equally among all the League clubs. Right from the outset, there was a tension and jostling for position between the Football Association as the governing body responsible for the rules of the game, the FA Cup and the national team, and the Football League, organisers of the Football League competition which had expanded to two divisions by the turn of the century and would later expand to four divisions.

The need for change

10.  Although the old model had less debt in the system, and the competitive gap between big and small clubs was less, facilities were poor and so was the relationship between supporters and owners, as illustrated by the use of perimeter fencing and the suggestion by one owner that he wanted to electrify the fence.[6]

11.  During oral evidence, journalist Patrick Collins reflected that:

some people have a certain yearning for the kind of equality which prevailed before 1983 […] an age in which clubs succeeded by virtue of their ability. Derby County won a league title and Nottingham Forest won two European cups, not because they were richer than the rest but because they found a manager who was better than the rest […] Sport lost a great deal when it lost the kind of equality that used to prevail.[7]

There was, however, a broad consensus that, by the 1980s, the model needed reform, albeit with differences of opinion as to what form it should take. Graham Kelly, Secretary of the Football League between 1978 and 1989, and subsequently Chief Executive of the FA, recalled:

It was thundered during the middle of the 1980s by one eminent leader writer that football is a slum sport played in slum stadiums followed by slum supporters and we had to break out from that situation.[8]

Professor Szymanski told us that "it is so easy now, 25 years on, to forget the scale of the crisis in English football that was continuing and persistent over a quarter of a century. The game really was on its knees".[9] Observing that "in the post-war era, up until 1985, attendances were continuously in decline at English football",[10] he offered a number of reasons for this, including neglect of investment, poor facilities, poor crowd control, hooliganism and a sense of danger. For him, a key underlying problem was that English football at that time was not sufficiently commercially-minded. He highlighted a key conclusion of the 1983 Chester Report—by Sir Norman Chester, his second on football, commissioned by the Football League—that "clubs will have to be more sales minded in future if they are to maintain, let alone increase, their gates".[11]

12.   Three terrible disasters at Bradford, Heysel and Hillsborough added unstoppable momentum to the calls for change. In May 1985, 56 people died when fire spread through the stands of Bradford City's Valley Parade stadium, and 39 Juventus supporters were killed before the European Cup final against Liverpool at the Heysel stadium in Belgium when supporters precipitated a crush and a wall collapsed. In April 1989, before a Cup semi-final between Liverpool and Nottingham Forest at Hillsborough, South Yorkshire Police opened a large exit gate at the Leepings Lane End, which forced too many Liverpool fans on to the terrace, leaving the fans inside trapped between people entering the ground and the metal fences at the front of the stand. The human crush that resulted led to the death of 96 Liverpool fans. In 2010, an independent Hillsborough panel under the leadership of the Bishop of Liverpool, the Right Rev James Jones, started to look through newly released documents with a remit to write a full account of the disaster. In their different ways, the disasters served to emphasise the extent to which the old governance model had failed to address chronic under-investment in grounds and the needs, including basic health, safety and security of football supporters.

13.  As English football reached its 1980s nadir, there were also big opportunities waiting to be seized, although not all were immediately evident at the time. In his written evidence, Professor Szymanski emphasised that "to a significant extent the pressure for change came from outside the game".[12] The Government intervened after the Hillsborough tragedy, commissioning Lord Justice Taylor to produce a report, which mandated all-seater stadiums. Public funding assisted the subsequent improvement in stadia. The Government also put pressure to bear on clubs to deal more effectively with hooliganism by identifying, ejecting and prosecuting those causing a disturbance. A further, highly significant, external opportunity was presented by the deregulation of broadcasting in Europe, which "helped to create satellite broadcasters willing to compete aggressively for television rights and so bid up their value", though the full impact of this change would only become apparent in the next two decades.[13]

14.  Change was also occurring from within the game. In 1981, the FA raised the dividend threshold to 15% and relaxed the prohibition on directors being paid; they could now receive a salary as long as they were working full-time for their clubs. Following the Chester Report, in 1983 Football League clubs decided to allow home clubs to keep all the revenue from League matches. All these measures were taken to encourage a new commercially-minded approach that would deliver more investment into the game. For Professor Szymanski, the fact that attendances were on the rise from 1986, before the Taylor Report, can be attributed to this internal reform. Recovery from the deep 1980/81 recession, and subsequent increase in the availability of money for leisure pursuits, may also have been a factor. The performance of the England team in reaching the semi-finals of the 1990 World Cup—Gazza's tears and Gary Lineker's goals—also helped the new groundswell of interest in the national game.

The new model

15.   The final outcome of the pressure for reform was unexpected. The form that change took was ultimately determined not by the FA, nor by its old sparring partner the Football League. Instead, representatives of some of the bigger first division clubs proposed the formation of a new Premier League, which they felt would leave them better-placed to: improve stadia post-Taylor; reverse the flow of talent abroad; and negotiate a new TV deal on more favourable terms. There was no debate at this stage about the opportunities presented by satellite television. It was the Premier League, with the endorsement of the FA, which would go on to make the most of the available opportunities. Sean Hamil of the Birkbeck Sport Business Centre, University of London told us:

From 1992, four factors came together to create a perfect storm for football. First of all, stadia were being modernised with a 25% subsidy over 1992 to 1997 from a levy on the pools betting duty. English teams had just re-entered European football in 1990. The pay TV revolution had just started, and we had just started 15 years of uninterrupted economic growth through to 2007 and, as we all know, as growth rises, a disproportionate amount is spent on leisure.[14]

Strengths of the new model

16.  The Premier League is a private company owned by its member clubs (the top 20 football clubs in England), with an additional share held by the FA. Its principal objectives are to "stage the most competitive and compelling league with the best prepared world class players competing in high quality, safe and comfortable stadia, and to develop clubs to levels where they can compete effectively in Europe".[15] It has proved markedly successful in marketing its competition to the financial benefit of its member clubs. The turnover of Premier League clubs has grown from £170 million in 1992 to £561 million in 1998/99 and £2,000 million today. The sale of TV rights in the new satellite TV era has proved particularly lucrative, the amount distributed by the Premier League to clubs (including payments to relegated clubs) increasing from just under £42 million in 1992 to £1,013 million (including £388 million from overseas income) in 2010. Because the Premier League operates collective selling of rights, all the clubs have a share in the TV revenue: the top club to bottom club distribution ratio—the difference between the amount the top club receives compared with the amount the bottom club receives—being a low 1.49:1.[16] David Gill, Chief Executive of Manchester United, emphasised that "the collective selling of the television rights has clearly been a success and it has made things more competitive". He also observed that:

We are the most admired League in the world […] I think the time was right with the advent of satellite television. The League plays exciting football and it has attracted a good mix of foreign players—top, top players. All those factors coming together in a growing industry has meant that it has become attractive.[17]

17.  The Premier League provided other impressive statistics too. Gates in the Premier League average about 350,000 per match weekend, with an occupancy rate of over 92%. Supporters attending matches have benefitted from over £2 billion in expenditure on stadia and facilities since the formation of the Premier League.[18] They are watching some of the top teams in Europe: since 2007/08 England has topped UEFA's rankings based on the performance of nations' clubs in their competitions over recent seasons. Premier League clubs have appeared in six of the last ten Champions League finals, and in three of the last four, including one all English final. For Professor Szymanski, the Premier League is "the most successful football league in the world".[19] Former FA Chief Executive Ian Watmore told us that "I love the Premier League as a spectator […]. It has transformed football in this country from where it was in the late 1980s".[20] The Premier League can argue, with justification, that its clubs have used the increasing revenues to deliver on the Premier League objectives.

18.  But what about the rest of the League pyramid? The creation of the Premier League was promoted by the FA, and it was originally envisaged that the new League would sit within, and be managed by, the FA, on top of the Football League. The Football League went to court to challenge the right of the FA to do this and lost.[21] The judgment confirmed the right of the FA to govern the game, with rules that take precedence over those of the leagues it sanctions, though the FA has subsequently ceded considerable authority to the Premier League. The Football League was left with three divisions. Promotion and relegation between the top two tiers was maintained, which has had the effect that the top teams in the Football League aspire to leave it. Some of the leading clubs in the Football League saw an advantage in being able to negotiate their own TV and sponsorship deals without negotiations being dominated by the interests of the top sides in the top division.

19.  We asked Greg Clarke, Chairman of the Football League, whether the introduction of the Premier League had weakened or strengthened the football pyramid. He replied that "on balance, and this is a personal opinion, it has strengthened it".[22] This might appear a surprising response, but the Football League has also experienced something of a renaissance since the 1980s. The Football League pointed to a number of indicators of success:

The Football League is, by a long way, the world's most successful second tier competition. Last season over 19 million fans went through the League's turnstiles, with the Championship remaining the fourth best attended football competition in Europe, ahead of the Italian Serie A, the French Ligue 1 and the Dutch Eredivisie.[23]

[…] The Football League is distributing record amounts direct to clubs from the centre as a result of its commercial activity. On average this season, Championship clubs will receive circa £2.5 million from the League; League 1 clubs circa £0.7 million; and League 2 clubs circa £0.5 million.[24]

20.  It is arguable that this success is attributable at least in part to the success of the Premier League, which has helped to sustain interest in professional football. Richard Scudamore, Chief Executive of the Premier League, told us that the rest of English football had grown on the back of Premier League success:

attendances have grown at the Football League, television rights have grown at the FA. The whole economic interest in English football has all grown. It is not a zero-sum game.[25]

Most tangibly, both the Premier League and Football League evidence noted that the Premier League provides solidarity payments to the Football League, preserving an element of redistribution in the new English football model. It is equally true that resources flow up the pyramid, as interest in the game encouraged at the grass roots generates tomorrow's Premier League spectators and players.

Weaknesses of the new model

21.  There are, however, also areas of concern with regard to the new Premier League model. Few witnesses, with the exception of the Premier League and Professor Stefan Szymanski, were prepared to judge the new model an unalloyed success. Indeed, the majority of the evidence we received argued that the problems inherent in the system were sufficiently serious to merit some sort of outside intervention. The arguments differ in emphasis and tone, but an underlying theme is that turnover should not be the sole measure of success. Sean Hamil was one of a number of witnesses who placed greater emphasis on levels of profit (low) and levels of debt (high):

There has not been a single year since the foundation of the Premiership that the clubs collectively have made a pre-tax profit. Football is different but turnover is vanity, profit is sanity.[26]

Figure 1 illustrates his point. The paradox of rising revenue and declining profitability can be clearly seen: revenue grows steadily over the period while profits decline. At the start of the period the clubs in the Premier League were operating at around break-even point, however from the start of the new millennium the combined losses of Premier League clubs follow a downward trend, reaching their lowest point in 2010, the latest year for which figures are available.

Figure 1

Turnover and Pre-Tax Profit (Loss) Premier League 1996-2010

Source: Deloitte Annual review of Football Finance various issues.

22.  Sean Hamil argued further that the predominant loss-making model was deterring good owners. He also felt that there was insufficient redistribution from the Premier League down the pyramid to sustain a healthy, competitive model:

The issue […] is the relationship between the Premier League and the rest of football. […] It is well recognised that there should be solidarity from the top to the bottom. The critical issue is how that solidarity relationship is organised. My own view, it won't surprise you to hear, is I think there should be greater solidarity between the Premier League and the grassroots.[27]

In similar vein, Ian Watmore argued that:

There is obviously good debt, there are reasons to go into debt to build a stadium or something like the approach that Arsenal have taken to building Emirates and then selling off their old ground and gradually getting back into financial balance, but debt for the sake of it is troublesome over the long term. I think we should be looking at ideas for how to control that without stifling the inherent successes of the underlying leagues.[28]

James Wheeler, a member of Derby County's Supporter Trust commented that:

There is now a massive dichotomy in the game in this country which is weakening the sport for future generations. At the 'top' of the game a relatively small group of individuals (chairmen, directors, managers, players & agents) at a small number of clubs are making massive amounts of money (ultimately from the fans) whilst many smaller clubs are struggling for their financial lives. Many non-league clubs have folded altogether and local communities have seen their infrastructure decline through lack of investment. Many small clubs have failed due to debts of less than a week's wages for a Premiership footballer. This cannot be good for the game in the long-term.[29]

Fulham Supporters Trust observed that:

The profligacy of the Premier League's spending is not only passed down the leagues—only recently have the League agreed a solidarity payment with the Conference—but onto the fans as well in the form of higher prices for tickets, refreshments and replica shirts.[30]

Olswang, a law firm which has reviewed the accounts of a number of troubled football clubs, observed starkly that "without a radical overhaul and a rethink about how football is funded and managed in this country, we are concerned for the long term health and viability of the industry".[31]

23.  Other evidence argued that the increasing focus on the commercial side of football was jeopardising football's wider benefits. Football supporter Peter Hodge felt that "the unregulated, free market, commercially-driven philosophy adopted by the Premier League has resulted in unacceptable differences in wealth between clubs to the point where the game is no longer competitive".[32]

Cardiff Supporters Trust wrote that:

Investing in football on a purely business basis, without concern for a club's sustainability is contrary to the interest of the club itself and indeed the interest of the fans who will still be attending matches long after the investor has moved on to other business ventures.[33]

Mark Usher observed:

the pendulum in English football has swung far too much towards commercial objectives as opposed to the social, cultural and sporting objectives that originally defined the very reason for existence of the first football clubs. Fans are now customers, clubs are now enterprises, and football is in the entertainment industry.[34]

A number of supporters organisations argued that the current business-orientated model risked alienating them. Bristol City Supporters Trust wrote that "like fans up and down the country, we feel ill at ease. We still feel like outsiders looking in on our club".[35]

24.  The amount of money now flowing into football suggests it is a highly commercial business and, in terms of revenue generation, the Premier League is second to none. But businesses need to take account of the bottom line and expenditure as well as revenue. In this regard, it is clear that football is not like most business sectors. Most clubs make losses and operate on the edge of viability. Moreover, the sector is regulated by the Leagues and the Football Association; its specificity is recognised by the EU on account of the wider social and economic benefits it brings; and the relationship between supporter and club is characterised by a degree of 'customer' loyalty that most companies could not come close to achieving.[36] We recognise that the passionate loyalties engendered by football can encourage disproportionate reactions to lack of success, disappointment moreover that is inevitable for most supporters, given that many clubs are chasing relatively few prizes. That said, the weaknesses set out above go beyond individual grievance to highlight possible systemic flaws. The challenge which we take up in the rest of this Report is to determine how to address weaknesses in the current model without damaging the end product.

6   In 1985 the Football Association and the Greater London Council rejected a proposal from Ken Bates, then Chairman of Chelsea, to install an electric fence around Stamford Bridge to deter hooligans.  Back

7   Q 3 Back

8   Q 24 Back

9   Q 8 Back

10   Q 2 Back

11   Ev 243 Back

12   Ibid Back

13   Ev 243 Back

14   Q 5 Back

15   Ev 208 Back

16   Ev 212 Back

17   Q 167 Back

18   Ev 209 Back

19   Q 1 Back

20   Q 387 Back

21   All England law reports/1993/Volume 2/ R v Football Association Ltd, ex parte Football League Ltd; Football Association Ltd v Football League Ltd - [1993] 2 All ER 833 Back

22   Q 56 Back

23   Ev 232 Back

24   Ev 234 Back

25   Q 600 Back

26   Q 1 Back

27   Q 2 Back

28   Q 393 Back

29   Ev w30 Back

30   Ev w76 Back

31   Ev w127 Back

32   Ev w8 Back

33   Ev w21 Back

34   Ev w190 Back

35   Ev w64 Back

36   In EU parlance, sporting specificity refers to sporting exceptions from EU law applying to economic activities. So, for example, a rule stipulating that the French football team may only be composed of French nationals cannot be challenged under EU law Back

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© Parliamentary copyright 2011
Prepared 29 July 2011