4 Football financial management |
Debt in the game
66. One of the big challenges facing English
football is not generating revenue but controlling expenditure.
Deloitte publishes an Annual Review of Football Finance. Its latest
edition, published in June 2011, analyses financial information
for the 2009/10 season. Its key statistics on profitability and
loss reveal the extent of the challenge:
- Operating profit margins in
the top division have reduced from 16% to 4% over the lifetime
of the Premier League.
- The Premier League clubs in aggregate made an
operating profit of £83 million (up 5% on the previous year),
but pre-tax losses after financing and player trading costs deepened
to £445 million in 2009/10.
- Premier League clubs' net debt at summer 2010
was £2.6 billion (a reduction on 2009: £3.3 billion).
- Championship clubs' operating results worsened
for the sixth consecutive year, to a record loss of £133
million. Fourteen Championship clubs lost £5 million (2008/09:
12 clubs). Overall, Championship clubs are spending £4 for
every £3 they generate in revenue.
- The aggregate net debt of the 24 Championship
clubs increased to £875 million at summer 2010.
- League one clubs made a record operating loss
of £52 million, and League two clubs made an operating loss
of £8 million, a marginal improvement on the previous year
(£9 million loss).
- Between 1992/93 and 2009/10, the aggregate operating
profit of Premier League clubs was £1.6 billion. Over the
same period, the Football League clubs made an aggregate operating
loss of £1.4 billion.
- The top 92 clubs, as a whole, lost money on their
day-to-day operations and, at the pre-tax level, losses have continued
to grow, exceeding £600 million in 2009/10, while collective
debts stand at around £3.5 billion.
67. Professor Richard Giulianotti observed that:
there is clear evidence that there is too much debt.
A UEFA report last year indicated that, for the 2007-08 season,
English Premier League clubs accounted for 56% (£3.5 billion)
of the net debt of all European clubsa grossly disproportionate
A number of other commentators and supporters organisations
expressed similar concerns about the amount of debt in the English
game. Professor Stefan Szymanski, however, was more sanguine.
He argued that, while English football debts were far higher than
any other in Europe, so were the assets:
Deloitte estimated the net debt of Premier League
clubs at £3.3 billion in 2008-09, against income of £2
billion. By the standard of most businesses this level of debt
is not excessive. Of course, individual clubs may have too much
debt, but without full access to the management accounts of a
business it is not easy to be sure about what constitutes 'too
much'. I do not believe that current levels of debt in English
football endangers its long term future.
68. Figure 2 below charts the profit margin for
Premier League clubs in aggregate as profits (losses) expressed
as a percentage of turnover between 1996 and 2010. It shows a
clear downward trend from break-even at the turn of the century
towards increasing combined losses:
Profit Margin (%), Premier League 1996-2010
Source: Deloitte Annual Review of Football Finance,
69. We asked a number of Premier League clubs
whether they were concerned with debt levels. Manchester United
Chief Executive David Gill appeared relaxed about the club's ability
to manage its debts:
The debt level that we have is £500 million
in gross terms. There is roughly £130 million in cash in
the bank at the moment, so there is a net debt of £370 million.
We have gross interest costs per annum in the order of £45
million, and our cash profits are around about £100 million.
So we have more than two times interest cover.
He observed that "from my own perspective, we
know that the debt is there but it doesn't impact on what we do.
We look at trying to grow our revenues and invest in the business
to make sure that we can continue to expand and be successful".
70. Stoke City has neither the revenue-generating
capacity, nor the level of debt, of Manchester United. Stoke City
Chairman Peter Coates told us:
I think there is nothing wrong with debt so long
as it is sustainable debt and affordable debt. I think that that
is the critical matter. Quite clearly, Manchester United can afford
their debt. Debt is wrong when you cannot afford it and you are
Niall Quinn, Chairman of Sunderland, acknowledged
that club owner Ellis Short had inherited a quite sizeable debt,
but noted that "we have reduced that debt by about 25%".
Premier League Chief Executive Richard Scudamore accepted that
Portsmouth's insolvency had taken the Premier League by surprise:
"we didn't foresee a club with that amount of revenue being
able to get itself into the sort of difficulties that Portsmouth
The Premier League argued though that the overall system was
healthy and that "in general, Premier League clubs have survived
the continuing economic turbulence reasonably well". It cited
Liverpool and Manchester United as examples of clubs that had
taken active steps to reduce levels of debt.
71. The Premier League and its clubs, therefore,
gave the impression that they felt they were on top of the debt
problem. When we asked Greg Clarke, the Chairman of the Football
League, however, he was far less confident. He told us that debt
was the problem in the game:
If I had to list the 10 issues that keep me awake
at night about the Football League it would be debt, one to 10.
] The level of debt within the Football League is absolutely
unsustainable, and we have got three working parties, one for
each division, working really hard on how we bring our level of
It is worth observing too that althoughwith
the obvious exception of PortsmouthPremier League clubs
appear more able to handle their debts whilst they are in the
Premier League, there are a number of examples of clubs that have
experienced grave financial difficulties when they have been relegated
and no longer have access to the promise of Premier League revenues
to appease creditors. Burnley Chairman Barry Kilby, for instance,
observed that: "when Leeds went into administration [while
in the Football League] 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".
Derby County fan James Wheeler wrote that on October 2003 Derby
County was put into administrative receivership due to debts following
relegation from the Premier League.
72. Other examples of clubs which have struggled
with debt since leaving the Premier League include Barnsley, Bradford
City, Coventry City, Charlton, Hull City, Ipswich Town, Leeds
United, Leicester City, Nottingham Forest, Queens Park Rangers,
Sheffield Wednesday, Southampton, Watford and Wimbledon. It is
also the case that individual Premier League clubs have lived
a precarious existence for a time, when they required new injections
of investment to address levels of debt that their owners were
struggling or simply unable to service. Chelsea, Liverpool, Manchester
City and West Ham United have all needed to be rescued in this
way. Sean Hamil told us that "what went on at Manchester
City with Thaksin Shinawata was absolute skin of the teeth escape
from a financial disaster. The same thing up at Liverpool. Now,
how long do you have to continue to be lucky?"
73. We acknowledge the successes
of Premier League and Football League clubs in increasing turnover
and improving the spectator experience since the 1980s, but we
are concerned by the extent to which English clubs are making
losses and operating on the edge of viability.
Of course, it is the ability
to service debt that is the key factor in any business, but because
of demands on clubs, not least from escalating wages,
there is no doubt that debt
remains a serious problem throughout the football pyramid.
What is causing the debt problem?
74. There appear to be a number of factors contributing
to the debt problem in the English game. The first point to make
is that, at one level, debt is not a new problem. Andy Williamson,
Chief Operating Officer for the Football League, pointed out that
there had been a lot of uncertainty at the point that the Premier
League was formed in 1992, with two clubs (Aldershot and Maidstone
United) going bust around that time. That said, certain characteristics
inherent in the new model do appear to have aggravated the problem.
A number of witnesses highlighted the extent to which the financial
benefits associated with membership of the Premier League had
the effect of encouraging reckless financial speculation. The
key issue here is not simply the amount of revenue that a Premier
League club can generate, but the growing gap between what a Premier
League club and a Championship side can generate.
75. Deloitte records that in 2009/10 Premier
League clubs' revenues were over £2,000 million (ie exceeding
£2 billion for the first time), five times as much as Championship
clubs' revenues of just over £400 million. Premier League
clubs generated average revenues of £102 million. Deloitte
points out that this masks significant variation, with the four
2009/10 Champions League participants (Arsenal, Chelsea, Liverpool
and Manchester Unitedwho receive a slice of Champions League
broadcasting rights and more home gate receipts, as well as gaining
additional commercial opportunities) generating average revenues
of £227 million in 2009/10; Manchester City and Tottenham
Hotspur generating revenues of £125 million and £120
million respectively; and eleven other Premier League clubs (excluding
those which were relegated) generating average revenues of £66
million. By contrast, the Championship clubs in receipt of payments
from the Premier League following their relegation generated average
revenues of only £35 million and the remainder generated
average revenues of only £12 million.
76. Deloitte figures show that there are huge
financial incentives to play in the Premier League and, within
the division, huge financial incentives to get into the top four.
Deloitte has estimated that there is a minimum £90 million
financial prize for the winners of the Football League Championship
play-off final for promotion to the Premier Leaguemaking
it the most valuable match in the world.
77. It is not just about the financial rewards,
however: football never has been just about money. For a numberperhaps
mostowners, the ability to generate greater revenue is
a means to an end: sporting triumph; sporting prestige; reflected
glory; and community standing. A key motivation to get into and
then remain in the Premier League is to build up the club, not
make a profit. Sean Hamil observed that:
there is a famous academic paper by Peter Sloane
that says what sports club owners do is they maximise utility
not profit. They want sporting success, therefore they always
overspend. Alan Sugar used the rather crude expression 'the prune
juice effect' about Tottenham: money goes in one end and out the
other end to players.
Tony Scholes, Chief Executive of Stoke City, which
has finished 12th, 11th and 14th
since returning to the top tier for season 2008/09, alluded to
the pressure simply to consolidate: "The No 1 challenge [
is putting a team out on the pitch that is good enough and competitive
enough to stay in the Premier Leagueto stay in the best
league in the world".
Sunderland Chairman Niall Quinn, speaking mid-season, revealed
the pervasive insecurity in the middle of the table when he commented
that "we are not mathematically safe at this moment in time,
but we are up in eighth place in the Premiership". Even though
his club was in the top half of the table, he was still calculating
the number of points required to ensure that his club could not
be over-taken by clubs in the relegation zone. The other side
of the coinambition to climb the table, could also be heard
in his claim that "we can look at playing European football
at the Stadium of Light. That has to be the next realistic target
for us now".
78. In similar vein, Burnley Chairman Barry Kilby
spoke of the pressure to over-spend in order to remain in the
Premier League during his club's recent season in the top tier:
"The word 'ambition' always crops uplack of ambition
is one of the usual ones you get in the phone-in programmes".
He noted too that fans' expectations were likely to increase during
a second season in the Premier League:
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 got
a feeling if we had been in another year or so the pressures would
have built to spend more.
The earlier experience of Bradford City, whose owner
went on a spending spree subsequently dubbed "six weeks of
madness" in a failed attempt to survive a second season in
the Premier League, rather bears out Barry Kilby's comments.
79. When the wealthier owners in the Premier
League spend their own moneyon top of revenue generatedon
transfer fees and player wages, in pursuit of better performance
and wider non-financial ends, this puts considerable pressure
on other owners to spend their clubs' revenue (and more) on players.
The fact that the wealthiest owners in the Premier League, the
proprietors of Chelsea and Manchester City, have almost unlimited
resources to spend on their sides tends to inflate the overall
market for players and further ratchet up the cost of staying
in the Premier League. In 2009/10 Chelsea and Manchester City
recorded the two highest operating losses in Premier League history,
of £38 million and £55 million respectively. Ian Watmore
one of the reasons that the Burnleys of this world
get to that level [spending up to £50 million a year to sustain
a place in the Premier League] is because the Chelseas and Manchester
Cities of this world have stretched it so much up here that just
to get ordinary players they now have to pay twice the wages they
used to have to pay and so on, and the television money hasn't
kept up with it.
Steve Coppell, who has managed two sides with smaller
revenue-generating potential in the Premier League (Crystal Palace
and Reading) concurred, suggesting that the Premier League was
"a power league" and that "it is very difficult
to go beyond one or possibly two seasons' success without the
input of substantial funds".
He also noted that it was difficult to succeed by developing youth
players because "if you have a great youth team then in the
next transfer window you lose your three best players".
Brian Kilby contrasted the financial demands of the Championship
with those of the Premier League:
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.
] 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.
Further up the table, former Aston Villa manager
Martin O'Neill doubted whether it was possible to challenge for
a Champions League place on a regular basis without a very significant
financial outlay. Evidence from a number of sources, including
former FA Chairman Lord Triesman, suggested that the behaviour
of the most spendthrift clubs amounted to "financial doping".
Premier League became the top tier of the football pyramid, the
financial benefits associated with its membership have incentivised
clubs continually to increase their expenditure to gain promotion
into the Premier League, consolidate their position in the Premier
League or achieve the additional rewards associated with a top
four placing and entry into the European Champions League. Teams
in the Premier League spend up to the hilt to stay there, and
teams in the Championship spend up to the hilt to get there.
80. It is important to note, as Figure 3 below
shows, that there is a strong positive relationship between wage
expenditure and league position. Other things being equal, spending
more on wages translates into on-pitch success. Deloitte suggested
that this impacts particularly on clubs in the middlethose
aiming either to close the gap on the clubs above them or to retain
their Premier League status. Hence Portsmouth, despite turnover
of over £50 million, was spending over 100% of its revenue
on wages when it went into insolvency. In the Championship, the
overall ratio was 88% in 2009/10, actually a slight improvement
from a record high of 90% in the previous season. Around a third
of clubs in the Championship reported a wages/revenue ratio of
100% or more. Deloitte, meanwhile, suggested that a 60% ratio
Expenditure and League Position
Premier League 2008/09 Season
Data Source: Deloitte annual review of football
81. It is perhaps unsurprising, therefore, that
the financial demands on clubs seeking to remain in, or ascend
to, the Premier League are revealed most starkly in the amount
of turnover spent on wages, of which the main component is player
wages. In 2009/10 the Premier League wages/revenue ratio reached
an all time high of 68% compared with 44% in 1991/92. Figure 4
below plots wages/turnover over a longer timeline, to show the
extent to which the Premier League is associated with a new trend:
and Salaries as a Percentage of Turnover for Clubs in Top Flight
Data source: Companies House
Players and agents
82. There is no doubt that, over time, the balance
of power between football employers (the clubs) and employees
(the players) has tilted in favour of the latter. In England,
the bargaining position of players grew with the abolition of
the maximum wage in 1961. In 1963, the High Court ruled illegal
the "retain and transfer" system which allowed clubs
to hold on to players' registrations at the end of their contract.
Until the Bosman case in 1995, however, clubs were still able
to hold onto players' registrations so long as terms at least
equal to their previous contract were offered. In 1995, the European
Court of Justice (ECJ) ruled that this was a restraint of trade,
and that Bosman had the right to an international transfer without
restriction at the end of his contract. The rule was quickly extended
to include domestic transfers by the respective football authorities.
Some national associations, including the FA, specified that the
rule would only apply for players over the age of 24, so that
clubs were compensated for the development of young players. Clubs
now seek either to tie a player into a new contract or transfer
him before his current contract expires. Otherwise, he is free
to move without them receiving a transfer fee. Martin O'Neill
confirmed that the Bosman ruling had moved the power away from
clubs to agents and players.
Steve Coppell observed that "with the Bosman thing, I think
we can realistically say now, for most good players, a contract
is probably at least 12 months short of the reality, because you
know you have to protect that asset.
83. Against this background, agents play two
roles. First, they act for players with respect to wage and other
terms of employment negotiations, including within the context
of transfer deals. This role is unproblematic. Given the sums
involved, and the complex negotiating environment, which can now
include, for example, ownership of intellectual property rights,
it is in the players' interests to have professional expertise
and advice to support them. Paul Elliott, formally a successful
professional footballer with a number of clubsincluding
Aston Villa and Celticand whose playing career was cut
short by injury, offered a defence of the outcome of agent-led
pay negotiations. He emphasised that only the top few players
earned vast sumswhich could be justified because they were
the ones filling the stadiaand that "the risk of injury
is extremely high".
Professor Szymanski, referring back to the days of the maximum
wage, commented "is it fair that the people who create the
performance on the pitch get a tiny fraction of what is paid"?
Sean Hamil also felt that agents played a legitimate role when
acting as players' representatives.
84. Agents, however, have also frequently taken
on a second role, acting for clubs as a middleman during transfer
negotiations. It is this role where agents act as the gatekeeper
standing between clubs and access to playersthat has given
most grounds for concern, with the scope it gives agents to inflate
the total cost of transfer deals, fuelling the already considerable
inflationary pressures in the game. Patrick Collins gave examples
of agents receiving £900,000 and £1.3 million for acting
as gatekeepers during a transfer deal and a wage renegotiation
The dilemma for clubs is that whilst, collectively, it is not
in their interests to pay agent fees to help them identify transfer
targets, acquire players or move on players, individually they
stand to lose out if they refrain from this practice but other
clubs do not. Individual clubs are, therefore, complicit in the
current system, because it is advantageous to them to employ agents,
including in the murky area of "tapping-up" players
to see if they can be prised away from their current employers.
There is also a dilemma for players in that it may be in their
agent's best financial interests to work for the club which is
paying them the most, rather than the club which is best (in financial
or competitive terms) for the player.
85. When an agent represents both players and
clubs during the same transfer deal, his role is conflicted and
potentially exploitative. This has led to calls for greater regulation.
One analogy used has been with that of estate agents who act on
behalf of both the home seller and the buyer, but who are regulated
by the Office of Fair Trading. Current FA regulations only prohibit
agents from working both for the club and the player without the
latter's prior written consent. An agent could, for example, be
paid by the buying club for assistance in acquiring the player.
The same agent could then be paid by the player for negotiating
the salary package.
86. Professor Szymanski offered a defence of
agents acting for clubs, arguing that they benefited football
because they had a financial incentive to seek out new players
around the world, opening up the game to new talent.
It could equally be argued, however, that clubs can and should
do their own scouting rather than pay agents (who are not coaches
and normally hold no such qualifications to do their scouting
and so contribute to the conflicts of interest and inflationary
sums described above).
87. A more typical view about agents was expressed
by Patrick Collins, who termed them "leeches and parasites"
who took money out of the game. He also observed that, during
one 12-month spell in 2009, Premier League clubs paid agents a
total of £70.7 million.
For Niall Quinn they were a necessary evil. He commented that
the introduction of transfer windows "was manna from heaven
for the agents who squeezed us and who continued to squeeze us
in all those periods".
Sean Hamil suggested that when agents took money "from both
sides" this led to corruption.
He argued strongly for far greater regulation of agents, as did
the managers who gave evidence to us.
88. Apart from tighter regulation, greater transparency
has also been urged as a means of curbing the financial excesses
of agents. The Football League took the initiative by requiring
each club to disclose the amounts that they pay to agents over
each six month period, and the Premier League introduced similar
measures more recently. Gordon Taylor, Chief Executive of the
Professional Football Association (PFA), Peter Coates and David
Gill all argued that greater transparency in transfer dealings
89. One particular difficulty when it comes to
regulating the behaviour of agents is the extent to which the
deals they negotiate are international. Premier League clubs,
for example, are not likely to support moves to tighten their
relationships with agents, given the extent to which their performance
depends upon their ability to attract the best foreign talent.
It is not in their interests to agree national regulations that
encourage agents to do deals with clubs in other countries, where
the financial reward for them is higher. Several witnesses commented
that FIFA, as the governing body of the world game, needed to
take a stronger lead. David Gill, for example, observed that Manchester
United operated in a worldwide market so "FIFA has to take
the lead as a world governing body to make sure it is managed
and appropriately controlled".
However, witnesses also commented that FIFA appeared to be moving
away from effective regulation of agents. Gordon Taylor told us
that FIFA had tried to regulate agents, but had now "put
it in the hands of the national associations".
Richard Bevan, Chief Executive of the League Managers Association,
commented, with regard to the activities of agents, that "our
biggest concern is that FIFA, I think in 2012, is going to be
relinquishing their regulatory control over agents, and I think
that is going to be a major problem".
He likened the current situation to "the wild west".A
research paper published by Sports Nexus in 2006, which analysed
the roles of the agent in football in detail, made a number of
recommendations for their improved regulation.
It stressed that its first recommendation, prohibiting clubs from
using agents, was particularly important.
90. While we accept that agents
have a legitimate role as players' representatives, there is currently
too much scope for conflicts of interest and inflationary fees
when agents also act for clubs. Agents should be subject to tighter
regulationsparticularly with regard to the "tapping-up"
of playersenforced consistently on an international basis,
with a particular focus on transparency of individual transactions
and payments. Given the international nature of football transfers,
it is a matter of great regret that FIFA has abdicated its responsibilities
in this respect. We urge the FA to press for an international
solution for the collective good of the game.
91. There are indicators that the new English
model is less competitive than the old. A research paper published
by the Birkbeck Football Governance Research Centre in 2005 assessed
competitive balance in English footballthe balance between
the sporting capabilities of teams.
It showed a more marked rate of decline in the competitive balance
in the top division since the advent of the Premier League. The
paper associated this decline with a widening in the gap in wage
expenditure between the top teams and the rest, and inequality
in broadcast revenue distribution and other revenue streams available
to the top clubs, especially those qualifying for the Champions
League. It also noted a decline in the effectiveness of the promotion
and relegation system as a means of promoting competitive balance,
which it associated with the widening income gap between the Premier
League and the Championship.
92. The research paper measured the share of
points of the top five clubs against the total number of points
won by all clubs. In a perfectly balanced league of 20 clubs,
this ratio would be 25%. Anything greater represents a competitive
imbalance. Figure 5 below, updated to bring the measure up to
2010, shows a steep decline in competitive balance since the advent
of the Premier League, albeit with a partial improvement in competitive
balance in the most recent seasons.
of Points of the Top 5 Clubs (C5)
Top Flight English Football, 1947-2011
93. The report also measured inequalities between
all clubs that make up the top division, recording a similar trend
towards greater inbalance only partially offset by the results
of the most recent seasons.
of Competitive Balance
Top Flight English Football, 1947-2011
94. Finally, the report assessed the share of
points won by newly promoted clubs compared to what they would
win in a perfectly balanced league. The graph shows that newly
promoted clubs have found it harder to gain points in the Premier
League, with a partial reversal in the most recent seasons.
Clubs Index of Share of Points
Top Flight English football, 1947-2011
95. These figures serve to substantiate comments
made in written evidence that the richer clubs have become more
dominant. Football supporter Peter Hodge observed in his written
evidence that "since the establishment of the Premier League,
only a very small number of teams has been able to win trophies
and very few promoted teams have been able to establish themselves
in the Premier League.
He noted that since it had been founded, only four teams had won
the Premier League (including Blackburn while benefiting from
the fortune of Jack Walker) and only 11 teams have won one of
the three major trophies (Premier League title, FA Cup, League
Cup) and that of the 50 teams promoted, 48% had been relegated
after only one season. Promoted clubs which have chosen the path
of financial prudence have tended not to be competitive: Burnley
and Blackpool, for instance, lasting only one season.
Problems down the pyramid
96. The success of the Premier League has incentivised
financial risk-taking in the Championship. Cardiff City Supporters
Trust, for example, wrote that:
Chasing that dream of Premiership football Cardiff
City has over recent years, swayed from one financial crisis to
another. Players were enticed with unrealistically high signing
on fees and wages without the club having the long term means
of paying for them.
It has also had a further knock-on effect down the
league pyramid. John Bowler, Chairman of Crewe Alexandra, currently
in League 2, explained that his club aspired to return to Championship
level but that "to stay there is difficult because of the
financial pressures that come along with running a Championship
Supporters Trust noted that its club, currently in League 1, had
accumulated historic debt "in pursuit of short term sporting
The Football Creditors Rule
97. During our inquiry, we discovered one rule
in particular that appeared to epitomise the extent to which the
post-Premier League football model was distorting financial priorities.
Under the long-standing Football Creditors Rule, to return to
league competitions the new owners of insolvent clubs must re-pay
all money owed to key "football creditors". Sean Hamil
explained the wider social consequences of this rule:
what you have in administration is that, because
of the Football Creditors Rule, the key football creditors all
get paid 100%, which means that the tax authorities get proportionately
less and all the small creditors, such as St John Ambulance, do
not get paid.
He noted that the rule might have been justifiable
in the past by the need to protect clubs, which managed their
businesses reasonably effectively, from the odd exceptional reckless
behaviour. The problem was that such reckless practices were now
Lord Mawhinney similarly felt that the Football Creditors Rule
was indefensible: "I do not know how you defend the local
community where local businesses that you are supposed to be the
football club of don't get paid for services rendered while a
football club hundreds of miles away gets protected".
He also observed, though, that, under his Chairmanship, the Football
made a charity donation to St John Ambulance of more
than £40,000, purely as a charity donation, which covered
all of the administration losses that the St John Ambulance had
on its books that were outstanding as a result of clubs going
98. For Dave Boyle, Chief Executive of Supporters
Direct when he gave evidence, the Football Creditors Rule was
a second order solution to a first order problem:
A simple problem is that football clubs are inherently
unstable financially and the Football Creditors Rule is a sticking
plaster to deal with that and the immorality that comes with it.
It's a sticking plaster which underwrites the risks taken by clubs,
with the community they are surrounded.
Gary Pettit, a licensed insolvency practitioner,
argued that the rule was anti-competitive, and should be amended
if not removed. He suggested that it was originally intended to
protect players' wages but that it had been extended to cover
football clubs and all other football-related bodies. He observed
that, in the case of Portsmouth "the football creditors are
in the region of £30 million (to be paid in full) with other
creditors receiving approximately 16 pence in the pound".
Olswang similarly opposed the Football Creditors Rule, as did
a number of supporters trusts.
99. We gave those with a vested interest in the
Football Creditors Rule the chance to defend it. The Football
League asserted that the rule was "a much maligned and misunderstood
area of policy within the game".
It stressed the importance of the rule to protecting the integrity
of the competition. It argued first that requiring all clubs always
to settle their debts with others prevented individual clubs from
gaining an unfair sporting advantage. It argued second that the
rule prevented a "domino" effect of financial distress.
Football League Chairman Greg Clarke told us that "I came
in here from a corporate background thinking the Football Creditors
Rule was an outrage. I came in thinking the sooner we see the
back of that shoddy practice the better off we will be".
He acknowledged, though, that the League clubs had told them that
the League was a members' club and that they could not support
a member who was unable to settle its bills: "They said,
'what happens is, if they don't pay their fellow football clubs,
we will kick them out of the Football League. They will cease
to exist. We won't have them'".
100. We asked Greg Clarke whether, if the Football
Creditors Rule did not exist, it would actually improve clubs'
financial management by encouraging them to police themselves.
For instance, without the safety net provided by the rule, club
A would have to judge for itself whether club B offering to pay
for a transfer in instalments would be able to deliver on its
financial commitment. Greg Clarke objected that clubs were not
well placed to make such risk assessments of other clubs: "What
that will do is stop them selling to each other because they don't
have the resources or the information to make a well-informed
decision on counterparty risk".
When we pressed him though on how the Football League could both
lay stress on the community benefits of football and operate a
rule to the detriment of local suppliers, he responded that: "I
cannot construct an argument that allows me to defend the morality
of football creditors and we are working hard to find a more palatable
101. We learned the extent of Greg Clarke's challenge
to come up with a substitute to the Football Creditors Rule that
was palatable to his Football League clubs when we took evidence
from some of them. Burnley Chairman Barry Kilby accepted that
it was a difficult issue, but argued that without it some clubs
would have ceased to exist. He felt that, if the rule was abolished,
"I think the competition would be in great jeopardy and everybody
would shrink into their shell".
Julian Tagg, Chief Executive of Exeter City, a supporter-owned
club, observed that local suppliers would rather settle for a
percentage of debt repayment and have a club they could trade
with in future than force the club to go out of existence. Like
Greg Clarke, however, he did profess himself to be uncomfortable
with the rule, stating that he could not justify it, even though
there were reasons for it.
Shaun Harvey, Chief Executive of Leeds United, a club whichlike
Exeterhas been in and out of administration, argued that
the Football Creditors Rule was important on a day-to-day basis
as it allowed clubs to trade with confidence: "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".
102. Crewe Alexandra has developed a sustainable
business model by developing young players at its academyand
revitalising players who have "failed" at other clubsand
then selling them on for a profit. Crewe Chairman John Bowler
explained that transfer fees were essential to the existence of
many clubs at the lower level and that if the Football 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
103. We asked the Premier League for its view
on the Football Creditors Rule. Richard Scudamore noted that if
a business failed, the real sanction should be expulsion, but
also that, in the case of football, expulsion damaged far more
clubs than the club involved. He argued that "it is absolutely
essential that the clubs are forced to play each other and to
play out their fixture list, and therefore it is essential that
football creditors are paid".
He added that "there is no moral basis for saying that the
St John Ambulance men or the local businesses shouldn't be paid.
Of course they should, and that is our starting positionthere
should be no bad debt". His bottom line, though, was to defend
the integrity of the competition over non-preferential creditors:
the football administrators, to protect the integrity
of our league, would support the Football Creditors Rule. I understand
that the integrity of our league takes precedence over the small
business creditor, which is unfortunate, but I am not ever excusing
people not paying their debts.
We were also warned that replacing the Football Creditors
Rule with a system which discouraged the trading of players would
detract from the essence of the game.
104. Interestingly, the Premier League clubs
we spoke to appeared less wedded to the Football Creditors Rule.
David Gill suggested that "it is a rule that has had its
observed, too, that the Football Creditors Rule supported a more
recent trend to pay for transfers over a long period, whereas
previous practice of paying within the year was a better discipline.
He agreed with our suggestion that removing the rule would encourage
clubs to conduct better due diligence, with the likely benefit
that clubs would be less likely to end up in administration. Tony
Scholes was more cautious, but still accepted that "there
is probably an appetite for having a fresh look at it [the rule]".
Niall Quinn made the point that supporters were unimpressed when
highly-paid players were protected, but those on lower incomes
were not: "the fan in the street meets the guy who printed
the programmes who did not get paid and he sees the player driving
out in the big car who was paid. I think that is damaging and
we have to look at stuff like that".
Richard Scudamore, though, suggested that Manchester United was
in a fortunate position because it could trade "almost on
a cash basis with others".
Shaun Harvey and John Bowler similarly asserted that the role
of the Football Creditors Rule was more important further down
105. FA Chairman David Bernstein spoke of the
governing body providing moral leadership in football. He accepted
that there was a lack of equity associated with the rule, but
explained that the FA, on balance, remained supportive of it:
"Why? Because the integrity of the competitions is protected
by it, and without it there could well be a snowball effect if
a particular club hits the buffers". 
He expressed the hope though that the additional financial regulation
that is being brought into the game would in future reduce the
risk of the Football Creditors Rule being applied in an insolvency
context. He also sided with David Gill on the desirability of
moving away from extended terms for transfer payments.
106. As well as affecting small businesses, the
Football Creditors Rule also impacts on Her Majesty's Revenue
and Customs (HMRC) which no longer has preferred creditor status,
and hence also loses out. Unsurprisingly, therefore, HMRC is currently
challenging the rule in the courts. While Sports Minister Hugh
Robertson could not comment on ongoing court proceedings, he did
say that the rule was "morally quite difficult to defend".
He felt encouraged that our inquiry had revealed " a considerable
body of opinion inside football that this rule has had its day".
107. The FA, Leagues and clubs
all appeared defensive and uncomfortable about the Football Creditors
Rule. They are right to be. The moral argument against itthat
it harms the communities that football is supposed to serveis
persuasive on its own. There is, though, also a compelling systemic
argument against it, namely that it positively encourages excessive
financial risk-taking, in a system that already offers other inducements
to so do, by offering a safety net to those who seek to benefit
from such practices. The Football Creditors Rule should be abolished.
It represents a "post facto" preferential treatment
of creditors that would be illegal in the run-up to the insolvency
of any business. If the football authorities do not take the initiative
themselves, and Her Majesty's Revenue and Customs loses its legal
challenge to the Football Creditors Rule, we recommend that the
Government consider introducing legislation to abolish it.
108. One criticism levelled at the new English
model is the extent to which the Premier League clubs in particular
have become reliant on the contribution of broadcasting revenue
to sustain their expenditure. According to Deloitte, broadcasting
revenue now comprises more than half of Premier League club revenue.
The current broadcasting deal secured by the Premier League is
worth over £1,000 million (the first £1 billion revenue
stream of any domestic football league in the world), with recent
increases driven by higher overseas deals. International rights
now make up 40% of the total value of the Premier League's new
109. Against this background, we asked the Premier
League whether the recent opinion by the Advocate General of the
European Court of Justice that it was against EU law to stop broadcasters
across the continent from showing football matches using foreign
decoder cards posed a significant threat to its future football
broadcasting revenues. The case raises a general question of whether
it is acceptable under EU law to partition rights along national
boundaries. Richard Scudamore replied that the Premier League
had not done an assessment of the potential impact because the
process was a complicated one and a final decision had yet to
be made. He argued that the principle of being allowed to sell
overseas rights on a territory-by-territory basis was important
both to the Premier League and to foreign consumers, as the package
was marketed and prepared differently according to the specific
needs of the territory:
So the French, when they produce Premier League coverage
in France, concentrate often on French players, French clubs.
It is scheduled to avoid the French league. Similarly in Italy,
in Spain, in other countries, when they show our rights, they
not only concentrate on an element of the Premier League that
is more relevant to their audience, but schedule it around what
is a unique part of each country's culture.
While arguing against any change to the selling of
overseas rights, he did caution against any assumption that change
would result in a drop in Premier League income. Deloitte, in
its annual review makes the same point:
the financial impact [of prohibiting the partitioning
of rights along national boundaries within the EU] may be more
limited than many commentators have predicted. If the ruling is
upheld and the Premier League was required to alter its rights
selling strategy in Europe, it is by no means certain that this
would reduce the value of the rights, though it may reduce access
to live Premier League broadcasts for some consumers in some territories
in the EU.
110. Even if the Premier League was able to insulate
itself from the impact of the legal opinion, however, there could
still be repercussions further down the league pyramid. Because
overseas rights holders show matches on a Saturday afternoon,
one potential knock-on effect, if the opinion became law, is that
the current contractual 3pm blackout on live televised football
in the UKdesigned to stop smaller clubs from losing fans
to live Premier League matches on TVcould be breached on
a weekly basis. Greg Clarke told us that, from the Football League's
Our main issue is that if you imagine a small football
club, Macclesfield or Chesterfield or Notts County, who are trying
to get 2,000, 3,000, 4,000, 5,000, 6,000, 7,000 people to turn
up to their game on a Saturday and pubs around the corner are
showing Manchester United versus Liverpool live on the telly using
a foreign decoder, it strikes me that that is making life more
difficult than it needs to be.
Julian Tagg further noted that when Exeter City games
were moved from a Saturday to a Tuesday night in competition with
a televised match involving big Premier League clubs "we
feel that direct effect on our gates".
Shaun Harvey argued succinctly that "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
111. Henry Burgess, Head of Professional and
International Sport, Department for Culture, Media and Sport,
stressed that the court did not follow the Advocate General's
opinion in every case. He added that the Government had "supported
the broad principles put forward by the Premier League".
Sports Minister Hugh Robertson affirmed that he had taken the
issue up with the responsible European Commissioner.
112. Although the change proposed by the Advocate
General might increase viewing choice for some viewers (for example,
those currently deprived of viewing options at 3pm on a Saturday),
it could equally diminish choice for others (for example, if their
territory was no longer served by a discrete package). While change
would benefit some commercial operators (for example, pubs showing
games using foreign decoders), such benefits would be at the expense
of the creative rights holdersthe Premier League. Given
our interest in the sustainability of the game, we give considerable
weight to the concerns of the Football League.
113. The European Court of Justice's
preliminary opinion with regard to the selling of broadcast rights
within Europe poses a grave risk to the sustainability of clubs
throughout the football pyramid. We urge the Government to use
all its influence within the EU to retain the territorial selling
of overseas rights.
114. We have seen how the current football governance
model turns record levels of revenue into diminishing profitability
and record levels of debt. The Football League and Premier League,
under the auspices of the FA, have sought to bring in regulations
that mitigate the risk of financial excess. To curb financial
excess, and bring an end to its record of insolvencies, the Football
League explained that it had pioneered the use of sporting sanctions,
with a 10 point penalty applied to any club entering administration,
and also the publication of club spending on agents' fees. Former
Football League Chairman Lord Mawhinney explained why he had introduced
the 10 point penalty:
when a club goes into administration [
gives it a competitive advantage over the other clubs in the division
because, while they are having to use their resources to pay interest,
the club that has gone into administration doesn't. This is an
integrity of competition issue and we addressed that by introducing
the sporting sanctions and 10 point penalty.
115. The Football League explained how it had
also sought to improve clubs' cost controls. In 2003, it introduced
a salary cost management protocol (SCMP) for League 2, limiting
spending on player wages to 60% of turnover. If clubs break the
60% limit, they are not allowed to register any further players.
Chief Operating Officer Andy Williamson told us that, as a consequence:
the salary increases in League 2 are much lower than
they are elsewhere, so there is evidence that it has worked in
terms of ensuring that clubs are sustainable [
] only one
resident League 2 club has fallen into difficulty since the introduction
of that salary cap. So it does work.
He also observed that "we are now seeking to
shadow those processes in League 1".
Julian Tagg, who had experienced the salary capping when Exeter
City was in League 2, observed that he was keen for it to be introduced
into League 1, where Exeter City now resided. Julian Bowler (Crewe)
told the Committee that he was originally against the salary cap,
but that now "I accept that it was 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".
116. It is interesting that the Football League
appears to have no plans to introduce a salary cap in the Championship,
though it is the division where the wage/turnover ratio is highest.
It appeared to be something of an irrelevance for Leeds United,
which has one of the higher revenue earning potentials in the
Championship because of its supporter base and large ground. Shaun
Harvey observed that "60% of our turnover would mean we could
spend approximately £16 million a year on wages. We spend
nothing like that".
117. Barry Kilby professed himself "slightly
wary of it." He wanted to retain the flexibility to spend
over 60% of turnover on wages, if the club saw an opportunity
to make a breakthrough:
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
]everything by diktat, I'm just a bit uneasy with.
The Football League also highlighted the work it
had done to ensure that its clubs paid their tax on time:
In 2009, pioneering new financial regulations relating
to tax payment were introduced. These provided the League with
written permission to monitor the PAYE of its clubs directly with
HMRC and impose transfer embargoes in instances where clubs fail
to meet their tax debts and when they fall due.
The Football League judged that "these regulations
have had a hugely positive impact, reducing the HMRC debt of Football
League clubs from £9.6 million in August 2006 (for 29 clubs)
to £0.4 million in August 2010 (for 4 clubs)".
It recorded that in August 2010 Championship clubs agreed additional
financial reporting requirements, including the provision of future
financial information relating to the subsequent season and the
need for clubs to demonstrate no overdue transfer fees, compensation
fees, key employee wages or tax payments:
Clubs in default, or clubs with business plans that
cast doubt on their ability to fulfil fixtures or meet their ongoing
obligations, will be required to submit to budget constraints,
including the possibility of a registration embargo.
In a significant development subsequent to the evidence
session, the Football League wrote that, on 10 June 2011, their
clubs had voted in principle to adopt financial fair play regulation.
118. The Premier League pointed to a similar
package of measures introduced in recent seasons. It pointed out
that its rule book had begun at 142 rules and had evolved to meet
changing demands and circumstances to stand at over 800 rules
today. Key regulations include:
- Clubs to submit annual accounts,
interim accounts and future financial information. Premier League
Board scrutinises submissions to ensure the club will be able
to pay its football debts and fulfil its fixtures until at least
the end of the following season. Penalty for non-compliancetransfer
embargo and/or adhere to an agreed budget. Introduced September
2009. Extended to newly promoted clubs June 2010. Extended to
allow further scrutiny upon change of ownership June 2010.
- Clubs must certify every quarter that their liabilities
to HMRC in respect of PAYE and NIC are up-to-date. Same penalties
as above. Introduced June 2010.
- Transparency with respect to transfer fees, including
outlawing of third party ownership. Introduced June 2008.
Richard Scudamore emphasised, in particular, the
beneficial impact he expected the regulations requiring future
financial information to be declared to have on debt levels.
119. The Premier League also pointed to the stabilising
role played by the solidarity payments it made to the Football
League. Direct financial support from the Premier League to lower
league football includes payments to relegated clubs (referred
to as parachute payments), which have recently been increased
to £48 million and extended to four years, meaning that up
to 12 clubs in the Football League at any one time could be in
receipt of such payments. Other teams in the Championship receive
an average of £2.2 million each from Premier League funds.
Clubs in Leagues 1 and 2 receive an average of £0.35 million
and £0.24 million respectively.
120. FA Chairman David Bernstein was optimistic
that the above regulations, together with forthcoming UEFA rules
affecting clubs in European competition (covered in more detail
in a later section), would make a difference to financial performance
in the English model. Other witnesses were less optimistic. Sean
Hamil highlighted two problems with the governance system:
there is a problem of uneven application of regulation
across the industry given there are essentially three regulatory
bodies, all competing to fill the regulatory space. So there is
a lack of an over-arching strategy for dealing with the industry's
chronic financial loss-making and its consequences. And secondly,
and following on from this, regulatory initiatives tend to be
reactive and piecemeal, rather than proactive and strategic.
He observed that the FA, Premier League and Football
League had been slow to appreciate the need for greater regulation
to manage the new model:
in 1999 the FA, Premier League and Football League
articulated their attitude to demands for a more interventionist
approach as follows: 'the football authorities do not believe
that the overall well-being of the game will be helped by new
layers of regulation or bureaucracy'.
He noted that eventsnotably the manner in
which Leicester City had achieved promotion to the Premier League
at the end of the 2002/03 season having shed significant debt
through the administration processhad pushed them into
introducing points penalties for clubs that entered into financial
121. Football fan and commentator Andy Green
was concerned that the current self-regulatory models in England
did not contain any stipulations concerning how much football
clubs could borrow. He also noted that, while the Premier League
rules now included provision to provide future financial information,
the new rules relied too heavily on auditors' qualifications or
part qualifications of accounts as the early warning mechanism.
He noted that Portsmouth's auditors, Grant Thornton, did not qualify
the accounts in the year prior to the club's collapse. Indeed,
there was probably no need for them to have done so under their
122. The FA acknowledged that "traditionally
English football's approach [to rule changes] has been to be reactive"
It is reasonable to consider in the future whether
a greater balance between this approach, and a more proactive
oversight approach that maintains the coordinated control of the
game within the principles of consensual self-regulation could
123. One element of the Premier League's solidarity
payments the payments made to relegated clubs to compensate
for loss of income (dubbed "parachute payments")arguably
has a destabilising effect now that the Premier League has increased
their value. Lord Mawhinney, former Chairman of the Football League,
Parachute payments were instigated because the salary
levels in Premier League clubs were so much greater than in Championship
clubs that, without some transitional funding, Premier League
clubs that got relegated would simply just head straight into
administration or just tumble down the Football League and that
did not seem to be fair.
The obvious solution would appear to be to insert
a relegation clause into players' contracts, rather than initiate
parachute payments which could be seen as a reward for failure.
However, Shaun Harvey, Leeds United Chief Executive, explained
why this was not as easy as it might first appear:
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?'
Barry Kilby affirmed that in a competitive market,
if one club sought to impose such a clause, other clubs would
seek to attract players by not imposing it.
124. Parachute payments were initially for two
years, but in May 2010 the Premier League extended parachute payments
from two to four seasons. Clubs relegated at the end of 2010/11
will receive around £48 million spread over four seasons.
By contrast, during 2004/05-2006/07 parachute payments were £6.5
million per season, with an increase in 2007/08 to £11.4
million. Richard Scudamore made the point that if you want clubs
to be competitive when they enter the Premier League, you need
to protect them when they go down. He felt that the parachute
payments were justified because they helped ensure the sustainability
of the clubs involved, and suggested that there was no evidence
that they distorted competition as relegated clubs did not automatically
come up the following season. In its written evidence, the Premier
League included parachute payments within its definition of solidarity
payments to lower league football.
125. Other witnesses were concerned about the
impact of parachute payments on competition in the Football League.
Patrick Collins was suspicious that the Premier League was seeking
to protect its own:
I do agree that the Premier League, deep down, wants
to be a closed shop. [
] The parachute payments involve going
down with £18 million in your pocket when everyone else has
got £1 million and so the likelihood is [
] they will
come straight back.
126. In his evidence, Phil Gregory argued in
relation to parachute payments that "the net result is the
non-recipients spending more money they don't have in an attempt
to remain competitive in the promotion battle, worsening an already
precarious financial situation".
Lord Mawhinney defended the principle of parachute payments but
The present level of parachute payments are going
to undermine the integrity of competition in the Football League.
They are going to do that because the amount of money£16
million, £16 million, £8 million and £8 million
over four yearsbears very little relationship to the salary
issue that was the original case.
Greg Clarke, Chairman of the Football League, called
parachute payments "one of the most contentious issues that
the Football League has debated".
He stressed that "if we get a situation where the clubs that
are relegated are automatically promoted, that is not in the interests
of a fair competition because you cannot win unless you have access
to Premier League funding".
He expressed the hope, though, that the relegated
clubs would use parachute payments to straighten out their finances,
rather than gamble on maintaining a high wage bill to secure early
promotion: "interestingly, the trend is changing. This season,
because of the large debts some Premier League clubs have, they
spend quite a lot of that parachute payment servicing and paying
down their debt".
127. The new financial regulations
adopted by the Premier League and the Football League mark a welcome
shift in emphasis to engaging with the financial challenges inherent
in the current model of English football. There are, however,
legitimate concerns as to whether they go far enough or will be
consistently applied, particularly in the Championship where there
is a risk that the increased parachute payments from the Premier
League to relegated clubs will have a destabilising effect on
other clubs as they try to match their spending power. We urge
the FA to broker discussions with the Premier League and Football
League to review the balance between parachute payments and solidarity
The impact of UEFA
128. At the level of European competition, the
Union of European Football Associations (UEFA) is seeking to strengthen
its own licensing system. UEFA's Club Licensing and Financial
Fair Play Regulations, published last year, state UEFA's aim
to achieve financial fair play in its club competitions and in
- to improve the economic and
financial capability of the clubs;
- to place the necessary importance on the protection
- to introduce more discipline and rationality
in club football finances;
- to encourage clubs to operate on the basis of
their own revenues;
- to encourage responsible spending for the long-term
benefit of football; and,
- to protect the long-term viability and sustainability
of European club football.
129. Clubs qualifying for UEFA club competitions
must apply for a licence from a UEFA member association. UEFA's
licensing system is of longstanding, but the decision to add the
new financial fair play provisions takes it to a new level. From
the 2013/14 season compliance with financial fair play regulations
will be monitored as part of the licence criteria. UEFA's Club
Financial Control Panel will determine whether a club is compliant
on the basis of financial information provided by clubs and assessed
by the relevant UEFA member association (eg in England, the FA,
though the FA may in turn delegate responsibility to the Premier
130. If the Club Financial Control Panel concludes
that a club is non-compliant, this does not automatically mean
that the club will be excluded from the competition: there are
a range of sanctions available from warnings to a transfer ban
to exclusion. The club will, though, be required to provide additional
financial information, including a plan for future compliance,
and may be subjected to more intensive scrutiny. Clubs will also
be monitored more closely if there are warning signs such as recording
a loss in any year; spending more than 70% of revenue on wages;
and having overdue football-related payments or tax debts.
131. There are two key provisions: a requirement
to have no overdue payments as at 31 March the preceding season;
and the requirement for clubs to break even over a rolling period
of two to three years. Broadly, clubs qualifying for UEFA club
competitions in 2013/14 will need to produce an aggregate break-even
result over the previous two annual financial reporting periods
ending in 2013 and 2012. In subsequent seasons, the rule will
cover the preceding three reporting periods.
132. UEFA has set an acceptable deviation from
the break-even requirement, which reduces over time. For the monitoring
period assessed in the 2013/14 and 2014/15 seasons, clubs can
go into deficit to the tune of 45 million, if this is financed
by owners and/or related parties. In seasons 2015/16, 2016/17
and 2017/18 the equivalent deficit figure is 30 million.
UEFA has undertaken to set a lower amount in the following seasons.
Clubs qualifying from outside the top division, and clubs with
annual relevant income and expenditure below 5 million,
are exempt from the break-even requirement.
133. UEFA has also suggested that it is likely
to look favourably on clubs that are moving in the right direction
towards breaking evenfor instance if overspend is caused
by commitments on wages and transfer fees made before June 2010particularly
in the early years of the financial fair play regulations, implying
a further level of acceptable deviation.
134. Not all income and expenditure is relevant
for the break-even calculation. On the revenue side, non-monetary
items or certain income from non-football operations is excluded.
On the expenditure side, expenditure on stadia, youth development
and community development activities is excluded. UEFA has also
sought to close a loophole, through which wealthy owners could
inject more revenue or reduce expenditure by agreeing favourable
deals with other companies owned by them or related parties. UEFA's
regulations state that relevant income and expenses from related
parties must be adjusted to reflect the fair value of any such
135. William Gaillard, adviser to UEFA President
Michel Platini, explained the rationale behind UEFA's initiative:
We felt, in particular, that the growing inflation
of wages and transfers, the large number of clubs facing an unsustainable
debt burden and the fact that a number of clubs Europe-wide were
going into administration, meant that the system needed some reform
[...] we felt that, through our licensing mechanism for our own
competitions, we could introduce some order and more rationality
into professional football.
He assured us that the monitoring of the new measures
would be transparent, and would be conducted by an independent
committee. He accepted, though, that the test would come if a
major European club fell foul of the new rules. He observed that
"if we sanction them, it will mean that the rules have worked"
while noting that "a better way for the rules to work is
for the club suddenly to be unsanctionable and complying with
the rules and this is our dearest wish".
136. Much of our evidence was very favourable
to the UEFA initiative. For Sean Hamil the rules are absolutely
critical to improving the financial governance of the game. Lord
Triesman also welcomed the initiative, while the view from current
football insiders also appeared positive. Richard Scudamore advised
that the Premier League was entirely supportive of the break-even
concept. David Gill told us that Manchester United was "very
comfortable with financial fair play [
] and we will operate
Peter Coates was similarly contented, though he stressed that
it would need to be implemented consistently across Europe, and
Niall Quinn noted that early fears that UEFA was out to reduce
the competitive advantage of Premier League clubs had been allayed.
137. We have received a number of proposals for
further steps that should be taken to address the weaknesses inherent
in the current English football model. One theme has been the
need for greater redistribution of revenue, both to increase competitiveness
and safeguard the future of the game by strengthening the grassroots.
The Football League observed that it is vitally important that
football does everything possible to ensure that wealth is fairly
distributed throughout the game. It stressed, in particular, the
important role played by the League Cup and the solidarity agreement
in achieving this, and the need also for action to reopening the
domestic transfer market, and ensure a fair compensation system
for the development of young players.
138. A second key theme has been the need to
move to a formal licensing system. For some, this would simply
involve applying the UEFA fair play regulations to national leagues.
Sean Hamil, for example, argued strongly that:
They should be applied in every League in Europe
independently because what happened is that if you are overspending
on players you are not spending on disabled facilities for local
fans, you are not spending money on that family facility, you
are not spending money on that outreach into the community.
139. Greg Clarke suggested that UEFA-type fair
play regulation might be applicable to the Championship:
I believe it offers a template potentially for the
Championship to adopt, to say if we have to break even on a three-year
period that is just a soft way of introducing a wage bill cap
because that is your biggest amount of disposable cash, what you
spend on your wage bill.
Subsequent to the session, the Football League clubs
did vote in principle to adopt financial fair play regulation.
140. Richard Scudamore, however, cautioned against
rushing into requiring that the regulations should apply in national
leagues. He warned that appropriate leeway was required at every
level to facilitate competition:
When you have smaller clubs that are aspirationalcoming
up from the Championship, for examplewhy shouldn't those
clubs, if they have the owners who have those funds available,
be able to invest them to make their club slightly better to get
them into that thing?
141. The UEFA initiative does
appear to have a good chance of making a positive difference to
spending patterns within the Premier League. The fact that Football
League clubs have voted in principle to adopt financial fair play
regulations also holds out the promise of more prudent spending
patterns in the Football League and, most significantly, in the
Championship. We will follow with interest the Football League's
plans for adopting financial fair play regulations: It will need
to find a balance between curbing unsustainable expenditure on
wages and allowing the ambitious owners of smaller clubs sufficient
flexibility to fund a competitive squad.
142. The manner in which financial
regulations continue to be introduced serves to emphasise the
disjointed nature of the English governance system. Different
rules and different interpretations of rules apply, with different
agencies applying them depending upon whether a club is playing
in European competition, the Premier League or the Football League.
The FA should take the lead in ensuring that consistency of regulation
is a priority for the English game.
The German model
143. A second approach, working very much with
the grain of the UEFA financial fair play initiative, would be
to copy the domestic licensing model practised in Germany. This
option was urged by a large number of submissions. According to
who was Chief Financial
Officer of the German Football League (DFL), a member of the Managing
Board of the German League Association (Ligaverband) from 2007
until 2010 and Member of the Board of the German Football Association
(DFB) amongst football roles, the licensing system adopted in
Germany is a key reason why there have been no insolvencies in
the German national leagues (Bundesliga) since the first German
Bundesliga was established in 1963. He outlined the approach adopted
In essence, the licensing procedure requires clubs
to submit economic data for scrutiny by the football authorities,
thereby ensuring an openness and transparency to the business
aspect of the game that is without parallel across Europe. The
backbone of the system is to force clubs to reduce overspending
by implementing specified planning procedures and seasonal application
for a licence.
For a club to receive a licence to compete in the
relevant Bundesliga, it must be solvent and able to demonstrate
sufficient liquidity to last the next season. He detailed the
- Cash and bank balances;
- Current overdraft account facilities;
- Loan commitments;
- Projected profit and loss statements, including
planned income from ticket sales, advertising and transfers and
planned payroll costs for match operations; and
- Cash inflows/outflows from investing and financing
Additionally, net equity must be present at the end
of each season or sanctions will follow.
144. Christian Müller also explained how
the licensing regulations were applied in Germany. The process
starts with a pre-season examination of accounts and continues
with in-season confirmation of economic capability. Licences can
be granted on a conditional basis, allowing the football authorities
to pay close attention to problem clubs. Sanctions available if
the club fails to meet the economic criteria include fines, deductions
of points, a transfer embargo and, ultimately, expulsion from
the three division national league structure. He argued that the
strengths of the Bundesligaprofitability, competitive parity,
and community workwere all underpinned by the licensing
model and the ownership structure (considered in more detail in
chapter 5). A second submission from Germany, from Hamburger SV
Supporters Club, made similar points:
All of the regulations relating to ownership and
licensing are recognition that football clubs must act as responsible
entities, and that reckless spending cannot be a substitute for
a long-term business strategy geared towards stability, not merely
145. For Müller, one of the reasons why
the German licensing system works so well is that it has popular
backing. Judging by the evidence we received, the introduction
of a similar licensing model here would also have the backing
of supporters. In their evidence, Andy Green, Manchester United
Supporters Trust, the Clarets Trust, Wimbledon Football Club Supporters
Society, Bristol City Supporters Trust, Brentford Supporters Trust,
Fulham Supporters Trust, Bradford Supporters Trust, Supporters
Direct, Dave Boyle and Steven Powell from the Football Supporters
Federation, all advocated a licensing model, most citing Germany
as a template.
146. There were, however, a few notes of caution.
Professor Szymanski observed that the German model had not produced
the same levels of popularity or competitive and commercial success
as the English one. He also argued that club finances in England
were more transparent than they were in Germany because of the
obligations on limited companies to lodge accounts with Companies
147. Richard Scudamore asserted that the newly
improved Premier League rule book already constituted a licensing
system: "the reality is we have a licensing system. We have
a very much more robust licensing system now than we did two or
three years ago. Our rulebook is effectively the licensing system
for clubs within our league".
While he was prepared to consider further improvements to the
Premier League rule book, he made it clear that he saw evolution
of the current self-regulatory system as the best way forward:
"I would ask you to look at the evidence of the evolution
of our rulebook. We have a track record of moving the rulebook
on and I think the best people to do that are us".
He also emphasised the extent to which the Premier League and
Football League rule books were now aligned, though he accepted
that the recent alignment exercise still needed "a very
early ironing out".
William Gulliard, however, appeared less convinced that the English
self-regulatory model amounted to a licensing system: "They
have bits and pieces of licensing. They don't have a licensing
system over the whole professional game. It is divided. It is
not streamlined as such. There is nothing like what exists in
the Netherlands or in Germany".
The FA also appeared somewhat ambivalent but not
totally unreceptive to the idea of a formal licensing regime.
Alex Horne, General Secretary of the FA, warned that "the
danger with an overly formal licensing scheme is it becomes bureaucracy
for the sake of it".
He accepted, though, that the time had come to:
reach across all four Leagues and look at appropriate
cost control measures in all four Leagues and listening to the
Chairman of the Football League's evidence. I think that would
chime with their position and their concerns regarding debt in
He further observed that: "If we were going
to go down a more formal hard financial regulatory model we would
not need some form of overarching licensing system to make sure
it was transparent, auditable and fair".
He expressed a preference for what he termed a hybrid model, that
was consistent with the financial fair play model adopted by UEFA
as part of its own licence system for competing in its European
competitions. When we asked his Chairman whether the Leagues agreed
on a move to a licensing system, he replied:"Well, we will
see. No, I'm not saying they agree that at the moment and we have
yet to begin to explore some of these things, but I'm hopeful".
148. We travelled to Germany to understand at
first hand how the German licensing model works. We heard that
the system had weaknesses. There were suggestion that some clubs
were "too big to fail" and received preferential treatment.
Some also felt that the licensing system focused too much on a
club's ability to make it through the coming season, rather than
addressing financial problems that build up over time. It is not
the case that all German clubs are, or have always been, well-run.
Some clubs have experienced financial difficulty, but levels of
debt are generally lower and the number of insolvencies and crises
fewer. There was a genuine belief that the licensing system imposed
more discipline and did more to curb financial excesses across
the board than the English model. One key point made was that
the licensing authorities sought to work with the clubs to prevent
A licensing model for England
149. Judging by Deloitte's statistics on profitability,
debt and wage levels, and the travails of a number of individual
clubs, it appears that the English regulatory authorities have
struggled to keep pace with the new governance challenges arising
from the systemic changes following the moves in the 1980s towards
greater commercialisation and the establishment, in the 1990s,
of the Premier League. There is also the recent track record to
consider: Premier League Portsmouth went into administration in
2010, and at least two of the teams relegated from the Premier
League at the end of the 2010-11 season (Birmingham City and West
Ham United) are experiencing financial problems. In the Football
League, League 1 Plymouth Argyle went into administration in March
2011. The Football League's commitment to transparency did not
provide clarity of the ownership of Leeds United until the club
made further announcements.
150. While we acknowledge that
financial regulations have been tightened of late, we are not
convinced that even the new rules recently adopted by both the
Premier League and the Football League are by themselves sufficient
to curb English football's excesses. Often their rules appear
to be in response to events rather than being proactive. It is
right that clubs going into administration should be deducted
penalty points, but it is important that the FA adopts more effective
pre-emptive measures that anticipate rather than simply follow
151. We recommend the introduction
of a formal licensing model imposed rigorously and consistently
throughout professional English football to underpin the self-regulation
measures already introduced by the Premier League and the Football
League. The licensing model adopted should both review performance
and look to promote sustainable forward-looking business plans.
Administering the domestic licensing
152. Thought needs to be given to the respective
roles of the Leagues and the FA under the licensing system proposed.
In Germany, The German Football League (DFL), which is an association
of member clubs responsible for running the German Bundesliga
competition, is responsible for formulating and applying the licensing
model. Clubs in the first and second Bundesliga apply to the DFL
for a licence to re-enter their competition the next season. The
strength of this system is that the member clubs themselves endorse
the licensing rules and so are more likely to comply. The weaknesses
are that it can lead to conflicts of interest (how hard are member
clubs going to be on one of their own?); weaker specifications;
and concerns about the rigour and consistency with which the system
is applied. Steven Powell observed that the French had adopted
a different "Chinese Wall" model for their licensing
It's essentially a board with a Chinese wall within
the French professional leaguethe equivalent of the Premier
League of the Football League herewhich has autonomy to
go into clubs and to basically implement special measures. It's
not perfectthere are some financial problems in the game
in France at the momentbut it does show that you can create
within the governing or the competition-organising body in France
something which has sufficient autonomy to exercise real financial
control, because the sporting pressures are always there to spend
153. In England, the situation is complicated
by the fact that two membership organisationsthe Premier
League and the Football Leaguecarry out the league competition
organising role performed by the DFL in Germany. Also, the DFL
differs from the Premier League in that it has a supervisory board
with a number of DFB Board members on it, and so arguably has
more internal checks and balances against conflicts of interest.
One option, to ensure consistency and guard against the conflicts
of interest within the English model, would be to give the FA
a strong scrutiny role in the licensing process. For governance
purposes, there is an important distinction between the relationship
the clubs have with their League and the FA. The clubs ultimately
own the League organisation they play in. They are members of
the FA. The Leagues are, therefore, in principle in a weaker position
to exercise effective control over the financial affairs of the
clubs than the FA. In practice, however, this would be something
of a new departure for the FA, which has not historically played
an important role in off-field regulation. A case though can be
made for concluding that it needs to become more pro-active in
the wider interests of the game, and that, were the FA to exercise
an oversight and scrutiny role over a licensing system, this would
assist robust financial governance in English football.
154. Lord Burns, who, having conducted a review
of the FA, is well positioned to comment on its roles in the game,
argued that the FA had been too passive in the face of the growing
financial governance challenges arising from the restructuring
of the English game:
It [the FA] has operated a sort of subsidiary model
as far as the management of the leagues is concerned. We now have
the slightly strange situation where the lead has been taken by
UEFA in terms of the fair play rules and they are beginning to
carve out an approach to it. Our FA, I have to say, looks to me
to be being dragged along behind that rather than, as one might
have expected given the historical position of the FA, having
been more in the lead on these issues.
Lord Triesman, former Chairman of the FA, similarly
I have no doubt that in the course of hearing evidence
you will hear people who will say "The FA does do all of
those things and it is not realistic to say that they don't, and
here is the book that sets out all the regulations". I am
just saying at first-hand experience that it has subcontracted
and does not question the subcontractor in those key roles.
155. To understand why the FA has adopted such
a passive role, and to understand the difficulties it has in re-asserting
itself, there is a need to appreciate the nature of the relationship
between the FA and the Premier and Football Leagues. The history
of the FA and Football League can be seen as a series of "turf
wars", with the Football League seeking to defend its right
to run its competitions as it saw fit. It has been suggested that
one reason the FA endorsed the formation of the Premier League
was to reduce the power of the Football League.
The advent of the Premier League saw a two way struggle become
a three way fight, with the Premier League's growing financial
dominance tending to give it the upper hand. It is important to
note, in particular, that this power struggle is reflected within
the Board of the FA, which contains three Premier League and two
Football League representatives. Against this background, it is
not surprising that Lord Triesman should assert that the Premier
League guarded its autonomy on self-regulation very strongly.
156. Lord Triesman cited, in particular, the
role played by the professional game in ensuring that a document
he had prepared on behalf of the FA for the Government
which advocated, among other things, a stronger regulatory role
for the FAwas not submitted. Ian Watmore, former Chief
Executive of the FA, also observed that the FA had a sometimes
prickly relationship with the Premier League:
On other issues we might be miles apart or have a
disagreement over whose responsibility it was. I think that my
Chairman at the time mentioned in his evidence that football regulation,
in the sort of financial regulation sense, was deemed by the leagues
not to be something for the FA, it was deemed to be something
for them and Lord Triesman disagreed with that and that is where
the tension first emerged between them.
In later evidence, the Premier League disputed Lord
Triesman's account. Richard Scudamore also commented that "we
at operating level have a very good relationship with the Football
Association. We are always prepared to discuss things and I think
the way it works now is good".
The implication is that the Premier League is content with the
157. There are, however, sound reasons to argue
that financial regulation of football clubs in England would benefit
if the FA took a more active role, given its position as governing
body, and the greater distance between it and the clubs. Sean
Hamil argued that:
What is necessary is to recalibrate the relationship
between the two leagues and the FA and, in my opinion, to allow
the FA to get on with its historic role of governing the game
in the wider interest. The job of the leagues is to run two successful
leagues. It is not to govern football.
Ian Watmore told us that "I think we should
set the environment at an FA level and then let the individual
competitions, in this case the leagues, determine precisely how
to implement that, their own roles within the rules that they
impose upon the clubs that play in the league".
158. Lord Triesman set out his stall in the previously
unpublished document which we have now included in the written
evidence received for this inquiry. Most significantly, David
Bernstein, current Chairman of the FA, also appeared receptive,
telling us that:
We believe that the FA's supervisory role should
be increased. I think perhaps we have allowed some of these things
to drift away from us. The way the Leagues are run with self-regulation
we think is absolutely right; we wouldn't want to change that
or try and pull that back but I think our supervision over the
way that is done could be upgraded.
Alex Horne explained how the FA was already taking
this intent forward, observing that David Bernstein had already
called a meeting with the Premier League and Football League to:
make sure that we are sitting down and understanding
some of these whole game issues and making sure that we are agreeing
our approach: if you like, uncluttering some of the regulatory
framework that exists, making sure our roles and responsibilities
are clearly defined across each of those bodies and making sure
that we're adopting the right strategic approach when it comes
to, for example, financial regulation of clubs or perhaps future
youth development measures.
159. Hugh Robertson, the Sports Minister, made
it clear that he could see the advantages of a more formalised
licensing system and that he would expect the FA to administer
it. However, echoing the concern of much of the evidence to this
inquiry, he also attached a caveat:
the slight reluctance or the slight sense of caution
that you would get is that everybody needs to be convinced that
the FA it itself properly governed and able to carry out that
function before it was given that part [
] I deal with a
number of their executives and there are some very, very good
people there. I think they would welcome this if they were given
this opportunity, but it could only come after they had reformed
160. For an English licensing
system to deliver the prudential benefits intended, it is essential
that it is applied, and is seen to be applied, rigorously and
consistently across the professional game. All clubs, and the
leagues themselves, are affiliated to the FA, the governing body
of the game. We recommend, therefore, that the FA takes responsibility
for establishing a licensing system, takes on a strong scrutiny
and oversight role in the licensing process and makes the final
decision on contentious licence applications.
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Ev w62 Back
Ev 246 Back
Q 157 Back
Q 194 Back
Q 195 Back
Q 624 Back
Ev 210 Back
Q 81 Back
Q 282 Back
Ev w31 Back
Q 16 Back
Q 4 Back
Q 165 Back
Q 152 Back
Q 289 Back
Q 289 Back
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Q 385 Back
Q 402 Back
Q 427 Back
Q 291 Back
Q 292 Back
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Q 437 Back
Q 438 Back
Q 123 Back
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Q 9 Back
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Ev w8 Back
Ev w21 Back
Q 277 Back
Ev w68 Back
Q 1 Back
Q 17 Back
Q 240 Back
Q 343 Back
Ev w19 Back
Ev 236 Back
Q 92 Back
Q 94 Back
Q 98 Back
Q 293 Back
Q 294 Back
Q 296 Back
Q 298 Back
Q 663 Back
Q 202 Back
Q 205 Back
Q 207 Back
Q 664 Back
Q 481 Back
Q 484 Back
Q 785 Back
Q 787 Back
Q 674 Back
Deloitte Sports Business Group, Annual Review of Football Finance:
Pressure to change, June 2011, p 29 Back
Q 78 Back
Q 309 Back
Q 791 Back
Q 792 Back
Q 242 Back
Q 86 Back
Q 311 Back
Q 311 Back
Ev 233 Back
Ev 216 Back
Q 670 Back
Ev 250 Back
Ev 250 Back
Ev 190 Back
Q 229 Back
Q 315 Back
Q 11 Back
Ev w97 Back
Q 229 Back
Q 60 Back
UEFA, UEFA Club Licensing and Financial Fair Play Regulations,
Edition 2010, p 2 Back
Q 713 Back
Q 733 Back
Q 194 Back
Ev 237 Back
Q 4 Back
Q 85 Back
Q 656 Back
Ev w202 Back
Ev w199 Back
Q 630 Back
Q 643 Back
Q 648 Back
Q 718 Back
Q 466 Back
Q 467 Back
Q 339 Back
Q 34 Back
Q 33 Back
David Conn, The Beautiful Game? Searching for the Soul of Football,
(London 2005) p 53 Back
Q 351 Back
Q 643 Back
Q 6 Back
Q 377 Back
Q 463 Back
Q 466 Back
Q 796 Back