House of Commons - Football Governance - Culture, Media and Sport Committee

Football Governance - Culture, Media and Sport Committee Contents

5 Club ownership

Changes to the ownership model

161. Closely linked to football's financial management, the ownership of football clubs is another difficult area for football. All owners, good or bad, are liable to face criticism from supporters when results are poor. Ownership usually only becomes a governance issue when the actions of the owner are seen to threaten the sustainability of the club. The governance challenge, therefore, is to create an environment where clubs are protected from over-ambitious or otherwise incompetent or duplicitous owners exploiting their football club, and good owners are encouraged to stay in the game. Much of the evidence we have received, however, has suggested first that the current English model has made ownership issues more problematic and second that the measures taken to address the increased challenge have been inadequate.

162. The manner in which some of the changes were enacted raises a further governance issue. In his book, The Beautiful Game, David Conn explains how the FA's Rule 34, preventing owners from reaping financial reward from their involvement in football, was first circumvented and then quietly removed. When the owner of Tottenham Hotspur, Irving Scholar, decided to float his club on the stock market in 1983, he was able to manoeuvre round the restrictions on payment to part-time directors, unrestricted dividends and profiting when a club is wound-up, by creating a holding company free of the restrictions, and making the club a subsidiary of the holding company. Other clubs such as Aston Villa, Manchester United and Newcastle subsequently adopted the same device in order to become public companies able to make profit for their investors, though few clubs today still retain this model. David Conn observes that, at the time, the FA appears to have been silent on the compatibility of the floatations with FA rules whereas, as the governing body, the FA should either have approved the modernisation of its rule book or defended its rules. In 1998, the FA removed the restrictions on dividends and on directors working part-time from its rule book. The FA retained the final component of Rule 34, however, prohibiting owners from winding up clubs and keeping the proceeds.

163. The measures taken by the football authorities in the 1980s and 1990s to encourage the commercialisation of the game certainly had positive effects. For example, removing restrictions on paying full-time directors enabled clubs to recruit professionals who helped to increase turnover, and so create funds for much needed investment in stadia. However, there was also a downside in that they also increased the opportunities for bad owners to exploit clubs.

164. Derby County supporter James Wheeler observed the impact of the circumvention and subsequent lifting of Rule 34's restrictions on dividends and director-pay: "This has brought extra 'investment' into the game, but also began to attract elements who were purely involved to make a profit for themselves—usually at the expense of the club and ultimately the supporters".[225] For Andy Green, one consequence has been a shift in the ownership model away from the traditional best practice of philanthropic local businessman supporter:

In the last 20 years English football has had a shift in ownership. Traditionally owned by local business people, many clubs have been bought and sold by a new breed of entrepreneurs from both the UK and overseas. In many cases owners have been proved to be short-termist, seeking swift improvements in team performance through debt funded investment, often the mortgaging ground and/or future ticket revenue in pursuit of success.[226]

165. It is worth observing that such entrepreneurial behaviour is far less prevalent elsewhere in Europe. Indeed, a number of alternative ownership models exist, often based on a community-based sports club model rather than that of a limited company, that serve to prevent or at least discourage it. Although Germany, like England, has moved to a more commercial model of ownership over time, the key difference is that, with a couple of exceptions for historical reasons, a members' association must have majority ownership of the club—the "50+1"Rule. For Christian Müller, this rule ensures that clubs remain grounded in their community and prevents "outsiders" from having undue influence. In England the limited company model makes it relatively easy, in principle, for "outsiders" to gain control of clubs if they can raise the finance. The English football authorities have, however, responded to concerns about the intentions of individual owners by introducing an additional hurdle; fit and proper persons tests.

Foreign ownership

166. Around half of Premier League clubs are now run by foreign owners keen to participate in the most prestigious and highest revenue-producing league in the world. While it is important to acknowledge distinctions in the model operated by different foreign owners at their respective clubs (the model operated by Aston Villa's American owner is, for example, far more conservative than the regimes at Chelsea and Manchester City), this trend is liable to continue because, as football supporter Paul Norris observed, with regard to foreign ownership:

Whilst many fans would prefer their club to be run by the traditional 'local boy done good' type of owner (an example might be Steve Gibson at Middlesbrough) or through fan ownership models, the reality is that the finances demanded in order to compete at the top of the Premier League mean that this is now rarely possible. [227]

167. Does this matter? Our evidence offered a number of reasons why it might. Firstly, there were concerns that foreign owners would be less inclined to support measures in the long-term interests of the English game. John Bowler, Chairman of Crewe Alexandra questioned whether foreign owners "have as much interest in the future of the national game […] and the wellbeing and development of it". He stressed that the Premier League had been supportive thus far, but that "we're in a changed process, with new ownership and foreign ownership coming in to the Premier League. […]a number of us have got concerns about how will this relationship nurture itself and develop in the future".[228]

168. Secondly, there were concerns that foreign owners, unfamiliar with the complexities of the English game, might be more inclined to bite off more than they could chew. Peter Coates explained how Stoke's previous Icelandic owners had found the going much tougher than they had imagined, and ended up selling the club back to him:

They thought they could take Stoke into the Premier League […] They found it much more difficult than they thought. […] They had a bit of money to spend; they thought they would have a bit of fun, enjoy it and make some money, because they thought they were going to get into the Premier League. Of course, they discovered how difficult it was. It is an immensely difficult industry to work in. You have immense pressure from the media, immense pressure from your supporters and it is a tough business.[229]

169. Thirdly, concerns were expressed that foreign owners, not appreciating the traditions of their club, would be more likely to take decisions that clashed with the identity of their club. Niall Quinn, Chairman of Sunderland for US owner Ellis Short, recalled asking him to understand the emotion of the football club. He also argued, however, that his foreign owner had fully brought into Sunderland's history and potential, and wanted to go with the fans on an adventure. He proposed that this was a good formula.[230] Though he avowed that UEFA was neutral on the subject of foreign ownership, William Galliard also commented that "when you have a foreign owner, a foreign coach and mostly foreign players, what is left that is local? The history, the spirit of the club is based on its supporters and the identify of its supporters".[231]

170. The fourth concern expressed was a reputational issue. The suggestion was that foreign owners might be more likely to seek to own a club for non-football related reasons which would reflect poorly on the reputation of the English game. Sean Hamil provided arguably the most egregious example:

I don't think Thaksin Shinawatra [a former owner of Manchester City] was a fit and proper person. He obviously bought that club for purely political reasons. He spent all the money off a three-year TV deal in the first year. Potentially, he could have destabilised the whole competition.[232]

171. Finally, and pertinently in the light of the previously articulated concerns, it was suggested that it was harder for the English football authorities to gauge whether prospective foreign owners were likely to be fit and proper owners of an English club. Greg Clarke, explained:

Our biggest problem isn't necessarily people in the UK, because you can phone around in the UK and you can get a reasonable off the record view of most people. What if someone pops from-let me pick a country at random where we haven't had anyone from, so they can't say. 'Hey you're talking about him'—the Philippines. How do you find out about someone who has made some money in the Philippines? You can phone up the embassy and they'll say 'oh well, don't know much about him'. [233]

172. We would not wish by any means to rule out or discourage foreign ownership of English clubs. It is a reality that English clubs can be bought and sold more freely than in other major football-playing countries. A strong case can, therefore, be made that because more owners from different backgrounds—both domestic and foreign—are looking to purchase English football clubs, particularly robust criteria for ownership need to be applied before they are allowed to own a club in English competitions.

Leveraged buy outs

173. Limited companies can change ownership through a leveraged buyout (LBO). There are two relatively recent, and high profile, examples of this occurring in English football; at Liverpool by former Liverpool owners, US businessmen Gillett and Hicks, and at Manchester United by current owners, the US Glazer family. Highly leveraged buyouts in football can appear particularly problematic because the prospective owners borrow the money required to buy the club on the premise that they will then make the club responsible for servicing the debt.

174. For Andy Green:

Leveraged buyouts (LBOs) are in some ways even more problematic than borrowing in the hope of success on the pitch. […] With LBOs, clubs are saddled with debt solely to allow a particular party to take over the club. The club gains little or no benefit, no players are purchased, no facilities are built or improved.[234]

He also observed that the LBO model has not been limited to the high profile examples of Manchester United and Liverpool:

debt financing has been a material part of other purchases and subsequent problems of other football clubs including Portsmouth and Hull City as well as smaller clubs like Chesterfield. There is also suspicion that other 'equity financed' takeovers have actually been funded with debt (Notts County and Derby being recent examples).[235]

Andy Green accepted that, in "normal" industries, LBOs could possibly be defended on the grounds that they brought efficiencies and financial discipline to large companies. However, he argued that in a football context, they resulted in ticket price rises (to service interest costs) and reduced investment (for example, in Liverpool's case, deferral of plans to build a new stadium). It is also the case that, given the uncertainty of competition, some revenue streams cannot be guaranteed. Hence, Liverpool's failure to qualify for the riches of the Champions League contributed to a near default on its LBO debt, and the enforced sale of the club. According to Manchester United Supporters Trust, Manchester United had no debts before the LBO, but now "the amount of money required to finance the debt exceeds the club's operating profits".[236] Manchester United Chief Executive David Gill, however, denied that debt was an operational concern.[237] It is noteworthy that Manchester United has greater revenue-earning potential than Liverpool and, unlike Liverpool, its sporting performance has not dropped since the LBO.

175. Richard Scudamore observed, with regard to whether he disapproved of the LBO model: "If it was too highly leveraged, yes; if it was leveraged, not as good; if there was no leverage at all, obviously better".[238] William Gaillard, on behalf of UEFA, explained that:

What we are saying is that the leveraged buyouts ended up for many clubs in a disaster. Just take Liverpool. You have owners who came, contracted debt […] and saddled the club with the debt. The club has been rescued, thank God, because of the tremendous heritage that Liverpool actually represents, but it was a close call.[239]

UEFA was also clear that "the use of large levels of debt connected to leveraged buy outs […] in general appears to act as a burden, soaking up club's operating profits, whilst offering little merit to the club and their supporters".[240]

176. In all the evidence we have received, a whole-hearted defence of the use of leveraged buyouts to buy football clubs is entirely absent. Within a football context, the leveraged buyout appears to be a particularly risky vehicle with little obvious benefit, and certainly not to supporters and local communities.

Club ownership

177. Although undeniably high profile, foreign ownership and LBOs remain very much in the minority when the English League pyramid is viewed as a whole. There remain more cases where the traditional English model of local owner funding the club he, or occasionally she, also supports for essentially philanthropic ends remains robust. Peter Coates explained why he owned and financially-backed Stoke City in the following words:

I am a Stoke boy, I have supported the club since I was a boy and I have had two comings at Stoke—an early one in 1985, after which I sold the club to an Icelandic consortium and then bought it back again in about five years ago this summer. I bought it back against my better judgement, in some ways, and my family's, who all thought I was daft to do it. The club was in a mess at the time and I thought I could help it and do things for it, and I was a bit disappointed with my previous time, there was [a] little bit of unfinished business about it […] But I thought it would be important for the area if the football club were doing well. I thought that if Stoke could get in the Premier League it would give the place a lift and would be good for it.[241]

I don't expect to make any money out of it. I do not think you can make money out of football at Stoke's level. […] obviously I enjoy it as well.

178. Barry Kilby, one division below Stoke at Burnley, explained his motivation in similar words:

My dad brought me here as a lifelong supporter I suppose is the correct answer, and also in a town like Burnley I think the football club really is one of the central pillars of the culture that I come from, so when I got the chance to take over and strengthen that and move it on that's what I chose to do. It's as a super supporter that I took over as Chairman.[242]

He explained that the other directors, who have a smaller amount of shares in the club, had similar backgrounds: "Essentially we are local people who support the club".[243]

179. Written evidence offered further examples of clubs thriving under local ownership. Adam Franks, a director of Brighton and Hove Albion Football Club, wrote that the Brighton Chairman, Tony Bloom, was the third generation of his family to serve on the Brighton board:

His motivation for investing is not to obtain a fair return, although it's quite legitimate for investors to expect a financial return for the risk they run, but rather because the club is a vehicle through which he can proactively 'give-back' to his local community.[244]

Reading Football Club supporter Jonathan Keen was effusive about Reading owner Sir John Majeski and his sound investment in infrastructure.[245]

180. The problem is that this is by no means the whole story. There are also too many examples of domestic owners acting against the long-term interests of their club either out of naivety or duplicity. While this has always been a part of the game, the financial stakes are much higher now: the temptations and opportunities greater; and the falls more precipitous. There is, for instance, much evidence critical of owners overreaching in order to "live the dream". The complaint is that such over-reaching serves further to inflate wages and push up spending levels, issues that lie at the heart of English football's financial problems. Leeds United under Peter Ridsdale and Bradford City under Geoffrey Richmond are perhaps the most infamous examples.[246] Sean Hamil warned that such behaviour threatened to push good owners out of the game, as they could not compete themselves without taking excessive risk:

If you have a scenario where someone of the quality of Delia Smith, a successful entrepreneur, or Sir John Madejski, successful entrepreneur and local boy who tried to build a sort of major sporting institution in his hometown, decide it is not worth it and that they would like to get out, I think that is a problem.[247]

181. Lord Triesman was equally critical of clubs who had sought to achieve success:

by spending money, as I think was described in the last session, related to their ambition rather than to their business model. They want to beat other clubs; they spend what they believe is necessary to do that. The model falls apart—Leeds is a very strong example of that—and they are left with a huge financial crisis on their hands. People in other clubs reflect not only on the amounts that were spent but on the unfairness to the competitive regime that it creates.

I know people think that "financial doping" is a rather dramatic term but it is a pretty accurate term for what is described.[248]

Greg Clarke alluded to the level of frustration among more prudent owners:

We had a lively debate at our last chairman's conference. […] there was a motion from the floor from a very respected chairman of a Football League club. He has been a long time, high quality owner who said, 'I'm sick of bad owners going out of business and besmirching the game[249]

182. We also received evidence critical of owners who had not merely been naïve, but rather allegedly duplicitous with regard to their actions. According to Wrexham Supporters Trust, their club had suffered under such ownership: "In April 2002 Alex Hamilton and Mark Guterman had entered into an agreement—which they called the Wrexham Project—to profit personally from the property assets of Wrexham AFC".[250] For them, and journalist David Conn, this development was a landmark moment: "the first evidence that property developers were seeking to profit personally from the development of football clubs' assets".[251] They also drew attention to a 2003 research paper by Matthew Holt for the Birkbeck Football Governance Research Centre, which raised similar concerns:

A well publicised tendency at some Football League clubs has been to form a second (holding) company and then separate the ground from the club. This had been a source of criticism from fans' organisations who highlight the danger that this can be a first step towards selling the ground (or the land on which it is built) for the personal benefit of the club owner.[252]

Wrexham subsequently went into administration, and has since lurched from financial crisis to financial crisis.

183. James Wheeler explained that Derby County had similarly suffered when a consortium of owners, without a history of involvement in the club, bought the club out of administration for a nominal fee. Having mortgaged the ground to pay off existing debts, they proceeded to create new debt until ousted by the bank. He concluded that:

It was clear from the outset that the individuals involved had come to Derby Country solely to make money for themselves. There was no previous connection with the club or any indication that they were here for the good of the community. It would have been relatively simple for any regulator to identify whether these individuals had the best interests of the football club at heart.[253]

184. According to The Yorkshire Division of the Football Supporters' Federation, York City is also "a good example of what can happen when a club owner decides to become an asset-stripper, and the failure of the existing regulatory framework to prevent that and the weakness of the fit and proper persons tests".[254] Its submission relates to how then owner Douglas Craig first separated the club from ownership of the ground with the justification that this was in the best interests of the future of the club, but then decided both to sell the club and give it notice to quit the ground "to enable him to personally benefit from its sale". Douglas Craig sold the club to the late John Batchelor who "circulated money between his different companies, walked off with £400,000 which by his own subsequent admission was properly the money of the football club".[255]

185. These examples appear to be the tip of the iceberg. Other allegations about duplicitious ownership were made about Chester City, Fisher Athletic, Hendon and Scarborough amongst others. In his book, The Beautiful Game, David Conn makes the point that the actions of owners such as Douglas Craig seeking profit from the sale of club assets, would appear to contravene the one element of FA Rule 34 that remains: prohibiting owners from profiting when a club is wound up.[256] A point made by a number of submissions was that the 'fit and proper persons' test needs to be tightened. Evidence from Daniel York and Ben Westmancott on behalf of the board of Fisher FC argued that "football clubs need to be protected from unscrupulous types who use them for their own ends".[257] Cardiff City Supporters Trust commented that "new measures should include the person's previous record not simply in business but also in football, their personal history and past and their present financial standing". They also wanted to see "an intentions test" covering plans for community involvement to be made a condition of any takeover.[258] Paul Norris wanted to see existing criteria tightened so that any person who had been involved as a director in two periods of insolvency with companies of any kind would be disqualified. David Hodges, researcher, co-author and editor for the 2009 All Party Parliamentary Football Group report into "English Football and its Governance" urged a unified test adjudicated by an independent body with particular scrutiny given to directors loaning clubs money instead of investing in shares. The concern here is the tendency for "soft" loans apparently given with no expectation of recovery to be called in, with interest, when the owner's circumstances or intentions change.

186. In light of the above, we asked both the Premier League and the Football League about the governance rules for owning a football club in their competitions. In the case of the Premier League, we were particularly concerned that, as recently as 2010, the (foreign) ownership of Portsmouth could change hands four times on its way into administration. Indeed, a number of submissions had highlighted the example of Portsmouth as proof that the Premier League set too low a threshold for ownership. For Patrick Collins:

If you had fit and proper people running football clubs, there would be fewer bankruptcies and administrations. The one that is always picked out is Portsmouth, of course. They had four different owners last year […] One was a fantasist who made lots of promises that were quite baseless. Another, much more intriguingly, it was reported, did not actually exist.[259]

Football supporter and retired lecturer in business ethics John Bentley also asked: "How could the FA and Premier League bodies approve a person to be a fit and proper person to be the owner of Portsmouth FC when they never even met him or interviewed him to inspect his financial assets"?[260] Pompey Supporters Trust lamented that once an owner has passed relatively weak criteria "there are very few rules preventing him from doing what they like".[261] As an example of how weak the criteria were, they pointed to their own case where the owner who put Portsmouth into administration was then allowed to buy it out of administration.

187. Richard Scudamore offered a partial defence of the Premier League's handling of Portsmouth's owners, observing that "the reality is that we went through all the tests that one would need to go through to get a passport in this country, and we had his passport. We had documentation; we had written documentation".[262] Sir Dave Richards, Chairman of the Premier League, perhaps surprisingly, appeared not to have been involved, wanting to "make it quite plain I never approved anyone".[263] We suggested that the Portsmouth case proved that Premier League rules on ownership were either inadequate or not applied with sufficient rigour. Richard Scudamore responded that the rules had been tightened post-Portsmouth to require face-to-face meetings and a very detailed checklist.[264] Niall Quinn further observed that:

post Portsmouth's demise, post other things that have happened—that [the fit and proper persons test] has really tightened up now. I think we are confident and we know that the Premier League have tightened up and shifted that to a point. Without going too deeply into it, there is now an international company that covertly will find out everything they need to know about somebody coming into the game.[265]

188. We were also concerned as to why, until very recently, the Football League appeared content to allow a club—Leeds United—to play in its competition without the Football League or the FA or Leeds United fans knowing who owned the club. We invited Ken Bates, Chairman of Leeds United, to give evidence but he said he was unable to attend through illness. His Chief Executive, Shaun Harvey, told us that Leeds United was owned by discretionary trusts, but that neither he nor, to his knowledge, Ken Bates, knew who they were. Leeds United subsequently announced that Ken Bates had bought the club from the discretionary trusts for an undisclosed fee. This announcement, however, raised further governance concerns, as it was not at all clear why the trusts should sell a financially-sound, upwardly-mobile club without at least seeking alternative bids to find the best price. The manner of the sale raises concerns, which cannot be substantiated or disproven given the lack of transparency, that Ken Bates, who took the club into administration, was a participant in the discretionary trusts who took the club out of administration.

189. Despite the lack of transparency with regard to Leeds United, the Football League affirmed that they had some quite good rules in place.[266] Andy Williams explained that they operated a "two strikes and you're out policy in relation to previous football insolvency events".[267] He said that it would not be sensible to exclude owners who had been involved in various insolvency events outside sport, because that would exclude owners of businesses who rescue companies for a living. He also asserted that a number of prospective owners had failed their tests, and that others had been deterred by it from applying.[268] Greg Clarke also intimated, though, that the application of "fit and proper person" rules was not easy or black and white. He agreed, for example, that the financial restructuring of a club that involved the loss of the ground sets alarm bells ringing, but also pointed to the financial reality of a lot of clubs where:

good, decent local people are putting a significant amount of their net worth to keep their club alive, and they are in situations where they just can't do any more. […] What they have to do then is give someone—they take a loan from somebody who takes a security over their ground. Sometimes I cannot think of a better idea for them to keep them out of administration.

He concluded that "for every time we come across a slightly dodgy owner there are another 20 doing their best to keep their club alive in the community and sometimes they have to mortgage their ground".[269] More generally, he pointed out that there were situations where supporters were desperate for any owner. Under these circumstances, the League would be put under pressure to accept the offer available, because supporters would argue that if it were a choice between losing a bad owner or no football club, "we'll take the bad owner".[270]

190. Finally, we pressed the governing body of the game on ownership rules. The FA formally vets and approves the "fit and proper persons" tests of both the Premier League and the Football League. It also applies the rules itself further down the pyramid. One criticism we encounted, as with the wider financial regulations which the FA also endorses, was that the FA has been insufficiently pro-active in this governance area. Lord Mawhinney went so far as to assert that the FA had tried to prevent the Football League from introducing a "fit and proper persons test".[271] During oral evidence, the FA affirmed that it did know the names behind the discretionary trusts of Leeds United. However, it subsequently clarified in writing that this was not the case. For the future, the FA agreed that "is is absolutely key that supporters know who runs their clubs".[272]

191. The FA, Premier League and Football League have spent too long behind the curve on ownership matters. Between them they have allowed some startlingly poor business practices to occur, and have tolerated an unacceptably low level of transparency. In turn, this has resulted in insolvencies; too many clubs losing their grounds to property developers; and has contributed to high levels of indebtedness throughout the League pyramid. We accept that there has to be some flexibility to reflect the reality of individual cases. However, we are not convinced that the football authorities have focused sufficiently on the link between the fit and proper owner test and the sustainability of English football's uniquely deep pyramid structure. This matters, not least because the community benefits of football depend in part on its reach into local communities across the nation, and this in turn depends upon the continued existence of individual football clubs. Although we recognise that the football authorities have moved to tighten ownership regulations recently, their track record does not inspire confidence. One key issue which appears to have been insufficiently considered is the need for regular monitoring given that intentions can change over time.

192. We recommend that robust ownership rules, including a strong fit and proper persons test, consistently applied throughout the professional game with the FA having a strong scrutiny and oversight role, should be a key component of the licensing model we propose. The presumption should be against proposals to sell the ground unless it is in the interests of the club. There should be complete transparency around ownership and the terms of loans provided by directors to the club. In this respect, there is no more blatant an example of lack of transparency than the recent ownership history of Leeds United, and we urge the FA to demonstrate its new resolve by conducting a thorough investigation and, if necessary, to seek the assistance of Her Majesty's Revenue and Customs.

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