Written evidence subimitted by Merthyr
Town FC
SUBMISSION SENT BY MERTHYR TOWN FC, ELECTED
INTO THE WESTERN FOOTBALL LEAGUE ON 8 JUNE 2010
SUMMARY OF
SUBMISSION
1. Merthyr Town - brief history.
2. Arrival of owner 1999.
3. Owner's local business interests.
4. Growth of club debt.
5. Decline of club's finances.
6. Growing involvement of Trust.
7. Trust offer to take club over.
8. Club placed in administration.
9. Club liquidated.
10. Club reformed by Trust.
11. Club becomes a Community Mutual Sports Club.
12. The threat to clubs' existence from large
debts.
13. Suggested deterrent to growth of unsustainable
debts.
14. Support for the Supporters Trust share holding
model.
15. Support needed for Supporters Trusts by new
Governance rules.
16. Likely impact on players wages.
Formed in 1909, Merthyr Town F.C participated in
the (primarily English) Southern League, alongside a number of
other Welsh clubs, including Cardiff City, Newport City and Swansea
Town. At the outset of World War One, the club were in the Southern
League First Division, which meant that when the Football League
expanded to form a Third Division in 1920, Merthyr were invited
to compete. Despite a promising start, the club fell into decline
and eventually ceased to exist in 1934, having been voted out
of the Football League four years previously. In 1945, football
returned to the town in the form of Merthyr Tydfil FC, who began
in the Welsh League but soon returned to the Southern League,
winning five titles between 1948-54. However, the club were consistently
denied entry to the Football League, something that appears scarcely
conceivable to a modern football audience. Arguably the club's
finest hour came in the 1987: having won the Welsh Cup for the
third time, they qualified for the European Cup Winners' Cup,
where they were drawn against Atalanta, who had played in Serie
A the previous season. The first leg at Merthyr resulted in a
famous 2-1 victory for the home side, and although the second
leg saw them eliminated on aggregate after a 2-0 loss, it was
a a momentous event for the club. They were finally admitted to
the Football Conference in 1989, after winning the Southern League
for a record sixth time. However, by 1995 they were back in the
Southern League once more.(1)
The arrival of Wyn Holloway as Chairman in 1999 can,
in hindsight, be seen as the beginning of the end for Merthyr
Tydfil. Holloway, a businessman with no ties to the local community,
was initially fairly quiet as an owner, however a culture of overspending
and shoddy financial planning at boardroom level soon emerged.
As the club continued to compete in the Southern League, Holloway
oversaw a period of inflated wages which, combined with a distinct
lack of understanding in terms of attracting revenue, precipitated
an initially unobtrusive but nevertheless discernable accumulation
of debt.(2)
Around the same time that Holloway became involved
with Merthyr, the Coalfields Regeneration Trust (CRT) was established.
Merthyr as a town is of course inextricably linked with the rise,
golden age, and eventual decline of the mining industry. The CRT
describes itself as "an independent regeneration organisation",
aiming to "make coalfields sustainable, prosperous, viable
and cohesive without support." The Trust awards grants to
companies and organisations who wish to redevelop sites left redundant
by the mining industry. During the 2000's, one such company emerged
with grand plans to regenerate Merthyr. Merthyr Village Ltd. (MVL),
owned by Mr Holloway, devised a multmillion pound scheme that
would have radically altered the appearance and economy of the
local community. Around 2,000 new homes, as well as a business
park, leisure facilities, and a shopping complex were envisaged
for a 550-acre site in the Rhydycar area. MVL declared that the
project would potentially create up to 2,000 jobs, as well as
long-term economic regeneration.(3)
In stark contrast to the talk of regeneration and
redevelopment that permeated the offices of MVL, Merthyr Tydfil
F.C were quietly sinking into a financial quagmire. As of 2006,
the club's debt was estimated to be upwards of £500,000,
yet Holloway (who had by now already turned to the Martyrs to
the Cause Supporters' Trust for financial relief) showed little
willingness to address the situation. Soon after this, the MVL
project ground to halt as the Welsh General Assembly rejected
the proposals, with the crux of the issue apparently worries over
the level of costs required to make the coalfields suitable for
housing, as well as an uncertainty about how the town's numerous
sites of historical interest would be affected. Local Assembly
Member Huw Lewis stated that the absence of town centre regeneration
in the plans also played a role.(4)
With his club facing mounting debts, Holloway's behaviour
became increasingly erratic. Martyrs' Trust Chairman David Webb
was banned from Penydarren Park in 2007 - this despite the fact
that the Trust had been providing financial assistance to the
club for some time! 2008 bought a winding-up order from HMRC over
an outstanding tax debt of £20,000. Having realised that
there was no future for the club under Holloway, the Trust submitted
an offer to assume full control of the company, despite the unknown
levels of debt—accounts had not been submitted to Companies
House since 2006. In return for this (and assuming responsibility
for those of the club's debts, not personally guaranteed by Mr
Holloway), the Trust asked that Holloway and his board resign
and transfer at minimum a controlling stake into the hands of
the Trust. Despite the seemingly reasonable nature of the offer,
Holloway and his board rejected it out of hand, with the demand
for a controlling stake apparently the sticking point. The sense
amongst the Trust membership was that Holloway wished to remain
in control whilst the supporters continued to subsidise the club,
for no return. In a press release, the Trust expressed our grievances
and aims:
"It is time to end the culture of living hand
to mouth, of only just getting by. The fans and community of Merthyr
deserve better. When we look to the likes of AFC Telford United,
we know it is possible."(5)
The Trust sought the assistance of Supporters Direct,
and as the club continued to slide towards administration as the
2008-09 season got underway, began to pave the way for future
containing a more positive community-based club. Unlike the Holloway
administration, the Trust set about implementing fundraising initiatives,
maintaining links with the local community, and providing members
with regular updates on their activities. We also continued to
contribute £300 per week towards the club wage bill. Despite
this, 2009 brought little in the way of good news. Amidst a backdrop
of debt, unpaid wages and the removal of utility services from
the club, the Trust released a statement reminding the Holloway
administration of the 2008 offer, and reiterated our intention
to transform the club into a co-operative, supporter-owned organisation.
Another HMRC winding-up order arrived on 6 May, although an adjournment
was secured by the Trust. However, having continuously refused
to enter into negotiations, Holloway threw a spanner into the
works on later in May, with his declaration that he had received
an offer to buy the club. The Chairman stated that:
"The person I've had the offer from is looking
at the fact that, if he wanted to get a team in the league, it
would cost him a lot of money. The gentleman wants to get into
the English pyramid system. To start from the beginning and go
through what we have would take time and cost. This deal would
be a short cut to where we are. You would start with a ground
share then after two or three years take it elsewhere."(6)
The final sentence of that declaration in particular
was an irrefutable indication of Holloway's true intentions regarding
Merthyr Tydfil F.C (if there were any lingering doubts amongst
supporters). Whilst the most obvious solution at this juncture
would have been to form a new club independent of Holloway's corrosive
influence, the issue was complicated by the fact that the Football
Association of Wales (FAW) had previously shown a strong reluctance
to allow Wales-based clubs to compete in the English pyramid system.
Any new club would clearly have been unable to assume the additional
costs that potential legal action would have created. It appeared
that the best option for the Trust was to continue the fight against
the "franchising" of our club.(7)
This battle was handed a significant boost on 12
June 2009 when the club was finally placed in administration,
the High Court having accepted the application of the Trust. General
Secretary John Strand described the appointment of MB Insolvency
as "absolutely necessary", and the Trust set about rebuilding
what was left of their club. However, it soon emerged that the
Wyn Holloway era had left Merthyr Tydfil F.C essentially insolvent.
It is here that the contrary state of UK Company Law in regards
to football clubs can clearly be seen. Under FAW rules, the club
were unable to sell their few remaining assets, as to do so would
be deemed as trading whilst insolvent. Yet at no time had the
FA, FAW, or British legal system been able to prevent the club
from sliding into the state that required such drastic action.
The Trust found ourselves unable to do what was necessary to save
the club.(8)
Meanwhile, the Administrator was unable to satisfy
the FA of the continuation of football at Penydarren Park for
the 2010-11, and the club were excluded from the Southern League,
despite finishing eight points above the relegation zone in 17th.
In retrospect, the very fact that the club managed to finish the
season without going under was a major achievement in itself,
having cut costs to the bare minimum. However, the inevitable
end of Merthyr Tydfil F.C came through liquidation during the
close season, with the continuing legacy of the Wyn Holloway era
exacting a final toll. Whilst the club were forced to depart from
Penydarren Park, a ground share with Taffs Well F.C was secured,
and the presence of Roman archeological remains underneath the
stadium ensured that the land would not be sold for redevelopment.
Merthyr Tydfil County Borough Council, who own the freehold to
the ground consistently intimated to the Trust that they would
not sell the freehold to the ground, which made the sale of the
remaining lease, held by the administrator, not viable.(9)
At this point, the Trust were left with a dilemma:
under the rules of the game, starting a new club from scratch
would likely have meant a drop down to the lowest organised levels,
something that would have naturally had major implications for
the club going forward. However, with the assistance of Supporters
Direct and the FAW, the Trust were able to ensure that the newly-named
Merthyr Town F.C were elected to the Western League for the 2010-11
season. Despite this positive outcome, the whole episode was indicative
of a general failing on the part of the various governing institutions.
By not granting the club re-admission into the English pyramid,
the FAW would have set themselves a precedent that could prove
to be a ticking time-bomb: what if a giant of Welsh football (such
as Cardiff City) were to go out of business? Would they, and their
fanbase, be required to enter the lowest rung of the Welsh ladder?
In the event, common sense prevailed, and a place in the Western
League was secured. Credit must go to the FAW for acquiescing,
but the absence of supporter representation at the very level
of the game where they are most needed (particularly now that
insolvency triggers an automatic demotion to Step 7 of the pyramid)
remains a worrying state of affairs.(10)
Merthyr Town F.C amended its constitution on 17 July
2010, registering themselves as a Community Mutual Sports Club.
This represents a positive step forward for both the supporters
and the wider community, despite the club's continued exile from
Penydarren Park. Shortly after the beginning of the current season
the County Borough Council granted the club a new lease, but the
application to return there immediately was rejected by the Western
League and that decision was upheld by an FA panel on 10 January
of this year. The club has continued to deepen its links to the
Merthyr community, and is run on an accountable and democratic
basis.(11)
The conclusion that we draw from this sequence of
events is that the greatest threat to the development of a healthy
economic environment at football clubs is the growth of unsustainable
debts. It is clear that this problem puts the very existence of
many clubs at risk. The clubs most susceptible to such threats
are those owned by one or two individuals, who often put money
into clubs when they first arrive, but treat those cash injections
as loans. This was the case at our club, where the owner lent
money to the club and personally guaranteed other loans, none
of which were ever repaid by the company. This resulted in the
company, and therefore the club, being liquidated.(12)
The current FA rules penalise clubs that go into
administration or are liquidated, by deducting points or demoting
teams. This is intended as a deterrent to clubs living beyond
their means, but is in fact often closing the stable door after
the horse has bolted. Once a club has been liquidated, debts often
go unpaid and supporters may lose their clubs. A more effective
deterrent would be rules which penalise clubs who incur debts
which exceed an agreed percentage of turnover. We would suggest
a points deduction for clubs who exceed a limit at the end of
each season. This would have the effect of reducing the likelihood
of capital injections being treated as loans, and would deter
clubs from building debts for short term success. An exception
could be sustainable debt for the purposes of improving facilities.(13)
We strongly recommend the Supporters Trust share
holding model as a sustainable reasonable way of organising football
clubs. It has the advantage of encouraging only people who are
interested in developing clubs for the benefit of players and
supporters, and discourage the involvement of those who have ulterior
private business objectives, as was the case at our club. In practice,
clubs like ours are largely administered by volunteers, regardless
of who owns them. In our case those volunteers, after financially
supporting the club in recent years, now own the club.(14)
The development of the Supporters Trust model could
be better supported if the current Governance Rules were relaxed.
At the moment clubs which are liquidated and reformed by Supporters
Trusts are treated in the same way as clubs mismanaged by individuals,
who might even be involved in the reformed or new club. It would
help the development of supporter run clubs, if they suffered
a less severe punishment after liquidation.(15)
The outcome of the sort of changes recommended here
would contribute to a slow down in the unsustainable inflation
of players' wages, which is occurring even in non league football,
often at the expense of many creditors who are never paid.(16)
January 2011
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