Written evidence submitted by Wimbledon
Football Club Supporters Society Limited on behalf of AFC Wimbledon
EXECUTIVE SUMMARY
This submission is made by Wimbledon Football Club
Supporters Society Limited, the owner of AFC Wimbledon, a football
club which plays in the Football Conference. It focuses principally
on the financial issues facing supporter-owned clubs like ours:
— We
believe that the role of government in football governance should
be to encourage existing bodies to cooperate. Only if this fails
should intervention be considered.
— Football
finances are imbalanced, with clubs running themselves into major
financial difficulties in the pursuit of success.
— There
is no reward for financial virtue—clubs like ours which
are run prudently on a sustainable basis cannot compete with clubs
where owner-directors pump in short term loans which are spent
on players' wages.
— We
believe that this issue should be addressed by stronger financial
regulation. Such regulation should be based on principles applied
consistently throughout the football pyramid.
— Our
specific recommendations include:
— A requirement
that clubs should be sustainable.
— A governance
framework that applies a licensing system to enforce regulations
relating to sustainability.
— Revoking
the "football creditor" rules which encourage poor business
behaviour at the expense of others, especially the community and
tax payers.
— The
governance body should have the authority to deny a takeover which
is based on leveraged debt.
— We
believe that supporter-owned clubs are a force for good in football.
They should be encouraged, at least in their early, formative
years, by financial and tax incentives
— AFC
Wimbledon was created as a response to a serious failure in football
governance—we strongly recommend that no further franchising
should be allowed in UK football.
INTRODUCTION
1. This submission is made on behalf of Wimbledon
Football Club Supporters Society Limited (known as The Dons Trust—"the
Trust" in this document) which is an Industrial and Provident
Society which owns AFC Wimbledon Limited.
2. AFC Wimbledon was born following a serious
failure in football governance. Despite advice to the contrary
by governing bodies, the club was established by fans and in just
over eight years has become the highest placed fans-owned club
outside the Football League—and the one which has risen
furthest in the football pyramid since it started. We feel we
have a unique perspective to bring to the Select Committee inquiry.
3. Our comments and recommendations are structured
around the six questions published by the Committee, with one
additional topic at the end of our document.
Should football clubs in the UK be treated differently
from other commercial organisations?
4. Football appears to be unlike any other business:
(a) in many cases, clubs are run with little
or no intent to make a profit, but they are regulated by legislation
which is aimed at profit-making organisations;
(b) the experience that football clubs offer
is very different from most other businesses and entertainments—for
a large part of the fan base, a poor experience on one day may
be a cause for grumbling and discontent, but it doesn't affect
the likelihood of them returning. This extreme loyalty is uncommon
in the commercial world; a consequence is that it can lead to
a certain laziness amongst clubs about the need to consider supporters
because demand is inelastic; and
(c) the motives for running clubs are many and
varied and include: serving the community; a means of fans retaining
control of their local club; self aggrandisement for rich people;
and to take money from the club, in some cases to the detriment
of the club itself and the community.
5. Football clubs are already treated differently
from other organisations, notably they can create preferential
"football" creditors in the case of insolvency, even
ahead of HMR&C. A significant number of clubs have gone into
administration or liquidation, paid their football creditors in
full, but paid little or nothing to creditors generally and local
businesses in particular. This is inequitable and it has had a
direct and detrimental effect on the communities in which the
clubs are based.
6. Football needs a more formal regulatory environment
which reflects the social and community roots of the clubs, while
demanding responsible and accountable management. Specifically:
(a) A governance framework should be established
to require clubs to run themselves in a sustainable way—the
UEFA "Financial Fair Play" initiative is a good step
in this direction.
(b) A licensing system for clubs at a certain
level, say the Premier League, Football League, and Football Conference,
should be introduced to require compliance with sustainability
regulations.
(c) A suitable regulatory body should be empowered
to enforce the requirements.
(d) The "football creditor" rules should
be revoked. A change would require clubs to be more circumspect
in their dealings with each other, as they should be with any
other business.
Are football governance rules in England and Wales,
and the governing bodies which set and apply them, fit for purpose?
7. Our experience of governing bodies has been
with the leagues in which we have competed over the last eight
years, the two County FAs to which we are affiliated, and limited
exposure to the FA itself. Our submission therefore largely reflects
the view from lower down the football pyramid.
8. AFC Wimbledon aspires to return the name of
Wimbledon to the top levels of English football. In the eight
years of our existence we have been promoted four times and we
are currently in contention for promotion to the Football League.
In that time we have developed a total of 22 teams of men, women,
boys and girls, as well as and a range of other community activities.
We have done all of these things while running the club on a sound,
prudent and responsible commercial basis.
9. We are immensely proud of what we have achieved
but our progress is increasingly hindered because there is no
reward in football for financial virtue. We cannot, and will not,
compete with clubs where substantial losses are funded by rich
shareholders in the pursuit of success on the pitch As a result,
the classic ambition of the little club, to rise through the ranks
and reach the top—so brilliantly achieved by Wimbledon FC—looks
well-nigh impossible.
10. We believe that this imbalance should be
addressed by stronger financial regulation, based on consistent
principles throughout the football pyramid. We recognise that
a "one size fits all" solution cannot work given the
differing resources available to monitor each competition's regulations.
To achieve this, there would need to be more consistent regulation
within football since there are substantial differences in the
approaches taken by the Premier League, the Football League and
the Football Conference.
11. To explain our concerns in more detail, it
is widely recognised that at all levels of football, clubs run
themselves into desperate financial positions. For example, drawing
on publicly available information, in 2009 the Football Conference
Premier division (in which we play) had:
(a) Nineteen of the twenty four clubs with net
current liabilities, ie apparently not able to meet their short
term debts.
(b) Eleven clubs with negative net worth.
12. In practice, many of these clubs are "safe"
because their debts are to directors; but the underlying commitment
of the directors is indicated by the fact that their loans are
usually classified as short term, repayable on demand. Despite
the loans being due on demand, some clubs will have entered into
player contracts that extend for two or more years, with limited
prospects of the clubs generating sufficient profits to cover
such commitments.
13. The Football Conference has put procedures
in place to apply sanctions to clubs which fail to pay their taxes
promptly. This initiative has had increasing success, and the
Conference has recently expanded its monitoring to promote sustainability
within clubs. Nonetheless, several clubs appear to be on the brink—it
is hard to be certain because most clubs taking advantage of the
reduced disclosure requirements offered under the Companies Acts.
14. Any club is susceptible to over-reaching
itself financially, but we believe that clubs which are unsustainable
save for directors' loans are much more likely to crash than those
which are fans' owned. This is because the absence of a director
subsidy forces clubs to operate based on their trading income
and effectively demands that the board actively governs to ensure
that finances are managed properly.
15. As for the adequacy of the governing bodies,
our experience is that they are staffed by professional and motivated
people who have been consistently supportive. Our concern is the
lack of effectiveness in demanding sustainable clubs and the inconsistencies
that are unavoidable when there are regulatory bodies with apparently
conflicting objectives.
16. Our exposure to the top levels of football
governance is too limited for us to offer detailed recommendations
for reform, but we strongly believe that government should use
its authority to demand greater cooperation and consistency from
these bodies. Otherwise the recommendations in paragraph 6 apply
equally to this section of our submission
Is there too much debt in the professional game?
17. Debt in itself is not a bad thing but in
football it is all too often "the wrong kind of debt".
18. We have already commented on short term debt,
usually as directors' loans, which are used to pay wages and operating
expenses. This is an unsustainable way of running a football club.
Debt to fund capital investment is one thing; debt to fund higher
wages in the hope that it will breed success is gambling. And
it is gambling with the livelihoods of players, other clubs, and
businesses in its local community.
19. In a governance environment where a club
has to be sustainable such lending would not be allowed, which
is why we believe that regulation should move in this direction.
20. Leveraged debt, ie where a club is bought
by borrowed funds and then the borrowings are loaded upon the
club may well be legal but it cannot be in the best interests
of the club and its fans. We would expect a regulatory body to
have the right to deny such a takeover, and be protected from
a legal challenge when doing so. We are not experts in this area
but we understand that the NFL takes a dim view of one of its
competitor clubs being loaded with debt, and thus more of the
sport's incomes flowing out of it to creditors.
What are the pros and cons of the Supporter Trust
share-holding model?
21. Clearly we have extensive experience of the
Trust-owned model.
22. The major pros of this approach are:
(a) The club is controlled by one of the key
communities it serves, namely its fans.
(b) It cannot be run into the ground by a sugar
daddy; the club cannot be sold or mortgaged without the agreement
of the fans; where the club has land of its own, any asset strippers
cannot benefit.
(c) Fans have a closer involvement in how the
club is run, especially with key decisions and thus greater buy
in and ownership.
(d) Fans' oversight is much more likely to prevent
financial over-commitment in a drive for success. In effect, the
absence of a sugar-daddy forces a club to be businesslike and
medium-term. While sustainable management is not an exclusive
feature of community-owned clubs, that ownership model has much
to commend itself in terms of sustainability.
(e) There are greater benefits to the community
due to the stronger links with the club.
23. In our opinion, there is only one major con,
which is the difficulty of competing with clubs where rich owners
can make substantial sums of money available for players' wages.
Our own club has faced this at every level from when we started
until today. For example, despite having the highest trading income
we were outbid for talent by clubs using directors' subsidies,
leading to the extraordinary result in our first season where
we gained 111 points from 46 games—and came third in the
league. As we move higher up the leagues the amounts being injected
into clubs become much larger, but the problem is the same—we
cannot prudently match them.
24. We are in our ninth year and despite these
problems we have demonstrated that a fans-owned club can be successful
while also being self-funded and operated in a pragmatic, sustainable
way. To date we have overcome the problems of the clubs where
massive sums of money are injected (as loans) in an unsustainable
way—we have left most of these unsustainable clubs behind
but as we rise through the leagues the amounts that are injected
increase and our task becomes ever harder. To give an example
of the scale of the problem, the published accounts of one club
in our league in 2009 show an operating loss almost as great as
our (and its) entire turnover.
25. For fans-owned clubs to compete we need a
level playing field and that means clubs being required to be
sustainable. So long as the majority of clubs is owned in the
traditional way such a change is unlikely to come from within.
Appropriate regulation appears to be the only solution.
26. For fans-owned clubs to be able to get started
and thrive through the early years, we believe that financial
and tax incentives should be made available to them. For example,
grants should be directed towards the development of such clubs,
provided that they meet other criteria, including totally transparent
financial reporting, audited accounts and a demonstrated involvement
in and benefit to the community.
27. Similarly, fans-owned clubs with a turnover
less than a designated amount should be exempted from VAT. Since
much of their income is subject to VAT and they have limited input
tax to recover (the major expenditure being players' wages) there
would be a substantial benefit to such clubs but, given the small
number involved and a limit on turnover, the cost to the Treasury
would be very limited. Similar financial reporting and community
involvement would be required for clubs to qualify for the tax
exemption.
28. These recommendations will not be welcomed
by clubs under direct ownership of wealthy individuals but they
can so easily distort the economics of non league football, where
most supporter-owned clubs play, that something needs to be done
to counter the imbalance. Relatively small sums can have a big
effect—to put it into perspective, our annual player budget
is less than three weeks' wages for a top Premier League player.
Is Government intervention justified and, if so,
what form should it take?
29. Football is the national game. It involves
a significant proportion of the population and can fire the imagination
of the nation. It has a substantial capacity for good in the community.
But the leagues are currently dominated by owners who have limited,
if any, credibility as representatives of their communities. They
will not vote for change, yet their model has led to regular financial
failures, losses to the communities they nominally serve, and
a lack of recognition of the wishes of the fans.
30. We believe that the government should not
seek to impose its own solutions, but it should demand that existing
bodies cooperate. The problem for the FA appears to be that it
is deadlocked and can see no clear way forward. The government
should corral the various parties, cajole and if necessary bully
them into working together—only if this fails should it
intervene directly in the name of public good.
Are there lessons to be learned from football
governance models across the UK and abroad, and from governance
models in other sports?
31. Many sports other than football retain teams
that are run as true members' clubs; with 100% ownership retained
by the paid up membership who elect a committee to run matters
on their behalf. In Britain such clubs compete sustainably at
a high level in Rugby Union, Rugby League and Cricket. Very few
English football clubs have retained this structure at anywhere
above local non-league level, but some examples exist overseas—Barcelona
FC being by far the most famous. This model of ownership does
ensure that key decisions remain with the fans (ie members) rather
than with a single majority shareholder as found at most English
clubs.
32. One country that has imposed a strict licensing
model for football clubs is Germany. The German League (the DFL),
on behalf of the German FA (the DFB), operates the licensing of
all professional clubs within the top four levels of the league
pyramid (over 100 clubs). Their licensing system for professional
clubs is aimed at maintaining competitive integrity and "clears"
each club before the start of each season—failure to be
licensed results in demotion or temporary expulsion.
33. Special focus is traditionally placed on
liquidity controls, ie a financial assessment of a club's ability
to operate throughout the season. This rigorous system is largely
responsible for the fact that over 45 years into the competition's
history no Bundesliga club has filed for administration/bankruptcy
during a season.
34. Another facet of German football is that
virtually all professional clubs have an ownership model where
51% of the voting shares rest with the fans—a status protected
by law. Typically the clubs are run by a principal owner (who
usually controls the remainder of the shares), but the ownership
model ensures that key strategic decisions can be rejected by
the fans if not in their interest. This ownership model, coupled
with the prudent licensing approach, gives great stability and
good competition within the German league system.
OTHER ISSUES
35. AFC Wimbledon was born as the result of a
failure in governance. For obvious reasons, we strongly recommend
that no further franchising should be allowed in UK football.
Wimbledon FC was, wrongly, the first to suffer this. We recognise
that this cannot be undone but we urge the regulatory authorities
to ensure that nothing of this nature ever happens again.
January 2011
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