Written evidence submitted by the Arsenal
Supporters' Trust and Arsenal Fanshare
INTRODUCTION TO
THE ARSENAL
SUPPORTERS' TRUST
(AST)
The Arsenal Supporters' Trust (AST) is an Industrial
and Provident Society founded in 2003 with financial and administrative
support from Supporters' Direct. Its main objectives are to:
— Promote
the interests of supporters who own shares in Arsenal Football
Club.
— Facilitate
wider supporter involvement in the club.
— Facilitate
and promote mutual supporter ownership of Arsenal, thereby giving
supporters greater representation and influence in how the club
is run.
Many of our members are already personal shareholders
in Arsenal Holdings Plc (Arsenal's holding company) and every
member of the Trust shares in ownership of Arsenal Football Club
through shares the Trust owns. The AST estimates that its members
directly account for between 2 and 3% of the equity in Arsenal
and we are recognised by the club as the main representative body
for small shareholders. In total about 10% of Arsenal's equity
is held by "supporter shareholders".
The AST works with its members, Arsenal executives,
the club's Board, major shareholders and other Arsenal supporter
groups to help maintain Arsenal as a world class sporting institution.
The AST's primary role is to provide opportunities
for supporters to scrutinise and question how Arsenal is run.
This is achieved through activities such as: the production of
independent financial analysis of the report and accounts of Arsenal
FC; representing supporters views to the club's Board and executives,
including attendance at the club's AGM where supporters have an
opportunity to ask questions; an annual end of season review meeting
with the Chief Executive; and undertaking a detailed survey of
supporters' views on issues such as the ownership structure of
the club, the club's corporate governance and its footballing
and commercial strategies, which was presented to all Board members.
The AST aims to act as a constructive challenger
to the club. Among the issues we have raised, and subsequently
seen positive development on, are our recommendations to make
Stan Kroenke a Board member and calls for the club to make significant
additional investment into its commercial and marketing infrastructure,
which Chief Executive Ivan Gazidis is now implementing.
Arsenal's parent company, Arsenal Holdings plc, is
a public limited company on the AIM market. Only 62,219 shares
in Arsenal have been issued and they currently trade at a price
of approximately £10,500, which sets the club's market capitalisation
at approximately £650 million.
The high price of each share is a considerable barrier
to supporter ownership and the AST has long sought to introduce
a scheme that would assist supporters in buying shares in Arsenal.
Last August this objective was achieved through the launch of
Arsenal Fanshare.
HOW ARSENAL
FANSHARE WORKS
Arsenal Fanshare is operated by the Arsenal Fanshare
Society Board, an Industrial and Provident Society (IPS). The
scheme itself is run by Equiniti, who administer investment plans
for large companies and are specialists in shareholder plans.
Equiniti Financial Services Ltd is authorised and regulated by
the Financial Services Authority (FSA) (reference 468631). Arsenal
Fanshare is an independent organisation separate from Arsenal
FC. However, Arsenal Fanshare is endorsed by both Arsenal FC and
the AST.
The AST welcomes the support that the Arsenal Board
and Chief Executive have given to the scheme. In addition, the
club's other major shareholders, Lady Nina Bracewell-Smith and
Red and White Holdings (Alisher Usmanov) have also given their
backing to Arsenal Fanshare.
The Arsenal Fanshare Society buys shares in Arsenal
Holdings PLC and nominally divides each one into 100 Arsenal Fanshares.
As the value of one share in Arsenal Holdings Plc is currently
around £10,500, the value of one Arsenal Fanshare is currently
around £105. The value of Fanshares varies according to the
real time market price of a share.
Arsenal supporters join the Arsenal Fanshare Society
by paying a one-off membership fee of £20 and deciding a
set monthly contribution they would like to invest each month
in Arsenal Fanshares. The lowest monthly contribution is £10
and the highest is £1,000.
Each participating supporter has a Fanshare account
where their monthly contributions are saved until there are sufficient
funds to cover the cost of a Fanshare, at which time the Fanshare
is allocated to them. Any money left over is put toward the cost
of the next Fanshare.
The specific benefits that members of the Arsenal
Fanshare scheme receive are:
— A direct
ownership stake in Arsenal.
— Fanshare
membership certificate.
— Opportunity
to attend the Arsenal AGM.
— Quarterly
shareholder email update from Arsenal Chief Executive Ivan Gazidis.
— A vote
on key club resolutions.
— Access
to the AST's scrutiny of the club's finances and opportunities
to express their views directly to the club's Directors and Executives.
Once a member has acquired 100 Fanshares, equivalent
to one full share, their membership status within the scheme is
amended to give them a guaranteed place at the club AGM and the
full voting rights for one share.
Arsenal Fanshare has been a great success. It currently
has more than 1,600 members, a larger number than those who own
ordinary shares in Arsenal Holdings PLC. Arsenal Fanshare has
already invested more than £350,000 into buying shares and
100 Fanshare members were granted priority access to the club's
October 2010 AGM.
The Arsenal Fanshare scheme has been widely praised
across the football community as an important initiative for increasing
supporter involvement, with endorsements from UEFA, Supporters'
Direct, the Premier League, the Minister for Sport and leading
football commentators.
The "Fanshare" brand name and scheme rules
were designed and created by the Arsenal Fanshare Society Board.
These could be made available to other supporters' trusts and
clubs who would like to replicate the model.
However, due to the regulatory burden of offering
share ownership, Arsenal Fanshare has been very expensive to establish
and maintain. In the submission below we set out how this can
be addressed and also cover how both the Football Authorities
and the Government can do more to assist with the introduction
of schemes that reflect the Fanshare objectives to increase supporter
involvement in football clubs.
CUSTODIANSHIP AND
SUPPORTER INVOLVEMENT
IN HOW
CLUBS ARE
RUN
At Arsenal, the concept of custodianship and plurality
of ownership is central to the club's character. The AST sees
custodianship as the responsibility of all Arsenal stakeholders
to look after the club's values and keep them safe for future
generations.
The AST recently surveyed its membership on their
preferred ownership structure at Arsenal. 90% of AST members rate
maintaining the club's custodianship and protecting the long-term
future to be an important priority for Arsenal's Board.
There is little support for the club being taken
private, with 84% preferring Arsenal's plural ownership model
that includes supporter representation. There is also huge support
for the club's philosophy to be financially self-sustaining, with
89% of AST members supporting the club's self-sustainability model
even if it means struggling to complete with clubs that have a
"sugar daddy".
Arsenal has benefited greatly over many decades from
maintaining stability in its ownership structure, and from having
supporters who own shares and are actively involved in this structure.
Plurality of ownership has served Arsenal well and is the best
way to ensure the necessary checks and balances are in place to
protect the club's long-term future.
Throughout its history, Arsenal has always looked
to the future and has been at the forefront of important developments
in football. Innovations have ranged from the introduction of
floodlit football and the renaming of Gillespie Road tube station
to "Arsenal", through to the building of a landmark
new stadium and transformation of the game in England with the
pioneering appointment of the first successful overseas manager
in Arsène Wenger.
Arsenal Fanshare continues this innovation and sends
a positive message to the wider football community about the importance
of involving supporters in the game's future at an ownership level.
Arsenal Fanshare meets the demand from Arsenal supporters that
the club should remain in plural ownership and gives them a small
but relevant - and growing - voice in the how the club is run.
GOOD GOVERNANCE
IS HOW
A CLUB
BEHAVES, NOT
JUST HOW
IT IS
OWNED
The AST would like to reiterate to the Select Committee
that good governance isn't solely defined by how a club is owned
- just as important is how it acts. Some observers point to Barcelona
and Real Madrid as good models for mutual ownership. The AST
challenges this notion and does not believe that the Spanish clubs
represent good practice in ownership or governance, and that many
of their corporate actions should be subject to far greater scrutiny
and challenge.
Barcelona, for example, operates under considerable
levels of debt, propagates an individualistic model regarding
the sale of television rights that sees it retain a vast proportion
of the revenues (unlike the collective and redistributive structure
in the Premier League and making a mockery of financial fair play
rules), and its executives and directors frequently and consistently
break football's rulebook and engage in the inappropriate 'tapping
up' of players under contract to other clubs.
We urge the Committee to note the failings that occur
in this ownership model and to judge governance by how a club
operates rather than just by its constitution. We would also ask
the Committee to ask UEFA as part of its inquiry what it is doing
to address issues like this as any introduction of financial fair
play requires consistency across Europe and for all of football's
rules to be applied to all clubs.
THE ROLE
OF THE
FOOTBALL AUTHORITIES
AND GOVERNMENT
IN PROMOTING
SUPPORTER INVOLVEMENT
IN FOOTBALL
CLUBS
The AST is fortunate that at present Arsenal's ownership
structure enables its supporters to hold equity directly in the
club. Further, the club's Board and senior executives are keen
to develop a working relationship with these shareholders and
support the AST's attempts to further increase supporter ownership.
This may not always be the case, and of course it
is not an option open to supporters at many other clubs that have
private ownership structures. The AST has therefore given careful
thought to the questions that the Committee is posing on supporter
ownership and have built our recommendations around the two core
values we take from the Fanshare model. They are values that can
be applied at every club regards of the specific ownership structure:
— Increasing
opportunities for supporters to be directly involved in the ownership
structure of their club.
— Providing
greater transparency on how the club is run so that supporters
can scrutinise developments, with ongoing opportunities to hold
those running the club to account.
The following part of our submission sets out our
recommendations on how supporters' involvement in both ownership
structures and having a greater understanding and improved representation
can be enhanced through actions taken by Government and/or the
Football Authorities.
1. Opportunities for Supporters to be directly
involved in owning a stake in their club
The AST believes that the direct involvement of supporters
in clubs' ownership creates positive benefits not only for fans
but also for clubs themselves. For clubs, it establishes an additional
opportunity to raise capital through issuing equity to supporters.
It also allows clubs to give supporters a real sense of belonging
and involvement, which is likely to strengthen the bond between
supporters and their club leading to greater commercial and sporting
success.
Yet whilst the AST supports greater supporter involvement
in ownership, we do not believe it's right to achieve this through
direct government intervention or interference in independent
financial investment decisions. Such action could lead to the
de-facto nationalisation of football and breaks the convention
that Government does not intervene in the direct running of sport.
In Arsenal's case it could even lead to action that penalises
the interests of existing supporter shareholders.
However, we do advocate far greater effort being
put into introducing policy measures to increase the opportunities
open to Supporters' Trusts to secure an ownership stake. The three
main policy areas we have identified are:
(a) Action to remove regulatory and fiscal burdens
currently placed upon supporters' trusts being involved in ownership
schemes. This specifically involves: looking at how current financial
legislation works to the detriment of supporters' trusts by imposing
unnecessary costs and regulation (see FMSA example below); and
creating a level playing field in the fiscal environment by either
ending the scenario whereby private investors can secure tax breaks
on their investment or creating additional incentives for trusts.
This might include giving tax breaks for supporters' trusts' ownership
schemes, such as exemption from stamp duty and allowing VAT paid
on season tickets to be reclaimed for contributions to share save
schemes.
We recommend that the DCMS establishes
a working group that includes the Cabinet Office and Treasury,
that has as its remit to review all the regulatory and fiscal
structures that apply to fan investment schemes like Fanshare
and recommend additional measures that can be taken to assist
them to grow.
(b) Trusts are voluntary bodies often relying
on the goodwill of the professional members. Setting up schemes
such as Fanshare incurs significant costs and therefore we recommend
increased, and direct, financial assistance to be made available
to trusts to support the costs of meeting the regulatory requirements
of developing models such as Fanshare and running representative
bodies that have to comply with financial legislation. Such funding
could be provided by both the Government and Football Authorities.
(c) More promotional activity and support from
both Government and the Football Authorities of the benefits of
supporters' trusts to football supporters and the role they can
play, including as vehicles for clubs to raise capital.
2. Supporter involvement in how a club is
run; access to core financial and operational material and opportunities
to engage with clubs' owners
Whatever the ownership structure of a club, we believe
that its governance will be enhanced if supporters have a greater
understanding of decisions being made and the opportunity to meet
executives and have an input into the key day-to-day and strategic
decision-making.
The Government itself recognises these values through
its commitment to publishing financial information about how Government
works and the stated desire to give stakeholders a greater say
in how services are run.
The simple objectives of improving information flows
and introducing formal structures in which supporters can be represented
does not require any new legislation or Government intervention,
but can be introduced as self-regulatory measures within the rule
books of the Football Authorities. We recommend that the Premier
League introduces a rule that places a duty on their member clubs
to engage with official supporters' trusts. This engagement would
specifically cover:
1. Providing a financial and reporting format
similar to that required under the Companies Act -report and accounts
for each six months (interim) and full year - supplemented with
information already collected under UEFA licensing scheme and
other tests that clubs are required to meet under Premier League
rules.
2. Twice yearly meetings between representatives
of the supporters' trusts and directors and/or executives of the
club, at which discussion can take place on the performance of
the club and the views of the wider membership can be directly
reported.
The second proposal would of course require an agreement
for identifying official supporters' trusts and ensuring that
they reach minimum standards in the representation of their membership.
The requirement to register as an Industrial and Provident Society
should partly address this but we would also envisage a role for
Supporters Direct to nominate the official trust at each club
and act a quasi-regulator of their operations. This would include
providing training and advice to trusts on the business issues
faced by clubs and the high standards required in their own organisation
and operation, such as minuted meetings, elected officials and
audited accounts.
CASE STUDY:
AMENDING THE
FINANCIAL SERVICES
AND MARKETS
ACT (FSMA) TO
RECOGNISE THE
ROLE OF
THE SUPPORTERS'
TRUSTS
The establishment of Arsenal Fanshare has been a
huge and expensive effort for a small team of volunteers to complete.
This work has been greatly complicated by the inflexible nature
of Financial Services Authority regulations.
The following sets out how financial services legislation,
particularly the FSMA, is not flexible enough and in fact acts
as a barrier to enabling supporters' trusts to make a broad appeal
to fans to put equity into the club or supporters' trusts. It
also shows how an amendment to the legislation could help.
The FSMA prohibits the offer of shares or investments
without the trust itself complying with regulatory requirements
that create significant financial and administrative burdens for
voluntary organisations such as the AST.
The FSMA also prohibits the issue of any investment
advertisement to a general consumer/supporter (eg an offer of
shares in a company or to make an investment) unless
that investment advertisement is authorised by an FSA authorised
organisation or individual.
Additionally, supporter ownership models are likely
to be classed as Unregulated Collective Investment schemes preventing
the offer of shares to persons other than high net worth individuals,
sophisticated investors and exempt institutions.
There are a number of exceptions to this legislation
but none quite fits the specific supporters' trust models. As
a result, the AST had to establish a second IPS - the Arsenal
Fanshare Society Limited - to do nothing but run Fanshare, and
not by way of a business to fit with the legislation. We have
to act very carefully to make sure it does not make any profit
nor have any trading income so we can establish it is not a business
and thus not an unregulated collective investment scheme. This
is a tortuous issue that impeded our efforts for many years and
means that we have had to put in place duplicate structures for
AGMs, Boards, accounts and even legal advice, with all the effort
and expense that entails.
There are other subsidiary issues by which we could
also fall foul of FSA rules. Because of these complications we
have engaged a management company, Equiniti, to administer the
scheme on our behalf at considerable expense.
This issue could be addressed by Parliament introducing
a statutory instrument widening the exemptions in the FSMA to
include Industrial and Provident Societies or community interest
companies raising money for sports clubs. This would of course
need more detailed safeguards such as a sensible limit on the
annual investment an individual can make. In the case of Arsenal
Fanshare it is £12,000 a year.
There are clearly technical issues which would need
to be resolved here, and that is why we have recommended that
DCMS established a working group to cover these subjects.
Given our experience in developing Fanshare, the
AST would be happy to provide further input on this issue and
to join any working group the DCMS might establish to review the
way forward.
26 January 2011
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