Written evidence submitted by the Board
of Reading Football Supporters' Society Limited
T/A "STAR" (Supporters' Trust at Reading)
1. INTRODUCTION
1) We in STAR are delighted that the Government
have undertaken to encourage the reform of football governance
rules to support the co-operative ownership of football clubs
by supporters, enhanced supporter involvement in decision-making
processes and to review the adequacy of current regulatory processes,
including fit and proper person tests.
2) Our submission relates solely to professional
football, viz, football clubs who have full-time professional
players on their payroll.
3) Addressing each of the areas to be reviewed
by the Committee, our views may be summarised as follows:
— In some respects, football clubs should
be treated differently from other commercial organisations.
— The governance of football in England
and Wales is wholly inadequate and the governing bodies which
set the rules and apply them are, to varying degrees, ineffectual.
— There is far too much debt in the professional
game and there often appears to be scant regard for its repayment
or the interests of creditors.
— The Supporters' Trust share-holding model
has much to commend it and Supporters Direct and others will doubtless
address this in detail.
— Government intervention is justified,
but it should be restricted to imposing a powerful, independent
regulatory regime with two key objectives:
(i) To establish a no-nonsense "fit and
proper persons" requirement for all club owners, majority
shareholders, board members and senior "decision-makers";
(ii) To ensure that every club's strategic objectives
and financial management are prudentially sound, in order to protect
the interests of its employees and all interested third parties,
including creditors and other football clubs, particularly those
in the same league, as well as supporters.
— Professional football has an almost unique
role in terms of its relationship with its supporters and local
communities, whilst at the same time generating huge revenues
and capital injections on an international scale. A unique governance
model is required for a unique industry. Self-regulation will
never impose the two key objectives set out above. Other aspects
of regulation, such as the Laws and Rules of the game and the
organisation of the competitions, are best left to the football
authorities themselves.
2. DETAIL
a) Treatment of Football Clubs
1) Whilst many commercial organisations benefit
from customer and brand loyalty, very few enjoy the passionate,
generally lifelong support and prominent role in the community
of the local football club. For the larger clubs, this support
obviously extends nationally and worldwide. The vast majority
of professional clubs are over 100 years old and in that time
have created an immense amount of social capital and added considerably
to local identity and pride. For these reasons, professional football
clubs merit rather different treatment from more conventional
businesses. The same, of course, could be argued for a few other
types of institution.
2) Such widespread support generates huge revenues
which inevitably attracts major investors or speculators who may
not share the same long-term interests of supporters or the local
community.
3) Outside, fresh investment is not necessarily
a bad thing and, in the case of Reading Football Club, was a "lifesaver"
20 years ago and has provided the Club with facilities that the
town and supporters could only have dreamed of.
4) However, the only area of UK commerce that
appears to have a regulatory regime to provide adequate governance
safeguards as are urgently required for professional football
is the finance sector.
b) Football Governance Rules and Bodies
1) We have no confidence in the ability of football
to self-regulate, still less to impose the type of regime necessary
to meet the two key objectives set out above to ensure the long-term
future of the professional game.
2) It appears that, whilst the Football League
may have had some limited success, the Premier League, as evidenced
by such high-profile cases as Liverpool, Manchester United and
Portsmouth, is manifestly incapable of regulating itself where
it really matters.
3) Only a truly independent regulator for all
professional football clubs will suffice.
c) Debt
1) Just as outside investment is not necessarily
a bad thing, neither is debt, provided it is controlled, serviceable
and can be repaid in accordance with its borrowing terms.
2) However, much of football seems to borrow
"on a wing and a prayer", relying on success on the
pitch and/or television revenues to enable it to get by. More
and more clubs' balance sheets are becoming precarious and it
is inevitable that clubs will continue to go into administration
in a wholly unsatisfactory and competitively unfair way of "wiping
the slate clean".
3) Football, from the very largest clubs downwards,
has demonstrated that, by and large, it has neither the ability
nor the will to get debt under control. It has in general gained
the reputation of being economically and socially irresponsible,
leaving the tax-payer and businesses to pick up the tab whilst
protecting its own via the football creditors' rule.
4) A strong, independent financial regulator
is desperately needed.
d) The Supporters' Trust Share-Holding Model
1) The Supporters' Trust ownership model has
much to commend it and we believe is the best for promoting and
securing the long-term interests of the supporters and local community.
We are sure that Supporters Direct will be submitting a strong
case for this approach.
2) Nevertheless, we also believe that football
would have to move too far from its current position to achieve
this universally, although we recommend that consideration be
given to requiring each club to transfer a defined minimum minority
and inalienable shareholding to its Supporters' Trust (where such
a properly regulated and widely endorsed body exists) to ensure
that supporters and the local community always have a voice in
the running of the club. (NB This would not extend to picking
the team!)
3) There is a place for a range of properly controlled
ownership models. The key is to have a strong, independent regulatory
regime to keep every club in reasonable check.
e) Government Intervention
1) Government intervention is not only justified,
it is essential for the long-term wellbeing of the professional
game. A starting point for regulation is already available in
the form of the Financial Services Authority (FSA).
2) The general public would probably be surprised
to learn of the full range of powers (until now) held by the FSA
in its regulation of banks and building societies and the regulated
activities of other types of financial institution. (The fact
that things still go wrong is more down to the implementation
of the regulation, not the powers available!)
3) For example, every individual wanting to become
a Board member, every executive or manager who reports direct
to the Board and every individual carrying out a "controlled
function" has to meet the criteria for authorisation and
comply with the standards required before being approved by the
FSA to make the appointment effective. The FSA web-site states
that the most important considerations are the individual's:
— Honesty,
integrity and reputation;
— Competence
and capability;
— Financial
soundness.
4) Secondly, financial returns have to be submitted
regularly to the FSA, annually, quarterly, monthly, weekly and,
in some instances, particularly for the larger institutions, daily.
Financial projections and regular updates have to be submitted
and meetings are held with the regulator to review progress, discuss
future strategy and consider major areas of potential risk and
how they are to be mitigated.
5) We see no reason why a similar regime, tailored
appropriately, should not be imposed on professional football
clubs. As with the FSA (in future, the Bank of England), the regulator
would have both:
(i) the authority backed by legislation to require
such information as he deems necessary to carry out his role and
satisfy himself that the club is being properly and prudently
run; and
(ii) the power to impose limits or courses of
action on a club to protect all creditors, not to mention the
long-term viability of the club and the interests of its supporters.
6) Indeed, with the transfer of much of its regulatory
powers to the Bank of England, the FSA could be ideally placed
to assume that role in professional football. As with the finance
sector, the regulator would be financed by levying a scale of
charges on clubs based on their size; so there would be no cost
to the Exchequer.
7) Some of the advantages of such regulation
would be as follows:
(i) The proposed regime would cater for all types
of club ownership; for example, if a club were owned by a very
rich oligarch, it would still be necessary, through the strategic
review, risk assessment and financial projections several years
forward, to show that the club had the resources to survive and
pay its debts, even if its owner were no longer providing financial
support. This might perhaps involve his lodging a legally-binding
guarantee or even a financial bond to off-set that potential risk.
The regulator would have the power to impose such requirements.
Equally, a Supporters' Trust-owned
club would have to demonstrate ongoing access to financial resources
adequate to meet its future plans.
(ii) Potential creditors and clubs in the same
league division would have the assurance that the regulator was
independently monitoring the financial situation and acting, as
far as possible, to protect third-party interests.
(iii) Supporters would have the assurance that
clubs could not be bought and sold simply to make money for the
owner, usually leaving the club with huge debt and an uncertain
future.
(iv) It is a logical extension of these requirements
that club ownership would have to be completely transparent.
(v) Everybody would benefit from an improved
atmosphere of trust that an effective "fit and proper persons"
regime would bring.
3. CONCLUSIONS
1) A professional football club is an essential
part of the ongoing life of its supporters and the local community.
At the same time and with huge variations, professional football
is big business and attracts national and worldwide interest.
These two aspects are not necessarily compatible.
2) The football authorities have generally shown
themselves to be unable to reconcile these two aspects and seem
to have insufficient regard for, or control over, the ownership
and control of clubs, especially with regard to the probity and
competence of the individuals concerned.
3) Government intervention to legislate for a
powerful, independent regulator who has oversight of who owns
and controls football clubs and who can ensure that their finances
are managed prudently to protect the long-term interests of all
interested parties is urgently needed.
January 2011
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