Written evidence submitted by Stephen
Temple
INTRODUCTION
1. I welcome this government inquiry into the
governance of professional football clubs and the opportunity
to be able to comment on the key questions being asked by the
Department for Culture Media and Sport (DCMS) Committee.
2. The subject area is of particular interest
to me as a Chartered Accountant, a member of the Board of the
Supporters' Trust for Watford Football Club. Having been a supporter
of said club since 1977, I am only too aware of the positive and
negative impact that clubs can have on their local business and
social communities and their own fan base.
3. In recent years, the high profile coverage
given to the events at Liverpool and Manchester United has placed
this subject into sharper focus. It is a disappointment that has
taken these two events to trigger this inquiry. The recent history
of the game contains numerous examples of club owners taking excessive
financial risks and creating emotional and financial burden on
local businesses, communities and the fanbase. These incidents
have led to the establishment of a number of supporters' organisations
which recognise that local communities and fans of football clubs
have been and will be around for longer than the owners of the
clubs themselves.
4. In writing this submission, I have responded
to each of the questions being addressed by the DCMS Committee.
In drafting this response I have also sought the views of my colleagues
on the Board of Watford Supporters' Trust and fellow Watford fans
on one of the main supporters' forums (the Watford Mailing List).
Should football clubs in the UK be treated differently
from other commercial organisations?
5. A football club (or any professional sporting
club) is a commercial organisation that has stronger roots in
the local community than any other commercial organisation. If
a team is performing well, then the local community is often lifted
by that success and there is an opposite effect if the team is
struggling.
6. There are very few companies that can affect
that number of people in one community in that way. While companies
regularly go out of business, the impact of such an event does
not tend to go much beyond the immediate suppliers and the employees
and their families. It would be particularly interesting to compare
the social and economic impact of a football club and similarly
size business (in terms of turnover and number of employees).
7. As commercial organisations, football clubs
should operate as businesses and be run professionally. Directors
and staff should follow the law of the land and treat their employees,
creditors and customers equitably at all times. Of particular
contention here is the "football creditors" rule. This
enables clubs to settle football related debts ahead of monies
owed to (for example) HMRC, non-playing staff employee salaries
and local businesses. Recently highlighted cases of where local
St Johns Ambulance staff have not been paid on time only serve
to illustrate the inequity generated by this rule. Further, the
rule reinforces the short term mindset of many club owners who
continue to increase football related debts (and therefore overall
debts) in the pursuit of competitive success. While this has always
happened throughout the history of the game, its frequency is
increasing and many boards appear to over-ambitious to the point
of risking the existence of a club in a gamble to get promotion
or European qualification. In this context, I've welcomed the
HMRC's recent challenge of the "football creditors"
rule and I believe many supporters feel the same way.
8. The "short-term" mindset mentioned
above is further reinforced by the punishments available to the
football authorities. While the authorities have the ability to
deduct points if a club goes into administration, this punishment
often punishes the fans and the new owners of a club rather than
the owners that created the difficulties.
9. Having said that football clubs should be
treated the same as other commercial organisations on a financial
basis, sight should not be lost of the fact that clubs are a vital
part of their local communities. If a professional football club
were to go out of business, it will affect tens of thousands of
lives emotionally and financially. Clearly, a number of clubs
have been lost throughout the history of the league but the potential
impact is now magnified because of the national and international
popularity of the game in the UK. In a sense, there are similarities
here with the impact that a banking failure can have on a local,
national and international level.
10. Therefore, any new governance arrangements
within football need to reflect the social responsibility that
owners have for running a sustainable club, as well as their financial
responsibility.
Are football governance rules in England and Wales,
and the governing bodies which set and apply them, fit for purpose?
11. Ever since the formation of the Premier League
in 1992, there has been an increasing feeling amongst fans that
the league is self serving and not in the interest of the national
games of England and Wales. There is no doubting the quality of
the football in the league, its high standard in comparison to
leagues in other countries, its popularity or its financial success.
12. However, a national level I don't believe
the league is putting enough into its foundations to help ensure
the game continues to be as successful as it is. There are a number
of examples of how current governance arrangements go against
the long-term interests of the game:
(a) The lack of apparent co-ordinated strategy
whereby the FA, Premier League and Football League work together
for the good of the national game and the success of the English
and Welsh national teams.
(b) The ability of wealthy benefactors to put
money into clubs and take it out again at a moment's notice, or
indeed to raise finance off the back of a club's assets to acquire
a club, leaving the club in financial jeopardy.
(c) The lack of effective pro-active governance
controls that are able to prevent situations occurring or able
to react quickly to punish those at fault. The imposition of a
points deduction for going into administration is a good example
of this as it damages those who are left behind to pick up the
pieces.
13. From a fan's point of view there is very
little scope to influence the rules or know what is going on at
their club, voice an opinion or raise concerns. Instead it feels
that all decisions are made by those who are far removed from
the ordinary fan. It also appears that the FA is too influenced
by the interests of the big and powerful clubs at the expense
of the rest.
14. I am disappointed that many of the recommendations
coming out of the Burns Review have not been forthcoming particularly
when it comes to the governance of the F.A. and I worry that without
Government intervention this review will collect dust and not
be implemented as others have done before. In addition to revisiting
Burns comments about the F.A. I'd like to see an independent review
into the governance models of the Premier League, and the Football
League and consideration of whether their combined effect is in
the interest of the national game (and the national economy).
I suspect that there are instances where individuals have dual
memberships of key boards and committees and there are numerous
conflicts of interest. This creates the impression of a nepotistic
governance culture with a lack of demarcation lines. In addition,
there does not appear to be a clear flow of strategy from the
three bodies to football at a grass roots level.
15. In conclusion for this question, I'd like
to see a lot more transparency in the game and would fully support
a new governance model where clubs are independently inspected
in areas such as financial control, financial strength, player
development, and corporate governance (for example, remuneration
committees, audit committees, internal audit). Clearly not all
clubs should be expected to run the same types of controls as
available resources differ so widely. Therefore, the independent
assessments should be undertaken against a controls maturity model
which recognises that clubs in lower leagues do not have as many
resources to implement many controls. In effect we would have
a licensing system which would need the ability to stop a club
competing in the league before the start of the new season if
these criteria weren't satisfied.
16. Initially these assessments should be undertaken
annually and made publicly available; in a similar way in which
annual reports are made available. In time, the governance model
could be risk based whereby well run and stable clubs are inspected
less often.
17. For detail of how this type of governance
regime could operate, I would suggest looking at aspects of the
inspection processes of regulatory authorities such as the Financial
Services Authority, Monitor (in the NHS) and Ofsted.
Is there too much debt in the professional game?
18. The general view of fans is that there is
too much debt in the game and this view is based on the number
of clubs who have been in financial trouble in recent years. My
view is that debt is only bad if it is unsustainable. Where debt
consists of external lending then commercially the lender will
have taken a risk based decision to lend the money and will often
have the opportunity to secure that lending.
19. However, many clubs appear to be irresponsible
in the way that they manage their finances with respect to player
contracts. At Watford and Portsmouth there have been recent instances
where players are prevented from playing because further games
trigger, for example, further payments to another club or automatic
contract extensions. Unfortunately in addition much of this lending
seems to be against the assets of the clubs, and predominantly
the ground which results in countless clubs now either becoming
homeless, paying high rents to play at a ground they once owned
and/or having to raise vast sums of money to buy back the stadium.
In most cases the people who have got them into this mess are
long gone and often pocketing a tidy profit for their work.
20. My view therefore is that it is not debt
per se that gets most clubs into trouble, but poor financial management,
poor cash flow predictions and poor understanding of the short
and long term financial commitments that clubs have made.
21. Clubs which have overly burdensome financial
commitments clearly give themselves a temporary competitive advantage;
an advantage which is only removed if they generate sufficient
success or, more often, have to undertake radical cost cutting.
Financial revenues at many clubs are highly variable (particularly
for those clubs involved in relegation battles and promotion campaigns).
Because of this, it would appear only right that there should
be more transparency of club finances to the supporter and to
potential suppliers.
What are the pros and cons of the Supporter Trust
share-holding model?
22. Because of the importance of football clubs
in their communities, it only seems right that supporters have
a mechanism which they can use to organise themselves, voice opinions
and be what is generally recognised as the "critical friend".
23. For the current climate, I believe the Supporter
Trust model through Supporters Direct has the right aims and objectives,
namely:
(a) campaigning for the wider recognition of
the social, cultural and economic value of sports clubs;
(b) working to ensure that clubs are run responsibly
and are financially sustainable;
(c) creating conditions in which supporters can
secure influence and ownership of sports clubs;
(d) providing guidance and support to Supporters
Trust groups; and
(e) promoting the value of supporter ownership
to sports fans, empowering them to set up supporters' trusts or
become members of existing Trusts.
24. Supporters Trusts are encouraged to acquire
shareholdings in clubs to help ensure they can be in a position
of influence. The positives of this model are.
25. For smaller clubs, the Trust model can be
highly effective at keeping supporters close to the operation
of the club. I know of instances at a number of smaller clubs
in football and ice hockey where the Trust is actively engaged
in running the day to day operations of the club and has enabled
the club to keep operating. However, these have only been successful
where the members of the Trust have had the required skills to
run a club.
26. The negatives of this model are:
(a) Trusts can only acquire significant influence
if they can acquire a significant shareholding in their club.
Without a significant stake, it is debatable whether there is
merit in having one at all.
(b) There are limits to the amount of capital
that Trusts can raise, and therefore the amount of influence through
this route alone.
(c) Where clubs shares are quoted on the stock
exchange it is very easy for the value of the shareholding to
be eroded.
(d) There is difficulty in finding and replacing
Trust officers and volunteers. The time required can be significant
and it can be hard to find genuine and capable people, particularly
when conditions aren't favourable for the Trust to succeed and
in some cases the Trust is portrayed as an irritant by the club
to deflect what the Owners are doing.
27. Not having a shareholding in a club does
not prevent a Supporters Trust from being effective. Alternative
models can exist where the Trust can have a positive influence
on the club. These include:
(a) A Director of a Supporters Trust being on
the Board of Directors of the football club. The purpose of such
a role could be in a Non-Executive capacity and be there to bring
expertise to bear, be a "critical friend" and so help
ensure that the fans are considered when structural or day to
day decisions are being made. At present, clubs appear to pay
lip service to this and seem to assume that supporters don't have
the necessary expertise, skills or business knowledge.
(b) The establishment of regular contact between
the Supporters Trust and key decision makers at the club. In this
respect I believe that all clubs should have a designated supporter
liaison role whose responsibility should include communication
with the Supporters Trust. This role should be in the remit of
a Board Director or other senior officer.
Is Government intervention justified and, if so,
what form should it take?
28. From a personal viewpoint, I welcome this
enquiry by the government as the stability of the football industry
has caused significant frustration for fans and financial problems
for the taxpayer. The evidence shows that this instability has
been growing in recent years and that the football authorities
have either allowed the situation to develop or have been unable
to act with sufficient strength or speed.
29. I suspect long term Government involvement
would create more difficulties than benefits. However, at present
it is clear that football has consistently shown that it is unable
to effectively govern itself so the question is more about the
form and longevity of Government involvement as apposed to whether
it needs to step in.
30. If the government is committed to its "Big
Society" principles of devolving power then it would seem
logical that these principles should be applied to football, with
a requirement for fans to be consulted.
31. At a macro level, I'd like to see the government
lead an initiative to build an international consensus on the
reform of FIFA. There is significant dissatisfaction with the
recent decisions to award the World Cups to Qatar and Russia (less
so). This dissatisfaction is not just around the independence
of voting but also on the seeming waste of taxpayers money as
many are questioning why the UK bothered bidding in the first
place.
32. I would also like to see the government involved
with ensuring the proper implementation of the UEFA's Financial
Fair Play measures. In March 2010 the Premier League negotiated
concessions to these measures and my concern is that they will
continue to push for such concessions rather than recognise the
precarious state of football finances.
33. At a micro level, I'd like to see the government
facilitate a process that helps give football back to the fans.
One obvious example of this is to reconsider the rules regarding
all seater stadia by allowing the creation of safe standing areas.
34. Overall I am keen that supporters are given
more influence in the game as it is clear that the football authorities
can not govern themselves, so I would welcome Government intervention
to ensure it does happen. When the government gets involved then
I'd been keen to see that any new committees formed involve people
in touch with the grass roots of the game.
Are there lessons to be learned from football
governance models across the UK and abroad, and from governance
models in other sports?
35. Unfortunately, my knowledge of other governance
models in other sports or in football abroad is not of sufficient
depth to be able to comment on this question.
36. I am aware that the German governance model
contains a number of the governance features mentioned above,
with a licensing system linked to assessments of club liquidity.
This is a system far in advance of the UK and while German clubs
have been less successful than UK clubs in European competition,
their international team has had much more success.
37. In terms of developing natural talent, we
are not producing enough Premier League/International/World Class
footballers. There needs to be a 10 year plan put in place which
addresses the issues. It might not be the solution for all, but
Watford's Academy structure is starting to produce positive results
for pupils and graduates of the Academy. Maybe, this is the way
forward for some clubs, but it is a huge financial commitment
and requires a long term view - ie 11 year olds will take at least
7+ years to break through into First-team football. The short-termism
in the game does not suit this development, which until addressed
will always leave us lagging behind other countries.
ABOUT THE
AUTHOR
38. Stephen Temple qualified as a Chartered Accountant
in 1991 and has worked with a wide range of organisations in both
the public and private sector on risk management and governance
issues, mainly around Information System implementations and security,
but always in the context of governance frameworks such as the
Combined Code and the FSA handbook.
39. Stephen has been working with Watford Supporters'
Trust for the last 18 months. Watford FC was close to being placed
into administration in December 2009 and, at the time of writing
is the subject of a potential takeover bid.
January 2011
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