Written evidence submitted by the Yorkshire
Division of the Football Supporters' Federation
1. INTRODUCTION
1.1. This is the evidence of The Yorkshire Division
of the Football Supporters' Federation (FSF) as to why we endorse
the evidence separately submitted by our National Council and
partners at Supporters Direct.
2. EVIDENCE
Is Government intervention justified and, if so,
what form should it take?
2.1 Football is our National Game. As such Government
has a duty to protect the game at all levels for future generations.
This has been accepted by successive Governments, who in their
time have also seen it necessary to order an enquiry into the
state of the game in this country, the last two occasions being
the Burns Enquiry and the Football Task Force.
2.2 These two enquiries made far reaching recommendations
as did previous enquiries. Unfortunately, in common with other
enquiries, the main recommendations have been allowed to be watered
down by the professional game with promises that they can effectively
run the game themselves and that they do not need outside regulation.
We would argue that the facts do not support their view, as outlined
in other submissions.
Is there too much debt in the professional game?
2.3 This is an easy answer, yes obviously there is.
It has been allowed to get out of control because of the failure
of the game to regulate itself and the unequal way money is distributed
throughout the game
2.4 More than two thirds of the professional clubs
in this country have either gone into administration or faced
severe financial re-structuring to stop an administration. Numerous
other clubs are still under severe financial pressure and more
are sure to follow if action is not taken.
2.5 This is happening at a period of time when the
game has had more money coming into it from outside sources than
ever before.
2.6 One of the main causes of all of this turmoil
is the way the money is distributed. The vast majority of TV money
goes to the top clubs. This has created a "chase the dream"
scenario in football. The dream is being in the Premiership and
the huge financial prize that follows. The problems occur when
the dream fades and relegation follows.
2.7 Parachute payments (which are paid for failure
in terms of relegation from the Premiership) have a very real
and very obvious potential to become an increasingly significant
anti-competitive factor in the Championship. It is very difficult
to envisage any sort of level playing field between for example
a relegated relatively larger club and a smaller club which may
have just been promoted from Division 1.
The presence of parachute payments must in future
have the effect of cranking-up the pressure to chase the dream
(financially) which will be brought to bear on Championship clubs.
Risking everything to achieve promotion to the premiership and
thereby the entitlement to parachute payments even in the event
of subsequent failure will increasingly appear to be the holy
grail.
A more equal distribution of the available funds
for Championship clubs must be a worthwhile objective and help
to preserve the integrity of competition in that division.
It may be that some alternative mechanism needs to
be established (possibly some sort of centrally and separately
administered fund) under which the financial and contractual rights
of relegated players are safeguarded whilst at the same time helping
to maintain a more level playing field between the clubs.
2.8 The evidence of this is that the vast majority
of clubs that have had or experienced financial trouble over the
last 20 years involve clubs relegated from the Premier league.
2.9 We would submit that an easy way of solving this
problem is that the Premier League and Football league should
be removed and replaced by one overriding body that controls the
Professional game, as was the case until the formation of the
Premier league in 1992. It's not unreasonable to suggest that
extra financial problems have occurred since that date.
2.10 A separate body for the semi, non professional
game should be created. These bodies could have their own separate
boards/structure to administer different leagues within the overall
structure, as with the Football League at present.
2.11 A more equal system of distribution of Television
and Sponsorship fees. After all not all Subscribers to TV Channels
and Sponsors support Premier League Clubs
3. CONCERNS OVER
FREE MARKET
OWNERSHIP
Should football clubs in the UK be treated differently
from other commercial organisations?
3.1 The Mismanagement of Clubs has led to a situation
where all but two of our Premier Leagues have been the subject
of takeovers in the last 15 years.
3.2 The two clubs that haven't been involved in this
process are Arsenal and Everton. Even with these, it is known
that there is an ongoing battle at Arsenal over who is likely
to take over and when. Similarly with Everton, it is known that
they would welcome financial investment or a takeover to allow
them to compete in the Premier League financial markets.
3.3 In Yorkshire during the last 25 years every one
of our professional Clubs, have either been in administration
or had a re-structuring buy out. This also extends all the way
down to some of our Non League clubs, ie York City, Harrogate
Town and Farsley Celtic to name just three.
3.4 Our concern on ownership is that there has been,
up until now, someone willing to buy our premiership clubs and
to some degree clubs lower down the football pyramid. What if
this ceases?
3.5 What has become obvious is that most of these
buyers have been from overseas. If we look at the Premier League
10 clubs, or put another way, half of all clubs are in foreign
ownership. We already have six clubs in the Championship that
have foreign owners.
3.6 We have nothing against these owners as individuals
or corporations. However our concern is that they may not share
the same sense of loyalty to the game of football in England as
we do. They may put profit and their own well being over the longer
term state of football in this Country.
3.7 We have already heard of Game 39 being raised
by the Premier League, with the intention of taking games abroad.
This is similar to the way American Football and other sports
work in America.
3.8 The way football is run at present, each league
can pass its own rules at their Annual General Meetings. It would
only need a couple of takeovers by overseas owners or even three
clubs to get promoted from the Championship and our main League
and football pride could be changed forever by overseas owners.
3.9 This may be good for business but we would argue
that it may not be good for football in this country. Rules should
be put in place so that the balance of decision making cannot
be removed from the UK.
3.10 This could be in the form of an Independent
Regulatory body to oversee any rule changes and make sure clubs
abide by the rules this body has laid down.
3.11 Special Status and Ownership Rules could be
put in place to protect against this becoming a reality.
4. CASE STUDIES
4.1 Sheffield Wednesday
Sheffield Wednesday is one of our oldest clubs with
a proud tradition and history. For years they were a local club
that operated within their means and were in the main owned, like
most clubs with this history through shareholders based in and
around Sheffield.
They held Annual General Meetings and elected the
Directors. To be fair these were mainly the large shareholders
and local business men. This changed with the formation of the
Premier league in 1992. Over a period of years they lived beyond
their means, borrowing large sums of money from the banks on the
back of the money coming in from the Premier league. This was
used to pay over inflated transfer fees and salaries on players.
This was done to try and retain their status in the Premier league.
Very little was invested in youth set up. As a result very few
local players came through from Youth Level. Debts were allowed
to build up to a reported level of £35,000,000.
Around six years ago a takeover/buyout was arranged
and around 40% of the club shares were bought. These were distributed
to three Directors who only retained around 9.9% of the shareholding.
The other 9.9% was handed over to Wednesdayite, the Supporters'
Trust at Sheffield Wednesday. By only retaining 9.9% per this
group, it allowed them to have "non influential status"
under company law. The reality was that they could combine their
vote and have a significant say in running of the club. This is
evidenced by the fact that one of them became Chairman and the
other two were elected onto the board of Directors.
To be fair to them, it would appear that they tried
to run the club on good financial lines and improve the debt levels.
One even started loaning money to the club to meet the ongoing
commitments. Initially interest was accrued on these loans. Later
on from information and public statements this interest was waived.
These loans then rose to around £2.5 million.
At no time throughout this period when the debts
were allowed to accrue was any action taken by the authorities
to stem this debt or indeed ask the club what it was doing to
remove them. The new directors were trying to get investment into
the club. In the current climate and the fact the club had being
relegated to the Championship and now subsequently to league one,
investment was hard to get.
The Supporters obviously became frustrated with what
was happening to their club and eventually forced the Chairman
to resign and leave the club. He did though retain his 9.9% shareholding
and held loan notes up to around £2.5 million. He subsequently
went and invested in Chesterfield FC. He was then required to
give an undertaking that he no longer would influence what happened
at Sheffield Wednesday. Over the last two years it has been reported
that certain investors wanted to buy into Sheffield Wednesday
FC. These were blocked by someone over the loan note issue.
Just before Christmas 2010 Milan Mandaric, the ex
owner of Portsmouth and Leicester City bought the controlling
interest in Sheffield Wednesday. This clubs highlights the lack
of regulation and investigations in the game today. A big cub
was allowed to build up totally unsustainable debts on the back
of the money from the Premier League and yet nothing was done
to stop it. An ex-Chairman was allowed for two years to influence
decisions at this club whilst being a Director, and according
to Chesterfield FC website majority shareholder of another club
contrary to Football League rules.
Sheffield Wednesday has now got a new owner with
no ties to Sheffield Wednesday or the community. He has already
proved he is willing to move from club to club. In both his previous
clubs he has built up significant debts before, fortunately for
him selling onto new owners from abroad. So how can Sheffield
Wednesday look forward to long term security?
4.2 York City
York City is a good example of what can happen when
a Club owner decides to become an asset-stripper, and the failure
of the existing regulatory framework to prevent that and the weaknesses
of the fit and proper persons tests.
Douglas Craig had been the majority shareholder of
the Club for a number of years when he wrote to all shareholders
explaining that it was in the best interests of the future of
the Club for the ownership of the ground to be put into a separate
company from the club. The letter did not explain exactly why
this was the case but no doubt its recipients saw no reason to
question the judgment of the Chairman on what seemed to be a technical
matter.
Having done this, Craig decided to both sell the
Club and give it notice to quit the ground, to enable him to personally
benefit from its sale. This is a ground whose original acquisition
back in the 1930s and its subsequent development over many years
has benefitted from the voluntary efforts of supporters of many
generations. This created a crisis at the Club which was only
resolved by a loan from the Football Foundation to enable the
ground to be purchased from Craig, with the loan being subsequently
converted into a grant to which the Club would be entitled for
a new ground. A number of years down the line, the new ground
still has not happened and the Club has to bear the costs of servicing
the loan which is a major financial drain on its very limited
resources.
To make matters even worse, Craig sold the Club (
which was worth very little without the ground) for £1 to
the late John Batchelor. Batchelor was on record as saying that
asset-stripping struggling companies was "what I do",
with a record of creating insolvencies in other industries. He
also has some eccentric ideas about football. Both before and
after his ownership of York City he expressed interest in acquiring
other football clubs, including a proposal to change Mansfield
Town FC to a fictional team, Harchester United. He also had connections
with motor racing and changed the York city strip to have a black
and white chequered sleeve.
Eventually Batchelor was forced out of York City
and the club was acquired by a Supporters Trust, but not before
Batchelor, who circulated money between his different companies,
walked off with £400k which by his own subsequent admission
was properly the money of the football club.
After a few years, the Trust found that it could
no longer sustain the Club in the perilous financial position
created unnecessarily by Craig and Batchelor. The majority shareholding
was acquired by a company owned by a family of York City supporters
who had been active in the Trust, with the Trust retaining a significant
shareholding and rights of veto over certain things.
This sorry tale illustrates that there should be
rules preventing the
separation of the ownership of the ground from the club and preventing
people with a record like that of John Batchelor from owning football
clubs.
4.3 Leeds United
The events at Leeds have been so dramatic and extensive
over recent years that the club could be the objective of a major
study all of its own which would provide insight into much that
was wrong with the governance of football and much of which remains
wrong today.
When considering the main factor which brought about
the initial collapse it is perhaps that the club was able to use
its football ground as security against major borrowing. A lesson
to be learned for football more widely might be that some mechanisms
might be sought that:
(a) protects football grounds from irresponsible
owners/directors by prohibiting their use as security against
debt other than to finance stadium development itself and
(b) protects football grounds from being a target
for predatory property developers. An example might be that any
new proposed stadium has to be handed to the club (and vetted
under a laid down procedure) before anything can happen to the
old ground including any change in ownership of that ground.
As Leeds reached its nadir and worked towards recovery
it became clear that the Football League faced very real difficulties
in dealing with the tactics employed by Leeds' owners and that
the FL was constrained by the current legal framework under which
it and the clubs must operate. These events in themselves must
point towards the requirement for special legal arrangements for
Football clubs which go beyond the rights and obligations laid
down by the law as it applies to "normal" businesses,
which football clubs clearly are not.
The FL might be empowered by such special legal requirements
on football clubs and might thereby be freed from the onerous
current mechanisms under which it must seek powers from its own
members in order to go beyond the requirements of law of the land
(in dealing with its own members). The current arrangements in
many ways require that Turkeys must vote for Christmas in order
to bring about improved regulation and control.
It is understood that Leeds United attempted footballs
first pre-pack Phoenix administration. Whilst such an administration
procedure may offer wider community benefits when used to rescue
a local business and local jobs, for example, it is much more
difficult to justify any mechanism which permits the owners of
a football club to engineer its administration and legally to
emerge still retaining the clubs ownership at the end of the process.
In such instances the benefits of the process appear to accrue
disproportionately to the owners of the club rather than to any
other interested parties or legitimate stakeholders. It may be
that this illustrates that a more restrictive insolvency and/or
administration procedure needs to apply to football clubs than
applies under the general legal framework as it exists for other
businesses. This might be for the greater benefit of football
as well as to the benefit of society more generally.
The tactics employed at Leeds of systematic attacks
(some public and some legal) upon supporter groups in a very clear
divide and conquer policy, together with the setting up of an
expensive official membership scheme (which initially have very
few benefits other than conferring the right to buy tickets, especially
to play-off finals) also should ring alarm bells. Any progress
which is made towards supporter involvement in governance and
control needs to take very careful steps to ensure that the supporters
involved are independent and not subject to intimidation by the
clubs ownership. This has been an extremely serious development
at Leeds and it may be even that some mechanism needs to be found
to allow the voice of protest whilst at the same time protecting
such voices from bullying legal tactics using big name libel lawyers
for example. The legal merits of such actions might be poor but
the intimidation levels achieved are much greater. Any proposals
need to be mindful that they do not offer up the supporters who
become involved as sacrificial lambs to slaughter at the hands
of powerful millionaire owners. Involved fans also need to be
protected and these dangers are very real and very easily overlooked.
Subsequent arrangements made by the undisclosed owners
of Leeds should also bring into question the acceptable ownership
models allowed to English League clubs. The Premiership and recently
the FL have sought to impose public declaration of ownership,
but Leeds have cynically sought to avoid these regulations by
means of a labyrinth statement of ownership issued a matter of
hours before the new ownership disclosure requirements came into
force.
Whilst this statement of ownership structure may
be legally acceptable for a UK business, serious consideration
needs to be given as to whether this again represents an instance
where football requires additional regulation in the public interest.
It may be that ownership of a UK football club by offshore trusts
with undisclosed beneficiaries is considered not to be an acceptable
model of ownership. Certainly it is impossible to ensure that
other requirements imposed within football are being met by these
Trusts and by their trustees and beneficiaries. A statement by
such a Trust is insufficient proof or guarantee that all requirements
are being met and that they will be met in the future. Positive
proof of compliance must be the minimum unavoidable requirement
and which is backed up by independent and auditable legal documentation
subject to the courts of the UK.
January 2011
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