Written evidence submitted by Exeter City
AFC Supporters Society Ltd
The following submission is that of The Exeter City
AFC Supporters' Society Limited (The Trust), which is an Industrial
and Provident Society (IPS) registered with the Financial Services
Authority (FSA).
The Trust took majority ownership of Exeter City
Association Football Club in 2004. The Trust currently has in
excess of 3,200 members who collectively own the shareholding
in the football club. That shareholding is represented by an elected
board of Trustees and The Trust is represented on the Football
Club board by two non executive directors, the Chair of The Trust
and another elected Trustee who is also the current company secretary
of Exeter City AFC Ltd.
EXECUTIVE SUMMARY
— Football
clubs should not generally be treated differently to other commercial
organisations. However, there should be a benefit from special
considerations if the Club is controlled by a supporters' trust
and/or is run as a community enterprise.
— Current
football governance rules are too weak and poorly applied. These
rules require modernising and reinforcing by an effective enforcement
regime.
— There
is far too much debt in the professional game, largely brought
about by chasing a dream by unsustainable means. More effective
support for and the enforcement of the laws of insolvency are
required.
— The
supporters' trust shareholding model has much to recommend it
and official support should be considered for football clubs run
in such a way. The community and social benefits dovetail neatly
with the government promoted "big society" and "localism"
ethos.
— Government
intervention could be valuable, but should not be ongoing. It
is government's duty to set the environment and climate for good
practice and to ensure that the correct and appropriate legal
measures and enforcements are in place.
— There
is little variance of existing governance models within the UK.
Examples from other countries give a wider insight towards the
possible, but would not seen as being easily applicable in the
UK, as their legal and operational models are not always compatible
with legal and cultural operating climate that exists in the UK.
DETAILED SUBMISSION
1.0 Should football clubs in the UK be treated
differently from other commercial organisations?
1.1 Essentially, no. It is difficult to see why
a professional football club should be treated differently if
is run on a purely commercial model. Football is a sport that
sells its product—entertainment—to its customers (ie,
the supporters who choose to follow their club). This is no different
to a supermarket or any other business which sells commercial
products to its paying customers.
1.2 Equally, most football clubs have a long
history, many going back well over 100 years and there are often
allegiances attached that are greater than those relating to other
consumer products. Hence the recent trend to "brand"
football clubs with a commercial product image.
1.3 Sadly, the tendency in recent times has been
for some football clubs to seek success at the expense of good
business practice and, at times, even good common sense. This
has done little that is positive for those clubs, many of whom
have sacrificed financial prudence and a sensible commercial ethic
for unsustainable and costly transient "fame and fortune".
It is this tendency, more than any other which marks football
clubs out as different from the normal commercial business as,
although many businesses of all kinds fail every year, they rarely
do so as a result of such wanton profligacy. This is frequently
the hallmark of struggling football clubs. The question that then
arises; is there an alternative way?
1.4 The very nature of football clubs is that
they are solid, identifiable and popular institutions that encourage
both interest in and enthusiasm for sport and which are frequently
very close to the hearts of local people, even those who do not
regularly attend matches. Naturally the scale of this effect is
related to the area where the particular club exists, the size
of the local conurbation and the catchments hinterland. What remains
a constant throughout is the passion and loyalty which the local
people feel for their football club, be they one of a thousand
or less following a non-league club or many thousands following
a Premier league club. This is real "localism" identified
by the Government as a desirable factor in the growth of the "big
society".
1.5 There is a growing trend for football clubs
developing connections with their local communities and become
much more involved in many aspects of community life and, in particular,
social inclusion issues concerning young people, the unemployed
and needy.
1.6 It is perhaps in connection with the community
inclusion aspects and, in particular, where clubs are genuinely
following the supporters' trust/mutual route, as opposed to the
traditional purely commercial model, where there is a case for
clear and positive government incentives to encourage clubs to
improve and expand.
2.0 Are football governance rules in England
and Wales, and the governing bodies which set and apply them,
fit for purpose?
2.1 Herein, in our opinion, lies the biggest
single problem with football in England and Wales.
2.2 Any basic study of football clubs in general
would indicate a clear pattern of involvement in the running of
a significant number of clubs by persons with questionable backgrounds
and business records where they are clearly unsuitable and legally
and morally unfit to do so. There are many examples of where ailing
clubs have been identified as easy targets for the less scrupulous
investors, who bring with them a covert agenda of asset stripping,
which only becomes apparent when substantial long term financial
and structural damage has been done.
2.3 As a fairly recent example, under any test
of solvency, adequate governance and honest dealings there is
no case for Portsmouth Football Club to still exist, but yet it
does. No ordinary company with such a legacy would have been allowed
to continue to trade.
2.4 It is our considered view that the governance
rules urgently need to be tightened in relation to football club
ownership, with meaningful and detailed checks on the background
and suitability of investors to ensure that those who fail the
"fit and proper person" test are unable to gain
the opportunity to injure clubs at any level of the football pyramid.
We feel that the current "fit and proper person"
test is not rigorous enough, is not being properly or consistently
applied and is not "fit for purpose".
2.5 What must not be lost sight of in particular
is that community responsibility must always be involved. The
fundamentals of good governance should be that the FA, at the
top of the football pyramid, ensures in terms of its rules and
their use, that good community relations, community development
and community inspiration always remain paramount above all other
considerations.
2.6 Governing bodies in English football have
an overriding aura of parochialism and lack of understanding of
the realities of the management and administration of the modern
game. We do not believe that any other sport would tolerate unfit
and improper persons to become involved in the ownership of clubs.
Strangely football seems to consistently flout this widespread,
if unwritten, rule. Why is it that such governance rules that
are already in place are not applied by the very governing bodies
that set them?
2.7 Looking at the situation elsewhere in Europe;
Spanish football has a law on transparency and in France the law
gives access to examine the financial operations. In Germany,
the Bundesliga is currently running at a profit. Under Bundesliga
rules, if a club is not in profit it is automatically relegated.
The Swedish league is in profit.
3.0 Is there too much debt in the professional
game?
3.1 Yes, of course there is too much debt. Most
of the debt is totally unsustainable and is, more often than not,
dependent upon an artificial valuation of player assets. This
unreal method of valuation of players is one of the ways that
the courts have been persuaded to rule in favour of those who
have gained from their selfish profligacy. One of the biggest
changes needed in governance concerns financial viability and
the basic principle of living within your means. There should
be clear rules with far greater transparency, stronger auditing
and adequate and proportionate enforcement.
3.2 Some 60% of European football debt lies within
English football. It is not be too difficult to see a link between
the speculative risk-taking and financial impropriety of the banking
sector and a similar approach within football and it is clearly
the task of government to take a lead against this damaging culture
and restore confidence and equity to the entire business world.
Football gives government an opportunity to demonstrate what can
be achieved within this "closed" commercial sector,
and that can have longer term applications to the wider economy.
3.3 In English football, money has been spent
on football in a wantonly reckless manner by owners who seem to
have lost their business rationality when applying their fiscal
prowess to the world of football. It is often a case of individuals
seeking to build a dream on unsustainable financial footings.
Players at the top level are being paid what appears to the average
person as outrageous and obscene amounts of money and this profligacy
then spirals through the football pyramid. Not only do players
aspire to earn such unimaginable sums (who wouldn't find the prospect
of earning £200,000+ a week attractive?) but the incentive
of playing at a high level primarily for the pride and sense of
achievement is effectively destroyed.
3.4 It follows that, with the financial ripple
on down to the lower leagues, where the relatively wages are significantly
less, the system will always favour those clubs that have the
financial backing and investment to pay ever higher wages than
others can. That is of course, the natural law of commerce and
would probably not be greatly called into question if it were
not for the fact that the indiscriminate influx of asset strippers
posing as "investors" into the game at almost every
level, is doing nothing to improve or develop it. It is actually
slowly eating away at the foundations of the game and the sheer
volume of clubs that have, or are currently, suffering the ignominy
of administration, points deductions, relegation or, at worst,
liquidation and removal from the football pyramid completely,
is the net result.
3.5 Over the past 15 years more than 50% of the
football clubs in the English Football League have gone into administration.
This occurring during a time when football has been enjoying something
of a renaissance and England has been rebuilding its international
status and credentials in the football world. This does not paint
a pretty picture and is a sad reflection on what the game has
become since its inception. Almost every entertainment industry
has been forced to cut its cloth according to its financial state
and we have seen many areas contract and develop new and innovative
ways of producing a product and remaining relatively solvent.
Football is the one area which appears to have headed in the reverse
direction and attempted to develop its product with careless abandon
and profligacy.
3.6 This is quite clearly unsustainable in the
long term and, what is worse, is tending to damage both the image
and credibility of the game. It cannot continue and new methods
and ideas need to be implemented if the game is to survive, grow,
improve and prosper in other than a purely financial sense in
the 21st century.
4.0 What are the pros and cons of the Supporter
Trust share-holding model?
4.1 Clearly, with this being a submission from
one of only two Supporters' Trusts in the Football League that
own their football clubs as the majority shareholders, our response
is based on considerable practical experience and knowledge. We
are very proud of our record of both sustained membership growth
and effective governance. We believe that our model is limited
only by the historic system within which UK football operates
and the competition from clubs operating from a frequently unsustainable
financial base.
4.2 It is fair to say that, having taken over
ownership of the club in 2004 and seen the club progress from
its then position in the Conference (Blue Square Premiership)
through promotion to League Two and onwards to League One many
changes have had to be made to the way the club is run, the number
of staff employed and the improvement and development of funding
sources to sustain that improvement in fortune.
4.3 The big unanswered question now is whether
the model that we have, which has been relatively successful for
our club, is (a) sustainable long-term and (b) able to compete
successfully with clubs that have much bigger budgets and a much
more developed and modern stadium and overall infrastructure.
Our club has suffered from many, many years of under-investment
and inattention and, other than partial stadium improvements which
took place in the mid to late 1990s, many of the other improvements
have taken place under the auspices of The Trust. A great many
of such improvements have been funded by and/or physically undertaken
by numerous volunteers. A local example of "big society".
4.4 The one single thing which sets the supporters'
trust model apart from the conventional ownership scenario is
the sense of ownership and togetherness which pervades almost
everything that club does and achieves. Naturally we feel this
is tremendously important. Whether the future lies in clubs owned
and controlled by supporters' trusts or a modified conventional
model where there is substantial supporter representation (provided
through properly set up and administered trusts) with a real say
in the way the club is run is a detail for the Committee to assess
and although currently untested, is an initiative worthy of promotion.
4.5 At some stage it is likely that external
investment would be necessary but we would advocate, as in our
own situation, this could only occur with the full consent of
the membership of the supporters' trust as the majority shareholder.
The reality is that there will be an inevitable "ceiling"
somewhere, where the lack of finance will tend to hold back a
supporters' trust owned club, though it should be remembered that
this is relative to the availability of investment, sustainable
or not, at other clubs where the "normal" ownership
model prevails. We would engage the fans to bring the required
investment, including offering Community Shares issues, as this
fits with the "Big Society" concept. In this regard
tax relief for the CS investors would be a positive inducement.
4.6 In our opinion the following are the primary
benefits of the Supporters' Trust model:
— It
brings sustainability because there are no "long stop"
riches to be drawn down in times of crisis or to fuel unrealistic
expectations and ambitions.
— The
consideration of risk in all it guises is more widely spread and
is subject to democratic processes.
— It
relies on a practical, emotional and psychological "buy in"
by the football community and the opportunity to use the football
club as a focus for a greater community engagement in a wide range
of projects, both football and more generally.
— There
is genuine control, participation, volunteering and engagement:
the "Big Society" and "localism" at work.
— It
can act as a vehicle for social change.
— It
can provide a framework to provide equitable solutions to the
issues raised in Questions1, 2 and 3 above.
— Greater
supporter involvement and the removal of owners whose sole aim
is personal financial gain.
— Setting
a framework for managing fans expectations on information flows;
this can be a major challenge because of a lack of understanding
regarding commercial sensitivity and a desire to know everything
about everything.
4.7 The 2009 report entitled "English Football
and its Governance" published by the All Party Parliamentary
Football Group considered the subject of supporter representation
and recommended that, amongst all 92 clubs in the Football League
and Premier League, there should be an elected supporters' representative
on the club's board or equivalent body. We support that recommendation,
but feel that just one representative is insufficient and likely
to be ineffective, without detailed safeguards.
4.8 That same report comments; "… six
of the last 15 Champions League winners have been club owned and
run by fans and it is only a cultural difference which separates
us from the idea that football clubs are social and cultural institutions."
The reference to cultural difference there is an important one
as, in our view; it reflects a missed opportunity in this country's
football structure.
5.0 Is Government intervention justified and,
if so, what form should it take?
5.1 In the sense that government should take
an overview and sponsor and monitor the regulatory system (which
in itself should be independent of the football authorities),
yes. This is because, in the main, the FA et al are composed of
those with a vested interest in perpetuating the status quo. There
is an argument that primary legislation may possibly be required
to set the regulation and reporting framework and to give it real
teeth and sanctions.
5.2 Any intervention would probably not be appropriate
on an ongoing basis. Governments rarely intervene in business
and ongoing intervention could potentially stifle growth, but,
as football is not an ordinary business, a level of intervention
is needed to bring about reform.
5.3 There is, of course, a question mark hanging
over how the football authorities and the wider football world
in this country would react to any significant government intervention.
It is probably that the FA at al would become defensive because,
such a move would almost inevitably result in pressure for reform
and a weakening of the control currently enjoyed by the FA.
5.4 As regards the form that it should take,
undoubtedly there needs to much clearer and more rigidly applied
criteria applied relating to the "fit and proper person"
test. In our view this is failing to work adequately as many clubs
continue to suffer from the involvement of people who are clearly
not fit and proper persons when it comes to running a football
club.
5.5 The other area that desperately needs reform
is that of supporter representation on football club boards. It
is in the interests of many of those on club boards to exclude
such representation because it will almost inevitably be the supporters
who will tend to ask the difficult questions and seek justification
for many of the Board's actions. Without government sponsorship
there will be no widespread supporter representation at Board
level.
6.0 Are there lessons to be learned from football
governance models across the UK and abroad, and from governance
models in other sports?
6.1 There are always lessons to be gained from
the way that others do things, but there is also the need to show
caution and understand that most sports governance has essentially
"developed" from experience rather than the logical
and intellectual application of core principles. There are both
advantages and disadvantages in taking evolution lead changes.
Advantages in that they are driven from good and bad experiences
but disadvantages in that "vested self interest" is
also a serious motivator for change and control. Many sports governing
bodies are peopled by those active in the individual clubs and
associations and are likely to be "narrow" in their
consideration of what is best for the community at large (including
the tax payer).
6.2 There are few major variations in football
governance within the UK. There is the "standard" commercial
model of many years' standing and the trust control model and,
whilst there may be variations within each type—often as
a result of the influence of particular personalities and their
policies and decisions within individual clubs - otherwise, there
are really no other true models to draw experience from.
6.3 Looking overseas, whilst the peculiar German
football governance structure may be well suited to prevent integrity
problems resulting from ownership by "undesired" persons
or entities, this effect comes at a price. In the vacuum of power
generated within large member associations, residual rights of
control are allocated to representatives who do not hold residual
claims. Because these representatives externalise substantial
parts of the risk associated with investment decisions, they are
particularly ill-suited for managing the business of professional
football, which has been transformed into a "gamble on success"
by ever-increasing revenue differentials between winners and losers.
At the same time, low accounting standards for members clubs,
combined with "soft" law enforcement, invite club representatives
to hide their consumption on the job behaviour until their clubs
are insolvent.
6.4 In April 2010 there was a threatened strike
by Spanish footballers. The strike was intended to draw attention
to the plight of 85% of footballers in Spain's top three divisions
whose wages are paid late or not at all. The reality of the financial
situation in Spanish football is that Barcelona and Real Madrid
earn more than four times as much from the domestic TV deal alone
as any other La Liga side and their turnover is more than six
times as high. The Spanish system has been labelled as profoundly
unequal and top-heavy. The reason the strike was called was because
of the massive debts which have been accumulated by the football
clubs.
6.5 From the above and other examples we conclude
that there is probably little to be learned from how other countries
operate either their football leagues or the governance thereof
that can assist us in the short term. Better then to concentrate
on our own structure in the UK which, after all, is one of the
very oldest in the world, and seek to adapt, modify and govern
it in such a way that it both improves the experience of the supporter
(effectively the customer), makes him/her feel an integral part
of the club and part of its lifeblood and ensures that the system
encourages the development, progress and improvement of young
players throughout the game.
January 2011
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