Football Governance - Culture, Media and Sport Committee Contents

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.


—  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.


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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© Parliamentary copyright 2011
Prepared 29 July 2011