Written evidence submitted by the Football
Supporters' Federation
1. INTRODUCTION
1.1 The Football Supporters' Federation
(FSF) represents over 180,000 fans supporting professional clubs
and national teams at all levels throughout England and Wales.
We would like to endorse the evidence separately submitted by
our friends and partners at Supporters Direct.
1.2 The proposals and recommendations
contained in this evidence are summarised as follows:
— The
creation by Parliament of a special legal status of "registered
limited sports club" as part of a new comprehensive Sports
Act (section 2).
— Strengthening
of the owners' and directors' tests and their enforcement (section
2).
— Further
reforms of FA governance, starting with the appointment of two
new independent FA main board directors (section 3).
— Continued
adequate funding by the game of the FSF and Supporters Direct
(section 3).
— New
rules to inhibit leveraged buy-outs and curb disproportionate
debt (section 4).
— Government
to intervene as a facilitator to ensure that essential governance
reforms are introduced by the FA (section 5).
— A study
of models offered by other nations and sports (section 6).
2. THE LEGAL
STRUCTURE OF
FOOTBALL CLUBS
IN ENGLAND
AND WALES
2.1 We believe that football clubs are
principally sporting and cultural assets. Their prime purpose
should be to serve their geographical and supporter communities
by (a) providing the best level possible of football on the pitch;
(b) providing the best possible level of supporter facilities
and value for money off the pitch; (c) supporting the development
of the game at all levels as a "beacon" of football
in their town or city; and (d) the promotion of community cohesion
and well-being. All other purposes and objectives should be ancillary
to and support these objectives. In many cases what actually happens
is very different.
2.2 Almost all professional football clubs
in this country are legally either private or public limited companies.
Indeed Premier League and Football League regulations require
that professional clubs be registered as such.
2.3 There are a number of clubs whose
final legal majority or sole owner is a mutual Industrial &
Provident Society (eg Exeter City, Brentford). This is a major
success for Supporters Direct and the mutual supporter ownership
movement.
2.4 To regulate football clubs solely
as private sector commercial businesses is to miss the
point of professional football as a sporting and cultural good.
The game's European governing body UEFA, the Union des Associations
Européennes de Football, believes that the best form
of organisation for a professional football club is a mutual member-owned
club. We agree.
2.5 In the British context we propose
the creation by statute as part of a comprehensive Sports Act
of a new limited liability status for sports clubs whose goal
is not primarily one of profit for shareholders.
2.6 The directors of all private or public
companies limited by shares owe an overarching fiduciary duty
to the company's shareholders. All other objectives are secondary.
Even this objective is often not met in football, as demonstrated
by the financial crises at many clubs over the last two decades.
Most recently at the elite level we have seen the economic collapse
of Portsmouth, Liverpool almost collapsing under the weight of
acquisition debt piled on the club by its new owners in a leveraged
buy-out in 2007 and the deeply controversial leveraged buy-out
of Manchester United in 2005.
2.7 Last season saw the collapse of the
former Chester City FC, expelled mid-season from the Football
Conference. These and many other instances demonstrate that the
current model of football governance is broken and needs urgent
reform
2.8 The football authorities deserve credit
for a range of reforms which they have introduced in recent years.
They need to go much further. The owners' and directors' tests
(formerly the "fit and proper person" tests) need to
be extended and strengthened. The resources and expertise applied
to their enforcement needs to be enhanced.
2.9 Currently the owners' and directors'
tests (ODTs) bar any person from owning or directing a club where
they have been responsible for two episodes of football insolvency
or have serious unspent convictions.
2.10 The amendments to the Premier League's
ODT require potential new owners to provide details of their business
plans and proof of funds prospectively rather than retrospectively.
Clubs are now also required to report on tax payments due to HMRC.
This is all welcome.
2.11 When a prospective director or owner
is resident and domiciled in the UK there are fewer problems with
investigation and enforcement. However, it becomes difficult when
the prospective new director(s) and/or owners are foreign nationals
and/or resident abroad, particularly in countries known to experience
corruption. The former Manchester City owner Thaksin Shinawatra
is an example. When Shinawatra took over Manchester City respected
international non-governmental organisations like Amnesty International
and Transparency International expressed grave concerns. There
should be a place in the ODT for the examination and consideration
of such evidence, whilst applying the rules of natural justice.
2.12 There are other problems with the
rules as they relate to past records. As they stand Robert Mugabe
would pass the test but Nelson Mandela wouldn't.
2.13 The football authorities claim that
they are constrained by UK and EU law. Whilst this is true, we
believe that they could do far more, even within the current legal
framework. We believe that some legal changes will be required
however to allow football to effectively regulate itself.
2.14 The recent jurisprudence of the European
Court of Justice (ECJ) suggests that professional sports governing
bodies may introduce rules which control and curb the economic
activities and/or employment rights provided that the rules are
necessary, proportionate and introduced for primarily sporting
rather than economic reasons.
Recommendations
— The
creation by Parliament of a special legal status of "registered
limited sports club" as part of a new comprehensive Sports
Act.
— Strengthening
of the owners' and directors' tests and their enforcement.
3. FOOTBALL'S
GOVERNING BODIES
AND RULES
3.1 The most recent reform of the FA's
internal governance structure took place following the enquiry
into the organisation's governance by cross-bench peer Lord Terry
Burns, whose findings and recommendations were published
in 2005.
3.2 Lord Burns made it clear that the
reforms he proposed hung together as a coherent whole. Despite
this the FA decided to dine from the recommendations a la carte.
Some reforms were implemented, notably the appointment of an independent
chairman, the creation of the semi-autonomous Football Regulatory
Authority (FRA) within the FA (although with neither the functions
nor the governance that Burns envisaged) and the addition of representatives
from the members of the "football family" formerly unrepresented
within the game to the FA Council.
3.3 However, Burns recommendation for
additional independent non-executive members of the Board was
not adopted. The supporters' representative on the FA Council,
Dr. Malcolm Clarke will submit separate evidence to the Committee
on the FA's structure and governance arrangements.
3.4 We do not necessarily believe that
the Burns model, which was by his own admission a compromise based
on what he thought it was possible to get accepted, represents
the ideal end-state. We do however believe that the partial implementation
of even his limited reforms is inadequate.
3.5 The rejection of the draft response
to the seven questions posed to the football authorities by the
former Secretary of State for Culture, Media & Sport, the
Rt Hon Andy Burnham MP submitted by Lord David Triesman to the
FA Board demonstrates the problems of conflicts of interest within
it.
3.6 The Guardian revealed that
Triesman's draft contained the following recommendations, which
the FSF supports:
— The
FA must be trusted to lead across the full breadth of its remit,
including its role as regulator, which [is] a core function of
the FA,
— A licensing
system, overseen by the FA, in which clubs would commit to financial
regulations, and minimum levels of community and supporter involvement,
and youth development.
— Clubs
to make annual financial reports to the FA, including whether
their accountants have passed them as "going concerns".
— A single
fit and proper person test to be applied to all professional clubs,
including prohibiting people from being owners or directors if
they are under criminal investigation or have been cited by Human
Rights Watch as human rights abusers.
— Owners
must say where all the money they invest in clubs has come from.
— "A
formal relationship [to be] developed with supporters groups …
promoting discussion of the distinct local character of the club
and its community role".
— Boards
to publish "an annual statement of their plans for the club".
— "A
preliminary discussion" to be held on sharing money more
equally in football, and providing clubs with financial incentives
to develop young players.
— "A
discussion" to be held with UEFA about "wider distribution"
of Champions League television money.
— Working
to prevent clubs signing players from overseas until they are
18 years old.
3.7 The instability of the FA is evidenced
by the procession of chief executives who have resigned or otherwise
been forced out since the resignation of Graham Kelly in 1998.
The FA has had six chief executives in less than 13 years.
3.8 It should be remembered that one of
the express reasons behind the FA's creation of the Premier League—which
broke away from the Football League in 1992-93—was to promote
the success of the England national team. The Premier League chairman
Sir David Richards said at the third Dubai Sports Council conference
in 2008 that the reality has been different. He argued that the
Premier League's failure to reduce its size to 18 clubs as planned
and the constant pressure on managers for results, leading them
to not blood young British players, has damaged the national team.
What supporters might think of an 18 team League hasn't been tested.
As usual, they haven't been consulted. They should be, but it
is telling that a senior Premier League and FA official thinks
that it would benefit the English national team.
3.9 We are a long way from the kind of
player development and youth coaching infrastructure that exists
in other major European football countries, as is demonstrated
by the performance of the England team at last year's World Cup.
3.10 Nor do we utilise the game's great
former players as we should. Franz Beckenbaur, the former West
German international player and manager is a senior figure within
the DFB (the Deutsche Fußball-Bund, or German Football
Federation) and a member of the executive committee of FIFA (the
Fédération Internationale de Football Association).
Former French great Michel Platini was co-president of the organising
committee for the 1998 World Cup in France and is now president
of UEFA and a vice-president of FIFA.
3.11 If supporters are to play a real
part as stakeholders in the game as envisaged by the Government,
both the FSF and Supporters Direct must be properly funded by
the game. This has been recommended by a succession of independent
inquiries going right back to the Chester report in 1968, as well
the Football Task Force in 1999 and reports by the All-Party Football
Parliamentary Football Group. The FSF received support from the
Professional Footballers' Association (PFA) before a new arrangement
was introduced four years ago giving us £75,000 per year
from each of the PFA, the Premier League and the Football Association.
Unfortunately that arrangement ceases in summer 2011.
3.12 The PL and PFA contributions are
to be replaced by a new Fans' Fund for which we will also be in
competition with other organisations in a situation where it appears
that the Fund may be under-financed to meet existing commitments.
Furthermore, the new fund will focus on time-limited projects
whereas much of the work of the FSF as a democratic, representative
supporters' organisation, is not, by its nature, project work.
There is also a requirement to seek matched funding from elsewhere.
Whilst we have been working to do so, in practice such sources
of funding are difficult and time-consuming to obtain—particularly
in the current economic climate—for the kind of projects
envisaged by the Fans Fund. We do not know if the contribution
from the FA will continue beyond summer 2011.
Recommendations
— Further
reforms of FA governance, starting with the appointment of two
new independent FA main board directors.
— Continued
adequate funding by the game of the FSF and Supporters Direct.
4. DEBT IN
PROFESSIONAL FOOTBALL
4.1 It is an irony that at a time when
the professional game has massively increased its income from
media rights and commercial/sponsorship agreements, more and more
clubs throughout the United Kingdom are becoming legally insolvent.
4.2 Her Majesty's Revenue & Customs
(HMRC) has had to accept substantial losses to the public purse
as a consequence of clubs going into administration. Since the
FA created the Premier League in 1992, there have been no fewer
than 64 (Beech, CIBS, 2008) insolvency events in the three
divisions of the Football League. This reflects to some extent
the negative consequences of the huge imbalances of wealth between
different levels of the football pyramid, which is an incentive
for financial irresponsibility as clubs strive to reach or maintain
themselves at the next level. The Premier League has now experienced
its first insolvency at Portsmouth.
4.3 Not all debt problems arise from overspending.
Prior to the leveraged buy-out in 2005 and subsequent de-listing
of Manchester United had no long term debt but now has over £500
million of such.
4.4 This debt has done nothing whatsoever
to improve the club on or off the field. Some £260 million
has flowed out of the club since 2005 in debt repayments, all
of which was loaded onto the club balance sheet by the new owners
having been contracted to pay for their purchase of the club.
The Glazer family has personally taken out at least £20 million
over five years.
4.5 A similarly highly leveraged takeover
by the American investors Tom Hicks and George Gillett of Liverpool
almost led to the club's bankers seizing control of the club's
shares. The Royal Bank of Scotland insisted that the club be sold
to clear its debts, almost all of which was transferred to the
club following the leveraged buy-out, in direct contravention
of pledges made.
4.6 Debt itself, intelligently incurred,
prudently managed and invested in assets such as stadia and training/coaching
facilities, is not a bad thing per se. However, debt which
is used to redress annual operating losses, as it is in case of
many clubs, is the road to financial instability, rather like
paying your mortgage by credit card.
4.7 The football authorities have failed
to adopt and enforce strong enough rules on debt load and management
to secure clubs as sporting and cultural assets.
Recommendation
— New
rules to inhibit leveraged buy-outs and curb disproportionate
debt.
5. GOVERNMENT
INTERVENTION IN
FOOTBALL
5.1 Successive Sports Ministers and Culture
Secretaries in both the previous Labour and current Coalition
governments have expressed concern at the apparent inability of
the football authorities to introduce lasting reforms to protect
the game and give the FA the structure and authority it requires
to discharge its functions as the guardian of the game.
5.2 The calls for government regulation
or intervention and oversight arise from a sense of frustration
at the apparent inability of the game to cure its administrative
ills unaided.
5.3 The FSF hopes that the Committee and
Government ministers will want to play an active part in ensuring
that the right regulatory framework exists in the game, supported
by an appropriate and proportionate statutory underpinning. This
must respect the rights of football to organise itself as part
of civil society. On the other hand when it expects and receives
Government support as the national game, football cannot expect
to be above any legal accountability.
6. LESSONS FROM
OTHER NATIONS
AND SPORTS
6.1 The FSF believes that the internal
self-regulatory regimes applied in professional football in France
and Germany have much to commend them. They are not perfect but
it is no accident that of the four biggest football nations in
Europe, Germany's Bundesliga is the one with the least
financial problems and also the most competitive. It is also better
attended and has much cheaper matchday prices than the Premier
League. France has also taken significant strides to address the
constant financial problems that plagued the game there.
6.2 The regulatory licensing regime employed
by the Deutsche Fußball Liga, responsible for the
German game's two elite national professional divisions, has much
to commend it. If clubs fail the stringent financial viability
tests placed upon them their professional licence is revoked and
the club concerned automatically relegated to the semi-professional
regionalised third tier. In practice the "death penalty"
of relegation on financial grounds acts as a sufficient deterrent
to prevent the insolvencies which plague the game here.
6.3 We also commend to the committee's
consideration the administrative reforms introduced by the Australian
Football League, the governing body of Australian Rules Football.
In 1985 the AFL (then known as the Victorian Football League)
replaced its former board of directors with the Commission.
6.4 The Commission comprises eight non-executive
commissioners, a non-executive chairman and a full-time chief
executive. Commissioners are elected by the 16 AFL club but may
not hold any club position. Commission members include business
people, a senior trade unionist and a judge.
6.5 The Commission has absolute discretion.
Its decisions can only be overturned by a vote of three-quarters
or 12 of the 16 AFL clubs. This system has not been without its
controversies but it allows the Commission to run the game unhindered
by minority or factional interests. The Commission has overseen
the expansion of the code's elite professional competition from
the state of Victoria to New South Wales, Queensland, South Australia
and Western Australia. The only state without an AFL team so far
is Tasmania.
6.6 Under AFL rules all clubs have a duty
to fund and promote the grass-roots game in their communities
and states. The AFL Commission model has seen the game expand
and grow to become the leader amongst Australia's four football
codes (Australian Rules, rugby league, rugby union and football).
The National Rugby League is about to adopt the commission model
of governance. Interestingly, all 16 AFL clubs are wholly or mainly
owned by their members and/or the state semi-professional leagues.
Recommendations
— Government
to intervene as a facilitator to ensure that essential governance
reforms are introduced by the FA.
— A study
of models offered by other nations and sports.
7. CONCLUSION
7.1 We would be delighted to provide further
more detailed papers to the Committee. We would also welcome the
opportunity to give oral evidence.
Football Supporters' Federation
26 January 2011
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