Written evidence submitted by the Football
League
This document represents the submission of written
evidence from The Football League to the Culture, Media and Sport
Committee's inquiry into football governance. As you will see,
it provides a short synopsis of the key issues facing The Football
League and the wider game at present.
Formed in 1888 by its 12 founder members, The Football
League is the world's original league football competition and
is the template for leagues the world over. With 72 member clubs,
it is also the largest single body of professional clubs in European
football and is responsible for administering and regulating the
npower Football League, the Carling Cup and the Johnstone's Paint
Trophy, as well as reserve and youth football. Last season more
than 19 million fans attended League competitions; with millions
more viewing matches on television. Off the pitch, the inspiring
work of The Football League Trust helped more than 1.5m people
in the communities in and around its clubs.
The League is a hugely important national institution
and has led the way on issues of football governance in recent
years. It will continue to focus on protecting the integrity of
The League's competitions going forward, as well as seeking better
ways to control costs throughout its divisions.
The League is a broad church, and includes small
clubs, with attendances numbering just into four figures, holding
membership alongside big clubs renowned on the international stage.
Ultimately, The League is governed through a democratic process.
For new regulations to be implemented, they must be supported
by way of a vote by a majority of Football League Clubs, and a
majority of Championship clubs.
The League welcomes the Committee's inquiry and hopes
it will provide a much needed independent forum to debate the
future of the game in this country.
Greg Clarke
Chairman of The Football League
26 January 2011
THE FOOTBALL
LEAGUE—"a global
success story"
The Football League is, by a long way, the world's
most successful second tier competition. Last season over 19m
fans went through the League's turnstiles, with the Championship
remaining the fourth best attended football competition in Europe,
ahead of the Italian Serie A, the French Ligue 1 and the Dutch
Eredivisie. More people watch Football League matches, including
the Carling Cup and Johnstone's Paint Trophy, than any other sporting
competition in Europe.
Our commercial offering is the strongest in The League's
history. The current television deal with Sky and the BBC started
in 2009, bringing live domestic football back to terrestrial television
for the first time since 2002. In 2010, npower became title sponsor
of The League, replacing Coca-Cola who remain an official partner.
FL Interactive, The League's online arm, continues to produce
and manage digital products for 84 football clubs, providing cutting
edge service and generating an increasingly important revenue
stream.
Football League clubs occupy a special place in the
hearts and history of their communities. Many of The League's
clubs have been in existence for more than a century. This unique
status is why The Football League Trust, The League's own charity
focusing on community work, has been so successful in having a
positive impact in and around its clubs - working with over 1.5million
people last season. The work of the Trust is hugely varied, but
focuses on five key areas: sports participation; social cohesion
(including crime reduction); the environment; education; and health.
For each area, the Trust harnesses the power of football to change
lives.
FOOTBALL GOVERNANCE
The Football League has led the way in recent years
in improving the good governance of football in this country.
The League pioneered the use of "Sporting Sanctions",
with a 10 point penalty applied to any club entering administration.
It also pioneered the publication of club spending on Agents Fees.
The first "Fit and Proper Persons Test"
in English football was introduced by The League in 2004, banning
individuals who fail to meet a number of clear objective checks
from being a director of a Football League club. This has been
strengthened several times since, and in the summer of 2010 was
amalgamated with the Premier League's own test to create one unified
"Owners and Directors Test" for professional football
in England. An Annual Reporting process for all club directors
has also been implemented, as well as prior disclosure of new
directors and a prohibition on persons taking up the role until
clearance is received from The Football League. A restriction
has also been introduced restricting those owning an interest
in a club when prohibited from entering the UK, or unable to have
funds available in the UK for their own benefit. Clubs must also
publish (usually on their website) the identity of any individuals
owning 10% or more in their club.
The League was the first in football to appoint independent
non-executive directors. Currently, two members of an eight person
Football League Board, including an independent Chairman of The
League, are independent of formal links to football clubs.
The League has also sought to improve its clubs'
costs controls. All clubs must include "divisional pay"
clauses in their contracts indicating what the player will be
paid in each division he might play in during the term of the
contract. A Salary Cost Management Protocol (SCMP) was introduced
in 2003 for League 2, limiting club spending on player wages to
60% of turnover. Clubs provide budgetary information to The League
that is updated as the season progresses and any player registrations
that take clubs beyond the threshold are refused. The Protocol
has proven successful, with the vast majority of clubs in the
division spending less than 45% of turnover on players' wages.
League 1 clubs are working towards shadowing the Protocol this
season, allowing clubs to trial the system and tailor it to their
divisional needs and requirements before deciding whether that
measure is appropriate for their division.
In 2009, pioneering new financial regulations relating
to tax payments were introduced. These provided The League with
written permission to monitor the PAYE of its clubs directly with
HMRC and impose transfer embargoes in instances where clubs fail
to meet their tax debts as and when they fall due. These regulations
have had a hugely positive impact, reducing the HMRC debt of Football
League clubs from £9.6 million in August 2009 (for 29 clubs)
to £400k in August 2010 (for 4 clubs). HMRC have welcomed
this innovation and has since implemented similar arrangements
with other sports, including the Premier League.
In August 2010, clubs agreed to additional financial
reporting requirements for Championship clubs, in line with Premier
League regulations. These include the provision of "future"
financial information relating to the subsequent season and the
need for clubs to demonstrate no overdue transfer fees, compensation
fees, key employee wages or PAYE/NIC. Clubs in default, or clubs
with business plans that cast doubt on their ability to fulfil
fixtures or meet their ongoing obligations, will be required to
submit to budget constraints, including the possibility of a registration
embargo. The change of ownership of more than thirty per cent
will also trigger fresh reporting requirements.
THE FOOTBALL
ASSOCIATION
The League is represented within the Football Association
through its membership of the Main Board (2 seats) and Professional
Game Board. The League is determined to continue to contribute
to the betterment of the domestic game going forward.
Historically, League clubs have made a significant
contribution to the Football Association through their commitment
to participate within the FA Cup, a vital income generator for
the Association. The League also plays an important role in the
membership of the FA Council and committees.
The Football Association should be the guardian
of the national game in England, seeking to protect its wider
interests. However, to be successful, this must be done in conjunction
with its key stakeholders, of which The League is one, and be
inclusive to the needs of a successful professional game.
The Football League should continue to be treated
as an autonomous stakeholder of the FA. It is by far best placed
to regulate its member clubs as it is in effect The League's competitions
that keep clubs operational. When its decisions or competitions
do not impinge on the national interest, it should be able to
service the needs of clubs as required, both commercially and
operationally.
The League would welcome the appointment of at least
two independent members to the Board of The Football Association.
The League's experience of appointing independent Board members
has clearly demonstrated that such a model can enhance an organisation's
governance structure.
YOUTH DEVELOPMENT
The poor performance of the England team at the last
World Cup has led to a focus on the domestic youth development
system. For their part, Football League clubs are committed to
developing the next generation of England stars from within the
local communities in and around its clubs. They are at the forefront
of developing young playing talent for the domestic game and are
investing more than £40 million a season in this important
area.
Clubs within The League make a significant contribution
to the England national team at all levels. England's last full
international saw 12 out of the 23 players having been developed
in full, or in part, by clubs presently within The Football League.
The same applies to 46% of England youth internationals (England
U16-U21).
The fact that The Football League has the biggest
player development programme in world football is a huge advantage
to English football. No other competitor nation has a professional
system outside their top-flight league that is capable of delivering
a system on this scale. More than 8,500 young players between
the ages of 8 and 18 are presently on the books of Football League
clubs.
The Football League was the first football body to
introduce a "Home Grown Player" rule. The rule requires
at least four players from a club's 18 man match day squad to
be registered domestically for a minimum of three seasons prior
to their 21st birthday. Last season, over 900 players, aged under
21, made first team appearances within The Football League.
It is important that Football League clubs are fairly
compensated for developing young players when they move on to
"bigger" clubs. Fair compensation encourages clubs to
invest in youth development and creates opportunities for more
young players to play first team football.
The Football League also provides opportunities for
young Premier League players to gain valuable first team experience
through its loan system. In recent seasons, The League has added
greater flexibility to its loan rules to encourage clubs to offer
more opportunities to young players.
Off the pitch, League Football Education (LFE) is
a partnership between The Football League and The Professional
Footballers Association, which works to ensure young players gain
additional qualifications and life skills to assist them should
they not make the professional grade. In total, the organisation
delivers the Apprenticeship in Sporting Excellence programme to
twelve hundred 16-18 year old apprentices within the 72 Football
League Clubs. LFE manage all elements of the education programme
and deal with safeguarding, as well as the provision of an extensive
exit and progression package.
In 2010, LFE apprentices achieved 95% retention and
93% academic achievement of the full apprenticeship framework.
These are outstanding results, and reflect the high standards
set by LFE, as well as the commitment of clubs.
CLUB FINANCES
The League sets a framework of regulations that aim
to promote good governance and protect the integrity of competitions.
It does not manage the finances of its individual clubs—that
is the job of their individual Boards of Directors—but it
does monitor them under certain situations.
Financially, League clubs are earning and spending
more than ever. The Football League is distributing record amounts
direct to clubs from the centre as a result of its commercial
activity. On average this season, Championship clubs will receive
circa £2.5million from The League; League 1 clubs circa £700k;
and League 2 clubs circa £500k.
Alongside these, the Premier League make substantial
"Solidarity Payments" direct to clubs to offset the
large parachute payments provided to assist their clubs when relegated
from the top tier. This season, these will amount to approximately
£2.2 million per Championship club not in receipt of parachute
payments; £324.5k per League 1 club; and £214.5k per
League 2 club.
Football League clubs are not normal businesses.
While most could be officially defined as SMEs, they play a much
more fundamental role at the heart of their local communities.
The majority are owned by fans or groups of fans wanting to invest
their hard earned monies to help their club and local town or
city to achieve a dream.
The Football League is continuously working to ensure
clubs understand that the best way to run a football club is to
create a sustainable business model that sees a club living within
its means.
Clubs should pay their debts on time and in full.
To do otherwise would in effect be cheating, thus gaining an unfair
advantage over those who are doing so. However, the threat of
a footballing penalty if a club goes into administration has had
a positive impact, and there is clear acceptance within the game
of the damage administration can do to a club's performance both
on and off the pitch.
While there is considerable debt owed by clubs within
The Football League this does not arise from leveraged buy outs
as such practice is uncommon within The League. Instead, it relates
to the rolling up of accrued trading losses, financed historically
by owners and directors.
It should be noted that the lack of economic value
created by Football League clubs means the capital markets are
often closed to them. For example, only two Championship clubs
made an operating profit in 2009. As a result, clubs are becoming
more reliant on an operational model that requires benefactors
or entrepreneurs with a high risk tolerance.
Cumulative player wages per division have risen continuously,
both within The Football League and the Premier League. The Championship
trend is particularly aggressive, rising from £103 million
in 1999-2000 to £223 million in 2009-10. The trend in League
1 is less aggressive (from £37.6 million in 1999-2000 to
£54.3 million in 2009-10), but still of concern. The League
2 trend is flatter (from £20.7 million to £22.8 million)
and reflects the success of the Salary Cost Management Protocol.
However, to demonstrate the true impact of such wage
increases on League clubs, it is important to view them alongside
the growth of club turnover during the same period.
Table 1
COMPOUND GROWTH WITHIN THE FOOTBALL LEAGUE
BETWEEN 1999 AND 2009 (SOURCE: DELOITTE ANNUAL REVIEW OF FOOTBALL
FINANCE)
| 1999
| 2009 | Compound Annual Growth over 10 years to 2009
|
| Turnover
(£k)
| Wages
(£k) | Turnover
(£k)
| Wages
(£k) | Turnover
| Wages |
| Champ | 6,720 |
5,343 | 16,385 |
14,363 | 9.3% |
10.4% |
| L1 | 3,602 |
2,866 | 5,100 | 4,100
| 3.5% | 3.6% |
| L2 | 1,387 |
1,317 | 2,800 | 2,000
| 7.3% | 4.3% |
Please note that figures within Table 1 are average per club
and include all wages (playing and non-playing club staff).
Such a comparison shows that while the trend at a Championship
level is worrying, it remains around a percentage point above
the overall growth in turnover. However, in an ideal world, wage
increases would not directly track the increase in turnover, allowing
for more general investment in clubs.
The recent economic downturn and the threat of public sector job
cuts, increased taxation and inflation, have all increased the
need for football clubs to reduce their costs and to live within
their means.
The League supports self regulation within the game aimed at better
controlling costs. The Salary Cost Management Protocol within
League 2 is testament to the impact such measures can have.
However, it is clear that player wages and related costs within
The League, and the Championship in particular, follow player
wage trends within top flight football internationally. As a result,
the escalation of wages is an issue that requires leadership on
an international stage if real impact is to be made.
The League welcomes the regulatory changes being made at the top
of the game in this country and in Europe, and is pleased that
its Championship clubs have committed to implementing financial
reporting measures. While the true impact of such regulation will
not be known for a number of seasons, it should lead to a more
sustainable financial environment for League clubs.
This season, clubs are without doubt starting to feel the "squeeze"
suffered by other industries in recent years. On average, there
has been a small reduction in attendances (down 3% on last season
to date) with the additional consumer spend at matches also falling.
Evidence also suggests that the commercial marketplace for clubs
is becoming more difficult, with hospitality and sponsorship income
under heightened pressure.
Clubs have responded to the deteriorating local economic environment
in recent seasons. This includes better practice in regard to
the length of player contracts. The League has also introduced
"Squad List" regulations to limit the number of players
aged over 21 a club may register.
Table 2
LENGTH OF PLAYER CONTRACTS WITHIN THE FOOTBALL LEAGUE
| 1 year
| 2 year | 3 year
| Other |
| 05/01/11 |
05/01/10 | 02/01/09
| 05/01/11 | 05/01/10
| 02/01/09 | 05/01/11
| 05/01/10 | 02/01/09
| 05/01/11 | 05/01/10
| 02/01/09 |
| Champ | 20.9% |
19.7% | 18.3% | 30.8%
| 28.1% | 31.5% |
38.9% | 38.6% | 38.7%
| 9.4% | 13.6% |
11.5% |
| L1 | 26.4% |
25.6% | 26.7% | 48.6%
| 46.4% | 43.4% |
21.0% | 24.3% | 26.1%
| 4.0% | 3.7% |
3.8% |
| L2 | 45.9% |
42.6% | 33.5% | 45.5%
| 44.4% | 54.4% |
7.5% | 11.6% | 10.7%
| 1.1% | 1.4% |
1.4% |
PRESERVING A
SUCCESSFUL FOOTBALL
LEAGUE
While, in the main, The League is confident that it can continue
to govern its competitions and clubs to a high standard, there
are certain issues on which it would welcome the support of the
Committee:
— There
is no doubt that The League and its clubs must do more to control
costs. It is an unsustainable situation for any club to spend
more on wages than its turnover, thus making it overly reliant
on investor funding. While many clubs have improved their internal
cost controls in recent years, some have not. It is imperative
that The League and stakeholders continue to keep up the pressure
on all clubs to live within their means—ensuring they can
remain in existence for another century or more at the heart of
their local communities.
— The
League is supportive of cooperative ownership within football
as long as it remains a voluntary option, rather than an imposed
ownership model. There is strong evidence that such an ownership
model can be successful at some clubs, but unworkable at others.
The League strongly believes that the best way to encourage fan
ownership in football is to make club finances more sustainable.
Fans' groups cannot often meet the gap that exists between revenue
and expenses, and thus experience difficulties in financing the
ongoing commitments of a club. The League would be supportive
of changes to the tax system that would make it more efficient
for fans to purchase their clubs; as long as there are no delays
built into the system that could be detrimental to clubs seeking
urgent cash injections.
— The
Football League is supported by the Premier League by way of a
significant multi-million pound "Solidarity Package"
designed to off-set the parachute payments for clubs being relegated
from the top tier. The League is very grateful to receive such
a package, which is also helpful in closing the growing financial
gap between the two leagues. The League would encourage the Select
Committee to voice its support for an ongoing "Solidarity
Package" from the Premier League and to note its importance
in the finances of League clubs.
— The
ongoing support of Government funding through the Skills Funding
Agency for football's apprenticeship programme, overseen by League
Football Education, is critical to protecting and maintaining
the high standards set. The League would encourage the Select
Committee to voice its support for such an important funding stream
that ensures youth players gain additional qualifications while
within the game.
— At
present, domestic football matches are not shown live during the
Saturday 3.00 pm "closed" period. The streaming of live
domestic games from foreign satellite feeds has a negative impact
on those participating in the game at a grassroots level on Saturday
afternoons, as well as crowds at Football League grounds—reducing
the much needed gate income of lower league clubs. The League
would encourage the Committee to voice its support for a continuation
of the closed period on a Saturday and for its assistance in halting
the streaming of televised matches at 3.00 pm on Saturdays.
— The
football creditors' rule is a much maligned and misunderstood
area of policy within the game. It is far too simplistic to say
it is about ensuring footballers are paid while local small businesses
are not; and a submission of this type cannot properly set out
all the justifications for the rule. What we can say is that the
rule is fundamentally important in protecting the integrity of
the competition and applies to all clubs equally, whether insolvent
or not. Football clubs and players operate in what is essentially
a closed trading environment. No club should be permitted to gain
an unfair sporting advantage by failing to honour commitments
(financial or otherwise) within the game. To allow otherwise in
the context of financial obligations would be to expose all clubs
at all levels of the pyramid to a "domino" effect of
financial distress. We also recognise the importance of other
creditors - those local businesses who have supported the club
in its activities through local supply agreements - and look to
clubs to secure a CVA as part of any exit from insolvency. The
CVA has a number of statutory safeguards designed to protect the
rights of the unsecured creditors, providing them with a platform
to decide whether an insolvent club should continue or not. If
the football creditor rule was removed, there is a greater risk
of clubs ceasing to exist, undermining the rescue culture promoted
by successive Governments and devastating local communities. But
for the rule, it is likely that a number of those clubs who have
undertaken financial restructuring would not be alive today. We
would encourage the Committee to ensure it fully understands this
policy and its importance to the game, and that the alternative
could well see Football League clubs going out of business.
— The
introduction of "transfer windows" by FIFA following
discussions with the European Commission caused a collapse in
the domestic transfer market which, in turn, frustrated the traditional
method of re-distributing wealth within the game. FIFA's initial
objective was to provide contract stability across international
borders in an attempt to prevent a minority of football markets
from dominating the market for playing talent. It is entirely
questionable whether this has worked, yet FIFA remain opposed
to relaxing the current regime for fear that players will seek
unilaterally to terminate their contracts early in order to exploit
opportunities elsewhere. It is with this background in mind that
individual countries have been prevented from operating the principle
of subsidiarity on a domestic level. It is clear, therefore, that
it would require political intervention in order for there to
be any change in this position and The League would encourage
the Committee to voice their support on this matter. It is an
irrefutable fact that the denial of an ongoing source of transfer
income has helped polarise football finances further. A return
to an "open" registration system where domestic transfers
can be concluded throughout the season would help redress this
position and reinvigorate the principle of wealth redistribution
throughout the game.
— The
League Cup continues to underpin the finances of English football
by being one of the most important means of wealth re-distribution. Each
season it generates around £50 million of income, two-thirds
of which stays within The Football League. Given its importance
in re-distributing wealth from the Premier League, The Football
League would encourage the Committee to voice its support for
the competition, as well as the continued allocation of a Europa
League place for its winner.
League clubs are committed to developing local talent
and providing first team opportunities for the next generation
of England stars. However, for this to continue there must be
an incentive of fair compensation for the club that has invested
in the player's development, should another club wish to sign
that player. The League would ask the Committee to put on the
record its support for a compensation system that allows a fair
return for clubs investing in and developing young players.
— In
recent years The League has seen attempts by some police forces
to increase the income collected from clubs for "special
police services". Football supporters, who already face heightened
taxation, should not be asked to pay, in effect, a new "police
tax". The League would ask the Committee to support Football
League clubs in their efforts to prevent them being seen as easy
targets for revenue generation at a time of budget cutbacks for
police forces and heightened taxation for clubs.
IN SUMMARY
— The
Football League has demonstrated a proactive and pioneering approach
to football governance in recent years, and is realistic about
the problems that presently exist within the game.
— The
good work of The League in recent years does not mean it can demonstrate
complacency going forward. It is determined to continue to raise
the bar even higher and to work with its clubs to focus on good
governance, and protect the integrity of its competitions.
— The
League welcomes any positive engagement from Government and stakeholders
that is aimed at improving the domestic game, and which preserves
the success of a professional game that is enjoyed by millions
of fans. However, it does not believe that Government intervention
is appropriate, at this time.
— When
focused on clear objectives, football can work together to create
an impactful regulatory regime. The League welcomes the recent
regulatory changes within the top tier, and is committed to integrating
similar practices within its Championship clubs, as well as continuing
to strengthen its Salary Cost Management Protocol.
— It
is vitally important that football does everything possible to
ensure that wealth is fairly distributed throughout the game.
The League encourages the Committee to voice its support for The
League Cup, the "Solidarity Agreement", a reopening
of the domestic transfer market, and a fair compensation system
for the development of young players. All of these will assist
in narrowing the increasing financial gap between the Premier
League and The Football League.
— The
Football League will provide its full resources to the Committee
to assist in the delivery of a report that is in the national
interest.
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