Football Governance - Culture, Media and Sport Committee Contents

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.


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 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.


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.


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

1999 2009Compound Annual Growth over 10 years to 2009
Turnover Wages
Champ6,720 5,34316,385 14,3639.3% 10.4%
L13,602 2,8665,1004,100 3.5%3.6%
L21,387 1,3172,8002,000 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

1 year 2 year3 year Other
05/01/11 05/01/1002/01/09 05/01/1105/01/10 02/01/0905/01/11 05/01/1002/01/09 05/01/1105/01/10 02/01/09
Champ20.9% 19.7%18.3%30.8% 28.1%31.5% 38.9%38.6%38.7% 9.4%13.6% 11.5%
L126.4% 25.6%26.7%48.6% 46.4%43.4% 21.0%24.3%26.1% 4.0%3.7% 3.8%
L245.9% 42.6%33.5%45.5% 44.4%54.4% 7.5%11.6%10.7% 1.1%1.4% 1.4%


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.


—  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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© Parliamentary copyright 2011
Prepared 29 July 2011