Written evidence submitted by Mr Sean
Hamil & Dr Geoff Walters, Birkbeck Sport Business Centre,
Birkbeck College, University of London |
1. The Birkbeck Sport Business Centre (BSBC)
is a specialist sport business research centre based in the Management
Department at Birkbeck, University of London. Geoff Walters and
Sean Hamil are two of the members with particular expertise in
corporate governance of the football industry. This submission
will begin by first summarising our key recommendations.
It will then summarise our response to each of the six key questions
raised by the Committee, indicating wider background supporting
documentation where appropriate.
2. The authors recommend:
(i) It is legitimate for football clubs to be
treated differently by government regulators in recognition of
the "peculiar economics" of the sport industry, and
the special social function of sport in society, but in return
the professional football industry must operationalise "special"
reciprocal obligations via mechanisms such as "solidarity"
payments to the grassroots.
(ii) The Football Creditors Rule can no longer
be justified as a "fit-for-purpose" regulatory device
and should be abandoned.
(iii) The English football authorities should
wholeheartedly implement the UEFA Financial Fair Play (FFP) initiative
and apply its principles throughout the football pyramid. The
FA, as the governing body of English football should play the
lead role in driving its implementation.
(iv) The full implementation of the Burns Enquiry
(2005) recommendations for reform of the FA should be re-visited
as a solution to English football's fragmented governance structure.
(v) Tax incentives should be introduced to incentivise
supporter trust investment in clubs. Government should offer financial
support to the work of Supporters Direct.
Should football clubs in the UK be treated differently
from other commercial organisations?
3. Football is not purely a business. This is
because football is structured as a pyramid of which the top professional
level is just the apex. English professional football draws on
grassroots not-for-profit structures of participation, not only
as a training ground for future players for both clubs and the
national team but as a source of future spectators. The interdependency
between the professional and grassroots game is explicitly recognised
through the funding mechanism of the Football Foundation, a key
investor in grassroots football infrastructure, which is funded
by the government, the Football Association (the FA) and the Premier
So through the principle of sporting "solidarity" professional
football in England quite correctly redistributes significant
revenues to football's grassroots. In this regard professional
football performs a "social" function, and it is legitimate
that, when performing this "social" function, its activities
be treated differently to mainstream business activity, for example
through the provision of tax relief etc.
4. It is also the case that the operation of
successful sports leagues embodies "peculiar" economic
characteristics which require exceptional treatment.
Notably it is the competition itself that is the product, not
the individual clubs. It is widely recognised that it is legitimate
for sports' league organisers to centrally negotiate some commercial
activities on behalf of their member clubs, in order to redistribute
income more equally amongst them to more evenly balance labour
market spending power to ensure a reasonable level of competitive
balance/uncertainty of outcome. The Premier League, the Football
League, and the UEFA Champions League and Europa League, all employ
centralised selling and redistribution of broadcasting revenues.
This also allows league organisers to maximise broadcasting revenues
through more coherent branding of their competitions. It facilitates
financial stability amongst participating clubs by providing a
more balanced distribution of revenues; allows competition organisers
to centrally divert funds for "solidarity" redistribution
to sport's grassroots. Collective selling would be regarded as
an illegal cartel in mainstream business. Its legitimacy in the
sport broadcasting field has now been recognised by both the European
Union and the UK competition authorities.
5. However, whilst there are clearly "specific"
characteristics of the sport/football industry which demand that
it be treated differently by government economic regulators, this
should not amount to a blanket exemption. One such example is
the Football Creditors Rule, the football industry rule whereby
where a football club has collapsed into financial administration,
in order for it to re-enter the league, the new owners must pay
all football industry creditors 100% of outstanding debt. Other
non-football creditors then receive proportionately less. Given
there have been 53 incidences of administration in the Premier
and Football Leagues between 1992 and 2010
additional losses endured by non-football creditors have been
significant, as a reading of the April 2010 administrator's report
for Portsmouth FC demonstrates. Creditors include Her Majesty's
Revenue and Customs (HMRC) (for a multi-million tax debt) and
a host of local small businesses and public agencies including
South Central Ambulance Service (£19,535) and St John's Ambulance
6. The Football Creditors Rule is justified by
the football authorities on the grounds that it protects well-managed
football clubs from the poor financial decisions of failing clubs.
However, in reality the opposite is achieved as it serves to encourage
inflation in the football player transfer market by allowing clubs
with clear financial difficulties to trade players as selling
clubs know that, under the current rule, they will still be paid
their transfer fee even if the buying club collapses, at the expense
of non-football creditors. This does not encourage a responsible
attitude to risk management in the operation of the player labour
market by either buying or selling clubs.
7. Given English professional football's endemic
loss-making (see discussion below) bankruptcy is now a regular
occurrence. HMRC has decided to challenge the legality of the
Football Creditors Rule. This is hardly a surprise as non-payment
of taxes is essentially a hidden public subsidy to a private industry.
It is the view of the authors that the rule can no longer be justified
given its extreme consequences for non-football creditors, and
because of the negligent attitude to risk management it encourages
in the transfer market. The football authorities should recognise
this, and move to abolish the rule rather than be forced to by
any future court decision.
Is there too much debt in the professional game?
8. Whilst the English Premier League is widely
admired as being the world's most successful national league in
terms of income generation, on the most critical financial indicator
of allpre-tax profit, English football's performance is
deeply problematic. The table below, drawing on statistics from
the authoritative Deloitte Annual Review of Football
demonstrates the chronic lack of profitability of English football.
ENGLISH FOOTBALLPRE-TAX PROFITABILITY
Source: Deloitte (2009; 2010)
9. Chronic loss-making has been endemic since the inception
of the Premier League in 1992, since when there has never been
a season where the clubs in the Premier and Football Leagues have,
collectively, made a pre-tax profit. The individual clubs that
do, notably Arsenal, are the exception. The key reasons for the
poor financial performance has been that football clubs consistently
over-spend on (and go into debt to finance) player wages to achieve
sporting success. For example, in 2008-09 the percentage of turnover
spent on wages was 67%, 90%, 80% and 72% in the Premier League,
Championship, League One and League two respectively: a figure
of 60% is the considered benchmark for wage/turnover ratios. Over
spending on player wages, leading to sustained pre-tax losses,
has driven total debt in the Premier League from £950 million
in 2005 to £3,301 million in 2009 (Deloitte, 2010, page 59).
In the Championship, net debt levels for the 24 clubs increased
from £327 million in 2008 to £406 million by 2009 (Deloitte,
2010, page 65).
10. Added to this is the phenomenon of clubs like Manchester
United, and until recently Liverpool under the ownership regime
of Tom Hicks and George Gillett, where the clubs were plunged
into losses, in Liverpool's case unsustainable losses, due to
the cost of the interest on the debt acquired to purchase the
clubs. In these cases the leveraged buy-out financial techniques
employed simply serves to extract revenue from English football
in order to pay for punitively priced loans.
11. These debt levels can only be managed in two ways. Owners
must cover losses from their own resources, making the owner-benefactor
model the norm in English football. Or clubs shed debt through
the financial administration process. An associated problem is
that this financially contrary business model significantly reduces
the market for high quality investors in English football clubs.
It should be of concern to the football authorities when investors
like Delia Smith at Norwich City, and Sir John Madejski at Reading
FC, both highly regarded for their stewardship of their respective
clubs, have publicly stated their desire to sell on their ownership
due to a quite reasonable unwillingness to cover indefinitely
the ongoing losses that owning an English professional football
club entails. This leaves open the prospect that increasingly
the market for ownership of English football clubs will only be
of interest to owners with an excessive appetite for, and highly
speculative attitude towards, financial risk. The experience of
the poor financial stewardship of Manchester City by former Thailand
Prime Minister Mr Thaksin Shinawatra, now banned from entering
the UK by the Foreign Office, is salutary. Mr Shinawatra used
Manchester City's Premiership status prestige as part of a wider
political power struggle in Thailand.
12. It is the view of the authors that the only realistic
way to resolve English football's chronic lack of profitability
and related debt problems is for the English football authorities
to wholeheartedly embrace the implementation of the Financial
Fair Play (FFP) initiative of UEFA (the governing body of European
football operates within the context of the wider European football
pyramid in which its football clubs are highly successful participants
in UEFA club competitions. It has been argued that if the English
football authorities were unilaterally to adopt more stringent
financial regulations this would disadvantage English clubs in
European competitions by constraining their flexibility in financing
player acquisitions. The fundamental principle underlying the
FFP initiative is that clubs should not be able to spend more
than they earn on player salaries and transfer fees (whilst providing
incentives to invest in home-grown player development). Its effective
application will create a level playing field for all clubs seeking
to compete in European competitions who wish to manage their finances
on a sustainable basis. The FFP initiative is finding favour with
owners of some Premier League clubs, notably the new owner of
Liverpool FC Mr John Henry who has publicly acknowledged that
its imminent introduction was an influential factor in his decision
to buy Liverpool FC.
13. If the FFP initiative is applied successfully by Premier
League clubs, it will then become feasible to implement a version
of the regime through the league pyramid, tailored for each league's
special circumstances. In the view of the authors it is the FA,
as the governing body of English football with a remit for promoting
sporting good health and sustainability at all levels of
the pyramid, which should play the lead role in implementing FFP
principles, in collaboration with the respective leagues.
Are football governance rules in England and Wales, and the
governing bodies which set and apply them, fit for purpose?
14. It would be unfair and inaccurate to assert that in their
totality the football governance rules and football governing
bodies, are not fit for purpose. The Premier League and the Football
League organise four very successful leagues. The Premier League
is widely regarded as the world's leading national league in terms
of global fan interest. The Football League Championship was itself
Europe's fourth best attended league in the 2007-08 season The
FA executes a highly effective administrative function across
a host of critical activities, including: (1) organising and regulating
a vast structure of grassroots participation involving several
million participants; (2) administering English football's disciplinary
system, from the Premier League down to the lowest park league,
efficiently and with integrity; (3) efficiently administering
key elements of financial regulation including the player transfer
system; and (4) organising what is still the world's most iconic
club knockout competitionthe FA Cup. Before attempting
to critique the shortcomings of English football's three main
regulatory bodies it is first necessary to acknowledge their many
achievements; and in particular the extraordinary turnaround in
the reputation and performance of English football since its nadir
in 1989 in the aftermath of the Hillsborough stadium disaster.
In the case of the FA in particular it is clear that it has served
as a lightening rod for media criticism because of its exposure
to the vagaries of the national team sporting performance, which
has served to obscure the many achievements of the organisation
and its staff.
15. However, there are two fundamental weaknesses in English
football's model of governance that need to be addressed. Firstly
there is a problem of uneven application of regulation across
the industry given there are essentially three regulatory bodies,
all competing to fill the regulatory space. So there is a lack
of an over-arching strategy for dealing with the industry's chronic
financial loss-making and its consequences. And secondly, and
following on from this, regulatory initiatives tend to be reactive
and piecemeal, rather than proactive and strategic.
16. It is the view of the authors that, as the governing body
of English football it is the FA that should take the lead role
in co-ordinating a strategy for the governance of English football,
but obviously in active consultation and co-operation with the
Premier League and the Football League (who, through the FA Professional
Game Board and representation on the FA Board, have significant
institutional opportunities to influence FA policy). The primary
role of the latter is to organise successful competitions, not
to regulate the game as a whole, but over time a process of regulatory
"mission creep" has been manifested by the leagues as
they adopt an increasingly proprietorial approach to regulatory
policy. The resulting tensions regarding exactly where key regulatory
and governance responsibilities lie were discussed in detail in
the submissions to the All-Party Parliamentary Football Group's
enquiry into English football governance in 2008-09.
17. These tensions have been seen most obviously in the structure
of the FA Board which is composed of five members representing
the professional game (the Premier League and the Football League),
five members representing the national game (the grassroots),
and the FA General Secretary. This structure has simply served
to entrench the sometimes competing interests of the two key stakeholder
groups, making it difficult for the FA Board to devise a consistent
and over-arching strategy for the governance of the game as a
whole. The comprehensive review of the FA's governance by Lord
Terry Burns in 2005
identified reform of the FA's board structure as a key objective.
Critically, he proposed the addition of between two and three
non-aligned "independent" directors, in line with best
practice corporate governance guidelines for UK stock market quoted
companies. This would
assist the FA Board to take a broader view of its remit. These
recommendations were never implemented, but in the authors' view
should be revisited.
18. The lack of a clear strategy for the governance and regulation
of English football is reflected in the wider approach to policy
development, which is essentially reactive. So, for example, in
1999 the FA, Premier League and Football League articulated their
attitude to demands for a more interventionist approach as follows:
"the football authorities do not believe that the overall
well-being of the game will be helped by new layers of regulation
But four years later all three bodies introduced points penalties
for clubs that entered into financial administration following
what was widely regarded as the unfair advantage over clubs running
prudent budgets achieved by Leicester City in achieving promotion
to the Premier League at the end of the 2002-03 season having
shed significant debt through the administration process. There
are many similar examples of such reactive responses. The authors
believe strongly that the football authorities, led by the FA,
need to take a more proactive, holistic, approach to regulatory
policy, and that the implementation of the UEFA Financial Fair
Play initiative in English football offers the opportunity to
What are the pros and cons of the Supporter Trust share-holding
19. Since its foundation in 2000, Supporters Direct,,
the national representative body for supporters' trusts (co-operative
societies), has formed over 170 trusts which have in turn gone
on to act as key, and constructive, mobilising vehicles for supporter
interests who wish to invest in their local clubs and help them
to embed more effectively in the local communities from which
they sprung. In this regard supporters' trusts are a very good
example of a modern, progressive, social movement for community
benefit, motivated by the fundamental principle of self-help.
Headline examples of successful trust-owned clubs which not only
participate successfully in their respective leagues but act as
hub for community activity are AFC Wimbledon and Enfield Town
FC. But there are many more, and also many more where trusts play
an active role as minority shareholders in their club.
20. Supporters' trusts have also served as a buyer of last
resort at many insolvent clubs, and effectively saved those clubs
from extinction. For example, there are a number of Football League
clubs, for example Chesterfield and York City, where a supporters'
trust acquired the club, reconstructed it financially, but were
then forced to sell the club back to a new private owner as the
pressure of managing on a balanced budget basis whilst all around
them, based on the owner-benefactor model, were spending to excess,
became impossible. This process, whereby supporters' trusts served
as effectively financial "accident & emergency"
facilities, reconstructing club balance sheets with the use of
supporter donations and unpaid voluntary labour, only to have
to sell the club because a balanced budget approach to club management
rendered its team uncompetitive on the sporting field of play,
represents an indictment of the dominant prevailing owner-benefactor
model of English football. Financial virtue does not currently
have its own reward in English professional football.
21. The authors believe that the government should review
the tax incentive regime covering investment by not-for-profit,
social benefit, co-operatively structured, supporters' trusts
in order to make it more efficient for them to invest effectively
in their own local football clubs.
22. The authors believe that the work of Supporters Direct
represents excellent value for money and should be a candidate
for an appropriate level of funding by government agencies in
order to provide it with the necessary stability to continue its
Is Government intervention justified and, if so, what form
should it take?
23. It should not be forgotten that English football's recovery
following the Hillsborough stadium disaster in 1989 was initiated
by government legislation following the recommendations of the
Taylor Report. This
compelled clubs to provide safe stadia regulated by the Football
Licensing Authority (FLA) (via the Football Spectator Act in 1989),
a body responsible for monitoring local authorities' supervision
of stadium safety including the issuing of safety certificates.
The FLA also oversaw the move to all-seater stadia, which created
an environment that encouraged professional football clubs to
make significant investment in stadia modernisation, and led to
the opening up of the game to a wider football. This investment
was rewarded by increased attendances. This investment was supported
by a significant subsidy from the Football Trust through a levy
on the football pools gambling product. So there is a very clear
precedent for successful government intervention in the governance
of football where the industry was correctly perceived as being
incapable of reforming itself following a decade of stadium disasters.
24. Similarly, the government regularly introduces legislation
relating to the football, and wider sporting, industries often
following lobbying by the sport sector, on issues as diverse as
countering ticket-touting and the facilitation of the Olympic
Games for London 2012. In other words there is a legitimate place
for government intervention in football, particularly where such
legislation emerges after a period of intensive consultation between
the two parties. As was outlined above, the sport/football economic
system does embody "peculiar" characteristics, and for
example, successful consultation on the issue of the legitimacy
of the collective selling of broadcasting rights has led to a
sensible solution which recognises the special context of sport
and the need to allow collective selling in that context.
25. However, it would be much more preferable if the football
industry is able to develop effective systems of self-regulation,
or that it is able to negotiate government regulation through
a process of effective stakeholder engagement which recognises
the legitimate interests of both parties. The governing bodies
of football should be in the optimal position to assess what is
in the best interests of their key stakeholders. However, this
is also why it is critical for the football industry to be able
to recognise in advance that historical practices such as the
Football Creditors Rule should be withdrawn voluntarily without
the threat of direct intervention by government agencies. The
defence of outmoded practices serves to undermine their credibility
when arguing for exceptional treatment on more legitimate issues.
Are there lessons to be learned from football governance models
across the UK and abroad, and from governance models in other
26. As a general principle the authors would state that there
is a very strong case for the promotion of a more structured sharing
of experience in addressing governance and regulation challenges
by all the UK's major sporting organisations as a matter of best
practice. This might be most effectively co-ordinated by a respected
third party organisation such as the Sport & Recreation Alliance
27. The experience of the Rugby Football League (RFL) in implementing
a licensing system,
and the experience of the Rugby Football Union in implementing
an eight year strategic plan2008-09 to 2015-16which
includes a very clear strategy for balancing the interests of
the domestic elite professional clubs with those of the national
team, offer two clear
demonstrations of management practice that that the three football
authorities might learn from.
28. The English football authorities could usefully learn
from the application of club licensing schemes by other UEFA member
national associations. Particular lessons might be learned by
the pioneering club licensing system in the German Bundesliga
league structure. The Bundesliga is Europe's most profitable,
solvent and well attended league and has never experienced a club
By way of additional background to this submission see: All Party
Parliamentary Football Group-Inquiry into English Football and
its Governance. Memorandum of Written Evidence-Dr Geoff Walters
& Mr Sean Hamil, Birkbeck Sports Business Centre, Birkbeck,
University of London, July 2008-http://www.sportbusinesscentre.com/governmentenquirysubmissions. Back
See: http://www.footballfoundation.org.uk/about-us/ Back
The seminal academic paper setting out the key "peculiarities"
of the economics of sports leagues is: Neale, W (1964). "The
peculiar economics of professional sports". Quarterly
Journal of Economics, 78:1-14 Back
Deloitte (2010). Annual Review of Football Finance. Manchester:
Deloitte. Appendices, page 13. Back
See: UHY Hacker Young (turnaround & recovery) (19 April 2010).
Portsmouth City Football Club Ltd (In Administration). Report
to Creditors pursuant to Paragraph 49 of the Insolvency Act 198,
Appendix B-http://www.portsmouthfc.co.uk/LatestNews/news/Portsmouth-Football-Club-Statement-875.aspx Back
Deloitte (2009 & 2010). Annual Review of Football Finance.
For a fuller analysis of the key structural drivers of English
football's financial model see: Hamil, S & Walters G (2010).
"Financial Performance in English Football; An Inconvenient
Truth". Soccer & Society. Vol. 11, No. 4 July
2010, 354-372. Back
For a fuller discussion of Mr Shinawatra's poor financial stewardship
of Manchester City see: Hamil, S & Walters G (2010). "Financial
Performance in English Football; An Inconvenient Truth".
Soccer & Society. Vol. 11, No. 4 July 2010, pages 364-365. Back
For details of the UEFA Club Licensing regime and the planned
implementation of the UEFA Financial Fair Play Initiative see:
UEFA.com (2011). Club licensing benchmarking report: Financial year 2009.
Hunter, A (18 October, 2010). "Liverpool's new owners provide
welcome contrast to their predecessors". The Guardian. Back
A recommendation also made in the: All Party Parliamentary Football
Group (2009b, April). English Football & Its Governance.
All Party Parliamentary Football Group-http://www.allpartyfootball.com/APFG_Report_on_English_Football_&_Its_Governance_April_2009%5b1%5d.pdf Back
All Party Parliamentary Football Group (2009a). English Football
& Its Governance: Overview, transcriptions [of evidence submissions),
written evidence and report. All Party Parliamentary Football
Group-Overview, transcriptions [of evidence submissions), written
evidence, and report-http://www.allpartyfootball.com/inquiry8.htm Back
A full outline of the Burns Review terms of reference, submissions,
and conclusions can be viewed at: Burns, L. (2005) Structural
Review of the FA-Conclusions.-
For best practice governance recommendations for London Stock
Exchange-listed companies see: Financial Reporting Council (FRC)
(June 2010). The UK Corporate Governance Code. Financial
Reporting Council-http://www.frc.org.uk/documents/pagemanager/Corporate_Governance/UK%20Corp%20Gov%20Code%20June%202010.pdf Back
The Football Association, The FA Premier League, The Football
League. (1999) Commercial Issues: Football's Report to the
Football Task Force-The "Minority Report". Department
of Culture, Media & Sport: The Football Task Force. Page 127. Back
See: www.supporters-direct.coop/ Back
Please note that one of the authors, Mr Sean Hamil, was an elected
director of Supporters Direct from 2002-08. Back
See Hamil, S (1999). "A Whole New Ball Game?: Why Football
Needs a Regulator", in: Hamil, S, Michie, J & Oughton,
C (Eds.). A Game of Two Halves: the business of football.
Edinburgh: Mainstream, pp. 23-39. Back
See: http://www.sportandrecreation.org.uk/ Back
See: http://www.therfl.co.uk/about_the_rfl/annual_report Back
See: http://www.rfu.com/AboutTheRFU/StrategicPlan.aspx Back