Written evidence submitted by Lord Triesman
THE FOOTBALL ASSOCIATION RESPONSES TO THE
SECRETARY OF STATE FOR CULTURE, MEDIA AND SPORT, MAY 2009
INTRODUCTION
The Football Association welcomes the opportunity
to respond to the questions from the Rt Hon Andy Burnham MP, Secretary
of State for Culture, Media and Sport. The answers are occasionally
inter-dependent. The FA wholly understands the strong interest
in Parliament in English football, just as there is among the
wider public, in its governance, decision making and long-term
future.
The FA have noted with interest the All Party Parliamentary
Football Groups report on English Football and its Governance
and thank them for their contribution to the debate.
We attach a copy of the FA's vision 2008-12 to which
this response refers.
CONTEXT
Football is England's most popular sport; it was
born here and took root worldwide. The Football Association, since
its inaugural meeting in October 1863, has had the responsibility
and privilege of overseeing football in all of its aspects in
England and the Crown Dependencies of Jersey, Guernsey and the
Isle of Man. We exercise the responsibility with a powerful and
effective professional game and through our own organisation distributed
throughout the country. However the overarching responsibility
lies with The FA and we are determined to meet our obligations
in full.
The FA is well placed to handle these responsibilities.
It is not only the oldest association in the world but is the
association that many in the world football family look to. Standards
of integrity and operational experience in organising at all levels
have meant that The FA has the prestige of being asked regularly
to assist throughout the world, just as emerging professional
leagues seek the excellent guidance of the FA Premier League.
Football is uniquely successful. It is played in
England by approximately 7 million adults and children, with 125,000
teams competing in 1,700 affiliated leagues. There are currently
26,000 referees, 150,000 qualified coaches and over 400,000 volunteers
running the game.
The game has enjoyed a sustained period of commercial
growth. New broadcast deals for England and FA Cup matches have
secured £425 million over the next four years starting in
2008 and £145 million for the overseas television rights.
These sums are under stress in current economic circumstances
impacting on broadcasters, but The FA looks to continue to invest
in the future development and growth at every level from parks
to the senior England team.
Other members of The FA's football family, especially
the FA Premier League, the Football League and their remarkable
professional clubs, generate significant income in their own right
from their clearly successful competitions. The commercial advances
of The FA and the Leagues are integrally related.
Yet it is important to understand the unique attributes
of football and other professional sports clubs. They are not
simply commercial businesses. They operate in a closed economic
environment. While they obviously compete, each is also a monopoly
supplier—the only supplier of that clubs history and affinity
available to its supporters. Those fans that pack grounds and
create the unique atmosphere, whom the players applaud and acknowledge,
are not "rational consumers". It is highly unlikely
they will transfer their allegiance whatever their dissatisfaction
with their current supplier.
It is inevitable that the criteria for governance
will go beyond those operating in a normal market. The financial
solidity and motivation of club owners is critical to the long-term
viability and sustainability of football clubs. For example, it
is not an accident that solidarity payments from the wealthier
to less affluent businesses characterises this sport, unlike other
areas of business. This is because there is a unique element of
mutual dependency in sporting competition which recognises the
fact that even the pre-eminent teams are reliant on the competition
provided by other teams for the success of their business and
sporting models.
The FA also has obligations to use its resources
wisely including its subsidiary businesses -Wembley, FA Learning
and the National Football Centre. As a not-for-profit body we
meet these responsibilities through widespread distributions to
grassroots football, development of the next generation of players,
coaches, referees and administrators; and a significant contribution
to the Football Foundation and charities. We work with education,
health and social inclusion authorities, with the Police and the
Armed Forces
The FA is a member of FIFA, the world regulatory
body, holds a permanent seat on the International Football Association
Board (IFAB) that sets the rules of football and is a member of
UEFA. Our international work is extensive. We are campaigning
for the right to host the FIFA World Cup in 2018 or 2022.
For all of these reasons, we see our role as promoting
a "One Football" approach, with one set of values guiding
every level of football. To fulfil this vision, whether measured
by the performance of representative teams, financial growth,
attendances or participation, The FA must also incorporate long-term
sporting and social objectives (balance of competitions, integrity,
sustainability of clubs as vital social institutions, the positive
social impact of football and so on). We are guided throughout
by the Principles of the Better Regulation Task Force—namely
proportionality, accountability, consistency, transparency and
targeting.
We celebrate success and we also have the duty to
adopt a prudent approach, much challenged in the present economic
conditions, to protect the long term viability of our sport.
THE FA'S
ROLE AS
A REGULATORY
BODY: GENERAL
One of the key Goals of the FA vision is to be trusted
to lead. As well as The FA's commercial and redistributive responsibilities
we also have important responsibilities as the governing body
for football which require The FA to regulate the game at all
levels. The FA must be trusted to lead across the full breadth
of its remit including its role as regulator, which as a core
function of The FA will clearly have an impact on the perception
of the organisation both inside and outside the game. In England
we have this exclusive remit under FIFA statutes, and at European
level the remit is endorsed by the organisers of European competitions,
UEFA.
The FA's role as regulator is handled through its
Council which delegates responsibility for such matters to the
Football Regulatory Authority (FRA). The FRA is responsible for
the Rules and Regulations of The PA, for the disciplinary processes
relating to misconduct and for matters of policy relating to the
regulation of the sport.
In addition to the constitutional framework that
provides the backdrop to The FA's work as regulator, The FA is
also mindful of acting in a responsible, open and accountable
manner with its stakeholders. In doing so, The FA seeks to ensure
that it is, as far as possible, able to drive better regulation
through a consensual approach. This accords with the Principles
of Better Regulation and ultimately should ensure that The FA
puts in place regulations that have the buy-in of the majority
of its stakeholders and which are therefore easier to monitor
and enforce. Nonetheless, the ultimate responsibility lies with
The FA.
THE FA'S
ROLE AS
A REGULATORY
BODY: LEGAL
CONTEXT
The FA's role as regulator arises in a private law
context; that is to say it is not supported by any statutory or
legislative framework. This means that The FA regulates via contract
and the rules laid down by The FA essentially make up the contract
that binds The FA and its participants together. As such The FA
has to be mindful of, and act in accordance with, the legal framework
provided by UK and European Community Law.
Arguably the two most significant facets of this
legal framework insofar as The FA's position as a private regulatory
body is concerned, are: the doctrine of restraint of trade and
competition law.
It would be sensible for this specific set of obligations
to be couched in Sports Law, legislation that resolves ambiguities
that demonstrates inter alia the direct link between FIFA and
The FA, with parallel arrangements for other sports.
CONCLUSION
The FA has to develop particular rules and regulations
for the good of the sport, has a responsibility to ensure that
at all times it imposes a regulatory regime that is proportionate
and legitimate and that is built to withstand, as far as possible,
any legal challenge.
However, given the status quo, the current legal
context sets the framework for a number, if not all, of the areas
that arise in the seven questions, could and should more be done
to protect this great game through a more robust regulatory regime.
Consequently, and in light of the undoubted success
of English football, from the FA Premier League to every local
league, we advocate limited changes which build on what already
exists. The changes should build trust and reduce the areas of
doubt that are sometimes expressed.
1. How can we ensure that the regulation of
financial matters in football is more joined-up and ensure consistency
between the leagues?
Context
The FA, the FA Premier League and the Football League
undertake a significant level of collective work and operate closely
together at all levels (from The FA Board down to day-to-day contact
between the staff) and across a broad range of issues that affect
the governance of the game. While a significant proportion of
this work is centralised through The FA, there is also a significant
amount of delegation to the leagues on issues that are competition
specific.
The current environment
Some believe that in England the "professional"
game is separate from The FA. This is wrong. In fact the professional
game is an important constituent part of The FA and some of the
key constitutional and executive bodies demonstrate the close
inter-relationship.
— The FA Board
The FA Board comprises the
Independent Chairman, Chief Executive, five representatives of
the professional game and five representatives of the national
game. Three of the professional game representatives are appointed
by the FA Premier League and two by the Football League. The FA
Board manages the affairs of The FA and has wide powers which
can be found in The FA's articles of association.
— The Professional Game Board
A number of The FA Board's
powers are delegated to committees and boards; one of the most
important is the Professional Game Board (PGB) which consists
of four members each from the FA Premier League and the Football
League. The PGB makes recommendations to the main FA Board about
matters of importance to professional football.
— The Football Regulatory Authority
(FRA)
The (FRA), a division of The
FA which reports into The FA Council, is responsible for performing
the regulatory, disciplinary and rule-making functions of The
FA. After the initial three year period (July 2007—June
2010), the composition of the FRA will be four Professional Game
representatives, four National Game representatives and four independent
members.
— Football Management Team (FMT)
In addition to the discussions
which take place at more formal levels, directors of The FA, The
FA Premier League and Football League meet fortnightly to discuss
the major issues affecting the game and each organisation.
It is important to recognise that many of the Rules
and Regulations that apply are broadly similar across The FA,
the FA Premier League and Football League. This provides a helpful
basis for modest reform.
It is also important to recognise that there are
areas where the leagues and competitions that are sanctioned by
The FA face different challenges due, for example, to the scale
of their operations. The challenges faced in the FA Premier League
are different in certain aspects from those faced by the Football
League, Football Conference and leagues operating below that.
Consequently a one-size-fits-all approach would simply not work
and there has to be recognition that some divergence in the regulatory
regimes is likely.
In principle there is little wrong with this approach.
It ensures a reasonable level of autonomy at league level. While
there will be areas where leagues have distinct concerns to address
for their competitions, The FA and the leagues liaise closely
to ensure that wherever possible issues across the game are addressed
appropriately and with consistency.
However it is clear that there are areas where the
organisations adopt differing approaches and where a coherent
approach will make more sense and be more efficient—the
most obvious example of this in the area of financial regulation
is probably the Fit and Proper Person Test ("FAPPT")
to which we will return in response to Question 5.
ISSUES FOR
CONSIDERATION
Any significant changes resulting from the issues
raised by the Secretary of State would follow full discussion
with the professional leagues. Consensus is desirable. The FA
believes that some areas are best approached on a football-wide
basis and others best delegated to the leagues. In these latter
areas The FA should, of course, establish guiding principles to
provide the framework within which the leagues can operate.
It is a control function of The FA as the governing
body to protect the framework so that there is coherence and clarity
for those in the sport and the wider public.
RECOMMENDATION 1.1
There should be one common standard for financial
reporting by clubs on an annual basis, prepared by independent
auditors, with the information to be lodged with The FA and the
league in which the club competes. The report should, for the
clubs in the top four divisions (The FA Premier League and the
Football League Championship and Divisions One and Two), be based
on:
(a) The financial criteria of the UEFA Club licence.
(b) The auditor's statement on the "going
concern" audit requirement.
(c) Any further stress tests that The FA through
the FRA may from time to time consider necessary.
(d) Any additional information that the leagues
require.
Group business accounts should be treated on the
same basis.
RECOMMENDATION 1.2
The FA will publish on its website these annual returns
(future financial information (included in UEFA licence) and stress
test information may be particularly commercially sensitive and
not suitable for publication (eg competitors who may be negotiating
against the clubs concerned).
RECOMMENDATION 1.3
Below these top four divisions The FA will design
in consultation with the leagues down to tier 6, a lesser set
of requirements which nonetheless meet the objectives of consistency,
clarity and transparency.
RECOMMENDATION 1.4
At all these levels, The FA through its regulatory
department will have the power to alert any club to an identified
problem and may require a proportionate set of conditions to be
met to provide an appropriate solution. This will only be done
in consultation with the appropriate league.
We believe that this is straightforward and logical.
Those within the game and wider public will see a consistent set
of standards operated by the appropriate regulatory authority
and based on the constantly improved standards already demonstrated
by the leagues. Nonetheless, handling these issues is frequently
sensitive but the time is right to make real progress. It will
clarify the hierarchy in governance including with the international
bodies. Jurisdiction, properly described, will lead to greater
efficiency alongside greater clarity and consistency.
The Government should actively consider, in discussion
with all sports authorities, whether it can assist them by clear
specification of rights and responsibilities in financial and
other matters either through legislation or other levers in public
policy.
2. Is there a case for greater transparency
and scrutiny of ownership of a club, including the amount of debt
used to finance any takeover and whether the level of debt is
sustainable and in the wider interest of the game?
Context
Football is a sport. It has generated significant,
valuable commercial enterprises but it remains a sport with a
specific character. It is different from other enterprises in
one vital sense - its fan base is not made up of conventional
customers who will switch between products in a normal open market.
The enduring history and social significance of clubs flows from
this monopoly supplier characteristic.
The Deloitte "Annual review of Football Finance"
(May 2008) reported around £1.4 billion had been used to
fund changes in ownership of clubs in the FA Premier League and
Football League Championship since the start of 2005.
Responding to the Secretary of State it would be
hard to argue, legally or in policy terms, that significantly
different rules should apply to football transactions than apply
in the wider economy although the specificity of sport does have
implications for probity, reputation and competition. The FA seeks
the right balance in the long-term interest of football.
Today, it would be myopic to disregard the global
financial climate, credit restrictions, re-financing difficulties
and broad trading downturns that impact all economies.
The current environment
The FA and the leagues have measures in place to
address these issues.
(a) Fit and Proper Person Test ("FAPPT")
Regulations
These exist to assess and
monitor the probity of those persons who have management or ownership
control over English football clubs.
(b) Notification of Changes in Ownership in
Clubs
The FA and the professional
leagues require they be notified of any changes in the ownership
structure of clubs. A number of clubs which must also comply with
the listing requirements on the London Stock Exchange.
(c) Transfers of Membership
The FA and leagues closely
regulate changes in ownership when a club's membership transfers
to a new limited company.
Most frequently this occurs
when a club enters insolvency and its membership of The FA and
league is transferred or sold as an asset to a new company. These
provisions do not apply to a takeover where shares in an existing
company are sold to new owners. We deal further with insolvency
in question 3.
(d) Dual Interest Rules
Both The FA and the leagues
regulate individuals taking an interest in more than one club
competing in the same competition. These rules protect competitive
integrity and prevent inappropriate influence on the outcome of
matches.
(e) Statutory Provisions
Clearly the requirements under
football rules are additional to other provisions that apply to
the sale of companies and the source of funds used for such transactions.
For example, any transaction must be conducted in accordance with
UK company law and the Proceeds of Crime Act ("POCA")
2002.
The FA has recently issued guidance on the application
of the POCA (and money laundering) in a brochure sent to all the
FA Premier League and Football League clubs.
ISSUES FOR
CONSIDERATION
In regulating the ownership of clubs it is important
to identify and consider the specific problems that need to be
addressed. The main issues are increased transparency, a strong
threshold for probity and, so far as possible, and a grasp of
intention on the part of owners. Consequently we ask:
— Is
there sufficient, proportionate regulation of potential new owners?
— Are
there issues about the sources of funding by new owners of clubs?
— Are
there disproportionate risks, especially under conditions where
more rigorous stress testing is prudent, as a result of debt levels?
— Should
there be concern over non-English investors becoming club owners?
In several of these areas, UEFA as a competition
organiser is likely to modify its licensing requirements. If it
does so, to ensure consistency of reporting to The FA, we are
bound to consider these requirements in our regulatory system.
We anticipate the major European leagues including the FA Premier
League will do the same.
The Regulation of New Owners
Any regulation in this area must be legitimate and
proportionate. With the FAPPT the game has implemented an additional
layer of regulatory oversight that applies beyond the statutory
requirements of UK Law. The football authorities believe their
approach satisfies the requirements that apply to them as regulators
i.e. the FAPPT is based on clear, objective factors and not subjective
views or indeed unsubstantiated allegations.
RECOMMENDATION 2.1
There should be a single FAPPT, administered by The
FA, of all professional clubs in membership of The FA. No doubt
it will largely mirror the position in the leagues but the aim
is a single, consistently applied, transparent requirement. It
would apply to all individuals holding a Director's role in the
top six leagues. The tests we commend are set out in question
5 and they extend the ambit currently used and, as with current
practice in the leagues, go beyond UK statutory requirements.
Sources of Funds
There are already legal requirements that funds may
not come from illegitimate sources; and rules governing integrity
so that no more than one property in any competition can be owned
by a single owner. Strong application of such rules will dissuade
many would-be illegitimate investors who might view football clubs
as relatively lightly regulated, high cash turnover businesses.
However, given the number of high-value, multi jurisdictional
transactions in football, it would be appropriate for any regulatory,
governing body to base its approach on the right risk assessment.
Naturally, if any football authority is concerned about the legality
of funding sources, it has an obligation to bring such anxieties
to the relevant authorities.
RECOMMENDATION 2.2
The FA believes that with greater resources devoted
and a mutual obligation to work with professional partners, the
requirements for transparency in the regulation of this area should,
as a minimum, mirror the existing regulations for the transfer
of memberships and be applied consistently across the top six
leagues.
It will never be possible to track financing arrangements
entirely through multiple companies and offshore corporations
(as finance businesses worldwide have amply demonstrated). However
solutions adopted to ensure for accountability in t banking corporate
transparency will help over the coming period.
The minimum standard should be complete disclosure
of the sources of the investment sums, the accuracy and completeness
of which are attested to by owners (and where appropriate their
proxies). Penalties for mis-reporting could range from disqualification
of directors or clubs, to points deductions and fines since the
purpose of misinformation is likely to be unfair competitive advantage.
Increasing the indebtedness of clubs
Clubs have raised money in a variety of ways to achieve
remarkable success. It will, in any business, be for those running
the business to judge risk and make sensible decisions. It is
right for those with the long term responsibility for football
in England to think ahead. In football there are already provisions
including sporting sanctions where clubs have over-reached and
thereby sought an unfair competitive advantage.
So a thorough discussion of the options does not
undermine pride in the unquestionable successes. Indeed the greater
risks have occurred below the very top of the sport. The FA can
play a positive role by fostering a sustainable approach to the
management of clubs as great community assets.
Recent club takeovers have seen significant levels
of debt incurred to fund share purchase, in some cases added to
the club's balance sheet together with the associated interest
payment obligations. This is wholly legitimate in English law
and happens in other industries.
The FA does not impose restrictions on the capital
structure of a club. The Football League does specify the share
capital for a club transferring its membership to a new company.
The key to sustainability is that those responsible for the company
manage debt appropriately. No doubt this is more testing in the
current economic circumstances, as the Deloitte Annual review
2008 demonstrates.
Our position is that debt is not wrong per se but
one of the legitimate methods that clubs use to fund operations
and working capital requirements. Numerous clubs in the professional
game have greatly improved their facilities in the last 15 years
as a result. Given there is no public funding comparable to that
in Germany and France, for example, to build or improve stadia
or bid successfully for international competitions, the use of
debt financing is more important in England.
The key questions for clubs and regulators are: is
the debt serviceable as part of a sustainable business plan and
are the arrangements sufficiently transparent to the regulatory
association?
We believe that given the rate of clubs facing insolvency
events, sustainability is an issue. It is evident that a proportion
of clubs trade continuously at or beyond their financial means.
Thus the enhanced "going concern" provision The FA advocates
is essential.
The generosity of many owners sustaining trading
losses on the basis of growing debt nonetheless increases risk
when not supported by an achievable business plan. The owners
of some clubs have recognised that debt in this form may be unattractive
and there is considerable admiration for the conversion of a proportion
of such debt from these "soft loans" into new equity
at Chelsea FC. We recommend a discussion with professional partners
of schemes to take such steps more widely, perhaps on an annual
basis, adding to sustainability and transparency. This would lessen
the risk and impact of individual's calling in debt at short notice.
With the professional leagues we would aim to agree
a framework in greater detail that deals with clubs that repeatedly
get into insolvency events; that make consistent losses without
a realistic plan to extricate the club and where the "going
concern" report reflects this; and clubs whose owners fund
debt on the balance sheet at a level unlikely to be resolved by
a business plan and where conversion into equity has not occurred.
The FA would welcome an early discussion with the
professional clubs, as an element of the licensing regime, to
agree the appropriate ratio between equity and "soft loans"
to be sustained at all times unless varied for extraordinary reasons
acceptable to The FA and the league in which the club competes.
The FA believe that it would be difficult to stipulate
that clubs start any season with positive net assets (essentially
the French licensing model) unless special arrangements are made
to exclude capital investment from any such regulations and a
provision for conversion into equity is in place. The argument
that it is unhelpful to distinguish between types of debt is understood
but is unappealing. The standards set for securitisation of different
types of debt is well-understood and therefore the likely extent
of risk.
RECOMMENDATION 2.3
The FA should conduct a review with the FA Premier
League and Football League to consider the merits of a more proactive
approach to the financial security of football clubs, including
measures to improve stability, enhanced financial information,
specify equity: debt ratios, equity levels, sources of funds and
beneficial ownership within the umbrella of a domestic licensing
regime.
Non-English Investment
The case against "foreign" ownership of
clubs rests largely on the assertion that clubs should have a
local (including regional and national) character. Owners failing
to have this characteristic are perceived to lack a depth of affiliation
to that club and its geographic environ.
The FA is clear. It does not accept discrimination
on any basis including nationality. UK businesses including utilities
are often foreign owned and UK owners often own overseas businesses.
It is both a reality of global equity ownership and European commercial
law.
RECOMMENDATION 2.4
These anxieties can be alleviated by:
(a) Boards of Directors of clubs voluntarily
agreeing that one or more English nationals are a member—indeed
most satisfy now.
(b) A formal relationship being developed with
supporters groups, whether or not they have secured Board representation,
promoting discussion of the distinct local character of the club
and its community role.
(c) Boards publishing as part of the licensing
requirement an annual statement of their plans for the club, commitment
to it over the longer-term and commitment to the underpinning
values of England's football.
Licensing regime
In the answer we have discussed what would be a number
of new features of an enhanced licensing regime. While they often
are derived from UEFA requirements, as a whole they would provide
a better framework irrespective of whether clubs enter into UEFA
competitions.
RECOMMENDATION 2.5
The FA advocates that, like France, Germany, Holland
and Spain that alongside the UEFA licensing framework, a domestic
licensing regime is adopted in England, but adapted to our culture.
We accept the research findings that (with the exception of Spain)
such systems have led to more stable finances although in general
they have not changed competitive balance for the better.
In the event that England re-enforces its licensing
system, aside from the FAPPT provisions discussed earlier, it
would be appropriate to embody non-financial criteria to which
most clubs are sympathetic. These include:
(a) Minimum level of community involvement.
(b) Minimum levels of supporter involvement and
a customer charter.
(c) Investment in youth development.
(d) Security of tenure of ground.
(e) Open meetings—including, of course,
shareholder meetings where appropriate.
Such a system would benchmark good governance and
be commensurate with the better regulation principles
The FA, allowing for these propositions, recognises
that the sport has been very robust at the highest level, and
that the clubs are independent and autonomous businesses responsible
for their own stewardship. We aim as do other regulatory bodies
today to assist in securing the long term financial health of
our "industry" namely the whole football economy. In
this light, The FA is a willing partner in any discussions that
lead to significant change in the structure of the football business
sought by its participants.
3. Is there a need to look again at the rules
that penalise clubs that fall into insolvency, including the introduction
of an early warning system in respect of clubs falling into arrears?
Context
According to research published in 2008 by the Centre
for International Business of Sport at Coventry University, since
the introduction of the Insolvency Act in 1986, 56 clubs in the
English league system have gone into insolvency with a total of
68 incidents of insolvency (some clubs having been declared insolvent
more than once). The two most recent examples have occurred during
the current season, Southampton FC and Stockport County FC.
The Premier League does not have any clubs that have
experienced insolvency whilst in that league. However relegation
would appear to be a key factor in causing clubs to become insolvent:
in 30% of insolvency events the club had been relegated in the
previous 12 months; in 36% the club had been relegated in the
previous 24 months; and in 49% the club had been relegated in
the previous 36 months.
The Football League must take great credit for the
fact that, despite many predictions to the contrary in the wake
of the collapse of ITV Digital, its competition is still intact,
with 72 professional clubs taking part in its competition in spite
of the significant number of its clubs that have suffered insolvency.
Current Environment
Football has established a set of provisions for
insolvency events that have to be understood as a whole.
Football Creditors Rule
The Football Creditors Rule (FCR) prioritises debt
within football itself and is frequently challenged by HM Revenue
and Customs because HMRC has not got preferential creditor status.
Sporting Sanctions
Since 2004, The FA Premier League, Football League,
Football Conference and feeder leagues to the Conference have
had sporting sanctions, namely the deduction of points, in place
to apply to clubs entering an insolvency event. The purpose is
to apply a sporting penalty to member clubs mismanaging their
finances and thereby potentially gaining a competitive advantage.
This approach is usually perceived as harsh by supporters but
needs to be properly understood. For example, the 20 point penalty
applied to Luton Town FC by the Football League did not result
from insolvency but failure to satisfy creditors once they had
become insolvent.
Clubs may be sanctioned by not being re-admitted
to a competition. Re-admission in any specific circumstances is
granted on specific terms since the alternative would be simple
exclusion.
Broadly The FA does not believe that these sanctions
are wrong but they are not the whole approach needed.
Insolvency Policies
Aside from Sporting Sanctions, the Football League
and the Football Conference have Insolvency Policies governing
clubs exiting insolvency events. Since these leagues are most
affected by insolvency problems and have therefore done most to
address the issues in order to protect competitive integrity,
they deserve credit.
The Football League requires, inter alia,
payment in full to football creditors and satisfaction of other
creditors through a Company Voluntary Arrangement (CVA) protecting
football interests and addressing wider obligations. If these
requirements are not satisfied, the League may attach additional
conditions to an application for membership.
The Football Conference requires payment in full
of all creditors. Failure leads to the Club being removed
from the Competition and that generally results in relegation
by one or two divisions.
The approach of the football authorities has been
"back end" to deter insolvency. The FA and all authorities
prefer an "end to end" approach underpinned by the deterrent
measures described. We need to try to prevent clubs facing such
dire outcomes.
In the last 18 months, The FA's Financial Regulation
Department has made progress by identifying and analysing the
problems and devising preventive measures.
HMRC Debt reporting
The FA has worked with the Football Conference on
initiatives to reduce its club's exposure to HMRC debt, reducing
the risk of HMRC objections to any proposed CVA as an exit route.
This also aims to increase competitive integrity by preventing
clubs from continuing to accumulate significant HMRC debt whilst
at the same time maintaining expensive squads. Breaches of these
league requirements lead to a registration embargo.
Clubs are required to self-report PAYE, National
Insurance and VAT indebtedness with a two month period of grace
to pay it off or agree a repayment scheme with HMRC. The FA has
supported the league in this process including the registration
embargo.
The Football League intends, we understand, to implement
a similar scheme.
ISSUES FOR
CONSIDERATION
The approach across the whole of the professional
football scene would benefit in wider public perception from consistency.
This should be the case whether or not the competition has or
never yet suffered an insolvency event. The UEFA licence requires
robust management of tax and football debt and this provides a
good base.
RECOMMENDATION 3.1
The FA believes that in discussion with the professional
leagues it should devise one scheme for insolvency events in all
their aspects including re-entry allowing for a reasonable but
restricted spread of discretion to the leagues; and which prevents
a club timing an insolvency event (as happened at Leeds United
FC) to minimise the impact of sanctions
As the regulatory body, The FA should continue to
embrace its "end to end" approach. With full and relevant
reporting by clubs, it will be increasingly possible to devise
measures to prevent crises in the first place. We have already
invested heavily in capacity around early warning, not least in
respect of HMRC
RECOMMENDATION 3.2
For the measures to work fully The FA must exercise
its right to inspect club accounts across the leagues if there
are reasonable grounds. Again this is best done in partnership
with the leagues in the professional game and national game.
The Football Regulatory Authority has formed a sub-group
to consider insolvency issues and examine new scenarios, as have
arisen recently with Southampton FC.
RECOMMENDATION 3.3
The FA believe that it would also be worth considering
whether, on those occasions where a new company steps into ownership
involving Supporters Direct holding equity or the use of other
community based ownership structures, this might mitigate penalties
to some extent as promoting an intention to pursue competitive
integrity.
The FA believe that the proposed framework provides
a reasonable level of intervention on a punitive and preventative
basis, at the same time recognising that clubs and club directors
have to accept ultimate responsibility for the proper management
and stewardship of their clubs.
4. Do we need to reconsider the rule that
requires insolvent clubs to pay "football debts" before
other debts?
Context
Football and other sports clubs have in some cases
stretched their financial resources beyond the limits in pursuit
of success. This has principally happened in the second and third
tiers of our sport.
The FA recognises the fact that to an external observer
it can be hard to understand the justification for a rule that
may disadvantage local businesses and individuals when other football
parties are afforded a greater level of financial protection.
Current environment
The Football Creditors Rule (FCR)
Since its introduction in 2000 by the Football League
this has provided an additional layer of protection to certain
participants in football through preferential status as creditors.
It has withstood HMRC challenges in the courts.
HMRC
The majority of insolvency events involve significant
debts to HMRC. Having failed to challenge the FCR on policy terms,
HMRC tends to vote to block CVA's as a creditor and where owed
more than 25% of total debt, is able to do so. This can lead to
failure to exit a CVA since the club is bound to pay football
creditors in full but cannot satisfy HMRC if its ratio of debt
is above 25%.
The FA and Football League have discussed this with
HMRC not least because the Revenue has allowed clubs to build
up significant tax debts. HMRC could remove this "credit
line" and enforce greater responsibility. They fail to do
so.
ISSUES FOR
CONSIDERATION
There is no agreement across football to remove the
FCR, with arguments on either side of the case.
RECOMMENDATION 4.1
The FA through the Football Regulatory Authority's
sub-group on insolvency matters will seek greater consensus on
the application of the FCR.
RECOMMENDATION 4.2
All clubs should report, every two months, to The
FA and their leagues in the same form on the extent of all classes
of debt to HMRC and on any arrangement made where debt is deferred
by agreement. This will reinforce the early warning system and
trigger remedial steps early rather than too late.
RECOMMENDATION 4.3
The "going concern" report at audit should
in every club address what has happened during the report period
on this matter specifically with appropriate recommendations.
Such advice to clubs in avoiding undue risks would require specific
proposals from clubs on how they intend to respond that gives
sufficient comfort to the auditors—broadly what is required
of companies that are regulated by the Financial Services Authority.
RECOMMENDATION 4.4
In the same audit statement clubs would be required
to show they have no debts to other clubs or football creditors
other than those outstanding in a programme for payment mutually
agreed
The FA Premier League operates a redistribution (solidarity
payments scheme) devised to dampen the impact of relegation. However
some of the most severe collapses have followed relegation
RECOMMENDATION 4.5
The FA recognises the difficulties in addressing
the problems of relegation, for example the parachute payments
may not wholly cover the consequences of relegation but may still
provide a considerable advantage over other clubs. The FA and
leagues should address this matter thoroughly and soon to ensure
the risks of collapse following relegation are minimised.
5. Do the "fit and proper" persons
tests need to be strengthened and should they be applied prospectively?
Is there a case for a single `fit and proper' person requirement
in both the Premier and Football Leagues for directors and others
involved in the management and ownership of clubs?
Context
Since 1999 there have been discussions of the best
way to ensure that the stewardship of football clubs is in the
right hands. All discussions have found it easier and more acceptable
to devise legal tests) that go beyond domestic and European Community
law rather than more subjective ones. However, these issues are
plainly back at the centre of discussion.
Current environment
In 2004, The FA Financial Advisory Committee created
a FAPPT implemented by The FA for clubs in the Football Conference
and feeder leagues. The FA Premier League and Football League
also introduced FAPPT tests for their member clubs. The tests
involve a number of similar principles but there are currently
three sets of rules in English Football.
The FA Regulations currently require any individual
acting as a "Director" to complete and sign a form stating
that they are not subject to any one of a number of "Disqualifying
Conditions". These are similar to the conditions adopted
by, for example, the Financial Services Authority. The FA defines
a director not only an individual registered as such at Companies
House, but also those exercising either direct or indirect control
over a club and any person holding 30% or more of the share capital
of a club.
The Disqualifying Conditions comprise:
— A disqualification
order under the Company Directors' Disqualification Act 1986.
— Unspent
conviction for any one of offences listed on a wide-ranging Schedule
of Offences.
— Being
subject to any bankruptcy order.
— Being
a Director of one football club that has been subject to two Insolvency
Events or two football clubs that have been subject to one Insolvency
Event during the preceding five years.
— Being
banned by a Sports Governing Body from the administration of that
sport.
The three sets of FAPPT differ slightly from one
another in respect of the tests although it is also true in every
case the test goes beyond the scope of existing legislation. All
parties review the provisions regularly. For example the 30% provision
was included in 2007-08 to mirror the City Code on Takeovers and
Mergers, and further changes deal with "shadow directors".
ISSUES FOR
CONSIDERATION
The FAPPT is a critical test both in terms of football
and public confidence. It is not currently sufficiently consistent
or robust notwithstanding efforts on all sides.
The FA believes that changes would be of real benefit
in the following areas:
RECOMMENDATION 5.1
The FAPPT should be extended to cover not just those
disciplinary or criminal offences already recorded, but also to
whether a person has been notified of any potential proceedings
or an investigation that might lead to those proceedings.
This would include such considerations as the freezing
of an individual's assets and would follow similar provisions
to the FSA Test
RECOMMENDATION 5.2
FAPPT checks should extend to the annual reports
of Human Rights Watch (The Foreign and Commonwealth Office) which
can identify people not subject to legal threat, despite serious
allegations, because they control or can exercise control of the
legal system that might otherwise intervene in their cases. This
has the merit of being the authoritative public domain review
which commands global respect.
These extensions would protect clubs and the sport
from reputational damage. These new tests would be applied prospectively.
Where these tests fail to identify grounds for a disqualification
that subsequently comes to light, The FA believes that there would
be a proper desire to put the matter right. In UK domestic law
this should not be exercised so as to prevent unreasonably the
opportunity of an individual to defend themselves from charges.
RECOMMENDATION 5.3
For clarity, The FA and others should share a single
FAPPT. It should be widely published with full explanations to
those it might affect (See Recommendation 2.1)
Whilst application forms might ask for commercially
sensitive information this can be handled with complete discretion
and should not deter prospective directors or investors. This
discretion would not compromise the identity of those seeking
to purchase a club. These arrangements may not prevent acquisition
of shares in the open market, any more than with financial institutions,
but would make it possible on discovery to ensure the exercise
of proper pressure to divest/step down.
The FA believes that these provisions should form
part of the domestic licensing regime.
6. How can we most effectively promote competitive
balance and reward success in the professional game while preventing
the game from being too predictable?
Context
This is undoubtedly one of the most complex issues.
First, football in England is regarded around the world as passionate
and of outstanding quality. This is reflected in attendances and
the value of televised rights and sponsorship. It is a story of
success. Nobody will welcome changes that diminish success and
fair rewards for achievement. The success is dependant on a thoroughly
competitive environment from the pinnacle of our league system
to safeguard its attractiveness and hence its long term prosperity.
Every business environment changes so it is appropriate to reconsider
arrangements periodically indeed this is taking place in the FA
Premier League. The FA and the Football League will have significant
interest in this discussion.
At the heart of the structure is the pyramid, and
the principle of promotion and relegation. By its nature this
principle increases financial instability as clubs move through
very different trading environments.
So in the interests of football throughout the pyramid,
The FA must try to ensure clubs are as evenly matched as possible
to sustain attractive football, avoiding exposure to unwarranted
risks, while encouraging the excellence that makes English football
hugely attractive.
This is not simply a domestic issue. The funds that
flow from UEFA both enable four English clubs to attract among
the best players in the world and to become increasingly distinct
from other clubs, a pattern equally evident in other major European
leagues. Indeed it is vital to acknowledge that the FA Premier
League shares more of its revenues than the majority of its European
counterparts.
The current environment
The UEFA Champions League is the leading international
club competition and the success of the English clubs a matter
of national pride. Distributions from the competition are worthy
of consideration. Qualification, performance bonuses, the market
pool and prize money make a fundamental difference not only for
the big four English clubs but for Real Madrid, FC Barcelona,
AS Roma, Internazionale, AC Milan, Olympique Lyonnaise and Bayern
Munich in particular.
UEFA solidarity payments in each league are equally
shared. Hitherto this has amounted to 1/50th of the revenues earned
by those competing in the group stages. In short this is negligible.
This creates a significant financial advantage for those reaching
the UEFA Champions League group stages compared with their domestic
rivals. The Independent European Sports review recommended that
in future there should be greater distributions of sums to grassroots
football.
The FA Premier League
Without doubt, a huge success story. Like other top
leagues, though it is hard to argue on the evidence that its highest
reaches have become less predictable. Only Everton (2005) has
dented the complete dominance of four clubs—Arsenal FC,
Chelsea FC, Liverpool FC and Manchester United FC—over the
last five years. It could be argued that the league operates in
three tiers. The UEFA Champions League is the greatest contributor
to this outcome at the top of the table.
Because the FA Premier League is the most successful
league on and off of the pitch, it is important to understand
the data. The average revenue (broadcast, matchday and commercial)
earned by the big four clubs is 3.5 times greater than average
for the other 16 clubs. Nonetheless, the collective bargaining
system used by the FA Premier League clubs is certainly the fairest
intra-league distribution mechanism for broadcasting revenues
in Europe. A redistribution mechanism formula secures this. For
example in 2007-08 the top revenue earners, Manchester United
FC received £49m from broadcasting rights and the bottom
club, Derby County FC received £29 million, or 60% of the
top clubs revenue. Objectively viewed this is a reasonable balance.
Of course, matchday and commercial revenues have
an impact, and there has been a significant level of investment
in new stadia and facilities post the Lord Justice Taylor's Report.
Income consequently grew from corporate boxes, ticket sales and
hospitality. The largest return is unsurprisingly at the largest
stadia. The big four earned an average of £59 million from
matchday revenue; non relegated competitors averaged £17
million; and relegated competitors £9 million. It is a similar
picture when looking at commercial revenues. The average big four
club earned £54 million from this source; for those clubs
not relegated it was £15 million; and those relegated it
was £8 million (all based on 2006-07 figures).
The Football League
We are not aware of any suggestions that the three
divisions of the Football League suffer from predictability. We
are also aware of the growing attraction to spectators of that
competition with the Football League enjoying its highest attendances
for nearly 50 years and over 16.5 million fans attending the matches
this season.
However the revenue gap with The FA Premier League
is a considerable one. The Deloitte 2006-07 report shows that
The FA Premier League earned £1,512 million in total revenue
between its 20 clubs and in the Football League Championship earned
£329 million between 24 clubs.
Many argue that the impact of the "parachute
payments" for clubs relegated distorts the Championship.
It is hard to sustain this case fully on the evidence. Fewer than
one in three are promoted back at their first attempt and fewer
than half get back before the parachute payments cease. lt does
not appear that these payments have a particularly distortive
effect on the balance of the Football League Championship. However,
as stated in Recommendation 4.5, The FA and leagues should address
this matter thoroughly and soon.
ISSUES FOR
CONSIDERATION
The balance needed to sustain great quality and enhance
wider competition will not easily be found. No one wants to damage
the former. Most people would welcome the latter. Over the years,
people have explored various options from salary caps to revenue
sharing to handicapping systems to forms of distributing the talent
pool of players.
Salary Caps
Salary caps are sometimes urged on the basis that
they encourage prudent financial restraint rather than excess.
Controlled wage costs would assist clubs to live within their
means. In England this approach, a "soft cap" where
clubs agree on an upper limit on wage expenditure of 75% of income
is in place in Football League Divisions One and Two. A scheme
in France was introduced and then withdrawn as it was unenforceable
when clubs incentivised players in other ways.
It is, in our view, a matter for the leagues to decide
based on the range of financial circumstances they face. At the
top levels it would face challenges of legality and would require
Europe or worldwide consent to prevent damage to competitiveness.
Additionally, freezing expenditure at a particular point—for
example at a percentage of current revenues—would cement
into the competition the advantage of clubs with the largest revenues
and they would simply dominate. At lower levels, the attractions
would be greater to leagues where insolvency events occur more
often.
RECOMMENDATION 6.1
The FA believes there is merit in a preliminary discussion
across professional football with The FA of a new element of redistribution.
If clubs operated to an agreed and specified salary benchmark,
it might be appropriate to levy a charge against those choosing
to exceed it, with the excess element to be distributed in the
game at youth and grassroots level, or within the league on a
redistributive basis.
Handicapping systems in fixtures
While these systems may make outcomes less certain
it would undermine the symmetry of the fixture list and the ultimate
guarantee of competition. The FA does not consider this a viable
option.
Distribution of the talent pool
Systems of this kind operate in other sports, for
example the NFL and Australian (Aussie Rules) Football League.
They operate as "drafts" and have broadly been adopted
by tough-minded business people to protect the commercial value
of highly competitive environments. It would change fundamentally
the structures of young player identification, the transfer market
and a range of international arrangements. The FA does not consider
this a viable system.
RECOMMENDATION 6.2
The FA believes that a preliminary discussion may
be valuable in assessing the economics of young player development,
potentially improving the incentives for clubs to invest in talent
development. A levy currently exists at the FA Premier League
and Football League level where 5% is paid to the League in respect
of transfers. It is paid to the PFA/Players fund, with surpluses
returned to the clubs. Given the mechanism exists it may be possible
that either a proportion of the fund or the returnable surplus
is retained and applied to young player development on a hypothecated
basis or that a slightly higher percentage is paid for this purpose.
Revenue sharing
We have already noted the redistributive solidarity
payments in England. The FA believes that it is timely to consider
sources of revenue that either do not enter the game or are too
concentrated among too few competitors.
RECOMMENDATION 6.3
The FA would welcome a discussion on the revenues
achieved by the gambling industry, both to:
(a) pay for the costs of policing its relationship
with football upon which it depends to a considerable extent,
and
(b) for further distribution throughout the pyramid.
RECOMMENDATION 6.4
The FA would welcome and would willingly participate
in, a discussion between the European Leagues and UEFA on wider
distribution of UEFA Champions League Broadcast income. Both the
quantum and destination might appropriately be explored.
RECOMMENDATION 6.5
In the event of further discussion between the FA
Premier League and the Football League about the distribution,
The FA believes that it would be appropriate to take full part.
There are no easy answers; however, we hope we have
provided significant food for thought in terms of potential ways
in which the current system and transfer market could be used
to the greater benefit of the game as a whole.
7. Is everything possible being done to develop
and bolster the national side? Is there a case for introducing
a specified number of home grown players in the domestic league
to promote young talent?
Context
The FA currently sends 24 representative teams into
World and European Competition. Our explicit vision is that they
are winners. We aim to produce teams with a genuine chance of
winning and our country expects no less. The success of our great
clubs and national teams is intimately linked.
Current Environment
As the Governing Body our first responsibility is
the education and preparation of coaches, preferably outstanding
coaches. It is a requirement of UEFA and FIFA statutes. We intend
to develop a fully qualified profession with standards directly
comparable to other professions in terms of assessment and continuous
professional development.
This will be done through FA Learning, the FA Premier
League and Football League as well as stakeholders throughout
the national game. Only with an exceptional profession (analogous
to other teachers) and with academies and centres of excellence
(analogous to exceptional schools) can we achieve the development
of the next generations of footballers. We will write the core
coaching manual to guide this work. This is our future.
At senior level, Club England supports the teams.
The support level includes coaches, sports scientists, medical
and physiotherapy staff and many others. This underpins the best
performance possible on the pitch.
Our aim remains to have a world class hub—The
National Football Centre.
At the youngest level of players, through age-specific
coaching, we are improving the technical ability of young players
especially in the 5-11 age group. Work in the 12-16 and 17-21
age groups is also progressing and as the ages increase, so does
the need for partnership with professional clubs. We are guided
in significant part by the Lewis Review (2007).
ISSUES FOR
CONSIDERATION
A number of proposals have been made about the ratios
of players eligible to play for their country, in our case England,
in the past year.
The FA have been in favour of exploring the "six-plus-five"
principle advocated by FIFA because the decreasing number of players
in top club football eligible to play for England poses an appreciable
risk to the success of the national teams. Equally, we have all
been aware that European legislation may prove a major barrier
and this is unlikely to provide a quick change in any event. We
understand that many would oppose it even if legal.
In 2005 UEFA introduced a "home grown"
player declaration. It emphasises the training and development
of young players and argues their importance to the clubs that
found and nurtured them. This concept is not in itself one about
nationality. These proposals have been sanctioned by the European
Union and have been in operation since the 2006-07 season although
they only apply to UEFA'S own competitions (UEFA Champions League
and the UEFA Cup (to be renamed the Europa League).
The definition used by UEFA for 'home grown' is those
players regardless of their nationality, that have been trained
by a club or by another club in their national association for
at least three years between the ages of 15-21. Currently there
have to be eight "home grown" players in the 25-man
competition squad. The rule is now well established and is to
be reviewed by the European Commission in 2011. Since its inception
13 FA Premier League Clubs have complied with the rule and played
in UEFA competitions.
The Football League voted to adopt a "home grown"
rule to apply from the 2009-10 season broadly based on the UEFA
regulation. A 'home grown' player will have been registered domestically
for a minimum of three seasons before their 21st birthday and
at least four such players must be included in every 16 man squad.
The FA Premier League has announced it has reached
a similar decision and we look forward to seeing the details of
their proposal.
The FA believes that both Leagues should be congratulated.
These measures may not necessarily have an impact on the national
side but they are likely to do so.
The proposals need on-going thought. Under the UEFA
rule if a player is signed by a club from Spain at 15 (or 18 under
the Football League Rule) he would qualify as a "home grown"
player after three years. He would be eligible for the UEFA Champions
League but not for our own national team. Indeed, perversely,
he conceivably might have kept someone out of an academy that
would qualify for the national team. Hence the importance of considering
restricting the movement of young players.
RECOMMENDATION 7.1
The FA supports these developments and welcomes them.
We believe that the interests of young people, their educational
opportunities and families mean that it is undesirable that they
move from one nation to another, one education system to another,
before the age of 18.
We know many argue that 16 is an appropriate age.
The whole thrust of mainstream education policy in Europe and
the world aside from the poorest nations, is to try and retain
all children in education until the age of majority at 18. It
is felt to reflect their best interests. In any event this may
be a matter for EU Community law, by which we will all be bound
but The FA is sensitive to the wider social policy issues at stake
alongside football considerations. UEFA is finalising proposals,
with EU law in mind, for further discussion with associations,
leagues, clubs and players and we look forward to taking full
part in those discussions.
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