Posted on 22nd May 2020
“A way forward for football” – Damian Collins MP
This morning Damian Collins MP and Sunderland co-owner Charlie Methven published their recommendations for radical changes to the way football is governed if it is to survive and be sustainable in the long-term after its return from the COVID-19 pandemic. Below Damian talks us through his ideas…
We may only have a few weeks to save professional football in this country as we know it.
The shock of the COVID-19 crisis has badly exposed the weak financial position of clubs in the English Football League (EFL), many of whom were already on the edge of bankruptcy. If nothing is done, clubs with old and famous names will almost certainly go into administration within weeks. More communities will go through the agony that Bury suffered last year and see a beloved cultural and sporting institution taken from them.
The reason the situation is so urgent is because clubs in the EFL are almost entirely dependent on the money they make from playing matches in front of paying fans. As things stand, no-one knows how long it will be before we see even a half-full stadium. The financial burden this brings falls most heavily on the clubs with the smallest resources. For the giants of the Premier League, more than eighty percent of their income comes from the money they make from the television companies who broadcast their games to a worldwide audience. However, for clubs in Leagues 1 and 2 revenue from broadcasting is often less than ten percent of what they earn in a year. This means they are almost entirely reliant on income from ticket sales, sponsors and advertisers, merchandise and hospitality, all of which are inextricably linked to football as a live mass attendance event.
Since the lockdown and the suspension of matches, EFL clubs have had to cope with losing match day income whilst still having to pay their players, though, things are going to get worse. In early June the money clubs would usually receive from advance season ticket sales – which is what keeps them going during the summer months – will dry up without the realistic prospect of spectators being allowed back into football grounds in August and September.
It is that loss of a large chunk of forecasted income, rather than the small number of matches lost at the end of this season, which will push some clubs over the edge. The consequences will not just be felt by club owners and supporters. At the end of June, we will see 1,400 players who are out of contract released, not because they lack ability but because clubs won’t be able to afford their wages in a world with no foreseeable matchday income.
Some clubs who cannot pay their bills will go into administration, but under the League’s Football Creditors rule they are required to settle in full all their football debts, including outstanding player salaries. These costs are by far the largest bills that the clubs have to pay, and those that cannot find the funds to do this face insolvency and expulsion from the league, just like Bury. The Football Creditors rule is itself long overdue reform as it places the greatest financial burden on other community businesses that support clubs when they go into administration. They often get pennies in the pound for the money they are owed whilst football bills are honoured in full.
Attracting finance from potential new owners in situations like these will be almost impossible. Who would want to take on the liability of an insolvent football club, that was already trading at a substantial loss before the coronavirus hit, and that has now had its principle source of income taken away from it?
So, the short-term problem is clear to see. With no clarity over the future of live matchday attendance likely anytime soon, clubs will go bust unless they are bailed out somehow. The government has already given a £16 million emergency loan to rugby league to help protect that sport from precisely the same problem, and EFL clubs are also going to require some form of public funding.
Yet whilst acknowledging and dealing with that need, we also need to recognise that football’s financial crisis has not simply been caused by the coronavirus. Rather, the lockdown has brought to the boil a situation that has been simmering for too long. The majority of EFL clubs have been run unsustainably (and often irresponsibly) for decades. If taxpayers’ money is going to be brought to bear then this needs to be the moment when the national game is forced to change.
Clubs might have the structure of a private company, but they are also social institutions. Their current owners are not merely running a small business – they are the custodians of a treasured and often totemic part of a community’s history and values. That is why football clubs carry an outsize importance in UK society.
To safeguard them from abuse, there are two crucial sets of rules already in place. One is an Owners and Directors Test (OADT), which is supposed to prevent clubs from being bought by those not fit and proper to run such important institutions. The other is the Salary Cap Management Protocol (SCMP), which is supposed to prevent owners of League 1 and League 2 clubs from spending unsustainable amounts of money on players’ wages (in the Championship, this has been replaced by a crazed rule that “limits” owners to losses of “only” £13 million a year).
Leaving aside the obvious fact that the Championship – where clubs are at their most unsustainable – should be brought into line with the Salary Cap Management protocols, rather than encouraging owners to lose vast sums, what is the problem? The rules seem sensible enough.
The problem is in their lack of enforcement, and the reason for this is that the EFL itself is a members club which is presided over by executive officers who are given their jobs by the same people they are then supposed to regulate. As a result, it is perhaps unsurprising that not many prospective owners fail the OADT and that clubs have consistently refused to obey the rules of their own governing body. In a 2019 report by Deloitte, it was revealed that far from spending under 60% of revenue on players wages – as the SCMP requires – League 1 and League 2 clubs were spending an average of 90%. In the Championship, the number is north of 100%.
The case of Bury demonstrates just what the problem is. It was acquired by an owner who simply refused to submit to the Owners and Directors Test let alone try to pass it. When he took over, Bury’s accounts had not been signed off by their auditors and they were clearly already operating in breach of the SCMP. Yet the EFL did not feel in a position to act until it was too late, at which point all it could do was to end Bury’s 120 year Football League existence.
If public money is going to be used to bail out football clubs, we have to introduce reforms to their governance so that they are run in a more sustainable way in the future. That is why we are setting a six-point plan to rescue football and protect these community assets for future generations to enjoy.
A ‘Football Finance Authority’ (FFA) scheme should be created by the Football Association – but working with and backed financially by the government – to provide financial assistance to EFL clubs.
Funds should be provided by the FFA to allow clubs to meet their short-term liabilities and provide them enough breathing space to restructure their finances, but couldn’t be used to invest in recruiting new players or improving the club’s infrastructure. Rather than being offered as loans these funds would instead be exchanged for a minority shareholding in the club, of between 10% to 49% depending on the level of investment required and the value of the club.
Independent directors would be appointed to the boards of clubs as representatives for this minority shareholding. These directors can be nominated by either a registered supporters trust or by the relevant local government authority, but they must be non-political and subject to approval as Fit and Proper by the FFA.
These Independent Directors shall have real time access to the financial records of their club and can report their concerns back to the FFA. Clubs that continue to trade outside the rules of the EFL would be put into a form of administration by the FFA, where a credible plan would be implemented by independent auditors to bring the financial affairs of the club back in line with the League’s rules.
Either a recognised supporters trust or a local authority can subsequently acquire the FFA shareholding in their club at a discount to market value, and funds raised in this way would be returned to the government to help repay the public investment in this scheme.
The EFL’s financial regulations should be set and enforced by the FFA, the governing body of which should include representation from the EFL, the Professional Footballers’ Association (PFA), the Football Supporters’ Association (FSA) and the clubs themselves, but with an independent majority.
Without the reforms of the governance of football finances, any bailout for clubs will be a short term fix. Once the pressure is off, the rules – whatever they are – will be bent and challenged by the owners of clubs intent on short-term success, at the cost of medium-term sustainability. To solve the problem, we have to diagnose first what it really is – in this case, a governing body which is simply not constituted to perform the task allotted to it in an age where all too many owners – far from the responsible custodians of aeons past – are often all too ready to gamble a club’s future on short-term glory.
We want to see a lasting solution to the previously existing problems of unsustainability, and so we see our proposals as going hand-in-hand with more permanent solutions already tabled by the Football Supporters’ Association around the regulation and governance of football. The government already has a manifesto commitment to a ‘fan-led review of football governance, which will include consideration of the Owners’ and Directors’ Test’; the COVID-19 crisis gives greater urgency to an area of concern already crying out for action.
A further benefit of the scheme will be the gradual move towards a German model – where communities own 50% of their local club – therefore ensuring that they cease to be a rich man’s plaything and instead start to look and behave like the social institutions they in fact are.
A way forward for football – FSA response:
Malcolm Clarke, chair of the FSA, said: “The necessary restrictions arising from the COVID-19 pandemic have made government support for football clubs – a vital part of our communities and culture – an urgent necessity. We welcome the call for that assistance to be both prompt and linked to future sustainability.
“Football now has a unique opportunity to reset and adopt new ideas, which not only secure the short-term future of clubs, but help them thrive in the seasons ahead.
“These proposals would be a huge step in the right direction and chime with the FSA’s core beliefs – that fans have a key role to play in football governance and ownership models.
“The idea of an independent unit, embedded within the FA, which exists to protect clubs is an idea we’ve championed for some time. It receives our full support.”