By Simon Orriss, Senior Associate, Mills & Reeve, LLP, Solicitors, United Kingdom
On 23 February 2023, the Department for Digital, Culture, Media and Sport published its White Paper (White Paper), which sets out the UK government’s comprehensive plan to introduce an independent regulator for professional clubs in the English football pyramid.
The stated aim of the White Paper is to “ensure that English football is sustainable and resilient, for the benefit of fans and the local communities football clubs serve”. This sweeping aim is then distilled into four specific ‘thresholds’ a club must cross before being given a licence to compete by the proposed new regulator: appropriate resources; fit and proper custodians; fan interests; and approved competitions.
This noble aim seeks to bring some order to the chaos that often seems to grip the ownership of England’s 92 professional league football clubs. For decades, the argument from the sport is that the operation of football leagues and clubs as limited liability companies, combined with a layer of sport-specific regulations and the developed body of English insolvency law, is sufficient to ensure that football is a successful industry. The White Paper follows the Fan-Led Review of Football Governance of 24 November 2021 (FLR), which considered that this approach is “deeply unsatisfactory” and cites the examples of football clubs failing under this system, with the directors and owners responsible rarely suffering serious loss.
The FLR argues that football clubs are “more than just a business” and instead are entities tied indelibly to their local communities. The FLR and White Paper dismiss the industry argument and believe that football should not rely on structures and mechanisms that are designed to serve entities that are “just a business”.
A Fit and Proper White Paper?
The proposed regulator would have wide-reaching powers to supervise, audit, and oversee the finances and governance of football clubs in the top 5 levels of the English Football pyramid. Whereas the current system sees clubs governed by the leagues in which they compete and in which, in turn, they are the sole shareholders, this new regulator would be independent of the clubs that it governs.
However, any regulator is only as strong as the sanctions it wields. In this respect, the White Paper describes an “advocacy first” approach in which it seeks to collaborate with clubs that are failing the licence requirements. Serious failure would be dealt with using an escalating model of enforcement, with increasingly stronger powers and greater involvement in club operations being engaged if certain thresholds for intervention are met.
Ultimately, it is suggested that the regulator would have the power to disqualify owners or directors from being involved with a failing club. Sanctions relating to sporting performance, such as points deductions and financial “embargoes”, are not contemplated by the White Paper. This is in common with a general theme of staying out of “commercial” and “sporting” aspects of the industry and leaving these to the leagues to govern.
There is, therefore, a concern from some that the regulator will merely be a toothless fox watching over a manic henhouse: too slow to react and too soft to instil fear in its licensees. There is equal concern from others that too much power will force the industry to focus on regulatory compliance to the detriment of commercial agility.
With sparse detail available, it is hard to know if a balance will be achieved. A look at other regulators shows that many have been effective when they are empowered to act and when their licensees take them seriously.
The football regulator will cover only 116 entities and so the desire to be a flexible and collaborative “advocacy” led entity is likely possible, provided that enough resources and staff are available to meet the demand of 116 highly competitive entities who operate in an industry where a week can last a year.
Legal Implications
Football clubs are used to satisfying criteria to be permitted to operate. Each of the leagues and the FA have handbooks and appendices and regulations stretching to hundreds of pages, all of which set out detailed criteria which must be satisfied before a club may compete. Breaching these criteria has, in recent seasons, resulted in punishments being handed down.
The English Football League have handed out points deductions for breaches of its financial fair play rules and in recent seasons these resulted in clubs being relegated. The Premier League made international news, when in February 2023, it charged Manchester City with breaking its own financial fair play rules. Possibly coincidental timing aside, what these cases show is that, even before a regulator is established, we are seeing that clubs must take their rules and regulations even more seriously than in the past.
Conclusion
There is no doubt that, in England and elsewhere, the governance, ownership, and management of football clubs has changed, and will continue to change. That some order should seek to protect a prime cultural asset, of which many people are uniquely proud, should not be considered controversial.
However, this must be carefully crafted if it is to have meaningful impact that benefits all stakeholders so far as possible.
Finally, clubs must be supported to react to this new landscape in a way that does not overburden them or scare them into an inert state hamstrung by the burden of bureaucracy.
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