Interpreting five key recommendations of the Independent Fan-Led Review of Football Governance 

January, 2022 - Matthew Phillip

 

In May 2021, the UK Government commissioned an independent, fan-led review of football governance in England following three “crisis events”. The report has thus far received a varied reception. Some have welcomed its recommendations, and believe that they will bring about much needed reform of the current model of football governance. Others questioned the need for the review, and warned that the recommendations risk over-regulating the model which brought the English leagues to the forefront of global football. Here we will outline some of the more controversial recommendations and consider their potential implications on the governance of football in England.


Why was the fan-led review commissioned?

On 24 November 2021, the report on the Independent Fan-Led Review of Football Governance was published. The UK Government established the review in response to:


  • The collapse of Bury FC, a club based in north-west  England that was expelled from the Football League and placed into administration in 2019 as a result of financial mismanagement, putting an end to the club’s 134 year history; 
  • The  impact of the COVID-19 pandemic, as government regulations temporarily prevented professional football games from taking place and led to a significant decrease in revenue; and 
  • The plan to create a breakaway ‘European Super League’, in which six English clubs were to participate. After widespread pressure from fans and the wider public, the six clubs eventually pulled out of the proposed league. 

Although the events that triggered the review were unconnected, the report identified a number of common structural challenges facing Football Governance, all related to three root causes: 


  • The incentives of the game mean that many clubs are gambling for success, and subsequently facing financial distress; 
  • The way clubs are run means that the interests of the fans and owners are often misaligned; and 
  • The current regulatory setup is not sufficient to ensure a sustainable future for clubs. 

The report sets out 47 detailed recommendations, each relating to an overarching strategic recommendation. These are wide reaching and would introduce fundamental changes likely to impact almost every area of the game. We examine five key areas in which the report has proposed changes.


Creating a new independent regulator for English football (IREF)

The report considers that the need for further regulation is clear, and that an independent regulator would be the best way to implement this. The proposed IREF would focus on the long-term interests of the fans, clubs and wider game free of undue influence from the more powerful clubs, and address the perceived conflict of interest regarding member clubs controlling the constructional set up of existing structures. 


The Sports Minister, Nigel Huddlestone, has confirmed to the House of Commons that the UK Government endorses the recommendation for the creation of IREF “in principle”. However, the owners of many football clubs disagree. Following an emergency meeting of Premier League clubs, the Chief Executive of the Premier League, Richard Masters, publicly voiced his opposition to the plan. Opponents question the need to change the current model of regulation, under which the Premier League has risen to become the richest football league in the world, with Christian Purslow, Chairman of Aston Villa FC, warning that the creation of an independent regulator would risk “killing the golden goose”. 


The report states that IREF would be accountable to Parliament, but does not provide much further detail on this point, prompting concerns over accountability. Some feel that the clubs and leagues who conduct the day to day business of running English football should have more of a say on the decisions of a proposed regulator. 


Angus Kinnear, Chairman of Leeds United, made the point that football has flourished as a private sector business, and compared the philosophy underpinning the recommendations to “Maoist collective agriculturalism”. However, this view was not shared by the Leeds United Supporter’s Trust, one of many supporters’ trust directly consulted by the review, which released a statement supporting the creation of an independent regulator. This highlights the very different views held by stakeholders, even within the same club.


The proposed IREF would be tasked with operating a new financial regulation regime. The report notes the existing Financial Fair Play Rules do not prevent reckless spending and are not sufficient to prevent clubs gambling with their finances. Many clubs, especially those in the Championship or League One, spend outwith their means in order to generate short-term ‘on the pitch’ success, in the hope that this will result in promotion and a subsequent increase in revenue. Clubs have also been able to find ways to circumnavigate the current rules, for example, by selling their stadiums and leasing them back. The report concludes that the current rules need to change. 


The new financial regulation regime would take the form of a license requirement for clubs to have adequate financial and non-financial resources to meet their committed spending and foreseeable risks. IREF would also have the power to limit the level of money that an owner could put into a club based on the size of the club’s existing finances. The non-financial resources of clubs would also be reviewed through a requirement to agree a plan for the most extreme negative scenarios with IREF.


Some stakeholders have raised concerns that these recommendations would put English clubs at a competitive disadvantage in international competitions. Player salaries are clubs’ biggest expenditure by far and there tends to be a correlation between expenditure on wages and results on the pitch. There is therefore a possibility that restrictions on spending could affect on the pitch results and therefore the ability of a club to compete with foreign clubs which do not face the same financial restrictions. 


It should, however, be noted that similar financial restrictions already exist in some foreign leagues. Clubs’ spending on player salaries in La Liga, the top division of Spanish football, is capped according to their turnover and revenue from the previous year. Spanish clubs have won five of the eight Champions League finals and six of the eight Europa League finals held since this regulation was introduced. Some stakeholders would point to this as evidence that financial regulation does not necessarily put clubs at a competitive disadvantage with their counterparts from foreign leagues. 


Introducing new tests for owners and directors

The report recommends that IREF establish new tests for owners and directors of football clubs. The proposed owners’ test would include requirements to submit a business plan to IREF for review and to provide evidence of sufficient financial resources to meet the requirements of that business plan. The proposed directors’ test would require a director to demonstrate that they have the necessary qualifications, skills, and experience to run the club. 


Both owners and directors would also be subject to an integrity test based on similar tests currently imposed by the Financial Regulation Authority and the Home Office. The integrity test would involve an assessment by IREF of whether the individual is of good character such that they should be allowed to be the custodian of an important community asset. IREF would consider factors such as the presence (or otherwise) of civil and professional sanctions against the individual, and the propriety of the individual in past business dealings. 


This would also involve consideration of the integrity and reputation of any close family member or business associate of the proposed owner. The proposal is topical considering the recent takeover of Newcastle United by PIF, the sovereign wealth fund of Saudi Arabia. Under the current regime, Mohammad Bin Salman Al Saud, the Crown Prince of Saudi Arabia and the Chairman of PIF, was not subjected to the owners’ and directors’ test. This was criticised by a number of stakeholders, who consider that he has a controlling influence on the club, but did not think that he would have passed the tests. 


The extension of this test to encompass family members and business associates has proven to be one of the more controversial recommendations of this report. Some stakeholders believe that this would allow a regulator to take a more rounded view on the integrity of the individual and those who may influence them. However, dissenting stakeholders have questioned the relevance of an individual’s family members and associates to their ability to run a football club. Others have gone even further, with Steve Parish, Chairman of Crystal Palace, opining that this aspect of the integrity test would be more suited to a dictatorial regime like North Korea than a free-market western economy. Given the reaction to this proposal, it is likely that this will be the subject of much further discussion should the Government attempt to introduce this recommendation.  


Encouraging greater fan influence in club decision making

The report acknowledges that football fans play a vital part in the culture of the organisation while also generating a significant portion of the club’s income, and considers that encouraging fan engagement recognises the importance of clubs as cultural institutions within their communities in addition to being commercially sensible. The report notes that there is often a disconnect between those who own and run football clubs and the supporters of those clubs. 


One way in which the report proposes to address this is through the creation of a Shadow Board. This would be composed of a number of diverse supporter representatives and would discuss the business of the club, but without the same legal responsibilities as those who own and run the club. The Shadow Board would expect to be consulted on all material ‘off the pitch’ business and financial matters. The report stresses that this would not be an avenue for fans to raise grievances regarding ‘on the pitch’ matters such as formations and player performance. 


The report also acknowledges the need for additional protection of certain aspects of football clubs that are integral parts of its heritage, such as the stadium, the badge and the club colours. There have been past occasions where those who own and run a club alter these aspects to the dissatisfaction of supporters. The most well-known was the club formerly known as Wimbledon FC. The owners of the club, founded and based in Wimbledon, moved the club to Milton Keynes, renamed it ‘MK Dons’ and altered the badge and club colours. This move was widely unpopular among the fans of the club and, in response, a group of fans founded a successor club named AFC Wimbledon, based in Wimbledon and sharing the colours and aspects of the badge with the original club. 


In order to protect these key aspects, the report recommends the implementation of a ‘Golden Share’ veto right; a veto right which would be held by the fans of a club and exercised over certain decisions regarding key aspects of the heritage of that club. Examples include the decision to change the name of the club, or for the club to join a new competition not affiliated to FIFA, UEFA or the FA. As a condition of retaining their operating licenses, clubs would be required to amend their Articles of Association to incorporate this ‘Golden Share’ veto right. This veto would be held by a Community Benefit Society (‘CBS’) formed for the benefit of the fans of said club. The majority of the 92 clubs operating within the Football League already have a CBS of this nature in the form of a Supporter’s Trust, but those which do not would be encouraged to set one up. This process would be regulated by IREF. 


Redistributing revenues

Football in England has become a multi-billion-pound global industry. However, there remains a large disparity in wealth between divisions. Evidence submitted to the review showed that, in the 2018/2019 season, the club which finished last in the Premier League received £96.8 million in distributions from their league, whereas the winners of the Championship received £8.5 million from their league despite finishing just one place lower in the pyramid. Finances are crucial to the success and the long term sustainability of the club, and the report considers that the current formula used by the FA to redistribute revenues is unfit for purpose and should be replaced. Football authorities are deemed best placed to determine a more effective formula and are encouraged to do so. It is proposed that IREF would have the power to intervene and impose a solution if this is not achieved. 


Clubs that face relegation and the subsequent decrease in distributions from their league can quickly find they can no longer afford to pay their players’ salaries. Finding it necessary to cut costs, clubs may be forced to offload these players, but this can have a catastrophic effect on their performance, causing the club to drop even lower down the standings


In order to address this, the report recommends the introduction of a new compulsory clause in the standard player contracts that provides for an automatic adjustment to player salaries at a standard rate upwards on promotion and downwards on relegation.


The report also recommends the introduction of a ‘solidarity transfer levy’, to be paid by Premier League clubs on any transfer within the Premier League or any international transfer. The money raised by this levy would then be redistributed to other English clubs and leagues outside the Premier League.


This levy would not be charged on transfers of players to or from other English leagues. This would make those transfers more attractive to Premier League clubs and thereby achieve further redistribution of resources. The report does not provide exact figures, but given that Premier League clubs have spent in the region of £9.9 billion on transfer fees in the past five years, it predicts that the money raised by this levy would have a significant effect on the rest of English football. 


These recommendations were received less favourably by stakeholders of Premier League clubs than those in the lower divisions. Karren Brady, the Vice-Chairman of West Ham United FC, has stated that the Premier League already gives away around 15% of its revenue, a figure she says is higher than any other league in the world. She has also argued that the introduction of a transfer levy could make Premier League teams less competitive in the international transfer market. 


Meanwhile Rick Parry, the Chairman of the English Football League, welcomed these recommendations as an attempt to achieve financial stability and Kelvin Thomas, the Chairman of Northampton Town FC, stated that the redistribution proposed by the report would support the wider pyramid which is essential to football in England. 


Reversing the alcohol ban

The report identified a number of areas in which current policy stifles income generation at football clubs in the lower leagues. One of the most controversial is that the sale of alcohol in sight of the pitch is currently banned under the provisions of the Sporting Events (Control of Alcohol etc.) Act 1985, which applies to all clubs playing in the National League and above.


The report highlights the case of Dulwich Hamlet, a semi-professional club based in South London. The team currently plays in a league in which the sale of alcohol in sight of the pitch is permitted, and this is a substantial revenue stream for the club. However, were the club to achieve promotion, it would then be subject to this ban which would lead to an estimated 40% drop in income. This creates a disincentive for success, which undermines the merit based system of the English football pyramid. 


This case study also highlights the potential financial benefits of repealing this legislation. Figures submitted to the review suggest that this legislation currently costs football clubs in League Two roughly £2 per head per match. When those figures are extrapolated, this results in a loss of around £4.4 million across the league per season. 


The legislation was originally introduced to combat the rise in football related disorder in the 1980s, to which alcohol was considered a contributing factor. Figures presented to the review by the UK Football Policing Unit show an overall downward trend in football related arrests over the last nine years. 


Additionally, the review cites evidence that this legislation might have exacerbated the problem by encouraging binge drinking immediately before and after games. The Association of Chief Police Officers stated that strictly controlled drinking within football grounds is easier to police than more dispersed drinking in locations away from the ground. 


Having considered the above factors, the report recommends the introduction of pilot programmes to allow the sale of alcohol in sight of the pitch during matches in the National League and League Two. It also recommends that the Home Office conduct a review of the Sporting Events (Control of Alcohol etc) Act 1985 in order to determine whether it is still fit for purpose. 


These recommendations have been welcomed by many stakeholders, who point to the fact that most games for which this pilot is proposed have minimal policing requirements, and cite relatively low levels of disorder at other similar sporting events at which the sale of alcohol is fully permitted. Others, including Chief Constable Mark Roberts, the football lead of the National Police Chiefs’ Council, have warned that the figures continue to indicate an ongoing problem with disorder at football and that allowing drinking in sight of the pitch could fuel this disorder.


Next steps

The UK Government is set to fully and formally respond to the report in early 2022, at which point it will be clearer which of the recommendations, if any, are likely to become law.


This article was written by Matt Phillip and Ross Simpson. For more information please contact Matt Phillip, Partner and Head of Sports Law, at [email protected].


 

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