Protecting the pyramid – government proposes independent regulator for English football clubs
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The Department of Culture, Media and Sport has published a white paper on reforming football club governance. It sets out proposals to introduce an independent regulator for English football to ensure that English football is sustainable and resilient for the benefit of fans and local communities.
To this end, the regulator will have three primary duties, namely to protect: (1) the financial sustainability of individual clubs; (2) the overall stability of the “football pyramid” (the hierarchical system of leagues covering English professional football clubs); and (3) the cultural heritage of football clubs. If so introduced, it will lead to the biggest regulatory change in the English football landscape in decades.
Existing international framework
At the international level, the International Football Association Board (IFAB) codifies the so-called ‘Laws of the Game’, consisting of 17 individual laws that govern how football is played. The IFAB is comprised of the four British football associations (England, Scotland, Wales and Northern Ireland) with 1 vote each, and FIFA, covering the remaining 207 national associations.
In 2021, in response to a combination of the recent collapse of Bury FC (founded in 1885 and having survived some 26 Prime Ministers), the Covid-19 pandemic and the proposal for a European Super League, the UK government commissioned a fan-led review of football governance. The main recommendation was for a new independent regulator whose licensing conditions would focus on financial sustainability via financial regulation and improving decision-making at clubs through, for example, a new corporate governance code.
The recent white paper
While the white paper noted the success of the Premier League, whose revenues dwarf those of the top leagues in continental Europe, it argued that the football pyramid as a whole is fragile, which increases the risk of financial failure among football clubs.
The white paper found that failure of a football club would have wide-reaching implications across the local community, supply chain and for fans themselves. Research commissioned from Ipsos MORI to aid the white paper found that the welfare gains generated through the existence of English football clubs amounted to GBP360 million per year.
While acknowledging that mutual agreement among the football authorities remains the preferred solution to resolving the issue of insufficient and destabilising financial flows, the white paper referenced the limited self-regulatory actions taken by the footballing industry to date as motivation for introducing an independent regulator to deliver the reform that the government considers is required. The independent regulator will have statutory powers to enable it to intervene where necessary.
The independent regulator
The primary strategic purpose of the independent regulator would be to address the key source of potential harm in the football market i.e. to ensure that English football is sustainable for the benefit of fans and the local communities the clubs serve. This would be achieved by three primary duties focusing on club sustainability, systemic stability and cultural heritage.
The independent regulator would introduce a licensing system requiring all 116 clubs in the top five tiers of the football pyramid to obtain a licence to operate as a professional football club in England. Four threshold conditions will be implemented into legislation, proportionate to the relevant league and size of the club, to ensure that compliance can be monitored. The threshold conditions to obtain a licence are: (1) the club should have appropriate financial and non-financial resources; (2) decision-makers at the club are fit and proper custodians; (3) the club considers the interests of fans on key decisions and issues of club heritage on an ongoing basis, and; (4) the club must agree only to compete in regulator-approved competitions.
In order to reduce the risk of financial failure for football clubs, the independent regulator would focus on financial sustainability, which aims to improve clubs’ financial resilience to shocks such as Covid-19 or relegation. A football club would be required to: (1) demonstrate good basic financial practices; (2) have appropriate financial buffers to withstand a financial shock; and (3) protect the core assets and value of the club, like the stadium, for the long term.
The white paper argues that the existing regulatory framework does not promote healthy financial practices among football clubs. The current regulations which provide for “soft salary caps” (wage caps relative to turnover) can reduce overspending but can be circumnavigated.
A new “Football Club Corporate Governance Code” would be implemented by the independent regulator to provide greater accountability and transparency. Noting high profile business collapses such as Patisserie Valerie and Carillion, the independent regulator would increase the corporate governance reporting requirements across the football pyramid.
Drawing on existing corporate governance principles in other industries, such as the UK Corporate Governance Code, the indicative requirements of the code would be proportionate to the club but linked to five core areas: (1) clubs should have a clear, appropriate governance structure with a properly constituted board that makes decisions collectively; (2) clubs should recruit people with appropriate skills, knowledge, experience and independence to further the club’s goals; (3) clubs should be transparent and accountable and engage effectively with fans and other stakeholders; (4) clubs should uphold high standards of integrity; and (5) clubs should comply with all applicable laws and regulations.
Owners’ and directors’ tests
The existing framework has different tests as between the Premier League and the FA. The white paper noted that existing tests are conducted on a self-declaration basis and may even take place after an acquisition completes.
The independent regulator would unify the test to consist of three key elements: (1) a fitness and propriety test (for owners and directors); (2) enhanced due diligence on the source of wealth (for owners); and (3) a requirement for robust financial plans (for owners). Clubs will also be required to declare their ultimate beneficial owner to improve transparency.
Sanctions and appeals
The independent regulator would have an escalating approach to regulation, beginning with constant monitoring and supervision to working with clubs to remediate breaches. If this does not solve the problem, the independent regulator could use powers of direction to compel clubs to take more significant action, as well as applying sanctions on clubs and their controlling individuals. For persistent and wilful non-compliance, the independent regulator would retain the right to disqualify those in charge of the offending club.
Clubs would have the right to appeal key decisions made by the independent regulator if they consider the regulator’s decisions were not taken in line with public law principles via a fair process and by a proper interpretation of the law. The independent regulator would be ultimately accountable to government ministers.
The government is currently in the process of targeted engagement and consultation with stakeholders regarding the key elements of the white paper to assist with the final proposal for legislation, which will put the key principles of the regulatory framework into statute in due course.
The white paper’s proposal for an independent regulator has the potential to re-shape the regulatory and governance landscape of English professional football. What happens next will attract keen attention from the wider public given the cherished role football plays in many lives and communities.