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Football

February 9, 2012

Football Clubs (Governance)

Mr. Mark Field (Cities of London and Westminster) (Con) All too often, clubs in appalling financial difficulty grasp at the nearest straw like a drowning man. There may be only one individual who can save the club, but they may not pass the fit-and-proper-person test in a meaningful way. However, if the choice is that person or the club going bust, one understands why the former choice is made, albeit one that leads to other difficulties further down the line. How does the hon. Gentleman envisage getting round that problem if the alternative is for a club to go bankrupt and to spiral out of the league, as has happened to several former league clubs in recent years?

Steve Rotheram: That is exactly the point, and I am sure that my hon. Friend the Member for Hyndburn (Graham Jones) will talk about his beloved football club, and the fact that that happens too often for the problem not to be tackled. That is exactly what the Select Committee set out to do—to consider what recommendations we could suggest on a non-party political basis to ensure that the football authorities have to take cognisance of such issues, and include football fans in the governance of their football teams.

Mark Field: Although I accept that an engaged supporters’ base that can play an integral role in its ongoing development is fantastic for any football club, does the hon. Gentleman recognise that it is not entirely a panacea for all problems? There have been examples of supporters’ trusts that have not worked terribly well—Stockport County, for example. Without the requisite expertise on top of the enthusiasm of a supporters’ base, it can often go horribly awry.

Tom Greatrex: The hon. Gentleman is perhaps in danger of straying into the territory of Ron Noades a few years ago, who said, “Fans can’t do it and probably aren’t able to do it.”

Mark Field: People will remember that Arsenal, although now based in north London, started its life in Woolwich, south of the river. Queens Park Rangers obviously was not based in Shepherd’s Bush for quite some time. I am afraid that the logic of that argument is that it gives a green light to any would-be owner to think, “I will relocate for a few years, and then we can franchise the club to a different part of the UK entirely.”

Mark Lancaster: There is a strong parallel. In 1913 the owners of Arsenal, Henry Norris and William Hall, moved the club away from Woolwich Arsenal and in the following year dropped the word “Woolwich” from the name to just “Arsenal”.

Mark Field: I can understand why many in the footballing fraternity might think it is not necessarily Parliament’s place to opine in the way that we are doing. Not only do we have an interest on behalf of our constituents, but we have a fundamental financial interest. The British footballing industry was on its knees during the mid-1980s after a series of disasters, hooliganism and, ultimately, the Bradford City fire, which led to the Taylor report. A huge amount of public money has gone, and continues to go, into the game. That is one of the reasons why it is appropriate for Parliament to have a say on the matter.

Damian Collins: I agree with my hon. Friend. When we have foreign ownership and we do not know who the owners are; when we have a largely unregulated transfer market bringing billions of pounds into and out of the country, which is largely unknown and uncontrolled at its source; and when communities bear the cost of the financial failure of a football club and taxpayers bear the loss through unpaid tax bills, Parliament should take an interest.

Mark Field (Cities of London and Westminster) (Con): I congratulate my hon. Friend the Member for Maldon (Mr Whittingdale) and his Committee on producing such a detailed and comprehensive report on the state of governance in our national game. I am the vice-chair of the all-party parliamentary football group, and I associate myself with the comments of other hon. Members about our late friend Alan Keen and all the work that he did.

I am a lifelong football fan, and in the past 20 years since the foundation of the premier league, English football has undergone a massive transformation. Rather than continually attacking FIFA—I am glad that we have not really spoken too much about the national game, but there has a campaign against FIFA, particularly in the aftermath in December of the Football Association’s failure to secure the World cup, either in 2018 or 2022—we need to examine seriously the governance of the domestic game. There should now be a pledge from both the Football Association and the Premier League to put their houses in order urgently. True fans of the national game have become increasingly dismayed—as we have heard from hon. Members—at the cynical culture of illegal payments, opaque ownership and disregard for the grass roots of the game in recent years, as global TV money has dominated.

As has been said, half, perhaps slightly more, of all premier league clubs are now foreign-owned, and an increasing number of sides in the championship are attracting wealthy investors from overseas. However, as the report points out, a majority of clubs are still owned by a local business man on a philanthropic basis. Foreign ownership itself is not a problem if we have a robust fit and proper person test. Many will recall that Manchester City has not had an easy path in this regard. In 2007, they were bought by the disgraced former Thai Prime Minister, Thaksin Shinawatra. As we heard from my hon. Friend the Member for Portsmouth North (Penny Mordaunt), Portsmouth had no fewer than four owners in a single season before entering administration in 2009-10. Manchester United and Liverpool have both been subject to highly leveraged buy-outs from US owners. That model is highly risky and is not supported by the vast majority of fans or, indeed, by the Premier League.

There is a risk of chronic overreaching by clubs. I fear that the reckoning—the same can be said for much of the rest of the economy—is yet to come. Under all types of ownership models, this has led to a massive inflation in the cost of running a football club, which has usually impacted most profoundly on loyal, long-standing fans who find themselves priced out.

Asset stripping is highly detrimental. The separation of a football club from the ownership of their ground often spells long-term financial disaster. We have heard that that was the genesis of many of the problems for Wimbledon in 1991. My hon. Friend the Member for Milton Keynes North (Mark Lancaster) is not here, but one of the lessons of the phenomenal success of AFC Wimbledon is that the franchising model need not necessarily be one to which we should aspire. It took eight long years—in the scheme of things, quite a short period of time—for Wimbledon to move their way right back up that pyramid into the Football League. If there are to be such instances as Milton Keynes—a new town with a large population that is not traditionally served by a nearby football club—I hope that that will be a lesson for the future. Outside the Football League, Darlington have high-profile problems, having fallen into administration only this season. They are now subject to a bid for a community takeover.

It must be acknowledged, as other hon. Members have, that on occasion the football authorities are faced with the choice between allowing a bad owner to complete a takeover, or a club simply no longer existing. Football League clubs tend not to disappear, with the exception of Aldershot 20 years ago. However, often when they lose league status oblivion follows very quickly—one thinks of Maidstone United, Scarborough and Rushden & Diamonds. With that in mind, the Football League, rather than the Premier League, has led the way in recent years in improving the good governance of football in this country. Many measures that began in the Football League have since been adopted across English professional game.

A number of hon. Members have mentioned the owners and directors test, so I will not go over old ground. On players’ wages and the issue of debt, average wage spending per club at the advent of the premier league in 1992-93 was £4.5 million, which was 44% of turnover. That has since risen in the past 20 years to an average of £1.3 billion—68% of turnover. Deloitte and Touche suggests that 60% would be a prudent number. Wage spending is at its most corrosive in the championship, where it amounts to 88% of average club turnover. Championship clubs together made an operating loss of £133 million in 2009-10, and their aggregate debt hit £875 million in summer 2010—£36 million for each club.

Premier league clubs generally make an operating profit until financing and player trading costs are taken into the account. By contrast, each division in the Football League—championship, league one and league two—has collectively lost money. In total, debt across the 92 clubs stands at a £3.5 billion. Those staggering numbers really do put in doubt the future sustainability of our game outside the premier league, with all its wealth in its current format. Football League clubs are a vital pillar in all our communities and they play a vital role in developing young players, not just for our national team, in a professional and competitive environment.

One problem is parachute payments, which make getting into the premiership such a strong financial inducement. The pressure on clubs to succeed is perpetuated by parachute payments, which are paid over a four-year period after a club is relegated from the premier league and are currently worth £48 million in total. The justification is that it provides insurance to promoted clubs to allow them to be competitive in the premier league. The downside is that clubs only have to be in the premiership one in every five years to have such untold wealth coming their way. It therefore provides a perverse incentive, providing artificial support and allowing clubs to spend money that they have absolutely no hope of raising naturally. That distorts and undermines the integrity of the championship and, by extension, the rest of the football pyramid. There is no provision forcing clubs to use parachute payments to honour existing player contracts, for example, or to pay down debt. They can instead can be used, and often are used, to finance the purchase of new players in a winner-takes-all gamble to win promotion.

On financial sustainability, currently, all clubs must include divisional pay clauses in player contracts that indicate what the player would be paid in each division, if he were to play in them, in each term of his contract. A salary cost management protocol was introduced as long ago as 2003 for league two, limiting club spending on player wages to 60% of turnover. That limit was reduced to 55% this season. Clubs provide budgetary information to the league, which is updated as the season progresses. Any player registrations that take clubs beyond the threshold are refused. The protocol has proven successful, with the vast majority of clubs in the division spending less than 45% of turnover on players’ wages. League two’s operating losses fell from £9 million to £8 million in 2009-10. I am very pleased that league one clubs are currently shadowing the protocol this season, with a 75% limit of turnover in place, although at this juncture there are no sanctions for clubs. Next season, the threshold will reduce to 65% with firm sanctions in place. The limit will fall again in future years.

I understand that the Football League is currently in discussions with clubs in the championship regarding the introduction of UEFA-style financial fair play measures based on a kind of break-even model. That is much needed if championship clubs are to bear the brunt of some of the premier league-induced wage inflation without the requisite TV money to absorb it.

Damian Collins: The hon. Gentleman mentioned the UEFA scheme. Does he share my concern that a report published by FIFPro this week, based on a study of players in the former Soviet republics in eastern Europe, showed that the salaries of 40% of the players it surveyed were not paid by the clubs that they play for, but by another party?

Mark Field: Yes, I share many of those concerns. I suspect, I am afraid, that at some level, even within our own professional game, there are similar problems.

Other hon. Members want to speak, but I hope that I have a few moments to say a little about sporting sanctions, which have caused considerable angst within the footballing community. The Football League pioneered the use of sporting sanctions, with a mandatory 10-point penalty applied to any club that enters administration. I strongly support the sanction, because it protects the integrity of the competitions by ensuring that clubs do not gain a competitive advantage, not just by going through insolvency, but through overspending in the years before that.

I understand why many fans are upset by the sanctions, particularly fans of clubs such as Luton Town and Plymouth Argyle, which have dropped rapidly through the divisions as a result of not just a 10-point penalty, but often more punitive penalties. In a sense, the new owners and loyal, much put-upon supporters find themselves left to pick up the pieces, although they are not responsible for many of those past misdemeanours.

We have not discussed agents’ fees to any great degree today, and there is also the issue of publication. The abolition of the minimum wage 51 years ago and the Bosman ruling, fundamentally, in 1995 have so massively tilted the power away from clubs to the players. It has gone from one terrible extreme of indentured play to the other, where the players have the whip hand. They have so much power that their agents can now extort huge fees. Although it is easy for the footballing fraternity —the FA, the premier league and even the Football League—to accuse agents of being at the core of all these problems, they often have a symbiotic relationship with agents, some of whom may be on their side, as the hon. Member for Hyndburn (Graham Jones) said specifically in relation to Blackburn Rovers, but that applies within many other clubs as well.

I am keenly aware that other hon. Members want to speak. Payments to HMRC have already been discussed by other hon. Members. On FA governance, as we know, the Football Association was created in an Olympian, Victorian age. In fairness to Oxford university, it won the FA cup a few times in the 1880s, which is probably why it still has representation to this day, but clearly this is not a sensible body to go forward as a 21st-century model for running our national game.

Given the commercial explosion over the past couple of decades following the emergence of the Premier League, which I have mentioned, one has to wonder how the FA in its current form can have any influence. In many ways, the Premier League has, again, been complicit in this and has colluded and been happy to allow the FA to take quite a lot of flack for elements of the governance concerns that we have addressed today.

The FA will need to change its culture to understand that it alone is there to enforce the rules and policy agreed by the whole game. The overall direction of football in this country should now have significant input from the Premier League and the Football League—not as a takeover, but as a partnership. Just think how much more successful even a relatively traditional FA could be with more input from the acknowledged day-to-day leaders in the leading tiers of global club football. A change in the culture will see the FA participate alongside the rest of the football family in creating policy with more of a focus on oversight, which is close to all our hearts.

Hon. Members have mentioned having more independent directors. Such directors would have an important role in examining the game’s policies at a board level. More power should be handed to them and to expert executives who will initiate the policies.

The Government are keen to avoid having an independent regulator for our domestic national game. Football must accept that, if many of these proposals are not acted upon, working together with footballing organisations, an independent regulator may be a sanction. I am interested to hear what the Minister has to say about that. This subject has probably been a headache for him, knowing that he is, in truth, much more of a professed player of cricket and rugby—more than just a fan—but I suspect that football takes up a huge amount of his time.

This report will play an important role as a stepping-stone to ensuring that the national game, which all hon. Members have close to our hearts, will thrive in the years to come.