Regulation – why many football clubs are deluded

WHEN the financial crisis of 2008 hit the global economy, people were quick to blame banks and other institutions for bringing the world to its knees. The consequence for that industry was a wave of stricter regulation, some of which is still being rolled-out. Furthermore, compliance and regulatory jobs became one of the few growth areas in the financial services sector. The pandemic, like the crisis, has exposed certain shortcomings in the macro-economic environment and the football industry, for one, has appeared fragile and unable to provision for a rainy day. It has also opened up cracks in the structure of the world’s most popular game, from ownership to overspending.

The fan-led review of football, headed by UK Member of Parliament, Tracey Crouch, has called for an independent regulator to be established to bring about greater financial transparency as well as better management of clubs’ balance sheets. But there is resistance to the appointment of a regulator that is not affiliated to the footballing authorities and the clubs themselves. What have they got to worry about?

Simple. The game has been overspending for the past few decades and has rarely been held to task. At the same time, while revenues have grown, they clubs have continued to push boundaries when it comes to wages and they have depended on broadcasting income far too much. Clubs have mortgaged their futures and gambled on success. With most clubs struggling to make a profit and many paying out more than they earn, the health of English football is decidedly shaky. Little wonder they do not welcome scrutinisation by a standalone regulator.

The problem with football is in pursuing most clubs’ objective of winning matches, the business element of the game often comes second in the list of priorities, yet a bankrupt club is not in a position to challenge for points and goals. If it was a chicken and egg situation, football has to be financially sound before it is successful on the pitch. The get-out for football, going right back to the game’s origins, has been the owner bail-out to ensure clubs can continue. Invariably, the game has not paid its way naturally, the concept of wealthy owner paying the bills is not a new idea, it is just the scale that has changed. It is no longer the local butcher or mill-owner that foots the cost of football, it is now nation states, oligarchs and e-commerce billionaires.

Yet the financial stability of football is the single most important factor in the modern game and the implementation of an independent regulator would help change the way clubs operate, at least that is the hope. But, be warned – as with all restrictive governance, a sub industry always emerges to exploit loopholes, so we can realistically expect a response if and when the regulator comes into force.

The biggest surprise during the pandemic has been the lack of clubs that have actually folded. Derby recently went into administration and poor old Bury folded, but mostly, it has been a tale of crisis, temporary solutions and hand-to-mouth existence for many small clubs. Meanwhile, the reduced income at every club has meant their wage bills have rockets in terms of the amount of income they have consumed. The Championship in England has long been a basket case in this context and it appears to be getting worse.

Over the past decade, the top two divisions in England have earned more than £ 40 billion, but over £ 28 billion of that has been paid out in wages. Around a dozen of the top 44 clubs have generated a wage-to-income ratio of over 100%, a truly worrying picture. Only 11 of the 44 have made an overall profit during the decade.

There’s also concerns that clubs do not report their finances with much explanation or reason and those that can get away with providing opaque minimal accounts do. As one academic said, financial reporting within football is designed to appease shareholders rather than the fans.

So it is quite ludicrous that big-time football should resist change and the desire to prevent another Bury or Derby. It also reveals how little they respect their supporters who are their emotional stakeholders, economic customers and “investors”. Sadly, the fans never vote with their feet, the FOMO (fear of missing out) aspect of football means they are too fearful of life without their football fix. This addiction has been taken for granted for too long, it is time to call a halt to the easy-win virtue signalling and really take note of what some progressive, far-sighted clubs are doing for the benefit of their fans and the broader community. 

Why non-league fans need to know

MODERN football, at its highest level, has become a commodity. Investment in football clubs has become an asset class to be placed alongside bonds, equities, real estate and gold. At the top, fans have little or no intimacy with their club, they are paying customers that buy into the brand like technology geeks become disciples of the latest iPhone. They keep feeding the machine and the clubs have an audience that queues for the right to queue online in pursuit of tickets and favours. The demand outstrips the supply in multiples.

At the game’s pinnacle, football clubs are no different from large corporates, but in the non-league game it is different, the audience is smaller, the financial stakes relatively minute and the relationship between fan and club is supposedly more personal.

The investment made by non-league fans comes in the form of attachment and loyalty, unless of course there is a fund that supporters contribute to bolster finances and help the club compete at the highest possible level.

Regardless of the ownership structure, a club can quickly develop tumbleweed without its supporters. The club needs it fans as much as the loyal, die-hard needs his or her football fix. This is so very relevant at non-league level because a club, in order to be relevant to the community, must have critical mass in terms of people that “care” whether it exists or not. For a club’s administration to take that for granted is very dangerous and can, ultimately, lead to extinction.

The only way a club can thrive is for all stakeholders to be connected and to be full-square behind the mission. It may be appear to be something of a contemporary cliché, but it is no more a catchphrase than other important elements of modern sporting entities, such as diversity and community.

Without people, everything that involves the day-to-day running of the club, its community position and its fund-raising activities becomes null and void. If a club has 500 fans, it is obviously more relevant to the neighbourhood than a club with a couple of dozen followers. And if you don’t have fans, you can soon get to the point where you ask, “what is the club really for?”.

That’s why financial transparency is an important factor. Owners may, with some justification, consider the financial state of “their” club is not the concern of the people on the terraces, and if it was a conventional business with the pursuit of profit at the heart of its business model and shareholders receiving dividends, then you could buy into that idea. But supporters, in effect are “emotional shareholders” if nothing else. Their allegiance is an asset, one that should be valued, but it can so easily be lost if it appears to be a one-way commitment.

Around 30 years ago, I shared a driveway at my home and my neighbours said the drive was 75% theirs (this was not true, a shared drive is a shared drive and plans can be misleading) and that they were being extremely generous to allow me to use the drive. I added that, “without my supposed 25%, your 75% is worthless, you wouldn’t have enough room to take your car up the ramp.” Heads were scratched and the conclusion was, “how true”. You can compare this to the dynamic between owners and supporters. The owner may have most of the cards, but if there is no audience, there is nothing but an empty ground and a dying club.

Owners should see their support base as an asset, almost as much a part of the family silver as that £200 per week centre forward. This asset can be harnessed to become a force for good, be it community activities or as a positive body that helps the club achieve its goals. For example, if the club has problems over its stadium, like the Dulwich affair, the sheer numbers involved in protesting can add leverage to the argument. Likewise, any club owner that proclaims, “we are all in this together” has to mean it and develop trust and two-way dialogue that really does make the fans feel as though they have a voice.

Most non-league fans would actually relish the chance to own a stake in their club. A survey by Game of the People revealed that 79% of respondents would welcome a share issue, although 10% wouldn’t consider it under the current regime.

Too often fans are not allowed to know about the finances of their club. While certain sensitivities will exist, and do a club no good to become public domain, basic financial details would let the supporters know that their emotional “investment” is in good hands. Some clubs, those with full or partial supporter-ownership models, do publicise their figures, but there are still some that operate under a “smoke and mirrors” model.

Openness and greater transparency can only be a plus. Non-league clubs are small communities where gossip is commonplace and people come to their own conclusions if the environment is opaque and complex. Some clubs do it well, others need to follow, for the future of non-league football should be about community, realism and inclusion, from top to bottom. A new generation of fans is needed to ensure the demographic remains healthy, and it is worth noting that this group of people will have a very different outlook than the ageing supporter bases prevalent at many clubs. They will, undoubtedly, ask more questions and challenge the status quo.