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. 

What could a Corbyn government mean for the Premier League?

Just one of the crowd. Jeremy Corbyn at Arsenal. Photo: PA

OVER THE coming months, it is likely that independent financial advisors will be contacting their clients to discuss contingency plans should the Labour Party win power. The words “flight capital” come to mind.

Top level football will undoubtedly be impacted by the new administration. If Jeremy Corbyn admitted he would be a threat to City of London-based US banks (actually he is not as they will simply relocate and take their jobs with them), he also represents a challenge for the Premier League and the contemporary culture of English football.

Some might say this is long overdue. Many of the young people singing Corbyn’s name are also disenchanted with the corporatisation of football and would welcome change. Of the current Premier League, only three clubs – Bournemouth, Chelsea and Watford – reside in Conservative seats.

But for every person who rejects Premier football or claims “modern football is shit”, there are waiting lists for season tickets, eager queues at megastores and pubs full of people watching screened football. The game, despite its failings, is still life support for the masses. The Premier, which despite one official’s claim that it is up there with the BBC and the Royals as the things Brits are most proud of, remains a subject that can divide people. In some ways, the Premier League is linked to Blair’s Britain, although Labour didn’t win the election until 1997. Corbyn has already gone into battle with the Premier by claiming in its election manifesto the league has failed on its promise to invest 5% of its TV rights in grassroots football, something that was immediately refuted.

Harold Wilson: “Have you ever noticed how we only win the World Cup under a Labour government?”

If, as expected, a Corbyn Labour government raises taxes and targets the high earners, then the overpaid Premier stars will be caned. Indeed, if the Labour pledge to impose payroll taxes that require a 2.5% “fat cat” levy on anyone earning over £ 330,000 and 5% on over £500,000 goes ahead, football clubs will be in the firing line.

How this will affect the shape of the Premier remains to be seen, but it is likely that a whole sub-industry will spring-up to loophole the system. For every problem, there are always many people making money out of finding a solution – that’s the dreaded capitalism, after all!

Corbyn, an Arsenal fan, has spoken about the need for football to be made more affordable and that clubs need to lower prices – few of us would argue with that sentiment. There are fears that if clubs become victims of the aforementioned levy, they will merely cover the cost by raising ticket prices even higher. The only way lower prices will happen across the board is for Labour to nationalise football, Soviet-style!

Bill Shankly: “The socialism I believe in is everybody working for the same goal and everybody having a share in the rewards. That’s how I see football, that’s how I see life.”

But will a heavily-taxed Britain mean that players from overseas will continue to turn-up in their droves in the Premier? For sure, they won’t be happy to work in a high tax environment and with so much controversy over the “paradise papers”, offshore arrangements will be closely scrutinised going forward. Remember, Zlatan Ibrahimovic complaining about France’s taxation system?

Like the bonus-shorn bankers, Premier footballers will have few sympathisers if they start complaining about tax, but along with the uncertainty and possible restrictive access attributable to Brexit, we could see a certain reluctance when it comes to attracting talent to the UK.

There is already talk of a financial crisis if Labour emerges triumphant in the next election and shadow Chancellor, John McDonnell, has already envisaged a run on the pound, which would possibly make all those foreign players nervous about exchange rates.

A self-induced financial crisis will certainly impact the Premier League, but if footballers were that worried about the state of the economy of their employer’s nation, La Liga would not have enjoyed its flourish during the global financial crisis.

Brian Clough: “Socialism comes from the heart.”

However, in the UK, there’s a huge reliance on broadcasting revenues that could be compromised by a crisis – viewing figures are already showing signs of decline and should that trend gather momentum, the impact could be negative. Another big source of income for Premier clubs, the gambling industry, has also been eyed by Labour, whose deputy, Tom Watson, has called for shirt sponsorship from the sector to be banned. Currently, nine of the 20 clubs have deals with betting firms and you only have to watch a post-match TV interview to see boards full of advertisements for what sometimes appears to be the only growth industry in Britain.

But if this all brings about the deflation of the Premier bubble, then some clubs could find themselves trying to overcome unwelcome hurdles. Most will be fine given their shareholder profile, but they may find that luring top players from the continental Europe and South America will become that little bit more difficult.

Of course, the very concept of multi-millionaire footballers, or indeed any individual earning big money, goes against the current Labour ethos, even among those that live in trendy parts of London like Islington or home counties towns in Hertfordshire – notably the Prosecco-drenched middle Englanders who espouse “socialism” while driving their BMWs and brandishing Arsenal or Chelsea season tickets.

Would an end to Premier League excess be such a bad thing? Increasingly, young people are turning their back on the top flight, largely because of the ticket prices but also because of the obscene levels of compensation given to players in a time when youth unemployment is a major problem and unfulfilled graduates are saddled with tuition-fee debt. The average age among spectators at some clubs is also too high, sending worrying signals about the sustainability of the current model.

There’s no doubt the Premier has become one of Britain’s success stories, but the sceptics will consider the plethora of international owners means a lot of the cash generated does not stay in the country. But there’s a lot of liquidity in the game and even with higher taxes, the Premier should be able to maintain its level of competiveness. Right now, the scenario of a Labour government, even one led by far-left factions, poses only a limited threat to the status quo, but there’s no doubt the possibility is being discussed right now in boardrooms across England.

Football history and UK governments

  Government Event Notes
1863 Liberal (Palmerston) Football Association formed
1871 Liberal (Gladstone) FA Cup inaugurated
1888 Conservative (Salisbury) Football League formed
1905 Conservative (Balfour) Alf Common becomes the first £1,000 player Moved from Middlesbrough to Sunderland
1950 Labour (Atlee) England 0 USA 1 World Cup 1950
1953 Conservative (Churchill) England 3 Hungary 6
1958 Conservative (MacMillan) Munich Air Disaster
1966 Labour (Wilson) England 4 West Germany 2 World Cup final 1966
1970 Labour (Wilson) England 2 West Germany 3 World Cup 1970 Game on June 14, election was won by Conservative on June 18
1973 Conservative (Heath) The Three versus The Six at Wembley To celebrate the UK, Ireland and Denmark joining the Common Market
1973 Conservative (Heath) England 1 Poland 1 World Cup qualifier First government to be in power when England failed to qualify
1979 Labour (Callaghan) Trevor Francis becomes first £ 1m player in Britain Birmingham to Nottingham Forest
1985 Conservative (Thatcher) Bradford fire
1985 Conservative (Thatcher) Heysel Stadium disaster
1989 Conservative (Thatcher) Hillsborough
1991 Conservative (Major) Manchester United float on the stock exchange The first big flotation, raising £6.7m
1992 Conservative (Major) Creation of the Premier League
1996 Conservative (Major) England hosts Euro 1996
1999 Labour (Blair) Manchester United win the Champions League United won an unprecedented treble (Lge, FA Cup, CL)
2003 Labour (Blair) Roman Abramovich buys Chelsea Start of the billionaire owner trend
2008 Labour (Brown) Manchester City bought by Abu Dhabi  United Group Continuation of the billionaire owner trend