Corporate governance: the role of the supporters’ trust
In this blog, we discuss the role and structure of the supporters’ trust, the advantages and disadvantages of community ownership in the context of professional sport, and shareholder protections and remedies.
"After what Pompey have been through, football needs to change, come back to supporters. We hope the court case goes our way and we can take our club over. Then prove that supporter ownership can work, in partnership with investors involved for the right reasons." Pompey Supporters Trust chairman Ashley Brown
In the end, the Trust did not need the case to go their way. On 10 April 2013, BDO (the administrators of Portsmouth FC) and Portpin (Portsmouth FC’s former owner) reached an out of court settlement which allowed the Pompey Supporters Trust to take control of Portsmouth Football Club. On 19 April 2013, Portsmouth became the largest community owned professional football club in the United Kingdom. With no club in the top three divisions of English football majority owned by its fans, is the concept of a community owned club valued in the English game?
Supporters Direct provides the following definition of a supporters’ trust:
“a democratic, not-for-profit organisation of supporters, committed to strengthening the voice for supporters in the decision making process at a club, and strengthening the links between the club and the community it serves”.
Commonly referred to as “trusts”, the majority of supporters’ trusts in England and Wales are, in fact, community benefit societies, a form of industrial and provident society registered under the Industrial and Provident Societies Act 1965. These societies are body corporates registered with the Financial Conduct Authority (previously the Financial Services Authority) (the “FCA”) with a separate legal personality and limited liability. They must be run primarily for the benefit of people who are not members of the society, and must also be in the interests of the community as a whole. In addition, they must not distribute any assets or profits to their members, and any surplus profits must be reinvested or kept as reserves.
The Swansea City Supporters Society Limited is considered the model for supporters’ trusts in England and Wales (the “SC Trust”). The SC Trust is the third largest shareholder in Swansea City Association Football Club, a professional football club playing in the English Premier League, with a shareholding of 19.9 per cent. The SC Trust plays a key role in the club’s decision-making process through the presence of an elected supporter director. The shareholders’ agreement entered into by the shareholders of the club states that the supporter director cannot be removed irrespective of any dilution of the shares of the SC Trust.
The supporter ownership model gives supporters’ trusts as shareholders certain protections and remedies under English company law. In addition to voting rights as a shareholder, a supporters’ trust with paid-up share capital of at least 5 per cent. is able to force the club’s directors to call a general meeting and can submit a resolution to be put forward at that meeting. It can also procure the circulation of a statement to the members regarding any matter to be dealt with at a general meeting.
Further, a supporters’ trust with more than 50 per cent. of the shares in the club can, subject to any agreement to the contrary, remove the club’s directors. Other relevant legal actions at the disposal of a supporters’ trust include a derivative action and an unfair prejudice claim (although both can be expensive and complex actions to bring and, as such, are not immediately appealing actions for a trust to commence).
Advocates of the supporter ownership model argue that the presence of a supporters’ trust in the shareholding structure is likely to ensure the protection of the interests of future fans and the community. This can have a beneficial influence on financial governance. As a long term stakeholder, a trust can be expected to reject proposals which are too short-termist in nature and should ensure that the club’s key assets such as the ground are safeguarded. It is perhaps no surprise that Swansea operates a financially sustainable business model. Supporters’ trusts have also highlighted other practical benefits in taking a minority or majority stake in their clubs: (i) contributing to the community; (ii) an increase in fan attendance; and (iii) acting as owners of last resort.
In addition, the model has not hindered clubs’ sporting success. In February 2013, Swansea won the Football League Cup resulting in qualification for the 2013–14 UEFA Europa League. The final four teams in this year’s UEFA Champions League, Barcelona, Real Madrid, FC Bayern Munich and Borussia Dortmund, are wholly or majority owned by their supporters. The question, therefore, remains why has the supporter ownership model not been more widely adopted in the English game.
The supporter ownership model is, by its nature, a long term model requiring an extended period of time for a club to progress. It is not a quick fix. Barcelona and Bayern Munich are clubs which have prioritised and invested in training and player development. Consequently, Barcelona has been responsible for developing 38 players currently playing at top-flight clubs in Europe’s five elite divisions, 14 of which play for Barcelona’s senior team. With the correct approach, the supporter trust ownership model in England may also be able to grow organically.
However, the footballing culture in England is markedly different to that of its European counterparts. English commentators describe the expectations of “instant” and “microwaved” success in English football. Contrast Barcelona with Chelsea and Bayern Munich with Manchester City. So far, 48 managers in professional football in England have been sacked or resigned in the 2012/2013 season with Blackburn Rovers onto its fourth manager this season. Arsenal Football Club, a club operating on a sustainable business model which advocates a prudent approach to financial management, has been criticised by many supporters and a major shareholder for a lack of ambition and for not spending enough on player acquisitions. In the English game “success” is always expected this season.
Further, the majority of clubs in Spain and Germany are deeply embedded in their respective communities. Fans at these clubs expect a certain level of influence over the club’s decisions as reaffirmed by their status as owners and their focus is not on short term success. In contrast, there is little overlap in England between the role of the supporters on the one hand and the directors and owners on the other. Many fans would not expect to nor would they necessarily wish to be the club’s owners and decision-makers. Perhaps the footballing culture in England is at odds with the supporters’ trust model.
There are also perceived weaknesses in the supporters’ trust ownership model. The key issue identified in the Culture, Media and Sport Committee’s 2011 Report on Football Governance is that a supporter-owned club may struggle to compete financially against rival clubs with wealthy benefactors. In 2010, Chester City Supporters’ Trust was unable to save Chester City from being wound up because of a lack of funds. York City Supporters’ Trust was forced to sell its majority stake in the club to a private individual to secure the long term funding of the club. Wimbledon Owners Supporters’ Trust cited "the difficulty of competing with clubs where rich owners can make substantial sums of money available for players' wages".
Despite these issues, the existence of supporters’ trusts is a positive development in English football and should be encouraged. Trusts offer the opportunity at least for a long term sustainable approach and benefits for the wider community. Where necessary, they have also acted as owners of last resort. As Mark Trapani, a Pompey Trust director, said on hearing of the out-of-court settlement,
“I think there will be clubs around the country that will look at what we have done and probably say 'this is the way forward”. For me this is a greater day than the day Portsmouth won the FA Cup in 2008. That was one day. This is the future.”
In our next blog, we discuss corporate governance in relation to sports governing bodies.
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About the Author
Richard heads both the London Corporate practice, and Sports practice, of Dentons.
Richard's focus is on M&A and corporate work. He is particularly interested in corporate governance issues, and regularly advises companies and other organisations on how they best operate to achieve good and effective governance standards.
Daniel is a corporate lawyer at Dentons and is a member of the firm's Sports group. Daniel has acted on the acquisition of major football clubs in the United Kingdom and advises on all aspects of corporate finance transactions, including cross-border mergers and acquisitions (share and business sales), company/business ownership matters, joint ventures and investment funds.