Should fans play a greater role in the ownership of English & Welsh football clubs?
Published 02 June 2015 By: Kevin Jaquiss
This article looks at the current governance structures of English and Welsh football clubs, and asks whether greater levels of fan ownership and participation could improve their stability, vitality and overall performance.
How governance and ownership structures have evolved
Much has been written1 about the “fit and proper person test”, now technically the “Owners’ and Directors’ Tests”,2 which apply through The FA to all clubs in the Football Conference, Isthmian League, Northern Premier League and Southern Football League and through The Football League and Premier League.
While not identical, the tests in broad terms prevent people who have been involved in corporates insolvencies, have been convicted of serious criminal offences or have committed serious breaches of The FA or League rules from being involved in the ownership or management of football clubs.3
The problem with the tests is that they encourage us to think that good governance in football depends upon the ethics of the individual who controls the club. The stories about people who have fallen foul of the test, and those who should have done but didn’t, are fine for frightening the children or amusing the fans of rival clubs, but they are not the whole story about football governance.
From community organisations to de facto PLCs
In England and Wales, football clubs mostly started as community organisations, along the lines of local sports clubs today, operating as unincorporated associations or community benefit societies4 with people who played for the teams as members.
When professional football began to emerge in 1899, The FA, as the federal body of the clubs, took steps to protect the clubs’ heritage of benefiting their members and communities. What became Rule 34 of the FA’s Rules allowed clubs to be limited companies but prohibited payments to directors and restricted dividends and payments to owners on winding up. This last part of the rule survives in the present FA Rules, which provide that any surplus on a winding up has to go to a benevolent or charitable organisation.5 The rest, preventing payments to directors and dividends, has disappeared; the result being that there are now no limits imposed by the football authorities on what a trading football club can or cannot pay to its directors in salaries and bonuses, and to its owners in dividends.
The change from community organisation to limited company was a dramatic one, although its consequences played out slowly. The next major step came in 1983, when The FA permitted Tottenham Hotspur to make the club (a private limited company) the subsidiary of a public limited company (PLC), which would be floated to raise capital on the public markets in return for a share in the profits generated by the club. Other clubs such as Aston Villa, Manchester United and Newcastle United followed suit, and the holding company model is now commonplace, whether or not the shares are publicly traded, as it permits owners to take profits out of trading football clubs.
Why the changes occurred and what it meant for fans
The transition of clubs to a structure permitting them to return profits to their owners happened at a time when football desperately needed investment,6 although it is hard to argue with the proposition that the holding company structure was a crude device to get round the effect of Rule 34, which the FA could have prevented.7 The result of the newly permitted structure was that football clubs took a further step towards becoming purely business assets like any other and tended to be managed as businesses – the corporate model is predicated on the over-riding commercial interests of owner shareholders and it is to them that the directors owe duties.
It follows from this that fans came to be regarded as consumers to whom the commercial owners of the club sell tickets, match day entertainment, replica kits and media packages. This is something that The FA thought it important to prevent until 1983,8 and in the view of this author it is undeniable that something in football has been lost as a result of the transition. Part of this is nostalgia for the days when clubs were the centres of working communities, but there are harder edged questions to be asked in a world in which football globally is more successfully financially than ever before. Why, against this background, are there so many insolvencies and so many crises at individual clubs? Why has it been necessary to expand the Owners and Directors Tests over recent years? Why is football at grass roots level under threat in so many places?9 The next section looks at whether giving fans a greater role in ownership is a potential means of addressing some of these issues.
Should fans play a greater role in ownership and governance?
There are examples of clubs run for profit that see good relations with their fans and their community as a key objective and deliver on it successfully.10 In this author’s view, if this approach was more universal and deep rooted, the quality of governance in football would be improved.
The reality: football is different to normal businesses
Football clubs are unlike normal businesses because fans are largely stuck with their team, however dire the performances on the pitch. To this degree, fans are not consumers in the normal sense of the word.
In the author’s experience, fans’ loyalty is firmly connected to ideas of ownership and shared identity. They keep going to games or looking out for the scores because it is “their team”. Listen to almost any football phone in about a club facing disaster and you will likely hear fans making the point that they will still be there, whoever owns the club. The relationship is a deeper relationship than that generated by financial ownership. This perhaps informs the sometimes fraught relationship between clubs and fan groups about ticket prices and the constant hum of resentment about the proliferation of replica kits and new versions of replica kits. And it shows itself in times of crisis in calls to remove the owners of the club.
In the author’s opinion, a model of club ownership that is more in tune with this underlying perspective of the fans would tend to be more successful and sustainable than one that runs counter to it.
In Germany, under licensing arrangements operated by the Deutsche Fussball Liga, football clubs have to be 51% owned by their fans and investment is secured through the sale of commercial rights. The German system reflects an understanding that it is healthy for fans to own clubs as it exploits the powerful symbiotic relationship between fan and club. Fans want the club to survive and prosper; giving them a role in a more representative governance structure helps to avoid the damaging scenarios which can be precipitated by the ambitions and limitations of individual owners. It also cements their engagement with the club, which in itself increases commercial stability.
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- Tags: Championship | Co-operative and Community Benefit Societies Act 2014 | Corporate Law | England | Football | Football Association Owners and Directors Test 2014-15 | Germany | Governance | HMRC | Premier League | Regulation | Spain | The FA | Wales
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Consultant and member of DWF Sports Group Core Team.
Kevin received the Financial Times Innovative Lawyer of the Year 2010 award for his work with FC United in developing the means by which £2M has been raised from supporters to fund the club’s new stadium development.