The regulator would introduce a licensing system for clubs, increase scrutiny of directors and owners, and aim to equalise funding.
The UK government has published a White Paper which outlines its plans to establish a new statutory independent regulator (the Regulator) for English men’s elite football. The White Paper follows the previously published “Fan-Led Review of Football Governance”, led by Tracey Crouch CBE MP, and the government’s response to the proposed European Super League.
The White Paper raises a number of questions for football’s key stakeholders, including fans, clubs, the Premier League, the Football Association (FA), the English Football League (EFL), and others with interests (financial or otherwise) in and around the sport.
The government intends to preserve and acknowledge (via the Regulator): (i) club financial sustainability; (ii) systemic sustainability across the so-called football “pyramid” (i.e., the interconnected leagues for men’s association football clubs in England), and (iii) the important role of football in cultural heritage.
A new licensing system will apply to clubs in the top five tiers of English football. Clubs will need to demonstrate robust business models and good corporate governance in order to obtain a licence to participate in English club matches. Clubs will need to comply with contingency planning, multi-year forecasting, and reporting obligations. However, clubs with different circumstances, including those operating within the same or different leagues, could be subject to different licensing requirements proportionate to differences in clubs’ resources across the football pyramid.
The new licensing system is potentially complex, and questions remain as to how it will interplay with the existing rules of the Premier League, EFL, and Union of European Football Associations (UEFA). Some clubs might need to adhere to, report against, and perform within the boundaries of multiple regimes, all of which target similar themes but differ in approach. In addition, the Regulator will need to ensure it doesn’t ultimately impede the FA’s ability to act independently, which is a requirement of each member association of the International Federation of Association Football (FIFA).
The new licensing system also emphasises the role of fans as stakeholders in the long-term decisions of clubs. Whilst the White Paper does not advocate the use of fan shadow boards or awarding “golden shares” to fan groups, it does set out requirements for clubs to seek regulatory approval for the sale or relocation of a stadium or change of club name, badge, or traditional kit colours. The White Paper does not address various nuanced issues, such as whether the practice of using stadia as collateral in financing arrangements will require Regulator and/or fan approval.
Two additional points of interest:
- The Regulator will be empowered to place controls on excessive levels of debt which threaten individual clubs’ viability or value, and assess levels of debt in the game more generally to ensure a stable ecosystem in the face of wider macro-economic trends. Whilst the proposals do not specify the amount and characteristics of such debt, the government has recognised the need for balance between ensuring sufficient financial resources for clubs and minimising any deterrence of future investment.
- Clubs will need to apply a new code of corporate governance and will likely need to act transparently and in the best interests of fans. The proposals do not explain how this obligation will interplay with directors’ existing statutory duties (such as the duty to promote the success of the company for the benefit of its members, i.e., owners).
Enhanced Owners’ and Directors’ Test
The Regulator will operate an enhanced Owners’ and Directors’ Test (OADT), aiming to regulate club custodians and investment sources in an effort to reduce reliance on owner funding and minimise the risk of club insolvency. Owners may need to make personal guarantees in the form of declarations as to how much money they intend to invest into a club in the short and long term. Whilst the White Paper stops short of providing detail on the personal guarantees, some commentators have drawn similarities with the bank guarantees historically required by board members of some Spanish football clubs.
The White Paper does not set out how the enhanced OADT will operate alongside existing Premier League and EFL OADT regimes (which each have specific thresholds that trigger certain OADT reporting obligations), nor does it indicate whether statutory deadlines will be imposed which could impact acquisitions on an accelerated timeline. Regardless, investors should expect a heightened degree of disclosure in relation to finances and funding sources.
The Regulator will be empowered to prevent clubs from joining new “closed-shop” competitions that do not meet predetermined criteria, in consultation with the FA and fans. The move, which many consider to be a direct reaction to the proposed European Super League, goes far beyond the current Premier League rules (or the new Premier League Owners’ Charter) on preventing clubs from participating in so-called breakaway leagues.
Although the White Paper states that the Regulator will work closely with UEFA and FIFA, commentators have highlighted that issues could arise in the event that UEFA or FIFA competitions (such as the UEFA Champions League or the FIFA Club World Cup) expand to the detriment of English football competitions.
The White Paper includes provisions designed to ensure the “fair distribution” of funds across the football pyramid in order to address financial disparity in English football. At present, this process involves negotiation between the Premier League and other league bodies (in terms of parachute payments, solidarity payments, and other financial contributions).
Importantly, the Regulator will have new backstop powers to impose and determine financial settlements. In practice, the Regulator will be able to intervene in the event of disagreement and ultimately determine the outcome — a power which constitutes a material shift. Operating under a process in which the Regulator is the determining body could result in an interesting political dynamic akin to the levy bookmakers need to pay to the horseracing industry, whereby the Secretary of State has ultimate determination on appropriate figures.
Under the government’s plans, the Regulator will adopt a proportionate and adaptive approach rather than a “one size fits all” attitude when regulating the five tiers of English football. This substantial undertaking will require an active and presumably sizable regulator. The precise scale in terms of governance and personnel is unclear, although a similar scale to, say, Ofcom is unlikely.
The government proposes to finance the new regime via a levy-funded model, with funds raised through the licensing system and payable by clubs via an annual licence fee (an approach which has some similarities to Ofcom’s funding structure).
The Regulator is expected to adopt an “advocacy first” approach to compliance through targeted intervention. While the practical approach remains uncertain, at least in theory, the Regulator will have some broad powers. The Regulator will also seek to cooperate with other non-football regulators, for example HMRC, the Financial Conduct Authority, and the National Crime Agency, with potential for the flow of information across agencies. The FA might have an observer right on the Regulator’s board.
The government intends to launch a process of focused consultation with select stakeholders in early 2023, which will then inform how the government’s legislative proposals will develop. As such, the timeline of any statutory change remains open. However, the government is clearly signalling the intended direction of travel for the regulation of football in England.
If and when plans are implemented, clubs will have a transition period to become compliant with the new regime (an approach UEFA took when it moved from its “Financial Fair Play Regulations” to its new “Financial Sustainability Regulations”). Therefore, even if the proposals are implemented quickly, an immediate change is unlikely.