Staying onside with new football regulations

Posted December 8, 2021
by Haris Irshad

The independent Fan-Led Review of Football Governance (the Review) published its final report on 24 November 2021. While the government has not yet formally responded to the Review’s 47 recommendations, it has endorsed the headline recommendation of a new independent Regulator for English football (IREF) and pledged to work at “at pace” to deliver this.

This sets a clear direction of travel for English football. There will be a statutory regulator shaping outcomes and influencing how football is run off the pitch. Clubs will need to adopt processes, controls and reporting mechanisms to comply with new regulatory requirements on clubs’ finances, operations and governance structures.

Clubs and leagues wanting to minimise disruption on the pitch will be actively looking for ways to turn these challenges into opportunities. It is critical to take steps now to avoid being caught offside as the IREF establishes the new rules of the game.  

Is the ‘beautiful’ game no more?

With English football clubs reaching the final of both major European club competitions and the national team narrowly losing the European Championship by a spot kick, 2021 has been a good year on the pitch for English fans of the beautiful game. 

However, off the pitch, the sport has moved from one crisis to another. Against a backdrop of empty stadia due to COVID-19, the foundations of English football have been shaken by attempts to form breakaway leagues, controversies around changes of ownership and the ongoing financial vulnerability of many clubs. 

The Review considered the challenges facing English football and concluded there are structural reasons threatening the viability of the game: 

  1. Clubs are incentivised to “gamble for success” leading to many facing financial ruin.
  2. Some clubs can be poorly run with little regard for their fans and no consequences for owners when things go wrong.
  3. The regulatory structures for the game will not ensure a sustainable future for clubs.

Simply relaying the turf or changing the whole rule book?

The Review’s final report makes 47 recommendations, which, if implemented in full, would represent the biggest change to English football since the establishment of the Premier League in 1992.

The headline recommendation is the creation of a statutory Independent Regulator for English Football. The regulator would be tasked with ensuring English football is sustainable and competitive, and benefits fans and local communities, and is expected to:

  • License professional men’s football clubs. Licence conditions will likely include:
    • Clubs following a new Code for Football Club Governance
    • Establishing a shadow advisory board to receive fans’ views on material “non-football” business and financial matters
    • Having a Golden Share right held by fans that require democratic consent for key changes in a football club, such as the sale of a club stadium.
  • Operate a financial regulation regime based on capital and liquidity requirements (the prudential regulation model used for regulating banks and other financial firms).
  • Manage the level of owner subsidies to clubs to avoid destabilising the long-term sustainability of the league.
  • Impose new owners’ and directors’ tests to ensure only “good custodians” run football assets.
  • Promote equality, diversity and inclusion in football clubs.

The Review proposes the IREF has investigatory, enforcement and advocacy powers. It would also be given “teeth” in the form of sanctions that fine clubs, deduct points, impose transfer bans, ban directors, and, in extreme cases, force owners to relinquish control of decisions. 

The Secretary of State for DCMS welcomed and agreed with the recommendation for the IREF and pledged to work at pace to deliver the regulator and its associated powers. This means clubs and leagues will need to start considering their regulatory approach from now. 

Choosing the right formation to meet a new regulatory approach  

The shift to a conduct and prudential regulation-style regime, modelled on the supervision models operated by the Financial Conduct Authority and Prudential Regulatory Authority, is likely to be the biggest disrupter to business-as-usual for clubs and the league structures they are used to playing in. For example, for the first time, clubs will need to think more like financial service providers having to meet defined capital requirements, have buffers in place for shocks and be able to demonstrate to the regulator that they have credible contingencies in place if cash dries up or controls start to spiral. 

However, football clubs and leagues can benefit from looking at other regulated industries such as financial services or telecoms, as they begin to prepare for change. Indeed, substitute “supporters and fans” for “consumers”, clubs for “utilities”, and “permissible salary levels” for “permissible cost allowances”, and the football sector exhibits several common characteristics with regulated sectors, even if current management cultures and skill-sets may look somewhat different.

These similarities can help clubs and leagues anticipate challenges with the new regulatory regime. Based on our experience advising regulated businesses across several sectors, there are some practical steps that clubs and leagues can take:  

  1. Start building a picture of what the regulator’s objectives look like, what common success looks like, what is acceptable in terms of risk taking and where accountability lies.
  2. Begin to think like a regulated entity ahead of time: understand what change is most likely, understand your evidence base, plan your approach to compliance, and develop the right skills to engage with the regulator. 
  3. Adjust your business models and reporting to align with what the regulator is likely to be interested in, e.g. metrics on diversity, equality and inclusion.
  4. Manage risk on investments in physical assets and players more rigorously and have contingencies in place if on-the-pitch performance fails to generate the necessary returns on investments.
  5. Actively prioritise the long-term interests of your fans (consumers) when it comes to decision-making. While clubs and leagues will continue to be profit-making entities, the regulator is likely to frown upon, what it perceives, as any excessive rent seeking at the expense of “consumers”.

These changes will require both a shift in processes and cultures and will take some adjustment. As the IREF begins in shadow form, before gaining a statutory footing, clubs and leagues looking to minimise disruption on pitch, and avoid the bite of the regulator, will want to start planning now to be ready regulatory change.

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