Football Club Licensing

Posted on March 28th, 2011 in Football, Published Writing

Originally published in football’s business-to-business magazine, FC Business in March 2011. The article was published as the Parliamentary Select Committee Inquiry into the finances and governance of English football neared the halfway point, by which time some clear themes were beginning to emerge.

We’re past the halfway point in the select committee inquiry into football governance, and some clear common points are emerging from the evidence the MPs have had submitted in writing and heard in session.

Evidence sessions got of to the punchy start with Sean Hamil of Birkbeck College making a strong case for a much more through-going system of regulation, and following him, Lord Triesman presented the initial evidence he wanted to submit to Andy Burnham when the latter asked 7 questions of the football authorities back in 2008 when speaking at that year’s Supporters Direct Conference.

Triesman said the FA Board, led by Premier League Chairman Dave Richards, kiboshed that submission, and regardless of how it was done, the ideas contained within it were well thought through, sensible proposals. Its sad to see how far the FA seemed to have moved away from them on the basis of their response to the Select Committee, not least because the general thrust from everyone else seems to be much more in keeping with the FA’s 2009 vintage rather than its current stance.

Triesman’s original called for a licensing system for English football, and that call has been backed by ourselves, our friends in the Football Supporters Federation, by the LMA in their oral evidence and by a majority of those submitting written evidence to the select committee.

A big benefit for the game would be in lancing the boil of the football creditor’s rule, which MPs are clearly gunning for. In response to criticism from MPs that the rule effectively gives clubs a free pass from having to do due diligence on clubs with whom they trade, Football League clubs responded that it’s hard to do due diligence on other clubs, because in addition to the headline grabbing transfers, the majority of inter-club payments are from selling away tickets in advance, or giving shared allocations from cup matches.

Clubs have a legitimate point that annual accounts are often at least 12 months out of date, and with changes to company law regulations in recent years, abbreviate small company accounts don’t tell you much (something supporters trusts have known for years too!). As a result, they need to be sure that club honour their commitments to each other and a rule which ensures that is needed to ensure the problems at one club don’t create complications for a host of others.

It’s a major cost to find out with your trading partner is solvent, and that where licensing comes into play. A league could see the income and expenditure projections, be told the source of the additional funds clubs were drawing down and been satisfied that all was present and correct. It could check how they performed against what they said they’d the previous seasons as against how they actually did, and rate each club accordingly for a light touch certification of more thorough going over..

As a result, everyone starting the season would be given a clean bill of health and wouldn’t likely to be entering insolvency, giving everyone else confidence that they could meet their commitments. Job done.

Instead, we’ve nothing like that. Our system is reactive, and with 81 insolvencies in the top five league since 1986, that’s a lot of reacting. Football League Chairman Greg Clarke said that a lot of his clubs were hanging off the precipice. Contrast that with Germany, where since the creation of the Bundesliga in 1963, there hasn’t been a single insolvency, and absolutely critical to that is the Bundesliga licensing system.

What it boils down to is risk. The traditional approach in the UK has been to say that its for each club to decide how ambitious it wants to be. It’s for each owner to decide how much more than what the club earns he wants to subisidise. Underpinning this is the notion of shareholder value, that people who own businesses wouldn’t be so stupid as to make catestrophically misguided decisions, the consequence of which would lose them all their money. As Blackadder might have said, there’s one small flaw with that plan. It’s bollocks.

There are a lot of people who aren’t in this as an investment; I’m reminded of a former Chairman of Luton Town who was bought the club as a present for his birthday by his family who thought it would be a good retirement hobby. Just as most managerial careers end with the sack, most benefactors leave a club having taken a financial haircut, ruined the club’s balance sheet, or tossed the ownership into someone ill-suited for a role of stewardship.

German clubs aren’t any less ambitious than their English counterparts. The difference is that the German league encourages sensible and achievable ambition from frankly insane gambling.

It’s this lack of financial discipline that can only be tackled collectively. Every club spending silly money on players isn’t just hurting itself – it’s making everyone pay more too by raising the bar as to what’s a decent salary in that league. Every club which doesn’t insist on cutting players wages on relegation makes it harder for those that wish to insist that the club’s expenditure is commensurate with its income.

That will obviously benefit to community-owned clubs, trying to balance their books and without a sugar daddy to make good this year’s losses, but it will also help a game so lost in the ruinous financial forest of its own failure to regulate that it can’t see the wood from the trees, about how its actions create an image of a game gone mad, happy to reimburse clubs the world over whilst local suppliers go bust.

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