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An Independent Regulator for English Football – How, when and why?

20/07/2022

Jim Olphert and Ben Brown consider the government’s proposals.

In the Queen’s speech on 10 May 2022 a clear announcement was made by Prince Charles that, “Proposals will be published to establish an independent regulator of English Football.”

This announcement followed the publication on 25 April 2022 of the Government’s response (“the Report”) to the Fan-Led Review of Football Governance (“the Review”) in which the recommendation for a new Independent Regulator for English Football (“IREF”) was made so as to ensure the long-term sustainability of football. The final details on how the reforms will be implemented are anticipated to be published in a White Paper in the summer.

Background

The current regulation of football is presently undertaken by a combination of national associations, international associations such as UEFA and FIFA and the leagues themselves. Each serves something of a different function.

The Football Association (“FA”) is presently the core regulator for football in England. FA Wales, the Scottish FA and the Irish FA exist as parallel bodies in the devolved nations, reflecting the fact that at a national level, each has its own football team. All three operate disciplinary panels which deal with disciplinary action taken against players, team staff, teams and match officials.

The English FA also sets requirements for clubs at every level within the English club pyramid to subject owners and directors to an ‘Owners’ and Directors’ Test’ – or ODT, contained within the FA handbook. The FA administers this test for all leagues below the National Football League – the Premier League and National Football League are responsible for their own administration of this test.

The Premier League’s ODT is currently set out in Section F of the Premier League Handbook and sets out the rules for disqualification from team ownership. The current legal consensus is that it is not presently compliant with national and global human rights protections, and as a result there is a significant risk of ‘sportswashing’, where a nation with a poor human rights record might attempt to bolster public perception by taking ownership stakes in Premier League clubs in an effort to improve its credibility. There have been proposals by the Premier League to amend their own ODT to reflect the need to ensure human rights compliance where potential owners are nations, however this has yet to be realised.

This is acutely concerning because self-governance in this way has led to a perception that the leagues themselves are more interested in owners being approved who are able to contribute significant finances to the club and the league, rather than those who are likely to act with probity. The invidious position which Chelsea Football Club recently faced, as a result of sanctions placed on their then-owner as a result of the Russia-Ukraine conflict, is perhaps testament to this.

However, this is so not just in their actions in their home nation, but in the way in which they steer the club or take decisions about its future.

Indeed, no greater example of this exists than the quickly-shelved plan for a breakaway European Super League. The outpouring of criticism from fans regarding the impact on club competitiveness, on the pyramid system which underpins UK football, and on fan engagement was telling. Ultimately the Premier League teams withdrew as a result of the pressure placed upon them.

It nonetheless remains a concern that clubs might be able to take decisions regarding ownership, regarding their finances, and regarding the future direction of the club which not only would be damaging to football as a whole, but contrary to the wishes and interests of the fans who support, in every sense of the word, these local institutions.

Proposals

In order to address some of these issues an IREF has been proposed. The Report made clear that any IREF would be both independent, counteracting previous ineffective regulation due to conflicted interests, and have a statutory footing, something deemed necessary to tackle the generally well-financed and powerful clubs it would regulate. The IREF’s primary objective will be to focus on sustainability for the benefit of fans and local communities with financial sustainability having been earmarked as the current fundamental problem which threatens the future sustainability of football.

It is notable that the proposals are silent on the issue of discipline, which suggests that that will remain in the gift of the FA for each nation. Instead IREF will focus on financial regulation and club decision-making. Parallels have been drawn with the statutory regulators for energy, communications, and banking, though critics of the IREF proposals note that those regulators exist because of the significant risk to the public either through health or personal financial issues, which aren’t immediately reflected in club management.

The IREF will operate a licensing system which would require every club in the men’s National League and above to hold a licence to legally operate. In order to obtain the licence, clubs will have to satisfy 5 key conditions:

  1. Financial Regulation
  2. A revised ODT
  3. Corporate Governance
  4. Fan Engagement
  5. Protection of club heritage

If granted, licences obtained would only permit clubs to compete in merit-based competitions consented to by fans and approved by FIFA, UEFA and the FA. Interestingly, there is recognition in the Report that issues such as ticket prices, fan behaviour and racism would be beyond the scope of the IREF, as any attempt to deal with such broad issues may lead to regulatory failure with IREF resources being disproportionately allocated to these matters.

The Report outlined that the IREF should have a broad range of sanctions at its disposal to deter and punish non-compliance with the licence conditions including reputational sanctions, financial penalties, and suspensions. However, it has been expressly noted that any sanctions should be deployed in a tailored and proportionate manner that would minimise the impacts on fans where possible. It is difficult to see however, how any form of sanction could be minimised to the point that it would have no impact on fans and yet be an effective deterrent to be utilised by a regulator.

In order to provide financial regulation effectively and efficiently, it is suggested that “real time finance monitoring” would be required. Such real time monitoring would require up to date data from all clubs being provided at all times, which in turn would provide clarity on the health of any club’s finances. Whilst on the face of it this sounds to be a hugely ambitious (and potentially unrealistic) undertaking, requiring the monitoring of vast amounts of fluid financial information, it is pleasing to see within the proposals that there is a clear realisation that regulatory tools such as wage-caps have proven to be ineffective and are subject to manipulation and that something more stringent is required. Real time monitoring would enable the IREF to ensure that clubs have control of costs, enough liquidity in the business throughout the year and have financial reserves in place for any unforeseen events and a sudden downturn in profits. Such real time monitoring would feasibly enable the IREF to intervene and probe problematic areas from the outset well in advance of significant issues arising, which may prove to be vital in assisting the survival of clubs heading into financial difficulty.

Another key proposal is that the IREF would establish a new ODT for clubs. It was a key finding of the Review that the financial distress in some clubs was partly due to the acquisition by owners unsuited to custodianship and unsuitable directors had been appointed without the implementation of a proper process or assessment. In order to counteract this, the proposal is that enhanced due diligence checks should be conducted to check the source of the funds and the strength of any business and financial plans before any transaction for a club is approved. In addition, it is proposed that a new “integrity test” should be implemented which would require the IREF to make an overall, evidence-based judgement using expert opinion to assess whether an owner or director would be a suitable custodian of a club. This would, in effect, broaden the scope of any human rights test proposals. Whilst it is clear these aims are laudable, the current proposals outline a subjective assessment that would be conducted and without further detail, there is the risk that any test would lack the clarity and unambiguity that will be required to ensure any required conditions could be transparently met and would not be open to abuse.

Should the current proposals be implemented, there can be little doubt that there will be arguments that any IREF may impose expensive, challenging, and demanding procedures on clubs of all sizes, which may in turn risk doing more harm than good, curtail essential investment and place an unduly heavy burden on the smallest clubs. However, it is to be anticipated that many football fans will welcome the safety and assurances offered by the IREF, to know that there is the possibility of a level playing field when it comes to the regulation of clubs to ensure the sustainability of football for all.

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