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Issues of governance and regulation are fundamental
to the future of our national game. The structure of governance
that has stood for most of the twentieth century is collapsing under
a series of pressures. Some of these pressures result from internal
changes in an increasingly international sport, where the gap between
the grass-root supporters, the players and administrators is widening.
Alongside this, there is a massive shift in the financial basis
of a sport that is becoming, willingly or not, part of a complex
leisure industry. These shifts are provoking a major debate about
the ownership, control and future of clubs, leagues and the game
itself. At the heart of this debate are the extraordinary
and complex changes that are occurring in the environment of a game
which is fundamentally simple and which has a support base that
is relatively conservative. The question to ask, therefore, is whether,
in the new ball-game that we are seeing in football, with vast amounts
of money swirling around the game, the money is going to be used
for the good of the game. Currently it is unclear what is going
to happen to this money. The choices, though, are relatively simple.
Funds can flow out of the game into the profits of owners or investors
and the wages of players or, some at least, can be employed to strengthen
the game through improved facilities and better opportunities. So
far the picture is pretty clear with ‘new’ investors extracting
the value that has taken generations to create or simply squandering
assets through conspicuous consumption and inefficiency. What we are witnessing is a whole series of new
challenges, which are going to affect not just the short-term viability
of individual clubs but their long-term success. These challenges
pose new questions, which take football into new territories. We
need to be asking ourselves whether we have the skills or capabilities
within the game to face up to these challenges. So what are the
issues? Among the most important is the amateur tradition of football
in the UK. The ‘Amateur’ Tradition Football in the UK has a deeply rooted ‘amateur’
tradition in its governance and management. Even today, despite
the fact that we now have an increasing number of specialists, experts
and accountants involved in the game, it is important to recognise
that the fundamentals of professional football in the United Kingdom
are amateur. An examination of the boards of even Premiership clubs
will show that they are peopled largely by non-executive, amateur
directors. Only a handful of clubs have chief executives who are
directors. Some of the largest clubs have entirely non-executive
boards. When the structure of the clubs is examined more
deeply, the amateur tradition continues to dominate, with few dedicated
or qualified staff in key business areas and little dedicated training
and development in leisure or sports management, marketing, customer
service, media relations, finance or people management. This amateur
tradition is suddenly faced with taking on new roles, which are
expected of their enterprises, and of their fans (whom I would distinguish
from their supporters), the shareholders, the directors and the
employees of the businesses. The line between fans and supporters
is important as it distinguishes between fans who have positive
attitudes to a team but do not, usually, have any active involvement
e.g. through attending games; and supporters who have an active
involvement e.g. through attending games. Some analysts are using
the terms secondary and primary support to make this distinction
with secondary supporters akin to fans and primary supporters being
close to the above definition of supporter. The distinction is important
commercially but has a potentially greater importance in defining
the relationship between the club and ‘its support’ (incorporating
both groups). Some of the most recent changes – greater access to
full games through cable TV, wider accessibility of merchandise
– are targeted on the large fan-base rather than the much smaller
supporter-base. In Manchester United’s case, for example, there
are around three million fans but fewer than 150,000 supporters.
Some planned developments, notably pay TV, seem likely to further
discriminate in favour of fans against supporters. Other proposals
such as ground moves and expansion of executive facilities at the
expense of traditional space seem designed to reduce the opportunities
of supporters to the benefit of fans. Reducing this ‘active’ involvement
weakens the link between the club, its roots and its community.
It seems likely to produce the type of passive link between ‘producer’
and ‘consumer’ that characterises most markets. This, in turn, changes
the nature of the game as we know it. These are complex and challenging issues, which
pose dilemmas for those responsible for shaping the future of the
game. Effectively and responsibly managed, the challenge of balancing
these interests could strengthen the game. Badly managed, the failure
to balance these interests could weaken the game for generations.
It is fair to ask whether those with the responsibility or those
whose task is it to deal with these challenges have the knowledge,
skills and understanding to deal effectively with the task in hand.
Equally important, do they want to deal with these challenges in
ways that meet the long-term interests of the game or their own
short-term interests? Money, Money, Money So let us explore this amateur tradition a little
further. We all have our own experiences of the amateur tradition
in football. The following example relates to Everton FC but it
could just as easily have occurred at any of the other English clubs
in the recent past. As football supporters we have all been to those
grim fixtures where your team is playing poorly against uninspiring
opposition, such as Wimbledon. You have sat through a dreary nil-nil
draw on a cold, wet Monday night. Towards the end of the game there’s
a Tannoy message which tells you that tickets for the next away
match are available after the game. So you trudge along in the rain
to the box office to buy your tickets and there you are confronted
with the living embodiment of the amateur tradition. Typically,
there is no cover while you stand in line. Waiting there in the
rain, with only the excitement of that nil-nil draw to keep you
warm, facing you at the Goodison Park ticket desk is a sign which
reads: ‘What is it about the word No you do not understand?’ Happily
the sign has now gone, but this attitude towards supporters was
an intrinsic feature of the amateur tradition. That was the kind
of message typically coming out from clubs, and which, in some senses,
is still the case. The typical supporter makes a massive investment
in his or her club. Over a lifetime, the direct expenditure of traditional
supporters, those behind the goals, exceeds £20,000 excluding money
spent on merchandise. Fans will spend £3,000 to 4,000 on merchandise,
related products and occasional visits to the ground. For some,
this outlay is the largest personal commitment outside of their
home and food that they make in their life. This level of investment
has, traditionally, been ignored by those running the clubs. In
the past this mattered less as the administrators – at least at
club level – were largely drawn from the same pool of support as
those on the terraces. Today, that amateur tradition manifests itself
not just in the way the businesses are (and were) run, but is expressed
by most directors’ lack of understanding of the relationships they
need to manage between the organisation, the club and the different
groups of people who are committed to the club. In this respect
it is worth recalling the story about the great 1940s player Len
Shackleton, who famously left a blank page in his autobiography
under the heading ‘What club directors know about football’. Experience
tells us that he perhaps should have added a second blank page covering
what directors know about business, management and strategy. Extracting the Value In truth, the amateur tradition still dominates
the boardrooms of most clubs. This explains why people like Alan
Sugar, John Hall, Peter Johnson and others, none of whom have any
real love for the game, can come along and capitalise on decades
of amateurism and poor management to extract enormous capital value
growth out of their investments in football clubs. The sharp increases
in the value of their investments do not reflect great, outstanding
or even competent management of their football interests. Their
skills lie in extracting the value accumulated over decades in the
clubs they now control. This economic value was vastly underestimated
before first BSkyB, then others, discovered ways of exploiting the
hidden assets of clubs. The process by which Martin Edwards, Alan
Sugar, John Hall and Peter Johnson have, between them, added over
£300 million to their personal fortunes for investments of less
than £30 million has more in common with the asset-stripping of
Slater Walker during the 1960s than any miracles of 1990s strategic
management. Wealth extraction rather than the greater good
of the game is the reason most of the new breed of football club
owners are in this business. Vast fortunes are being made – and
they are not being made by the players for all that Alan Sugar and
others whinge about spiralling wages. The people making the really
serious money in football are those who have made enormous capital
growth from investments in relatively under-utilised assets. Alan Sugar, Martin Edwards, the Hall family at
Newcastle United and others have seen the value of their shareholdings
in their respective clubs soar. Even Jack Walker at Blackburn Rovers
– who was unusual in acquiring a comparatively poorly supported
club with no tradition of recent success and which required an extraordinary
high level of investment – managed to make a positive return on
his investment up until the time of Blackburn’s relegation from
the Premier League at the end of the 1998–99 season. In 1997–98,
the increase in the asset values of the investments of Peter Johnson
at Everton (despite the team’s poor performances) exceeded the total
player wage bill for the Premiership. The increased value of their
shares between 1993–94 and 1998–99 of five of the new generation
of owners exceeded the entire player wage bill for the Premiership
and all divisions of the Nationwide League over the period. Enormous capital gains have been made by relatively
small numbers of people. They have tended to surround themselves
with fellow board directors who are non-executive amateurs and who
perceive their real role as ‘yes-men’ for the chairman or the majority
shareholder. Where clubs do recruit credible non-executive directors,
such as at Newcastle United, they rarely stay around when the fundamental
disrespect for any sense of wider stewardship is revealed by some
crisis or scandal. And who can blame them? What serious professional
person would want to take on a role as a cipher for a domineering
chairman? So, on the whole, most clubs are still run fundamentally
by non-executive boards of directors with limited experience of
the types of business issues facing modern soccer. Again, using
Everton as an example, the club has faced the prospect of acquisition
by an outside interest for most of 1999. There is, however, no one
on the board, apart from Peter Johnson, with any direct experience
of a friendly or hostile takeover. Johnson, however, is likely to
be the primary beneficiary of a takeover, which maximises his short-term
earnings – even if this is at the expense of the club’s long-term
interests.1 Changes in ownership at Leeds United, Nottingham Forest
and others were taken against a similar background. Constrained by the Rules There are reasons for this. Clubs which are not
plcs are still governed by the FA’s Rule 34, which stipulates that
the articles of association of clubs include a clause which, among
other things, precludes club directors from drawing a salary as
a football club director. As a result, you don’t see the traditional
structure that you see in most organisations (especially commerial
enterprises) where you have experts in marketing, finance and even
human-resource management on the main board giving the board the
benefit of their expertise. Instead, what you have is a collection
of amateur, non-executive directors who come in and very often run
their clubs the way they run their golf clubs. Professionalising Football Club Management and
Boardrooms Modernising football club business management and
overcoming the legacy of amateurism in the boardroom will require
a fundamental change in the culture and ethos of the game. If you
are going to have a professional game, frankly you need professional
management systems and well-organised strategies to build up the
value of the clubs and the businesses that underpin the game. That
will require the transformation of the skill base at the top of
football. By way of example, it is absurd that not one Premier League
club has on its main board a human-resources/personnel director
as a full-time executive member of staff, even though football clubs
are a quintessential people business. Even Premier League chairmen
describe their industry as a people business. It is not surprising
that you get the kinds of problems that are the consequence of this
amateur tradition in football club boardrooms. There needs to be
a clearer view, or set of views from the top, about the levels of
professionalisation and the true skills that are required to manage
clubs efficiently. You can separate this management challenge, at
some levels, from what is happening in relation to team affairs,
but it is not completely independent from it. A simple illustration of the problems lies in the
career development of young players. It is generally accepted that
the attrition rate among young players is very high. Every year
a Premiership club might recruit up to 20 young people in some form
of playing apprenticeship. Most clubs would be surprised if one
in ten eventually make it to the first team. Even assuming that
some end up in other teams, perhaps in lower divisions, most are
forced to quit the game at the time when their peers outside football
are completing their training or studies and moving on in a career.
Few clubs make serious efforts to design policies to address this
challenge. The issues are similar for senior professionals leaving
the game. And players, actual or potential, probably get better
treatment than other club employees. Visions and Values The challenges facing football clubs have to be
addressed at a professional and strategic level. At the core has
to be a strong sense in most clubs of the club’s purpose. It is
true that most clubs have a general statement or club motto. A classic
example is Everton’s Nil Satis Nisi Optimum – roughly translated
as ‘Nothing But The Best Satisfies’ – which appears on almost all
the club’s published materials. But, having said that, there is
no real sense in which this, or similar expressions at other clubs,
articulate a meaningful mission statement or sense of purpose for
the organisation that is any different from a strapline on the bottom
of a box of club-branded chocolates. These mottoes are vastly important
to the fans, supporters and smaller shareholders but seem meaningless
to those responsible for delivering their goals. Achieving this fit between purpose and mission,
role and responsibility demands a proper understanding of the relationship
between the executive and non-executive directors. This is not to
say that if you have a proper set of executive directors who understand
and accept their executive responsibilities, you can’t then balance
them out with non-executive directors who represent the other interest
groups or stakeholders in clubs. Clubs must develop a more sensible
approach to the relationship between chairmen, presidents, chief
executives and the great plethora of job titles which are exploding
across football. In truth, most clubs have a virtually non-existent
skill base but any number of job titles. Stewardship At the same time, if you start then asking serious
questions about the stewardship of the business, in corporate governance
terms, you are confronted with serious confusion on the part of
those with responsibility for such matters at clubs. Again the example
of Everton is instructive on this issue. In early 1999 a group of Everton shareholders was
involved in some fairly complicated arrangements to force an extraordinary
general meeting (EGM) at the club. This was prompted by the great
dissatisfaction of most shareholders and supporters with the way
the club was being managed. Over a decade the club had spent around
£100 million on players while the team moved from being league champions
in 1987 to relegation fodder in 1997. In just four years £25 million
of new capital was invested in the club through new share issues,
but the club’s indebtedness soared from under £5 million to around
£20 million. In sum, this meant funds haemorrhaging at the rate
of £10 million a year in a business with a turnover that barely
averaged £10 million per annum over the decade. The response to the proposed EGM indicated that
key officials, like the club secretary, were seriously confused
about their roles and responsibilities. The role of the company
secretary seems relatively clear. Formally, he or she is accountable
to the shareholders who own the club, who have rights according
to corporate law and rights according to the articles of association
of the business. In practice, is the company secretary accountable
to the people with whom he or she deals with on a day-to-day basis,
typically the directors and the chairman? In calling for the EGM,
the rights of the shareholders were very clear. The club’s articles
of association were clear. In the face of their demands, the club
first denied their rights then delayed calling the meeting until
the normal AGM was called. There has to be a proper sense of the stewardship
role in football. As the Everton example illustrates, that is not
there at the moment. Instead, there is a reluctance to implement
fundamental tenets of the law on corporate governance. The situation
is made worse by the limited resources available to the typical
smaller shareholder in soccer. They simply cannot afford to execute
their rights in law. Alongside this, the authorities, notably the
FA and the Premier League, are reluctant to back fans, supporters
or small shareholders against those in control of the game. Again, the difficulties at Everton illustrate the
problem. Some years ago, the football authorities regulated to prevent
any one individual taking a controlling interest in more than one
club. Five years ago, Peter Johnson, then chairman of Tranmere Rovers,
acquired a controlling interest in Everton. At the time, he issued
a prospectus clearly stating that he had divested himself of his
controlling interest in Tranmere. Four years later, faced with a
financial crisis at Tranmere, it emerged that Johnson still controlled
the club. In response to protests from supporters and shareholders
in both clubs, the football authorities have completely failed to
act. This failure has made it impossible for those regulating company
law to act. The fans, supporters and small shareholders have lacked
the resources to force action through the courts. That’s why, when we are talking about a system
of governance, that system of governance has to be articulate, explicit,
accessible and actionable. The current system of governance in English
football meets none of these conditions. Effective action on the
stewardship of the people’s game is out of the reach of the people.
Stakeholder Vision Strategic vision is required at the top of the
game in the FA, at individual clubs, and most of all in the Premier
League. This means leadership, which is based on recognising the
authorities’ responsibilities to everybody in football. It does
not mean having at the head of the Premier League or the FA someone
whose job is basically to be non-threatening to a group of chairman
who don’t want to be threatened by anything or anyone. Fundamental to this strategic vision is some concept
of football clubs as ‘stakeholder’ corporations. We need to articulate
and internalise the notion of a stakeholder view of our clubs and
our sport and that stakeholder vision means recognising who the
legitimate stakeholders are.2 We need to understand that those stakeholders have
a vested interest in understanding who is really building value
in professional football in the United Kingdom, and how this value
is being created. They need to understand the internal and external
portfolios of businesses that exist in soccer. The internal portfolios
are those directly involved in delivering the game to its core support.
This means the team, its grounds and the immediate activities. The
external portfolios are all those activities, which surround the
club from the merchandise to the credit cards. What is happening at the moment is that there are
two main business drivers reaching different groups of people and
serving different needs. Firstly, there is the primary or core support,
the people who actually go to the game. And, secondly, there is
the new external, secondary, group who mainly watch the game on
television (on BSkyB TV) but who nevertheless still participate
in supporting clubs, and who represent an increasingly important
source of emotional and financial support. By and large both drivers
draw on ordinary working people. It is a misconception, and a ridiculous
one at that, to try and argue that simply because there is money
in the game, it is simply a rich man’s game. Football clubs, if
properly managed, do not need rich benefactors to bail them out. This is vividly illustrated by the scale of investment
and expenditure in the Premiership era and BSkyB TV-related changes.
Traditional supporters investing by traditional means through tickets
remains by far the dominant source not only of total revenues for
Premiership clubs but the growth in this income exceeds all other
sources in the years since the start of the Premiership. The new
investors (i.e. the new owners like John Hall, Alan Sugar and Peter
Johnson) have provided the smallest share of both total income and
the increase in income. Over this period, revenues from merchandising
have exceeded the investment of the newly enriched owners. Less
than 10% of the growth in capital values of Premiership clubs has
been reinvested. Stakeholder Corporations, Not Carpet-Baggers In truth the search which has occurred in soccer,
the preoccupation with seeking out more and more rich men to come
and put money into the game, is a nonsense. These so-called ‘investors’
have made massive sums while giving little back to the development
of their clubs. At the same time, the supporters and fans have poured
vast sums into the clubs with virtually no return in terms of better
facilities, superior quality or greater responsiveness to their
needs. In key aspects of the football business, the track
record of the multi-millionaires going in and buying football clubs
is appalling. Totalling up what Alan Sugar has invested in Tottenham
against its current market value, carrying out a similar calculation
for Jack Walker at Blackburn Rovers, the Hall family at Newcastle
United, Peter Johnson at Everton, and all the others like them;
and comparing their extraordinary financial gains with the paltry
number of trophies their clubs have won, it is clear that for the
clubs the involvement of these ‘entrepreneurs’ represents an appalling
investment. The track record of the rich entrepreneurs who have
bought into football clubs has been poor when compared to the track
record of those enterprises and those organisations that have actually
been built up by a proper understanding of the dynamics of the business
they are in. You need financial strategies at football clubs which
are not just based on capital growth but which are looking for returns
over the long-term for everybody who has invested in the game, including
the supporters; we need a better balancing act in terms of rewarding
all stakeholders than has hitherto been the case. The mediocre capabilities of most club directors
is borne out by the poor historical financial performance of most
clubs. The old saying ‘I think I would probably function much better
if someone more qualified than I was in charge of me’ probably sums
up the inherent problem. Nevertheless, the efficient execution of
the director’s role is central to the effective management of a
football club. We need to understand the nature of the current breed
of directors, how they have been recruited from too narrow a base,
their shallow knowledge, their lack of dedicated expertise and the
pervasive culture of amateurism alluded to earlier, as well as what
shape their involvement should really take today. Critically, in many cases directors appear to have
the most rudimentary understanding of the obligations imposed upon
them by legislation such as the Companies Act, and sensible attitudes
to stewardship. Their relationship to team affairs is often that
of Pontius Pilate. They frequently authorise huge investments in
player transfer fees and wages and then wash their hands of the
problem, leaving the team manager to carry the can when these investments
fail to produce a return.3 Directors have to learn to balance their
different roles and face up to these challenges. In my view we need
a new generation of directors. That is the kind of challenge which
exists in professional football at the moment. Conclusion What is the solution? First and foremost it is
to internalise the challenge. Gerry Boon of Deloitte & Touche
has made the valid point that football is still a small industry
and most of the businesses that exist in football are small businesses.
But the reality is that most small businesses are proprietor-owned
and proprietor-managed. The person who founded them is usually running
that entrepreneurial concern. Therefore it seems to us not unreasonable
for that risk-taker, the Richard Branson at the Virgin Group, or
the Anita Roddick at the Body Shop, the people who started the business,
to generate an entrepreneurial profit. What is not acceptable is the situation in football
where people are buying up largely undervalued assets and making
massive returns because of poor stewardship and poor standards of
governance. They are taking value out, without putting value in
through bringing to the game the kind of professional and strategic
expertise which is essential for any organisation to prosper. What do we do about it? What is required is to
open out the ownership base of football. Clubs need to open their
share register to a much wider range of shareholders drawn from
the communities they support. In this regard the decision of Fergus
McCann in October 1999 to sell the majority of his holding in Celtic
to season-ticket-holders and existing small shareholders was progressive
and welcome. It was in marked contrast to Martin Edwards’ decision,
in the same month, to sell £41 million worth of his shares in Manchester
United exclusively to institutional investors in the City of London.
Shareholder rights have to be reinforced as currently the rights
of small shareholders are abused by dominant majority investors.
There is an excellent case for government support for football trusts.
The reform of company law which is in train at the moment needs
to take more account of the unique nature of businesses like soccer.
Football needs an efficient system of corporate governance
and regulation. Well-crafted state intervention, as was demonstrated
through the work of the Football Trust in facilitating the reconstruction
of Britain’s stadiums from 1990 onwards, has a role to play. But
football’s existing governing bodies and the boards of football
clubs must also play their part. Pressing requirements are that
basic standards of corporate governance best practice be applied
within the clubs and some form of stakeholder philosophy should
be encouraged to take root. The game needs to professionalise but
not at the cost of forgetting its sporting roots and its obligations
to the wider communities that have sustained it. |
