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Sean
Hamil, Jonathan Michie and Christine Oughton Amidst
all this change the role of football as a social and cultural institution
in Britain, and indeed the world, has remained largely intact. But tensions
between the new commercialism and football’s social purpose have become
intense. The institutions of corporate governance which served football
adequately when it was a loss-making passion catering to ‘fans’ whose
core interest in the team was in its expression as a vehicle for social
solidarity, a passion we term ‘fan equity’ (see chapter 1), are no longer
adequate to effectively manage the extraordinary commercial pressures
unleashed in the industry. Football
has been extensively analysed from a sociological perspective, most
notably with regard to the football hooligan phenomenon. As the industry
has become more profitable it has been subject to a growing body of
analysis from a conventional economic and financial perspective. While
important, none of this work to date has really succeeded in explaining
the current dynamics of the industry. The existing literature generally
lacks the necessary breadth to encompass an understanding of either
the influence of ‘fan equity’, or an appreciation of the importance
of maintaining and enhancing what we term ‘positive league balance’
(see chapter 6). None of the existing work, therefore, really gets to
the heart of why it is so necessary that the game be protected and developed
through regulatory intervention (although the Football Task Force has
done useful work, on which see chapter 3). Neither the UK football industry
nor the sports markets generally, have been analysed to any extensive
degree with regard to corporate governance issues and their relationship
with ‘fan equity’. This book sets out to fill that gap. Birkbeck
College’s Department of Management has established a research programme
on how regulation of the football and broadcasting industries might
best be reformed to meet these new challenges. A successful conference
in February 1999 brought together leading academics, policy-makers and
analysts to discuss future possibilities for the governance of professional
football. This book brings together the results of these discussions.
Critically,
the key theme of all the contributions is that there are alternative
governance structures to those currently being employed in the headlong
drive toward greater commercialisation of the game. Plcs are certainly
not the only option, and may not even be the most appropriate. The various
alternative structures discussed in the following chapters (especially
8–13) are more in tune with the historical roots of the game in local
communities, and more appropriate in terms of securing both the game’s
financial future and its critical role as a cultural and social asset. The
opening chapter by Sean Hamil (‘A Whole New Ball Game? Why football
needs a regulator’) sets the scene by outlining the central importance
of structures of corporate governance in determining the success, or
otherwise, of the industry. This is because of the ‘social’ character
of the good which football provides. He argues that the value of this
‘social’ element (described as ‘fan equity’) to the financial success
of clubs is not fully appreciated by the current owners or regulators
(the Football Association) of the sector. He
begins by explaining the critical role of regulatory intervention through
the recommendations of the 1990 Taylor
Report and significant public subsidy for ground rebuilding via
the Football Trust, in reforming the industry in the early 1990s, and
how this laid the ground for increased TV monies. He describes the chronic
problems of financial and operational mismanagement that characterised
the game’s administration up until the early 1990s and which still persist
at many clubs. He
then examines the subsequent movement by club owners to capitalise on
the increased value of clubs, firstly by floating them on the Stock
Exchange and, in what looks like the second wave in the development
of a market in corporate control, the attempted sale of clubs to media
conglomerates. Chapter 1 therefore argues, in a theme developed in many
of the subsequent chapters in the book, that without effective regulatory
intervention, current developments threaten to destroy the central character
of the game by leading to a fragmentation of the traditional league
structures. Instead, an élite of major clubs, retaining no real link
with the communities from which they sprung, may break away. He argues
that the failure of the Football Association (FA) to meet its responsibilities
as an effective regulator has been an important facilitating factor
in this negative development. Hamil
concludes by arguing that regulatory intervention has dealt with the
ground safety issue. Significant further regulatory intervention is
required to address the wider corporate governance issues thrown up
in recent years by the headlong commercialisation of the game. David
Conn’s 1997 best-selling book The
Football Business (Mainstream) was the first publication to present
a sustained critique of how increasing commercialisation was in danger
of destroying the distinctive qualities of football as a key national
cultural asset. In chapter 2 (‘The New Commercialism’) he brings the
story up to date. Conn begins by setting out the history of the game
from its earliest inception to the present day. He outlines how, while
initially football clubs in the late Victorian and Edwardian era were
set up primarily as sporting and community institutions, the explosion
in the popularity of the game attracted a breed of businessmen bent
on profit, in not dissimilar fashion to today. The same processes of
consolidation were set in train. However, on that occasion, the Football
Association and Football League intervened decisively to protect the
sporting character of the game. The introduction of the FA ’s Rule 34 explicitly barred business people
from making money out of the game via dividends or salaries, thus dramatically
reducing the value of clubs as speculative business ventures. An extremely
equitable form of financial redistribution of gate receipts, later extended
to TV revenues, was introduced which served to maintain a high level
of competitive uncertainty in the game. Chapter
2 then outlines how a culture of amateurishness combined with parsimony
with regard to ground improvements developed among clubs as a breed
of director intent on securing local prestige at little cost was attracted.
This culminated in the stadium disasters of Bradford, Heysel and Hillsborough.
Conn notes that a supreme irony of the Taylor
Report is that while it is most remembered for its recommendations
on improving ground safety – the implementation of which has revolutionised
the quality of British stadia – it also made a number of other recommendations
aimed at preserving the unique cultural status of the game via the reform
of its governance and administrative structures, which were never acted
upon. Conn
argues that the failure to follow the wider remit of Lord Justice Taylor’s
recommendations has allowed a situation to arise whereby, with the influx
of TV monies, football has been made increasingly attractive to a new
generation of acquisitive businessmen, but on this occasion there has
been no decisive regulatory intervention to prevent rampant commercialisation.
He argues that fans have been increasingly exploited in a rapacious
fashion. And that the erosion of redistributive rulings, when combined
with this commercialisation, has set in train a powerful process of
consolidation which is likely to lead ultimately to the breakaway of
leading clubs from existing structures. He explains the manner in which
the FA ’s Rule 34 was effectively side stepped, and the poverty of vision
of the FA itself in the face of these developments. Chapter
2 concludes by arguing that there must be a restoration of effective
mechanisms for financial redistribution among clubs and a return to
some form of social ownership structure. Conn argues that football needs
a single executive body to regulate the game. In
chapter 3 (‘Thinking the Unthinkable or Playing the Game? The Football
Task Force, New Labour and the reform of English football’) Adam Brown
outlines the background to the formation of the government’s Football
Task Force. He sets out its aims and objectives with regard to the governance
of football, and assesses both its progress to date and the prospects
for meaningful change in the governance of football in England. Although
writing in a personal capacity, he brings to bear his unique insight
as a member of the Task Force Working Group. While at the time of writing
(May 1999) the Task Force’s work is not yet complete, he nevertheless
offers an intriguing analysis as to the possible direction its findings,
if taken up by government, might lead. Brown
explains the origins of the Task Force’s remit in the Labour Party’s
pre-1997 election policy document, Charter
for Football. While on the face of it the influx of TV money meant
that financially football had never had it so good, the Charter tapped into a popular perception of a game mired in sleaze
(the bung scandal), rocketing ticket prices, merchandising policies
which appeared to exploit fan loyalty, a continued lack of representation
for fans at all levels of the game and governing bodies seemingly incapable
of providing leadership in the face of this hydra-headed challenge.
He explains how, with the setting up of the Task Force in July 1997,
the original broad sweep of the Charter’s recommendations were incorporated,
but in heavily diluted form. Critical omissions were the lack of any
investigation of new formulas for administering the game and the associated
reform of the FA, and any investigation of TV’s role in football. He
documents how the Labour government’s concern that the Task Force proceed
on the basis of consensus served to critically complicate its work,
as inevitable tensions erupted, most notably in the resignation of the
Professional Footballers Association (PFA) representative Gordon Taylor
after Task Force chairman David Mellor criticised players’ attitudes
to community work in a newspaper article. Chapter
3 concludes by arguing that, while it is not possible to predict what
the outcome of the Task Force’s deliberations will be prior to the completion
of its work, it nevertheless seems clear that some form of government-appointed
regulator would be the logical outcome from the substance of the Task
Force deliberations. In
chapter 4 (‘The BSkyB Bid for Manchester United Plc’) Simon Lee analyses
the background to BSkyB’s 1998 bid for Manchester United against the backdrop of developments in the political economy of
football since the Hillsborough disaster. Lee argues that Manchester
United in many ways represents a high-water mark of a financial model
of corporate governance that has pervaded English football during the
1990s. For the future, the pursuit of short-term shareholder interest
which this has involved needs to be replaced with an alternative stakeholding
model of corporate governance which would recognise the status of supporters
as major stakeholders in the English game. Reaction
to the BSkyB bid from within English football and without is assessed
in the context of the impact of increasing TV revenues and the widening
gap between the richest and poorest clubs in English football. Chapter
4 argues that neither the competition authorities nor BSkyB would have
needed to have been involved in the future governance of English football,
had the FA and the Football League launched the fundamental reassessment
of English football which the Taylor
Report called for in 1990. Chapter
5 (‘Football and Broadcasting and the MMC Case’) by Jonathan Michie
and Christine Oughton examines the reasons why BSkyB’s attempted acquisition
of Manchester United was blocked by the Monopolies and Mergers Commission
and the Secretary of State for Trade and Industry. The chapter starts
by considering the ‘peculiar’ nature of the football industry – the
‘brand’ loyalty of the fans, the links between clubs and their local
communities and the collective nature of the league system which combine
to make the industry particularly vulnerable to anti-competitive behaviour
and raise a number of public interest concerns. The analysis then turns
to the anti-competitive effects of the attempted acquisition on the
broadcasting and media markets. BSkyB’s attempted take-over raised three
separate areas of concern regarding anti-competitive threats and restrictions
on competition. Firstly, it would have led to the market for watching
Manchester United at the ground and the market for watching Manchester
United live on pay TV being controlled by a single company. This opens
up the possibility that the company could raise prices at the ground
with the intention of shifting the demand from those fans priced out
of the stadium on to its other market, Sky Sports. Secondly, if the
bid had been successful it would have distorted the bargaining process
for rights to screen Premier League matches, creating restrictions on
competition. Finally, the attempted acquisition would have weakened
the competitive position of BSkyB’s rivals and strengthened BSkyB’s
already dominant position in pay TV. The attempted take-over also raised
the possibility of BSkyB subsidising Manchester United in order to ‘buy’
success on the field. If the BSkyB bid had been successful and was followed
by other broadcasters acquiring Premier League clubs, cross-subsidisation
would have exacerbated growing inequality and competitive imbalance.
The MMC broadly accepted these points and recommended that the merger
be blocked on the grounds that it would have reduced competition in
broadcasting and adversely affected the quality of English Football.
Michie and Oughton argue that this decision needs to be built upon,
firstly to prevent any other media company–football club mergers, and
also to prevent greater inequality of wealth between clubs by the uneven
distribution of broadcasting revenues and the over-commercialisation
of the game generally. Chapter
6 (‘Revenue-sharing from Broadcasting Football: the need for league
balance’) by Jeanette Findlay, Bill Holahan and Christine Oughton, focuses
on the impact of income from live TV broadcasting on league balance
under different systems of league organisation and regulation. The chapter
looks at three interrelated aspects of live television broadcasting:
firstly, the motives for revenue-sharing and the impact of the current
rules for revenue-sharing on league balance; secondly, the effects of
a move away from the current system of collective league bargaining
to a system where each club sells the right to broadcast its matches
individually; and finally, the incentives for revenue-sharing in a system
of vertical integration, where all aspects of a club’s activities –
from the pitch to the television screen – are owned and controlled by
a broadcasting company. The
impact of broadcasting revenues takes on particular significance at
this time as debates about the future organisation of football are taking
place against the backdrop of the case brought by the Office of Fair
Trading (OFT) against the Premier League in the restrictive practices
court, and also the government’s April 1999 blocking, on the recommendations
of the Monopolies and Mergers Commission (MMC) inquiry report, of the
take-over by BSkyB of Manchester United. The
authors argue that all of these aspects of football organisation and
regulation are inextricably linked and therefore any attempt to reform
the current system of regulation needs to deal simultaneously with rules
regarding the sale of broadcasting rights, revenue sharing and ownership
structures. They conclude that there is an urgent need to examine the
impact of broadcasting revenues on league balance (and league fragmentation)
under different distribution rules, and systems of corporate governance
in football more generally. The
question of the valuation of players’ contracts in club financial balance
sheets and annual accounts is addressed by Jonathan Michie and Shraddha
Verma in chapter 7 (‘Is Paul Ince an Asset or a Liability? Accounting
and governance issues in football’). Following new regulations requiring
football clubs to include players as assets in the balance sheet, the
authors discuss the issues involved. Under the new rules, players are
to be classified as intangible assets for accounting purposes and the
chapter suggests that there are indeed strong arguments for so doing.
In particular there is a danger that clubs may be undervalued if players’
contracts are not included, thus leaving them vulnerable to asset-stripping
take-overs. Chapter
7 also considers other governance issues, arguing for greater representation
for small shareholders. This is particularly crucial in the event of
a take-over attempt. Most small shareholders are fans who have usually
bought shares for reasons of emotional commitment rather than just a
crude calculation of financial gain. This reflects the particular status
of football clubs as social and cultural assets. The authors argue that
prospective buyers should have to demonstrate that any take-over is
in the public interest. Likewise shareholders should not be forced to
sell against their will, as currently happens when 90 per cent of the
shares in a company are acquired. In
chapter 8 (‘Whose Game is it Anyway? Stakeholders, mutuals and trusts’),
Jonathan Michie and Shay Ramalingam argue that mutual organisations
are effective in removing stakeholder conflict. This has been demonstrated
in particular in the financial services industry in the form of mutual
assurance firms and building societies. Michie and Ramalingam argue
that this form of organisation would suit the culture, ethos and objectives
of football clubs and should be encouraged. Short of mutualisation,
clubs such as Barnsley Football Club in Britain and the Green Bay Packers
in the US are at least examples of widespread local and fan ownership.
The chapter discusses how fan involvement might be institutionalised
through the progressive transfer of shares to Trust status. The
subsequent chapter by Anne Bourke (‘The Evolution of Irish Plc Co-operatives:
lessons for English football clubs’) considers possible alternative
ownership structures for football clubs in the light of the experience
of dairy co-operatives in Ireland. While on the face of it there are
major differences between the dairy and football industries, they do
share two key characteristics. Like football clubs they play a major
role in providing social cohesion, in this case in rural areas in the
Republic of Ireland, by guaranteeing a market for their farmer-owners’
produce. And in the early 1980s this industry, like football, was regarded
as under-capitalised. Chapter 9 explains how the dairy co-operatives
squared the circle of maintaining co-operative ownership by their farmer-suppliers
with raising capital to fund modernisation and expansion in a competitive
marketplace by adopting a hybrid structure of co-operative plc status.
Stock-market-quoted subsidiaries were created with full plc status but
remained under majority control of the dairy co-operatives and their
farmer-owners. This co-operative/plc status thus served to protect community
ownership rather than serving as a vehicle for destroying it, as has
happened in the case of football in the UK. Bourke argues that it is
not too late for football clubs to learn from this example. In
chapter 10 (‘Modern Corporations and the Public Interest’), Rob Branston,
Keith Cowling, Nestor Duch Brown, Jonathan Michie and Roger Sugden consider
the controversial issues of corporate governance from the broader perspective
of the democratic deficit that characterises most large corporations.
An analysis of large corporations across a range of business activities
shows that there is a widespread problem of hierarchical decision-making
that tends to serve the narrow interests of an élite few. The issue
of who takes the key decisions, and in whose interests, takes on particular
significance with the attempted take-over of Manchester United by BSkyB
and the emergence of other media groups showing an interest in English
soccer clubs. The authors argue that if corporations are to be governed
in the ‘public interest’, the governance process needs to be characterised
by more participation and greater democracy. They suggest that this
might be achieved by a regulator for football with responsibilities
that would include monitoring the activity of clubs and their controllers
to ensure effective representation of the public interest in strategic
decision-making. Chapter
11 (‘Supporter Representation on the Board: The Case of Northampton
Town FC’) by Brian Lomax, chairman of Northampton Town Supporters Trust
and elected director of Northampton Town Football Club, discusses how
and why the Trust was formed in 1992. Following the launch of the Trust
and its involvement in running the club, average gates have risen from
around 2,000 to over 6,000 per match. There was also a marked improvement
in the club’s performance, with two Wembley play-offs and promotion
to the Second Division of the Nationwide League. Off the field, the
Trust has fundraised and paid over £90,000 into Northampton Town FC.
The Trust owns over 7 per cent of the total shares issued. It was also
instrumental in cementing a three-way partnership between the club,
the Trust and the local authority to build a new stadium with award-winning
facilities for disabled access. The experience at Northampton Town has
been endorsed by the Football Task Force and paves the way for supporter
involvement to become the norm rather than the exception in football. In
chapter 12 (‘The Struggle for Democracy at Barcelona FC’), four members
of L’Elefant Blau (The Blue Elephant) – Armand Carabén, Alfons Godall, Joan Laporta and Jordi Moix – outline the struggle
by supporters to maintain the democratic traditions of Barcelona Football
Club. In recent years, Spanish football has undergone a deep transformation
as the vast majority of clubs has been transformed from non-profit associations
to private corporations. Today, only four professional football clubs
out of the 42 playing in the national Spanish leagues are not corporations.
Barcelona Football Club (or ‘Barça’ to its friends) is one of them.
The Blue Elephant is an association of Barça fans that was established
in 1997 with the aim of democratising the club and preserving its original
status as a non-profit sports association. Chapter 12 documents the
erosion of the traditional democratic rights of club members that has
occurred in recent years. The Blue Elephant aims to reinstate and enhance
the club’s democratic tradition and strengthen its ties with the local
community to ensure that Barça is not run along narrow commercial lines
but rather serves the broader interests of supporters. The
book concludes with a discussion by Jonathan Michie and Andy Walsh of
a range of ownership and governance options for football clubs (‘What
Future for Football?’). Chapter 13 begins by explaining the catalytic
effect of the 1998 announcement of BSkyB’s attempt to take over Manchester
United in crystallising fears among concerned fans about the effectiveness
of existing structures. Michie and Walsh outline how a strategy by individual
businessmen in controlling positions at several clubs, notably Martin
Edwards at Manchester United, has seen the legal status of clubs move
from that of quasi-public bodies (as statutorily embodied in the FA
’s Rule 34), to decisively privately owned businesses (through the creation
of holding companies), enriching these same businessmen in the process. Chapter
13 demonstrates that the current regime of regulatory oversight, as
administered by the FA, has been inadequate in the face of these developments.
Indeed, to some extent the FA could be said to have collaborated in
creating many of these problems. The authors then outline a range of
alternative ownership structures for clubs, most notably trust status,
and discuss how these might be achieved. This final chapter concludes
by calling for government intervention to facilitate the creation of
such structures. Michie and Walsh argue that this agenda is not only
necessary to meet the remit that the government itself gave to the Football
Task Force, but is also necessary for achieving other key objectives
of government, most noticeably the tackling of social exclusion – a
process dramatically illustrated at many football grounds by the pruning
out of low income supporters by high ticket prices. There
is clearly a problem. Tony Blair was quite right in 1995 to express
concern: I
worry that a game in which one individual is deemed to be worth £7 million
and whose club must raise the money with ever more lucrative and exclusive
television deals, merchandising and expensive seats, is a game which
may lose touch with its roots. I worry that fans are taken for granted.
I worry that the television deals are ignoring the smaller clubs which
desperately need support, and creating a class of bigger clubs that
becomes ever more voracious in its quest for success. I worry, too,
that the dividing line between marketing and exploitation may have been
crossed amid the plethora of ever-changing strips. The
subsequent chapters demonstrate that such fears are indeed well founded.
In what follows, the various authors outline the necessary solutions.
It is to be hoped that these ideas will now be acted on by the government,
by the game’s regulators and by the clubs. |
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