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CONTENTS
This
paper analyses the recommendation made by the Football Task Force,
that the Football Association introduce a ‘fit and proper person’
requirement for those owning a substantial shareholding in football
clubs in England. The paper looks at the context in which the recommendation
was made and then focuses specifically on the desirability and feasibility
of such a test. Finally the paper looks at the recommendation in the
wider context of administrative regulation and comments on the position
of the Football Association and the opportunities for progress. The
research finds that, despite the desirability of the test, it could
not fulfil the important requirements of the Better Regulation Task
Force. Finally the paper makes a critical appraisal of the regulation
of football by the Football Association and urges it to take new and
effective initiatives to safeguard the integrity of the game AcknowledgementsMany
thanks to Geoff Pearson and Rogan Taylor of the Football Industries
Group, University of Liverpool, and to Christine Oughton and Jonathan
Michie of the Football Governance Research Centre, Birkbeck, for their
assistance and support in the publication of this research paper.
Many thanks also to Kevin Jaquiss of Cobbetts Solicitors for his kind
advice, especially regarding the legal aspects of the paper. The regulation of professional football has recently come under increasingly critical scrutiny. The reports of the Football Task Force regarding the regulation of the game focused attention on the ability of the Football Association (FA) to govern effectively and there have been suggestions that football requires independent regulation similar to that controlling the privatised utilities.[1] The Task Force itself produced four reports, the last of which, Commercial Issues, recommended wide-ranging changes in the regulation of the game.[2] The Task Force recommended that the FA introduce a ‘fit and proper person’ test for those wishing to own a substantial number of shares in a football club. The current research paper focuses on this particular recommendation. The paper looks first at the context in which calls for a ‘fit and proper test’ have been made, and at the different schools of thought with regard to the regulation of football. The desirability and feasibility of incorporating such a test is then discussed. Finally, other initiatives that the FA might undertake to ensure compliance with its rules and regulations are considered. It is important at the outset to clarify
the definition of the ‘fit and proper person’ test for the purposes
of this paper. Such a test could apply to shareholders, directors
or employees of football clubs. This paper will focus specifically
on the application of the test for shareholders for three main reasons.
Firstly, the behaviour of company officials is already legislated
for in the Company Directors Disqualification Act 1986. This legislation
enacted by parliament allows for the disqualification of directors
on a variety of grounds. Any person disqualified as a director should
therefore not be permitted to become a director of a football club.
Secondly, the Football Task Force, created by the then Minister of
Sport, Tony Banks MP, recommended that the test should apply to shareholders, It [The Football Association] should introduce a requirement that any persons wishing to own a substantial number of shares in a football club, to the extent that those shares grant them practical exercise of executive power, be ‘fit and proper persons’ to do so.[3] Clearly, the FA would have to make a judgement as to what percentage of shares would constitute the ‘practical exercise of executive power’. An overall majority of shares would be an obvious place to start but the FA should also consider that de facto control of a club may be possible with a far lower percentage of the shares.[4] Thirdly, much of the turmoil that has occurred at football clubs across the country has resulted directly from the actions of major shareholders, as opposed to executives, directors or other employees.
This paper starts from the premise that
the FA is the relevant body with regard to the implementation of such
a regulation. Firstly, the league organisations are representative
of their members rather than independent of them. In this sense they
are powerful organisations characterised by vested interests. In order
that such a test is imposed fairly and consistently across the board,
the test should be implemented by a single independent organisation.
Secondly, the recently created Independent Football Commission (IFC)
has no powers of sanction, but ‘reviews’ and ‘reports’ on the activities
of the governing bodies and commercial and financial matters within
the game.[5]
Finally, and most importantly, the FA is the sovereign body governing
English football, the arbiter of rules and regulations, and has the
ultimate responsibility for ensuring the integrity of the game. In some instances it is legitimate to
wonder whether the directors are genuinely interested in the welfare
of their grassroots supporters. Boardroom struggles for power, the
wheeler-dealing in the buying and selling of shares and indeed whole
clubs sometimes suggest that those involved are more interested in
the personal financial benefits or social status of being a director
than of directing the club in the interests of its supporter customers.[6] Twelve years later, much of this criticism levelled by Lord Taylor remains applicable to English football. There are a number of reasons for this. Firstly, there has been a massive shift in the financial basis of clubs in England. The formation of the FA Premier League in 1992 and the resulting television deals have had a major impact on the division of revenues between the top and lower divisions. Additionally, better value overseas imports, a result of the financial success of the Premier League whose clubs can afford to pay the wages of high quality overseas players, has led to a reduction in the transfer fees paid by the Premier League to the lower divisions (Boon, 2000, p. 30). Changes to the international transfer system, adopted following the Bosman Ruling, are also likely to exacerbate the trend towards declining revenue from transfer activity. Financial difficulties have also been further intensified by the collapse of ITV Digital in July 2002, causing large shortfalls in the budgets of many Football League clubs. These structural changes have had a clear and severe impact on the financial stability of many clubs. The rewards that accrue from elevation to the Premier League constitute a great temptation towards high-risk strategies in order to gain promotion to the top division and there are clubs which have suffered in pursuit of these objectives, notably Crystal Palace and Millwall.[7] It may also be argued that the growing inequalities between leagues, alongside the enormous media interest in the game, provides to some an irresistible incentive to break the rules of competition in order to heighten the chances of promotion. Chesterfield is a notable example of this. At a time when football is attracting unparalleled levels of investment, many clubs are struggling to survive the threat of bankruptcy. Indeed, former Chief Executive of the FA, Adam Crozier, claimed that half of the clubs in league football are ‘technically insolvent’.[8] However, whilst the movement towards entrenched financial inequality may account for some of the financial difficulties of lower division clubs and the increasing hardships that they face, they do not fully account for the degree of financial irregularity and the number of businesspeople looking to football as a means for self-enrichment. The irony is that the increasing vulnerability of clubs has as much to do with key regulatory decisions taken by the body responsible for the protection of the game - The Football Association. Rule 34 of the FA’s rules and regulations
was designed to protect clubs from those seeking to extract money
from football. It prevented the payment of dividends and the payment
of salaries to directors of clubs and protected the ground at which
a club played as a community asset (Conn, 1997, pp. 134-135). Clubs
began to circumvent these rules by creating PLCs as holding companies,
which owned the football clubs in question without being subject to
the rules and regulations of the FA.[9] In the
face of these developments the FA at first did nothing and eventually
removed Rule 34 in May 1998. The demise of this regulation has enabled
football clubs to become prized assets for those wishing to make large
capital gains and made it increasingly possible for funds to flow
out of the game to investors and the owners of clubs (Cannon and Hamil,
2000, p. 37). Ed Horton argues that, Football,
for all its popularity, for all the money it is making, is in a state
of terminal division. The game has fallen into crisis. The profits
are very great, but they are so unequally distributed that they serve
only to destabilise the game.[10] David Conn revealed how individual businessmen have succeeded in utilising football clubs as a means to generate enormous capital gains, identifying the fortunes made by the major shareholders of Premier League clubs in the 1990s as a result of flotation on the back of the game’s boom in popularity.[11] Effectively, the FA loosened its control over the clubs within its jurisdiction at a time when the glamour and popularity made football clubs an attractive investment. Moreover, the reluctance to act in defence of its own rules left clubs vulnerable to profiteering and asset stripping. In effect the game in England has been subject to a set of peculiar and interacting dynamics. As the popularity and wealth of the game has increased, it has become a more fashionable investment. As investment has become more fashionable, football has become vulnerable to unscrupulous business operators. As these developments occurred, the FA loosened its control over clubs and diminished its role as English football’s principle regulatory body. Two Schools
of Thought
The regulation of the game by the FA has therefore come under critical scrutiny. Supporters’ organisations, government, academic institutions and the media have all questioned the ability of the FA to act as an effective guardian of the game. Some clubs have been subject to the predatory instincts of businessmen. Other clubs are simply subject to incompetent administration. There is now an increasing acceptance that the clubs, as important community institutions, and with a wide range of stakeholders, need greater protection. Essentially, two schools of thought have developed in relation to the regulation of football and it is important to assess the ‘fit and proper’ test in this context. Calls for change have been led by football academics. Rogan Taylor at the University of Liverpool, Adam Brown at Manchester Metropolitan University and the Football Governance Research Centre at Birkbeck College, have all called for changes in the way football is regulated.[12] Taylor argues that the FA ‘abandoned ship’ in its role as a regulatory buffer and its traditional duties of care dropped down the agenda, leaving a regulatory vacuum. He contends that the FA does not rule neutrally anymore, a cardinal requirement of exercising power, and that an independent regulator is now required (Taylor, 2000, pp. 55-61). Similarly, Brown argues that the sidestepping of Rule 34 signalled that the FA had given up its historic role as the guardian of English football. Brown also argues that the FA were ‘not prepared to recognise that the form of ownership of football clubs and their governance principles fundamentally affect the priorities on which the game is run’.[13] He suggests the FA’s message has been, ‘if the rules are broken we’ll simply change them to fit the new circumstances’, hence the need for more authoritative independent regulation.[14] The reports by Sir John Smith, former
Deputy Commissioner of the Metropolitan Police, and the government
commissioned Football Task Force in 1998 constitute the most significant
criticisms of the FA’s regulation of the game. Smith’s report, Football:
Its Values, Finances and Reputation, was commissioned by the FA
with the following remit, To
inquire into the manner in which football regulates its financial
affairs and to make recommendations to The Football Association as
to how to ensure and maintain the integrity of football and to promote
accountability in the way it operates.[15]
Sir John argued, like Conn and Horton, that ‘many parts of football have seen the benefits pass them by; in other parts the influx of wealth has led to allegations of greed, corruption and misconduct’. He noted unease about the structures and rules which football had in place to deal with financial misconduct and argued that football should ‘put its own house in order if for no other reason than to obviate the prospect of public authorities stepping in to regulate football from outside’ (Smith, 1997, Summary). Sir John Smith made a series of recommendations regarding the role of the FA as the guardian and principal regulator of the game. The report was critical of the way the FA had administered the game in the last decade and the recommendations were aimed at improving the standard and efficiency of financial regulation with the intention of enhancing the integrity of the game and securing the future of self-regulation. Although Sir John concluded that the introduction of a ‘fit and proper person’ test would, ‘in present circumstances be an over-reaction’ (Smith, 1997, para. 3.9.), his report paved the way for the recommendation being made later. In 1999, the Football Task Force, produced its report on Commercial Issues.[16] The report was produced by the majority of the Task Force. A second report, produced by the Football Association, the Football League and the FA Premier League, was formulated as a response to this.[17] The majority report crystallised the drive towards greater independent regulation through the recommendation of a Football Audit Commission.[18] In contrast, the FA and other football
authorities have, over the last decade, taken a laissez-faire
approach to the regulation of football clubs as businesses in general
and have been opposed to the imposition of extra layers of regulation,
Much
has been said about a football ‘regulator’. The football authorities
do not believe that the overall well being of the game will be helped
by new layers or regulation or bureaucracy. English football does
not need an additional set of rules which prohibit and restrict the
ability of the clubs to make their own footballing and commercial
decisions.[19] According
to Nic Coward, company secretary of the FA, Directors
must be allowed to make the difficult decisions and not have to operate
within an obtrusive and inflexible over arching regulatory framework
… expertise and investment need to be encouraged into the businesses
and should be allowed to make a proper return on investment.[20] The Football Authorities have thus tended towards the view that they have limited power and jurisdiction to influence the commercial policies of ninety-two private businesses, suggesting that ‘discouraging finance is … a very backward step’.[21] However, in an interesting about-turn, and a full three years after the Task Force advised the implementation of the ‘fit and proper’ test, the FA has announced its intention to engage in a consultation exercise on the ‘whole financial regulatory framework, including the idea of a ‘fit and proper person’ test’.[22] This is certainly a welcome development, although we should bear in mind that it is a proposal for ‘consultation’ rather than a hardened policy initiative. The work over the next year of the newly created Financial Advisory Committee, under the chairmanship of former Manchester United PLC Chairman Sir Roland Smith, will reveal how seriously the FA is considering the proposal. II.
The Case for Further Regulation Firstly it is worth looking at the regulations the FA currently has at its disposal. Regulation by the FA takes the form of terms and conditions of membership and associated codes of conduct. Compliance is monitored by the FA who may impose sanctions for non-compliance. Parts
E, F and G of the Rules of the Association constitute the existing
means by which participants are charged and disciplined by the association.
These parts concern Conduct, Powers of Enquiry and Disciplinary Powers.
Part I details the rules regarding the keeping of financial records
pertaining to clubs and associations. The rule most relevant to financial
misconduct is E1. It states, A participant* shall at all times act in the best interests of the game, and shall not act in any manner which is improper or brings the game into disrepute.[23] [* participant is defined as ‘an affiliated association, competition, club, club official, player, official, match official and all such persons who are from time to time participating in any activity sanctioned either directly or indirectly by the association’].[24] Therefore, the FA has the power to investigate, charge and sanction participants in the event of misconduct but has no rules which enable the association to prevent a participant from becoming involved in football. Any exclusion of an individual from football would be ‘after the event’. However, whilst the FA has invoked this rule liberally with regard to players and managers, there has been a marked reluctance to extend misconduct charges to ‘club officials’ or ‘all persons who are … participating in any activity sanctioned either directly or indirectly by the association’, as the rules permit. It would be wrong, however, to say that the FA has done nothing to combat the increasing frequency of financial mismanagement. The Task Force noted the steps taken by the FA in the light of Sir John Smith’s report, including the appointment of a compliance officer, the introduction of a domestic license for agents and rule changes that allowed the FA to obtain financial statements more easily.[25] Furthermore, the FA has also acted on the recommendation of the Task Force report and created the Financial Advisory Unit (FAU) headed by Jamie Magraw and staffed by an administrator and three qualified accountants. i.
Chesterfield The situation at Chesterfield provides
a recent example of mismanagement and what may eventually be confirmed
as illegality. Darren Brown a twenty-nine year old former gas showroom
salesman bought a majority share in the club for £400,000 from Norton
Lea in 2000. In less than a year under Brown, Chesterfield had been
found guilty of deceiving an FA transfer tribunal, under-reporting
gate receipts. Brown, the players and manager Nicky Law were also
accused of illegal payments to players outside the terms of their
contracts, although the verdict on this count was ‘not proven’.[26] The
club were fined £20,000 and given a nine-point deduction. Brown has
never been charged or sanctioned personally. ii.
Hull City In 1998, Hull City was taken over by Stephen Hinchliffe, Nick Buchanan, Tom Belton and David Bennett. They paid £100,000 for the club but could not afford to buy Boothferry Park from tennis magnate David Lloyd.[27] Lloyd agreed to pay off the club debts of £975,000 but kept Boothferry Park, charging £150,000 a year in rent and giving a four year option to buy the ground for £1.35m. During Hinchliffe’s and Buchanan’s tenure the club was subject to a winding up order in the high court for money owed to the Inland Revenue, placed in administration and locked out of the ground by Lloyd who sent in the bailiffs. Only one month later in December 1998, Hinchliffe was charged following investigations by the Serious Fraud Office with ten offences relating to the £70 million collapse of the Facial group, what Conn refers to as a ‘ragbag collection of high street loss makers’ such as Saxone, Sock Shop and Salisbury’s.[28] An Old Bailey court eventually found that he had paid over £800,000 in bribes to corrupt officials of the bank United Mizrahi to obtain for Facia £12.5m in loans which would not otherwise have been authorised. He was sentenced to five years imprisonment.[29] On April 1st 1999, Hull purchased a twelve year old bus for £82,250 from another of Hinchliffe’s companies, D’Elegance Travel. Buchanan described the bus as a “brilliant deal” for Hull.[30] The bus was bought on the same day that the Professional Footballers Association loaned the club £50,000 because it could not afford to pay the players. Like Brown at Chesterfield, Hinchliffe also indulged in unscrupulous transfer activity. According to David Conn, Hull offered to pay £40,000 direct to the chairman of Winsford United and £10,000 to the club itself to forego the sell-on clause on the Hull goalkeeper Andy Oakes. Winsford’s chairman Terry Savage did not accept the deal. Hull sold Oakes to Derby and Hull was required to pay nearly £120,000 to Winsford.[31] Savage suggested that he negotiated almost entirely with Hinchliffe. Hinchliffe was disqualified for seven years from acting as a company director on 4th November 1999, only two days after taking over Hull City, following the 1994 collapse of En-Tout-Cas, one of Hinchliffe’s companies. Although another Hull director, Richard Ibbotson (Ibbotson had been on the board of at least seven of Hinchliffe’s companies) said that Hinchliffe continued to advise and attend board meetings, his role stopped short of acting as a director. However, Tom Belton wrote to Hinchliffe, Buchanan, Ibbotson and two other directors in May 1999 saying that Hinchliffe had become involved in the day-to-day running of the company, entered into financial commitments on behalf of the club and had negotiated new contracts for the then manager Warren Joyce and assistant John McGovern.[32] Continuing to run a company after disqualification carries a two-year prison sentence.[33] iii.
Doncaster Rovers At Doncaster Rovers, an even more worrying situation emerged under owner Kenneth Richardson. According to the ‘Save the Rovers’ submission to the Task Force, Richardson was responsible for a catalogue of misdemeanours.[34] The supporters accused Richardson of deliberately running down the club and engaging in a number of dubious practices. He appointed directors after the minimum number of shares had been transferred to them. He kept the number of directors at three, despite the Articles of Association requiring a minimum of four. The directors themselves included an old friend who gave evidence on his behalf at the racehorse trial,[35] his daughter, Julie, and niece, Lisa Mabbett. A former chairman told the group of his belief that money was laundered out of the club - and that he himself was owed £31,000 by Richardson.[36] The group also received reports that cheques had been drawn on the club in favour of the Stockport Branch of the Rovers Supporters Club. No such branch existed. On 25th October 1993 Richardson advertised the Rovers ground for sale in the Daily Telegraph and sought developers for retail and leisure use; the ground was not his to sell - the club has it on lease from Doncaster Council. On 19th September 1995 the registered office of the club-company was moved from the ground at Doncaster to the office of Paul Dumbleton, a Harrogate solicitor. Paul Dumbleton was barred from practice by the Law Society. In June 1995, there was a fire in the grandstand at the Rovers ground. The police charged three people with arson shortly after. On 25th March 1996 the police arrested Richardson and charged him with conspiracy in connection with the fire. He was sent to prison for four years in February 1999. None of the individuals mentioned above have been charged by the FA and could still, should they so desire, take administrative charge of another football club. The need for integrity and probity The argument in favour of extra regulation
and the introduction of a ‘fit and proper’ test centres around the
need for financial probity within football and the inability of football’s
governing bodies to secure it. Sir John Smith argued in the course
of his report that effective regulation, financial probity and accountability
were essential ingredients in generating confidence in the national
game, suggesting that football should take account of the legitimate
interests of the paying customer. He states that any company or business
that hopes to be successful has to tackle areas of concern about its
integrity and that football is no different. He argues, Football can continue on its upward path only by recognising that its immense hold on the public imagination carries with it the responsibility to demonstrate that it is run according to the highest standards.[37] This is a position supported by the Task Force report Commercial Issues: ‘football as an industry has been damaged by scandals and concerns over its financial integrity and the running of some of its clubs’.[38] As Smith suggests, the public have the right to expect financial integrity, honesty and accountability in the way the national sport operates as ‘the regulation of financial arrangements, is a natural part of the duties of the league, because it is intrinsically anti-competitive if some members of the league obey the financial rules and others break them to their advantage’ (Smith, 1997, para. 1.7). Football Clubs are Community Institutions Nic Coward, FA Company Secretary and head of regulation has argued that whilst football clubs are important community institutions, it is difficult to make a legal differentiation between football clubs and other community assets that would justify an extra layer of regulation.[39] Nevertheless football clubs retain a unique place within the communities of towns and cities around the country. In the UK there is a long history of strong relationships between professional sporting organisations and place. The decision by supporters of Wimbledon to form a new club in South London, following the misguided decision of an FA appointed Commission to support the club’s relocation to Milton Keynes, demonstrates the crucial emphasis placed on the local dimension. Brian Lomax argues that the position of club chairman is ‘analogous to that of the trustee of a charity. You hold it in trust for future generations, for the heirs and successors of fans’.[40] Customers may prefer to shop at one particular supermarket, but they will not have an emotional attachment that would prevent them from shopping elsewhere whatever the circumstances. Supporters, on the other hand, have a sense of the ownership of the club, and it is in their interests that the clubs are protected by specific football orientated regulation.[41] The Ineffectiveness of Company
Law It may be argued that if a major shareholder
were to be disqualified as a director then he or she would be legally
bound to have no decision-making role to play in the football club.
Certainly company law is extensive in relation to the disqualification
of individuals from being company directors. There are wide-ranging
criteria applicable to the disqualification of directors as laid out
in the Company Directors Disqualification Act 1986. However, as has
been shown with the cases involving Stephen Hinchliffe at Hull City
and Michael Knighton at Carlisle United, disqualification from being
a company director has been less than adequate in preventing those
controlling shareholders from involvement in the affairs of the club
they own.[42] According
to Dave Boyle, vice-chairman of the Football Supporters Federation,
Company Law is not an adequate guarantee of probity, nor is the Department of Trade and Industry. Effective regulation must be practised by those with an awareness of the peculiarities of football and with the power to activate punishments. Stephen Hinchliffe at Hull was banned from acting as a Director by the DTI, yet he was still involved in the club’s affairs.[43] Secondly, the law has failed to protect clubs from ruthless or incompetent individuals who have not been banned from being company directors. So whilst extra vigilance in the implementation of existing statute law would help, it cannot be relied upon alone to ensure the good governance of football clubs. Additionally, changes in FA regulation have resulted in two unintended consequences. They have undermined clubs as sporting institutions, whilst simultaneously rendering clubs vulnerable to asset strippers who are not necessarily corrupt or fraudulent, but who see the club as a means to financial gain. The test then, should not only aim to deter those with disreputable pasts who pose a potential danger to the well being of a club, it should also ensure that those both entering the game and those already in it are motivated to act in the long term interests of the club. Cabinet Office publications on regulation
recommend that any regulation should meet its required objectives.[44] Would
a ‘fit and proper person’ test actually prevent football clubs falling
into the hands of asset strippers and the financially inept? Not every
individual responsible for mismanagement could have been identified
by a ‘fit and proper’ test. Mark Goldberg, before he bought Crystal
Palace on such notoriously unfavourable terms and proceeded to take
the club to the brink of insolvency, had been a highly successful
businessman and had sold the recruitment company he had built up for
£23 million (Manning, 2000, p. 152). As Dave Boyle suggests, I think with Goldberg it was sheer incompetence, which nothing in his previous business experience would suggest would have happened… He took the bad Noades deal because of his desire for the chairmanship, and gave Terry Venables a blank cheque to rekindle the glory days … In a sense, Goldberg showed the weakness of corporate governance when one person has too much control, rather than the example of a person who wasn't fit and proper.[45] Indeed the Goldberg case might perversely suggest that being too fervent a supporter of the club might also be dangerous for its well being. There are others who may have escaped detection, Bill Archer of Brighton and Hove Albion and Robert Maxwell to name but two. Nevertheless, although these examples demonstrate how a ‘fit and proper’ test might fail to detect miscreants, this should not act as a deterrent to the test being introduced. As David Conn suggests, ‘the argument is totally spurious … you couldn’t hope to catch everybody, but that’s not a reason for doing nothing’.[46] Kenneth Richardson, had he been vetted would clearly have been identified as a potential danger. Not only did he have a criminal record, he was also banned from the Jockey Club for twenty-five years in 1986 after his conviction for conspiracy to defraud, by placing a three year old horse in a race for two year olds.[47] Darren Brown purchased Chesterfield
through the holding company UK Sports which also owned the Sheffield
Steelers and Hull Thunder ice hockey clubs and the Sheffield Sharks
basketball clubs. The Steelers had been near insolvency for months
and had been subject to several winding up threats. He recently faced
a strike by players whose wages had not been paid. Brown was banned
from ice hockey for life in April 2001.[48] Companies
House records also would have revealed that Brown’s printing businesses
had small turnovers and made losses. According to Conn, An FA vetting process to protect centuries old clubs, would surely have picked this up and asked Brown about the source of his funding. Instead he took over without a challenge, a well-loved club faces ruin – and football’s governing bodies have had to spend many thousands of pounds attempting to clear up the whole sordid mess.[49] The specificity of football demands regulation over and above what is required of businesses in general. The highly individualised nature of the mismanagement that has taken place points to the need for regulation that is capable of targeting specific individuals and the evidence shows that a ‘fit and proper’ regulation would act as an important safeguard preventing clubs from falling into the wrong hands. Statutory ‘fit and proper person’ tests normally operate as prerequisites for assuming a position of control within a particular industry and they are operated by many organisations. These include the General Medical Council, the Law Society, The Financial Services Authority, the National Lottery Commission and the control of firearms. The key point here is that they operate with legislative backing which empowers such organisations to enact ‘fit and proper’ regulation. Self RegulationSelf-regulation spans a wide range of industries. Many have codes of practice that stop short of direct government regulation. They can be adopted and enforced by private groups and institutions including trade bodies, professional bodies and independent institutions.[50] The advantage of self-regulatory schemes are that they make use of the expertise of those being regulated and their desire to maintain their reputation, as well as being easier to run, more flexible and easier to update. Two tests currently operating in the sporting realm are those operated by the Jockey Club, and by the FA regulating the membership of England Fans, the members club for England supporters attending matches abroad. Jockey Club trainers and riders are subject to a licensing system requiring them to be ‘fit and proper’.[51] Whilst trainers and riders require a ‘license’, owners must be registered.[52] Of course the Jockey Club cannot control the actual ownership of a racehorse, but it can prevent the horse of a disqualified person from participating in any event or activity taking place under its jurisdiction. The FA already operates what it calls
a ‘fitness test’ regulating membership of its England team supporters
Club England Fans: We want to ensure that England Fans members are safe when they travel abroad, so everyone gets a check up. There are two levels: 1. All applications are screened with the police and other relevant authorities. If your name comes up, we’ll review your application – you’ll either be allowed to join or refused entry. 2. On your England Fans contract, you’ll be asked to give details of any criminal record, including the date and nature of your convictions. You must also give the FA consent to access your criminal record, should we decide to verify the accuracy of the information you provide – if you don’t, you can’t join.[53] The announcement
that the FA is looking into a ‘fit and proper test’ is therefore a
belated recognition that what applies to the supporter should also
apply to club owners and officials. However,
like the Jockey Club, the ‘fit and proper test’ for England
Fans has a far smaller impact than if the test was applied to
shareholders. A decision to rule an applicant not ‘fit and proper’
impacts on that one applicant alone. Were such a test to be applied
to shareholders in football clubs, then the impact may be more widespread,
given that it would be almost impossible to sanction the individual
shareholder without that sanction impacting on the club as a whole.
‘Fit and proper’ tests and codes of conduct for other professional
bodies do not necessarily prove the feasibility of the ‘fit and proper’
test for football. Each test must take into account the environment
in which it operates and assessment should be made of the consequences
any such test might have. In this context, analysis of the legal environment
is salient. Judicial Review and the Human Rights
Act Although the law is playing a greater role in sporting activity, breaches of the agreed rules are for the most part dealt with by the relevant governing body rather than by magistrates or the judiciary. Entrusting this task to domestic tribunals reflects the essentially domestic, private nature of sports bodies and the domain in which they operate. There has however been concern in some quarters that the decisions of sports governing bodies could be open to judicial review and that this would impact on the legality of a ‘fit and proper’ test. Judicial review is the means by which the exercise of power by public authorities is open to challenge in the courts, reflecting the position that no one is above the law. If the Court finds the decision of a public body to be unlawful it quashes it. The issue is to assess whether sporting governing bodies such as the FA are ‘public bodies’. Football is high profile, considered ‘public property’ and clearly a part of the fabric of national life. As has already been argued, football plays an extremely important role in local community life. However, the orthodox view regarding sporting contracts is that judicial review of the decisions of a sporting body is not available and generally the courts have not intervened. The customary way of deciding whether or not a body is a ‘public body’ is to establish the source of its authority. If that source is statutory, then the body in question will be a public body. Where, however, the source of power is based on a contract between parties then the relevant body will be a private or domestic body. Sports clubs and associations are therefore the latter. Another key test in whether or not a body is a ‘public body’ is to ascertain whether the government would create such a body if it did not exist (Parpworth, 2000, p. 80). This is an interesting and topical question. There have also been recent trends of thought, supported by a number of football academics such as Rogan Taylor, towards governmental intervention in football in the form of an independent regulator (Taylor, 2000). However, it would be an unprecedented move should a sport’s governing body be either superseded or created by government. Furthermore, judicial precedent in relation to sporting organisations is already well established. In R. v. Disciplinary Committee of the Jockey Club, ex parte Aga Khan, where the Aga Khan sought judicial review of a Jockey Club Disciplinary committee decision to disqualify one of his horses following the discovery of traces of a banned substance, Farquharson LJ observed that, The courts are reluctant to interfere with the control of sporting bodies over their own sports and I do not detect in the material available to us any grounds for supposing that, if the jockey club was dissolved, any government would assume control of racing.[54] Additionally, in R
v Football Association Ltd, ex parte The Football League Ltd.,
where the Football League sought judicial review of decisions made
by the FA relating to the formation of the Premier League, the League
argued that if the FA did not exist the government would create it.
Rose J rejected the submission, The evidence of commercial interest in the professional game is such as to suggest that a far more likely intervener to run football would be a television or similar company rooted in the entertainment business or a commercial company seeking advertising benefits such as presently provides sponsorship in one form or another.[55] Furthermore, Rose J rejected the argument
that had succeeded in R v Panel on Takeovers and Mergers ex parte
Datafin plc, where it was established that, despite its powers
not arising out of statute, the Panel was operating in the public
domain and that this was more important than the traditional legal
base of where its powers emanated from: The source of the FA’s power is in its memorandum, articles, rules and regulations. It has no authority, save by contract. Its position is indistinguishable from other sporting bodies whom the courts have held not to be susceptible to judicial review.[56] The decision to refuse judicial review of the decisions of football’s governing authorities was also set out in R. v. Football Association of Wales, ex parte Flint Town United Football Club.[57] The club, refused consent by the Welsh FA to play in the English league, sought judicial review of the decision. It was ruled that the Welsh FA was a domestic tribunal established by contract and not amenable to review and that there was no procedural unfairness and the application was dismissed. The contract issue plays an important role here. Judges have reasoned that, as there has been agreement between those participating in sports to abide by the rules and regulations, that private contract governs the relationship between participant and governing body. In Law v National Greyhound Racing Club Ltd.,[58] where a greyhound trainer challenged the decision of the National Greyhound Racing Club to have his license suspended for six months after stewards of the club found that he had in his charge a dog that failed a dope test, Lawton LJ noted that the NGRC was formed as the body responsible for the discipline and conduct of greyhound racing in England, Wales and Scotland. Any person who wished to take part in greyhound racing in stadiums licensed by the NGRC was deemed to have read the rules and to have submitted themselves to such rules and the jurisdiction of the NGRC. In other words the power of the NGRC derived from the contract between two parties. Similarly, in R v. The Jockey Club ex parte The Aga Khan case it was ruled that the Jockey Club was a private and domestic body which derived its authority from the contractual relationship between itself and those who agreed to be bound by the rules of racing.[59] The contractual relationship, although significant, may not provide an eternal defence should the FA regulation be challenged by way of judicial review. Firstly, as Roch J stated in R v Jockey Club ex parte Massingberd-Mundy, ‘there may be cases where the authority of the stewards of The Jockey Club will not be derived from a contract between them and the person aggrieved by their act or the decision or alternatively may not be derived wholly from contract.’[60] Gardiner argues this demonstrates that although the court felt bound by previous decisions it also suggested that where there is no contractual basis for the authority of a governing body, then it may be that in the absence of any alternative remedy the court may extend its supervisory jurisdiction (Gardiner, 1998, p. 217). This is an important point and makes it imperative that the introduction of a ‘fit and proper’ test, as both a prerequisite vetting mechanism and as an after-the-event sanction, should be clearly and unequivocally introduced as part of the contract between the governing body and the participant, both club and individual. Additionally, there may be other reasons why governing bodies may at some point be brought under the remit of judicial review. Parpworth suggests the bodies responsible for the governance of sport in the UK have considerable power and the decisions they make have a profound effect upon those who fall under their jurisdiction and this may justify widening the scope of the jurisdiction of judicial review (Parpworth, 2000, p. 71). Secondly, the concept of contractual consent in football, like in horseracing, is a tenuous one. The FA is a monopoly organisation and if a club wishes to compete in England it is compelled to agree to abide by the rules and regulations of the organisation. As Farquharson LJ stated, ‘consent is very much on a take it or leave it basis’.[61] The contract is not entirely consensual when an individual or club has no other alternative than to comply and it hides the underlying power relations. Parpworth contends that the common law principle of the control of monopolies might provide the justification for the extension of judicial review. Parpworth’s argument regarding the regulation of monopolies should make the FA cautious in the exercise of its power, but the possibility that judicial review might be extended in this way provides little reason for inaction. Such a groundbreaking move would open to challenge many regulations not simply one that refers to a vetting mechanism. More significantly, Dave McArdle has argued that the Human Rights Act 1998 may provide the justification for the extension of judicial review (McArdle, 2000, p. 181). McArdle contends that the decision of Parliament not to provide a definition of ‘public authority’ for the purposes of the act means that sports cases might now have new relevance as Parliament has entrusted the courts with providing the definition. Actually, the Act does define a public authority as ‘any person certain of whose functions are functions of a public nature’,[62] but the same point applies - the definition is broad enough for it to include a sporting governing body. Finally, in New Zealand, in Finnigan v New Zealand Rugby Union, Cooke J observed that the Rugby Football Union ‘while technically a private and voluntary organisation … falls into a special area where, in the NZ context, a sharp boundary between public and private cannot realistically be drawn’.[63] According to the Human Rights Act 1998,
which incorporated Article One of the First Protocol of the European
Convention on Human Rights, the protection of property is defined
as follows: Every natural or legal
person is entitled to the peaceful enjoyment of his possessions. No
one shall be deprived of his possessions except in the public interest
and subject to the conditions provided for by law and by the general
principles of international law. Depending on the future trends in the execution of the Act, the Article may have relevance when considering the possibility of compelling an existing shareholder to sell on the basis that he or she is no longer considered ‘fit and proper’. There may be grounds to judge that the shareholder in question was being deprived of the ‘peaceful enjoyment of his possessions’. The likelihood of the Human Rights Act being applied may be small, but its relevance may grow in the future in a sporting context. It would therefore be sensible for the FA to regulate on the basis that the Act may apply when devising fair and transparent procedures. Nevertheless, the FA remains within its rights to sanction the club of the shareholder were it not to comply with FA regulations. Legal judgements in this country have largely endorsed the view that the decisions of the FA are not open to public law remedies and there seems to be no inclination amongst the judiciary to rule differently. With regard to the Human Rights Act the individual would have to persuade the courts that the FA was a public authority, and it would also have to demonstrate that the disciplinary power that has been exercised against them amounted to a violation of a right protected under the terms of the Act. Restraint of Trade
Would a ‘fit and proper’ regulation
constitute a restraint of trade? Challenge to sporting organisations
through restraint of trade has normally been made by the athletes
involved in the sport itself, rather than by shareholders or directors.
In Stevenage Borough Football
Club v Football League Ltd,[64] Stevenage
finished top of the Conference but were refused admission to the Football
League because they did not meet the criteria relating to the ground.
They argued that the criteria were in restraint of trade. Carnwarth
J had to consider the conditions imposed by the Football League that
included a requirement that the stadium of any club aspiring to promotion
should have met certain standards by 31st December of the
preceding season. In this case Carnwarth J confirmed that, No case has been cited in which the court has forced a private organisation to admit a member against its will, even where the organisation controls the member’s right to work.[65] Although Stevenage failed in its bid
to be promoted (its application to the courts was deemed to have come
too late), Carnwarth J found that the criteria were an unreasonable
restraint of trade as the rules had not been applied consistently
across the board. Essentially a ‘fit and proper person’ test could
face the same challenge on the same basis - the challenge to the sanction
imposed and potential exclusion of a club because of the contravention
of regulation. It could be argued that restraint of trade would not
apply to shareholders because no trade was being restricted and that
the relevant shareholder was not being prevented from being a shareholder
elsewhere. However, given that it would be impossible for the FA to
force any person or entity to sell a shareholding, any sanction would
have to be visited upon the club. The imposition of a sanction may
restrict the business operation of the club, depending on what the
sanction consisted of. The Stevenage case also suggests that for the governing body not to be
in restraint of trade, the rule may have to be applied to all clubs
and individuals and not just those seeking entry. The FA would have
to take this into account when formulating any test. Natural Justice and the Duty to
Act Fairly
According to Dave McArdle, the benefits of allowing governing bodies to exercise unfettered disciplinary powers are dependent upon governing bodies carrying out their duties properly and exercising their powers in good faith (McArdle, 2000, p. 178). The duty to act fairly would therefore be a prime consideration in the introduction of any such test, as would abiding by the principles of natural justice. Gardiner points out that the principles of natural justice are applicable to the decision making process of bodies other than those of a judicial or quasi-judicial nature (Ridge v Baldwin[66]). This was given further judicial backing by Lord Denning in Enderby Town Football Club v The Football Association, The long and short of it is that if a court sees that a domestic tribunal is proposing to proceed in a manner contrary to natural justice, it can intervene to stop it.[67] Denning made it clear that it is for a domestic tribunal to determine its procedures; the courts will only intervene where these breach the principles of natural justice. McArdle consequently suggests that those who attract the wrath of a governing body will have little chance of mounting a successful challenge to any disciplinary action that may follow, so long as the procedures that have been deployed at the disciplinary hearing are legally watertight (McArdle, 2000, p. 179). It therefore seems reasonable to assume that the FA could formulate a ‘fit and proper’ provision which accords with these principles. Edward Grayson has set out a checklist for governing bodies to ensure that their disciplinary procedures conform with the duty to act fairly. They should: avoid any risk or pre-judgement or prejudice or bias or likelihood of it; formulate and notify clearly, preferably in writing, any assertions needing reply; notify clearly, preferably in writing, any date for investigation or hearing; act intra vires, within any rules and not ultra vires, outside them; remember the right to be heard in defence of any allegation; in cases of difficulty or complexity, consider carefully any request for legal representation (Grayson, 1994, p. 306). These problems should pose no threat to the introduction of such a test. Existing Rules on the Ownership of Clubs
British Sky Broadcasting was prevented from purchasing a controlling share in Manchester United.[68] However, this decision was made not by the football authorities but by the government on advice from the Monopolies and Mergers Commission (now the Competition Commission), a public body operating to advise the Secretary of State for Trade and Industry, on the basis of a combination of competition grounds and public interest issues.[69] The football authorities, though, have made rulings on the ownership of clubs in their own right. The FA, the Premier League and the Football League and UEFA all have clear rules preventing more than one club being owned by the same person or company.[70] When Peter Johnson was the owner of Everton and Tranmere Rovers simultaneously, both clubs were threatened with expulsion from the FA Cup. In a similar situation, Europe’s governing body, UEFA, ruled that two teams in which the English National Investment Company (ENIC) had substantial stakes could not compete in the same UEFA competition.[71] This was challenged within the European Commission by ENIC. UEFA’s rules were found to be legal under European law.[72] However, there are important differences between ruling on the dual ownership of clubs and ruling on the basis of a ‘fit and proper’ test. The basis for rules on dual ownership is to maintain fair competition, preventing clubs coming to improper agreements over results, finances or transfers - all very clear sporting implications.[73] Any ‘fit and proper’ regulation, would, by its very nature, be made on more subjective grounds. It is also worth mentioning at this stage the differences between regulating shareholdings in public and private companies. If there is a public market in shares then an individual cannot be prevented from buying shares in any particular company. In private companies, the board often has the discretion to refuse the transfer of the shareholding. Of course, the power of the board is often vested in one or two major shareholders, and should those shareholders wish to transfer shares to individuals not considered ‘fit and proper’ there would be nothing to prevent them from doing so. However, many clubs do have boards that exercise a degree of independence from their major shareholders. Similarly, even if a board represents or consists of major shareholders, there is nothing to prevent the formulation of guidance and advice regarding the transfer of shares. Again, a pro-active approach from the regulators, namely the leagues and the FA, could result in a document informing boards of their responsibilities and listing a series of recommendations regarding the transfer of share ownership and the vetting of individuals. Essentially, the legal issues are, at best, somewhat equivocal. Analysis of the political environment and the recommendations of the Better Regulation Task Force (BRTF) may provide clearer guidance. The Better Regulation Task Force’s Principles of Good Regulation identifies a set of principles that should be adhered to and pitfalls to be avoided when formulating good regulation.[74] i.
The BRTF’s Review of Fit Person Criteria The Football Task Force envisaged that the requirements would include ‘scrutinising such matters as criminal record, business record, record of employment etc.’ The FSA pays due regard to honesty, integrity and reputation, competence and capability and financial soundness.[75] The National Lottery Commission requires declarations regarding basic details on an individual's identity and personal record, and also information on their financial and corporate record.[76] In the regulation of firearm licensing the Chief Officer of Police must, when assessing an application for, or revocation of, a firearm certificate, consider a number of factors such as criminal involvement, intemperate habits or mental health.[77] The Review of Fit Person Criteria recommends that criminal record checks should be used objectively, that fit person checks should be assessed against the risk of harm occurring and based on evidence, and that qualifications, whilst important should not generally be used as indicators of fitness.[78] ii.
Ensuring Broad Public Support According to the BRTF new regulation
should have broad public support. Was the FA to introduce such a test
there should be evidence of widespread support for such an initiative.
Although Smith argued that a ‘fit and proper’ test would be an overreaction,
the Task Force recommendation was based on wide consultation.[79]
However, the FA would also need to consider the Premier League, the
Football League and the non-leagues, which play an essential role
in the organisation of football in this country. The FA acts, or at
least is supposed to act, as a neutral governor whereas the leagues
represent the vested interest of the clubs that compete within them.
Naturally directors and shareholders of clubs would be less supportive
of such an initiative. As John Nagle of the Football League suggests,
The league is the servant of its member clubs and therefore is representative to a degree of the owners of those clubs. It is highly unlikely that the Football League would ever be receptive to such a test.[80] Although the FA should not be afraid to make decisions that anger or irritate other organisations, the potential lack of compliance amongst clubs consistent in opposition may render application of the test problematic. iii.
Transparency: the Need for Clarity in Application According to the BRTF, regulation should be transparent and the purpose clearly communicated. Those subject to the ‘fit and proper’ test should be left in no doubt as to what such a test consists of and how and to whom it would be applied. The language of regulation should also be accessible to those to whom the test applies. Any test should be formulated with this in mind. The BRTF also states that the penalties for non-compliance should be clearly spelt out. However, the FA has often been reluctant to charge and sanction participants for breaches of its own regulations. The BRTF states that those being regulated should be made aware of their obligations and given support and time to comply by the enforcing authorities. In effect the test should adhere to the principles of natural justice. iv.
Unintended Consequences: Deterring Investment and the Problem of Sanctioning The avoidance of unintended consequences relates to two issues. Firstly, the concern that football will be depriving itself of much needed investment. Secondly, that the imposition of the test may end with the punishment of the club that it is aiming to protect. The FA, the Football League and the Premier League have argued that ‘discouraging investment is … a very backward step’.[81] One of the reasons the FA removed Rule 34 from the Regulations was to encourage a greater degree of | |||||||||||
