What does a regulator mean for English football?

The UK government’s long-awaited whitepaper on football governance was published at the end of February. The proposed legislation will establish a specialised, independent regulator for English football’s top five tiers.

The governance overhaul promises to be one of the most significant changes to the UK football pyramid in over a century and has major implications for the EPL, EFL, FA, clubs, fans, owners, and prospective investors.

How will it work?

The core aim of the legislation is to safeguard the future of football clubs, referencing their outsized role in English communities when compared to businesses in other industries. To reduce the incidence of football club failure (there have been 60+ incidences of club administration since 1992), the whitepaper proposes a raft of financial and governance measures. The key legislative measures include:

  • A new club licensing system with enhanced financial regulation of clubs
  • New, enhanced tests for prospective owners and directors
  • The introduction of a Football Club Corporate Governance Code
  • Minimum standards for fan engagement requiring regular consultation
  • A requirement for regulator approval prior to the sale of a stadium
  • Rules preventing clubs entering breakaway competitions (e.g. European Super League)

The whitepaper also addresses the ongoing negotiation of a new financial redistribution model between the EPL and the EFL. The government stresses its preference for the two parties to agree a ‘football-led’ solution, but has placed pressure on both parties to find this solution soon by granting the regulator power of last resort to impose a solution. The increased focus on financial sustainability imposed by the regulator could hasten a solution to the redistribution problem if the EPL can be persuaded that any subsidies given will be invested with long-term sustainability in mind, rather than to support inflated player wage bills and transfer fees.

The range of measures will be phased in over time, but it appears unlikely that the regulator will be active before the 2024/25 season, especially when considering the expertise, infrastructure, and systems that still need to be acquired and established.

One potential challenge not addressed in the whitepaper is the possibility that the regulator is at odds with FIFA’s statutes which state that national associations must “be independent and avoid any form of political interference”. FIFA has been known to suspend national associations for government interference, although it is possible that a clearly defined regulator will be acceptable.

Who will it impact?

With the whitepaper currently short on specifics, the devil will almost certainly be in the detail of the final implemented regulation. There is no doubt, however, that the regulation will have important implications for English football’s key stakeholders.

The Premier League is wary that increased regulation could potentially deter investment into its clubs. One recent club investment which may have attracted the regulator’s attention is the 2020 acquisition of Burnley by ALK Capital, which was affected through a leveraged buyout (LBO). The whitepaper itself doesn’t explicitly prescribe tougher restrictions on LBOs, but it does mention that the government is considering whether these should be introduced. It is unclear which other existing investments in EPL clubs would have been challenged by the regulator.

Owners across the EPL have publicly criticised the introduction of the regulator, referencing the increased costs to clubs (EPL clubs will fund 80% of the regulator through a levy on their revenue) and the government’s perceived inability to efficiently regulate the football industry. The levy will charge all EPL clubs in proportion to their revenue so will have limited impact on competitive balance within the EPL. EPL clubs’ competitiveness in European competition is unlikely to be harmed, with the levy cost only likely to eat up a tiny portion of the existing financial advantage EPL clubs enjoy over their European rivals.

Some owners, including Fenway Sports Group (FSG), the owners of Liverpool, are likely to be more receptive and have been more welcoming of financial regulation, such as Financial Fair Play (FFP), in the past. Whilst the extent of the regulator’s scope to curb excessive spending in the EPL is yet unknown, FSG is known to be frustrated with FFP’s lack of efficacy in tackling this issue.

The average wage spend-revenue ratio in the Championship was 149% in 2021, with 6 clubs spending more than 2x their total revenue on wages alone. Few would thus argue that tighter financial regulation would harm the EFL and its clubs, although the regulation will need to work in conjunction with a re-alignment of incentives in a new financial redistribution model. The new model must address the huge broadcast revenue gulf to the EPL and the within-league imbalance caused by parachute payments if EFL clubs are to move closer towards financially sustainable operating models.

Prospective investors in English football will also be keeping a keen eye on the regulator’s progress. If, as proposed, the regulator focuses on high-risk areas, applies proportionate regulation, and is less interventionist than similar bodies in other leagues (e.g. La Liga), sophisticated investors are unlikely to be deterred by its implementation. The new owners and directors test will not make moral, ethical, or cultural judgements on prospective owners, suggesting it will not seek to stem the flow of state money into English football, but it will more closely assess the sources of owners’ wealth.

Club valuations have skyrocketed in the EPL over the past decade, with current owners now valuing their assets as high as 10x EV/revenue. These valuations, combined with the scarcity of profits across the English footballing pyramid, have deterred many would-be investors. Prospective investors in English football will be hoping that the regulator manages to remove some of the hubris currently at play in the market and helps to promote a sustainable future for English football.

Tighter rules on club ownership will be embraced by many fanbases across the country. Existing owners and directors tests have proven themselves to be inadequate in several cases, allowing unsuitable custodians to lead clubs such as Bury into the abyss. It will, however, be trickier for these new regulations to prevent situations where a wealthy owner loses interest and withdraws financial support for a club.

The regulator will also give fans new powers which include a veto right over important club heritage matters such as the changing of club names, crests, and home shirt colours. Cardiff City fans, in particular, will be pleased to hear this, having had their club crest and home kit colour changed by their owner in 2012 (before being reversed back in 2015).

The costs imposed by the regulator are likely to be insignificant in absolute terms to the elite clubs and in relation to the benefits that are likely to flow to the rest of the pyramid. Well-run clubs should have little trouble meeting the regulator’s standards. Other clubs will benefit in the long-run from the requirement to professionalise operations and enforce proper governance measures.

The English footballing pyramid is unique and its clubs occupy a special place in communities across the country. Sensible, proportionate measures that work to prevent situations threatening the existence of clubs such as Bury, Macclesfield, Derby, Wigan, Bolton, Coventry, Leeds, Portsmouth, and others should be welcomed.

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