An independent football regulator would be an own goal
22 March 2022
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The Government is planning to legislate to implement the findings of Tracey Crouch’s Fan-Led Review of Football Governance. This calls for major changes in the way English football is run, with the Government imposing an independent regulator (IREF) and mandating major changes to the way clubs are managed. However well-intentioned, implementing these proposals would be a mistake.
There has long been tension between the legal and commercial reality of football clubs as private businesses, and the way many fans understand the club they support as a more intangible community that ‘belongs’ to them. Private legal owners sometimes take actions that conflict with the views of these fans.
The Crouch Review proposes to replace self-regulation, the way football has operated for well over a century, with a regulator modelled on the Financial Conduct Authority. But this may simply substitute the preferences of technocrats – not fans – for those of owners.
Regulating an industry imposes many costs, including compliance costs and disincentives to investment and innovation. It hasn’t protected industries such as energy, water and financial services from regular problems and occasional crises.
The usual justifications for state interference in the private sector relate to the misuse of market power and external costs imposed on the wider public. Neither factor holds in relation to football. Instead, the Crouch Review focuses on the supposed financial instability of clubs – a curious justification, which is not used in other sectors, where some business failures are seen as a necessary feature of a dynamic market reacting to changed consumer demand.
In any case, the Review’s concern ignores a history which shows very few clubs closing permanently. This industry is almost unique in that most businesses in operation a century ago are still around today. Even Bury FC, whose expulsion from the EFL is cited in the Review, have started playing again at the bottom of the pyramid.
Under the proposed regulatory model, clubs will be required to submit a wealth of information – including detailed business models and regular financial updates. There will be strict limits on permissible losses. Clubs will have to restructure their boards and put equality, diversity and inclusion programmes in place. They will have to set up arrangements for a fan body to hold a ‘golden share’ giving veto powers over certain club decisions, and separate arrangements for a ‘shadow board’ to be consulted regularly.
All will have to be approved before a licence, which must be renewed each year, is granted. Monitoring and collating this material, and investigating clubs for potential breaches – which in serious cases could involve the IREF temporarily taking over the running of a club – will require a substantial number of regulatory staff.
They may well be football fans, but the Review team showed little understanding of how regulatory bodies operate in practice. It was rather like asking trainspotters to design the new state rail operator.
And while regulators may look attractive in theory, they are seldom popular in practice, particularly as they have a tendency to widen their scope over time and impose ever more detailed restrictions.
Although the proposed licence fees will be on a sliding scale, with Premier League clubs paying most, they would certainly be substantial, even for lower-league teams. The compliance cost of ticking all the boxes will likely be considerably greater. The costs to Premier League clubs could run into hundreds of thousands of pounds. Even a National League team might face annual costs of tens of thousands of pounds. The Review does not attempt a cost-benefit analysis to justify this.
Several measures recommended in the Review involve substantial new restrictions on owners’ property rights. These could be challenged in the courts and give rise to substantial compensation claims. If upheld, they could deter future investment in football – and perhaps in the wider UK economy.
Disincentivising new owners from investing in clubs would be bad news. Such investment enables movement up leagues, while helping clubs to remain competitive and develop grounds or facilities. Strict controls on spending, a key feature of the Crouch proposals, is a recipe for mediocrity and would simply entrench the position of today’s leading clubs.
The current problems of Chelsea FC since the sanctioning of its owner – restrictions on what it can spend, what services it can offer and inability to change contracts or buy and sell players – will be reproduced if an IREF is given the responsibility of running crisis clubs. The bureaucratic process of approving new owners – absent the Government’s ability to fudge these matters, as in Chelsea’s case – would take much longer than at present. Fewer potential owners and directors are likely to come forward, which would be a particular problem for smaller clubs and could even accelerate their collapse.
Imposing a regulator to act in the common good is superficially attractive, but the reality of regulatory intervention in the ownership and operation of football clubs seems likely to create more problems than it resolves. The Crouch Review’s case for imposing a regulator on what remains a world-leading football industry is weak: it would not pass muster in any other sector. The Government should think again.
This article was first published on CapX.
___________
Recommended reading/viewing/listening:
There has long been tension between the legal and commercial reality of football clubs as private businesses, and the way many fans understand the club they support as a more intangible community that ‘belongs’ to them. Private legal owners sometimes take actions that conflict with the views of these fans.
The Crouch Review proposes to replace self-regulation, the way football has operated for well over a century, with a regulator modelled on the Financial Conduct Authority. But this may simply substitute the preferences of technocrats – not fans – for those of owners.
Regulating an industry imposes many costs, including compliance costs and disincentives to investment and innovation. It hasn’t protected industries such as energy, water and financial services from regular problems and occasional crises.
The usual justifications for state interference in the private sector relate to the misuse of market power and external costs imposed on the wider public. Neither factor holds in relation to football. Instead, the Crouch Review focuses on the supposed financial instability of clubs – a curious justification, which is not used in other sectors, where some business failures are seen as a necessary feature of a dynamic market reacting to changed consumer demand.
In any case, the Review’s concern ignores a history which shows very few clubs closing permanently. This industry is almost unique in that most businesses in operation a century ago are still around today. Even Bury FC, whose expulsion from the EFL is cited in the Review, have started playing again at the bottom of the pyramid.
Under the proposed regulatory model, clubs will be required to submit a wealth of information – including detailed business models and regular financial updates. There will be strict limits on permissible losses. Clubs will have to restructure their boards and put equality, diversity and inclusion programmes in place. They will have to set up arrangements for a fan body to hold a ‘golden share’ giving veto powers over certain club decisions, and separate arrangements for a ‘shadow board’ to be consulted regularly.
All will have to be approved before a licence, which must be renewed each year, is granted. Monitoring and collating this material, and investigating clubs for potential breaches – which in serious cases could involve the IREF temporarily taking over the running of a club – will require a substantial number of regulatory staff.
They may well be football fans, but the Review team showed little understanding of how regulatory bodies operate in practice. It was rather like asking trainspotters to design the new state rail operator.
And while regulators may look attractive in theory, they are seldom popular in practice, particularly as they have a tendency to widen their scope over time and impose ever more detailed restrictions.
Although the proposed licence fees will be on a sliding scale, with Premier League clubs paying most, they would certainly be substantial, even for lower-league teams. The compliance cost of ticking all the boxes will likely be considerably greater. The costs to Premier League clubs could run into hundreds of thousands of pounds. Even a National League team might face annual costs of tens of thousands of pounds. The Review does not attempt a cost-benefit analysis to justify this.
Several measures recommended in the Review involve substantial new restrictions on owners’ property rights. These could be challenged in the courts and give rise to substantial compensation claims. If upheld, they could deter future investment in football – and perhaps in the wider UK economy.
Disincentivising new owners from investing in clubs would be bad news. Such investment enables movement up leagues, while helping clubs to remain competitive and develop grounds or facilities. Strict controls on spending, a key feature of the Crouch proposals, is a recipe for mediocrity and would simply entrench the position of today’s leading clubs.
The current problems of Chelsea FC since the sanctioning of its owner – restrictions on what it can spend, what services it can offer and inability to change contracts or buy and sell players – will be reproduced if an IREF is given the responsibility of running crisis clubs. The bureaucratic process of approving new owners – absent the Government’s ability to fudge these matters, as in Chelsea’s case – would take much longer than at present. Fewer potential owners and directors are likely to come forward, which would be a particular problem for smaller clubs and could even accelerate their collapse.
Imposing a regulator to act in the common good is superficially attractive, but the reality of regulatory intervention in the ownership and operation of football clubs seems likely to create more problems than it resolves. The Crouch Review’s case for imposing a regulator on what remains a world-leading football industry is weak: it would not pass muster in any other sector. The Government should think again.
This article was first published on CapX.
___________
Recommended reading/viewing/listening:
- “Red Card: Why English Football doesn’t need an independent regulator” by Len Shackleton and Victoria Hewson
- “Does football need an independent regulator?” – Victoria Hewson
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