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The Corporate Governance of
Professional Football Clubs in
England
We analyze the corporate governance of
professional football clubs operating
in England’s
Premier and
Football Leagues. Good corporate governance is
essential if
clubs
are
to
be
managed
effectively
and
to
survive
in
the
difficult
economic
circumstances
surrounding the football industry. The past couple
of years have been
especially testing,
as Football League clubs have had to deal with the
aftermath of the
collapse
of
the
ITV
digital
contract.
Our
analysis
reveals
that
while
there
are
some
noticeable
improvements
in
governance
standards,
many
clubs
would
benefit
from
following
best
practice
guidelines
on
information
disclosure,
the
appointment
of
directors,
board
composition,
induction
and
training
of
directors,
risk
management
and consultation
with stakeholders. Despite improvement in some
areas over the past
three
years,
standards
of
corporate
governance
in
football
clubs
are
significantly
below those of listed
companies
as a whole and
there is
thus considerable need for
improvement.
The peculiar
economics of football
The
peculiar
economics
of
professional
sports
leagues
has
been
long
been
recognized (see Neale,
1964).Traditionally, the essence of the problem
was seen to lie
in the fact that sports
leagues and the individual clubs that make up the
league provide
a joint product that
depends on effective cooperation between competing
clubs. Clubs
agree to join and to be
regulated by a league because co-operation in the
supply of a
joint product increases the
economic value of the product supplied by each
individual
club. The output of the
league and its constituent members is maximized
when there
is some degree of
competitive balance in the league so that the
outcome of matches is
uncertain.
A second major peculiarity relates to
the need to balance financial sustainability
on the one hand with playing success on
the other. This latter imperative introduces an
incentive
to “invest” (or
gamble) on success, through
buying
players and paying high
player wages to
attract and retain the best players. This may
provide part of the reason;
at least,
for most professional football clubs in England
being unprofitable, since there
will
be
an
incentive
to
invest
any
putative
profits
even
before
these
appear
in
the
balance sheet. At the extreme it can
lead to the sort of debt-fuelled expenditure that
Leeds United Football Club embarked
upon in the early 1990s
–
“living the dream”,
as
the
then
Chief
Executive
described
it.
This
urge
on
the
part
of
boards
to
seek
playing success, potentially at the
expense of outside shareholders and lenders,
places
a
heavier
burden
than
in
other
industries
on
corporate
governance
institutions
as
a
means of
protecting outside providers of finance.
A final major peculiarity
–
in addition to many others
perhaps less fundamental
differences
–
lies in the
“labor
market”, both
with
the way that players are treated
in
the
company’s
balance
sheet
and
the
effects
of
the
above
competitive
pressures
on
player salaries. In
Europe over the past few years, regulatory change
in the form of
the
“Bosman
ruling”,
giving
greater
freedom
to
players
to
move
between
clubs,
combined
with
the
rise
of
broadcasting
revenues
into
the
game,
have
led
to
huge
increases
in player salaries, at least in the top divisions.
All these pressures make all the more
important the need for good governance
at
clubs.
The
temptation
to
“live
the
dream”
needs
to
be
kept
in
check
by
proper
auditing and
reporting mechanisms. The need to maintain league
balance requires a
degree
of
commitment
to
common
regulatory
arrangements,
for
example
with
the
collective selling of broadcasting
rights at present. And the pressure on wages has
led
to
individual
clubs
and
now
the
Football
League
introducing
guidelines
to
prevent
player wages taking
too great a proportion of turnover
It
is
to
check
the
robustness
of
corporate
governance
procedures
at
football
clubs, and to
consider how well these are managing to deal with
the issues that these
clubs face, that
we have been surveying on an annual basis the
corporate governance
practices of
professional football clubs in England over the
past three years.
Our survey of
corporate governance practices at football clubs
The
analysis
in
this
paper
is
based
on
the
following
data
and
information
sources:
I. The results from
our questionnaire survey of all clubs in the
English Premier
and
Football
Leagues,
including
those
that
had
been
relegated
to
the
Conference
League since 2002. The survey was
conducted between May and September 2003. Of
the 95 clubs surveyed, 53 responded: a
response rate of over 56 per cent,
which is
extremely high for
an in-depth postal survey of this kind.
ii. The results from our questionnaire
survey of supporter groups, including all
supporters’
trusts
at
English
Premier
and
Football
League
clubs.
Of
the
100
supporters’
trusts
surveyed, 51 responded, giving a
response rate of 51 per cent, which
is
high for an in-depth postal survey of this kind.
iii. Follow-up interviews with selected
clubs and supporters
’
trusts.
iv. Analysis of the
corporate governance statements and Annual Reports
of clubs
listed on the London Stock
Exchange (LSE), AIM and OFEX.
v. The
results from PIRC’s analysis of the
corporate governance statements of all
LSE listed companies published in their
December 2002
Annual Review of
Corporate
Governance
vi.
The
collation
of
financial
accounts
and
performance
contained
in
the
latest
Deloitte and Touch
Annual Review of Football
Finance.
Our
dual
surveys
of
clubs
and
supporters’
trusts
provide
comparative
data
showing analysis and insights from both
perspectives.
This
paper
reports
results
from
our
third
annual
review
of
the
corporate
governance of professional football
clubs based on our dual survey methodology. This
paper
therefore
draws
upon
a
longitudinal
data
set
covering
football
clubs
and
supporters’ trusts for
these
three years. We have provided
where appropriate historical
comparisons to identify trends in
corporate governance in professional football.
Assessing and managing risk
The Turnbull Guidance was introduced to
provide assistance to companies on the
types of internal controls they should
have in place to comply with the Accountability
and
Audit
Principles
of
the
CC.
The
guidance
requires
the
board
of
directors
to
consider:
“
th
e nature and
extent of the risks facing the company” (Turnbull
Report,
point
18),
the
chances
of
the
risks
actually
occurring,
the
level
of
acceptable
risk,
measures to reduce risk and the cost of
implementing such measures relative to their
benefit.
The collapse of the
ITV digital contract highlighted the changing
nature of the
risks facing football
clubs as they have become more reliant on
broadcasting income.
Similarly,
for
Premier
League
clubs,
increased
revenue
attached
to
European
competitions has
opened up new risks for Premier League clubs
associated with the
uncertainties
surrounding
qualification
for
European
competitions.
We
asked
clubs
about
different aspects of their risk assessment
procedures (Table 16).
Table 16: Risk
assessment and management: club survey results
Percentage of respondents
that
indicated
they
had
carried
out
the
following
risk evaluation processes
List clubs
An evaluation of
the nature and extent of the risks facing
71
the club
The
likelihood of the risks concerned materializing
Specific risk studies and assessment of
impact
86
86
41
26
45
All clubs
47
Controls
and
procedures
to
limit
exposure
to
loss
of
100
assets and fraud
Board
approval of a 3-year business plan
86
48
There are two striking
features of the results. The first is that 29 per
cent of listed
companies that responded
to our survey do not appear to have a process for
evaluating
the
nature
and
extent
of
the
risks
facing
their
club.
The
second
is
that
there
is
a
significant difference in
the performance of listed clubs
compared to all clubs, with
only 47 per
cent of football clubs reporting that they have a
risk evaluation process
that enables
them to identify the nature and extent of the
risks they face, only 41 per
cent
undertaking any assessment of the likelihood of
identified risks occurring and 26
per
cent carrying out specific risk studies.
The performance of listed clubs in
regard of procedures to limit exposure to loss
of assets and fraud is exemplary at 100
per cent, but this drops to 45 per cent for all
clubs.
A
similar
picture
emerges
on
the
related
question
of
business
planning.
We
asked
clubs
whether
a
three-
year
business
plan
was
put
to
the
board
for
approval.
Almost 15 per cent
of listed clubs do not appear to carry out
business planning on a
three-year time
horizon. This figure rises to 52 per cent for all
clubs responding to our
survey.
Overall, the results on
risk management and business planning indicate
that the
majority
of
clubs
that
responded
to
our
survey
do
not
have
the
risk
evaluation
and
business planning procedures in place
to manage the risks facing their clubs, and to
plan accordingly.
A “fit and
proper person”
test for football?
Over the past year there has been much
discussion about the need to introduce a
“fit and
proper
person” te
st for football (see Holt,
2003). Such a test might bar those
with
certain
kinds
of
criminal
records
from
owning,
directing
or
shadow
directing
football clubs. It is difficult to
estimate how many existing owners and directors
might
fail to meet the requirements of
such a test, but it is likely that the numbers
would be
small. While such a test would
do much to protect the football industry,
particularly
from
the
risk
of
fraudulent
or
unscrupulous
directors,
the
results
of
our
survey
of
clubs suggest that it would need to be
introduced as part of a wider overall code of
corporate governance for football.
One
area
of
corporate
governance
where
football
clubs
are
particularly
weak
regards
the
need
to
have
clear
and
transparent
procedures
for
the
appointment
of
directors and non-
executive directors, including independent non-
executive directors.
Clubs
are
especially
weak
on
the
provision
of
induction
and
training
for
new
and
existing directors.
Results from our survey also reveal that clubs
need to improve their
internal
risk
control
and
business
planning
systems.
A
set
of
guidelines-or
code
of