Does English football need an independent regulator –  a summary of some arguments against the reforms

Background

In our previous article, we examined the report published by the independent fan-led review into football governance, chaired by Tracey Crouch MP, which set out 47 recommendations to safeguard the future of English football (the “Report”). Chief amongst these recommendations was the introduction of a new independent regulator for English football (“IREF”) which underpins all other recommendations in the Report.

The industry has now had some time to digest the content of the Report and amongst the praise from a number of stakeholders[1], a counternarrative criticising some of the findings of the Report has begun to develop.

The arguments against the introduction of an IREF generally fall into the following categories: (1) there is a lack of sufficient justification; (2) cost; (3) legal challenges; and (4) that an IREF would be a deterrence to further investment in English football.

Lack of sufficient justification

It has been argued that the proposal to appoint an IREF does not meet the normal criteria for government intervention in the private sector: (i) the misuse of market power; and (ii) external costs being imposed on the wider public. Proponents of this position state that football does not present comparable problems to those in regulated industries (such as water, energy and the financial sector), where there are concerns about issues such as public health, potential consumer exploitation, or the spread of economic crises.[2] Those against some of the proposed reforms also state that the Report focuses on the supposed financial instability of football clubs, even though financial instability is not used as a justification in other sectors where business failures are seen as a necessary feature of a dynamic market reacting to changed consumer demand[3]. It is further argued that, whilst financial crises suffered by football clubs do occur, their significance is overstated due to the high volume of such clubs which survive, either at their present level or perhaps are reincarnated at a lower level, and the impact on the rest of the football pyramid is minimal[4].

While it is true to say that the football industry is not immediately comparable to industries like water, energy and financial, these arguments ignore the fact the regulators have oversight over industries which are of key importance to the British people whether that is from a health, financial and cultural perspective. Football is considered by many, from all walks of life, to be a cornerstone of British culture which should be preserved and protected. It could be argued that the social cost of a football club’s failure (for example, to fans and communities) means it cannot be treated like an ordinary business. The Government clearly seems to be in the ‘social cost’ camp in relation to football, but it will be interesting to see whether this opens the door to regulation in other industries which are deemed to have a high social value.

Costs

The Report made various recommendations on policy and procedure, such as enhanced due diligence for prospective owners, and the preparation of equality, diversity and inclusion action plans[5]. It has been argued that the Report’s recommendations would impose requirements on very small businesses which go beyond those currently imposed on FTSE-listed companies[6].

The proposed license fee would pay for IREF’s costs and would be on a sliding scale with lower-league clubs paying less. It has been argued that, despite this, given the proposed detail of monitoring, the licence fee cost will still be substantial for the lower-league clubs. Additionally, it argues that the compliance cost of ticking all the boxes will likely be much greater than the licence fee, as clubs would need to put various costly structures and procedures in place[7].

There have also been suggestions about the value of the regulator itself to the tax payer with some pointing out that over regulation of too many industries can lead to significant tax payer cost[8].

In the current climate with a cost of living crisis and rising inflation, there is unlikely to be much appetite on the part of tax payers to fund another regulatory body with public money, especially a regulator which would be responsible for overseeing what is perceived to be one of the most valuable and lucrative industries in the country. As such, should the IREF be established, it would require to be entirely self-funded via initiatives like the licence fee requirements and transfer levies. We can expect however, that it is these requirements (the transfer levy in particular) which will cause most opposition amongst the clubs.

Regardless of the funding approach, the value of the IREF will ultimately be decided on its perceived impact should it become a reality. Ensuring an appropriate apportionment of costs across the football pyramid is one of the key challenges the Government faces in legislating to implement the findings of the Report. It will be interesting to see how the Government intends on delivering value to both the clubs and the tax payer.

Potential legal challenges

It has been argued that a number of recommendations would: (i) involve outright expropriation (such as the ‘Golden Share’); or (ii) effectively expropriate the owners by depriving them of the management and enjoyment of their assets[9]. Specifically, it has been claimed that:

• the imposition of shadow boards would significantly diminish the right of owners to manage their business[10];
• the imposition of licence conditions for owners could result in the owner being deprived of control of the club if they do not meet the new conditions[11]; and
• the controls on cash injections and player salaries prevent owners from financing and managing their clubs in the ways they consider will bring them the most success and best returns on their investment[12].

Detractors claim that it could be argued that the proposed measures would have the effect of reducing the resale value of the club, or depriving the owners of control, and overseas investors might be able to claim compensation under bilateral investment treaties between the UK and their home country[13].

Of course, having some kind of financial oversight over clubs is nothing new and the vast majority of English clubs are already subject to certain restraints on what they can and cannot spend, whether that is under UEFA, FAPL or EFL regulations. However, the argument that the introduction of the IREF could lead to claims under bilateral investment treaties is interesting but far from certain. There is a wide margin of discretion as to what would constitute expropriation and regulations that cause an investment to decline in value will not generally be found to require compensation. These realities are, however, acknowledged by the detractors[14].

Investment deterrence

One of the more common arguments is that the proposals could deter investment in the English game[15] for a number of reasons including by attacking the property rights of owners[16]. It has been highlighted that: (i) the financial success of the biggest clubs in English football has required significant investment; (ii) smaller clubs are dependent on the trickle down of wealth from the bigger clubs under the existing regime; and (iii) that by over regulating a successful financial and commercial operation you could disincentives investment and potentially damage clubs further down the footballing pyramid[17] [18].

It is difficult to determine whether the introduction of the IREF would deter investment until the scope of the Government’s planned implementation is set out. However, it is not necessarily the case that regulation will always stifle investment and profitability. For example, the introduction of the Gambling Commission (under the Gambling Act 2005), did not prevent the significant growth that has been seen in online and gambling and betting in recent years[19]. An additional counterpoint here which is that at least one of the aims of the introduction of the IREF is to “level the playing field” so that the disparity between the largest English clubs and the rest, starts to narrow rather than increase. It is of course worth remembering that one of the catalysts of the Crouch Review was the threat of (and subsequent announcement by) the so called “big six” to enter the European Super League. Those in favour of the Report and its recommendations would no doubt argue that they are for the “greater good” and if they prevent another ESL-type move by the biggest clubs, then they will have served their purpose.

What is next?

A white paper is planned for the summer, with the intention of introducing legislation before the next general election in 2024[20]. We will be watching these developments closely, so keep an eye out for our updates.

Article co-authored by Innocent Maramba, Trainee Solicitor at CMS.

[1] Peter Hall, Reuters – Foreign investment has been good for Premier League – Neville – published 03/03/22 – (accessed 11/04/22).

[2] J R Shackleton and V Hewson, Red Card: Why English football doesn’t need an independent regulator, IEA Current Controversies No. 84 – p45 – March 2022.

[3] Christopher Davis, Tactical innovation or own goal?, The proposals for an independent football regulator – published 14/12/21 – (accessed on 11/04/22).

[4] J R Shackleton and V Hewson, Red Card: Why English football doesn’t need an independent regulator, IEA Current Controversies No. 84 – p46 – March 2022.

[5] Neeraj Thomas and Ben McLaughlin – An Overview Of The Fan-Led Review Of Football Governance – published 21/12/21 – (accessed on 11/04/22).

[6] J R Shackleton and V Hewson, Red Card: Why English football doesn’t need an independent regulator, IEA Current Controversies No. 84 – p46 – March 2022.

[7] J R Shackleton and V Hewson, Red Card: Why English football doesn’t need an independent regulator, IEA Current Controversies No. 84 – p31 – March 2022.

[8] Harry Fone, Is a new independent regulator for English football a massive own goal? – published 26/12/21 – (accessed on 11/04/22).

[9] J R Shackleton and V Hewson, Red Card: Why English football doesn’t need an independent regulator, IEA Current Controversies No. 84 – p33 – March 2022.

[10] J R Shackleton and V Hewson, Red Card: Why English football doesn’t need an independent regulator, IEA Current Controversies No. 84 – p33 – March 2022.

[11] Ibid.

[12] Ibid, p34.

[13] Ibid, p34.

[14] Ibid, p34.

[15] Len Shackleton, Why an independent football regulator would be an own goal for fans – published 21/03/22 – (accessed 11/04/22).

[16] Victoria Hewson, City A.M. – A football regulator would ignore the pleas of fans and favour finance over emotion – published 22/03/22 – (accessed 11/04/22).

[17] J R Shackleton and V Hewson, Red Card: Why English football doesn’t need an independent regulator, IEA Current Controversies No. 84 – March 2022.

[18] Independent - Football risks killing the golden goose, warns Aston Villa’s Christian Purslow – published 25/11/21 – (accessed 11/04/22).

[19] Gaspar Incze – The Growth of the UK gambling market – published 27/08/21 – (accessed 11/04/22).

[20] Harry Latham-Coyle, Independent – English football to have independent regulator with ‘suitability test’ for owners, says Nadine Dorries – published 03/04/22 – (accessed 04/04/22).