Football in the Digital Age – Chapter 11

11. Football, fans and fat cats: whose football club is it anyway?

Kevin Jaquiss

Introduction

If you were picking a theme tune for the debate which is going on about the future of football, you might do worse than ‘Que sera, sera’. There is a lot of fatalistic talk about the problems in football. People can see that things are wrong but do not believe they can really do anything about it. In the end, people say, money talks and the law will always protect the men with the big bank balances.

To a significant extent that is true – under company law as it now stands the big shareholders in football clubs hold all the cards. There is a difficulty with this approach, though. Football does not operate like other businesses; there are all sorts of dynamics operating outside the simple legal structure. Unless those dynamics are understood and addressed, football will face a mounting tide of criticism and abuse from its customer base. That cannot be healthy in the long term, even for the big shareholders.

This chapter looks from a lawyer’s viewpoint at the tension between the legal structures and the nature of football and goes on to suggest how things might be changed.

What’s special about football clubs?

If you want to know someone’s tastes in food you might ask, ‘What’s your favourite restaurant?’ If you want to know their taste in drink you might ask, ‘Which is your local?’ If you want to know their tastes in football, though, you say, ‘What team do you support?’ That word tells us a lot about what makes a football club special.

Although we use restaurants and pubs – and sometimes talk as if we own them (‘it’s my local’) – we don’t really expect to have any say in the way they’re run. Football is different. For a start, a lot of us put up with a very poor-quality product on the field when we would never tolerate rancid beer in a pub. But we also feel that the club owes us things in return for our support, that we are entitled to have a say in the way it is run, and even that we have something to offer. This goes beyond bellowing advice and abuse from the stands. We expect the club to come and listen to us in supporters’ club meetings or to answer our letters criticising moves in the transfer market. This sense of ownership underpins the whole of the debate about football which has been going on in recent years.

Stakeholders

Most football clubs in the UK are limited companies with shareholders and directors. Although they may be the same people, there are two distinct roles. The shareholders own the business. In the ‘good old days’, very few of them hoped for a financial return – their return came from what happened on the pitch and perhaps also out of feeling that they were keeping an important local institution going. In recent years, some shareholders have made vast and incongruous fortunes out of their ownership and this has changed the football environment. There are now influential shareholders in football clubs who want to see either a return on their investment or some protection so that their investment is not wasted.

The directors run the club and have serious financial responsibilities to the club’s creditors. They also have responsibilities to the shareholders to run things in line with their wishes. In most businesses, provided they stay within the law, the directors and shareholders can do what they want. Financial journalists may comment on the running of a plc which is listed on the stock exchange but no one comments on what happens in private companies. If the directors mess things up on a massive scale, it is a matter for them and the shareholders to sort out.

Football is not like that. There have been all sorts of campaigns by fans whose interest in their club would not be recognised in law. It is not unusual to see fans calling on the main shareholder in a club to put more money in – though company law is based on the fundamental position that a shareholder only has to pay for his shares. Fans regularly call for the resignation of directors – ‘Sack the Board’ – though company law gives that right to the shareholders because it is their money the directors are playing with. Fans see themselves as stakeholders. If they can, they may buy small shareholdings. This gives them some sense of belonging and the right to attend the AGM but they are outgunned when decisions are made by the votes of the big shareholders.

Conflict

Football’s recent history is one of guerrilla warfare between the fans and the legal owners. In some cases, the fans have been formidable and have outgunned the board in business experience or PR skills. In other cases, the fans have pursued crazy campaigns with no understanding of the real issues. In all instances, the dispute has been damaging to the club because it is a key part of being a football club to be a local (or sometimes national) institution. Although football clubs do now have to be run in some ways as if they are part of the leisure industry, they are not just part of the leisure industry.

The essential components of professional football clubs are that they need a ground to play on, training facilities and a squad of players with a skilled (or lucky) manager. They have income from television, sponsorship and gate receipts but they do need working capital in the form of equity or loans or both. They must be professionally managed in their commercial activities if they are to exploit opportunities and succeed in the Premier League or keep their heads above water in the lower leagues. And they also need true supporters, not just people who turn up regularly or occasionally to watch a game.

The trick is to find a structure which balances these various needs and the interests of those concerned. The problem with any structure based on a traditional limited company is that the supporters never progress beyond a nominal shareholding or a token presence on the board. Some advances might be made if some form of regulation were introduced, but this does nothing directly to improve the relationship between a club and its fans.

Using mutual structures

A possible answer to all this lies in the ‘mutual’ structure – in legal terms an industrial and provident society rather than a limited company – and that is the model I discuss here. Some very interesting work has been done on the use of trusts as vehicles for supporter involvement in clubs and there are some supporter trusts in existence. This chapter does not attempt a comparison between the two approaches. My aim is to suggest the role which mutuals might play in the football clubs of the future.

Mutuals began in the nineteenth century; people began to club together to help each other when there was limited access to finance and no welfare state. This was the origin of building societies, friendly societies and co-ops. Until recently, co-ops or public benefit societies like housing associations have continued to operate in a closed world under nineteenth-century rules. People have now begun to realise that the mutual structure has great potential where the primary aim of an activity is not to make money or where a community need is being met. New forms of mutual will probably emerge over the next few years in situations where a community has an interest in the way services are delivered to it but does not want shareholders in the City or anyone else to profit from the activity.

Some of the thinking which has been developed is relevant to football, particularly the thinking about the nature of a community’s interest in a mutual. The point in football is that, although fans like to think they ‘own’ their club, they are not looking for a financial return. Indeed, many of them feel there is something wrong in people making money out of football.

The first advantage of the mutual structure is that the members of a mutual society are its owners but have only nominal shareholdings – the rules say that they cannot sell their shares at a profit and cannot realise the value of their shareholding on a sale or winding up. Membership of a mutual can accurately reflect the real relationship between a fan and a football club and the pressure of the need to make a return to shareholders can be removed.

The second advantage is that the structure can accommodate the need for professional management. This has been a problem with mutuals in the past but it is now possible to register rules which reflect clearly the balance in power between a representative board which takes a broad view of the well-being of the society and an executive board which has to deliver results on a day-to-day basis.

The third and most important advantage is that the structure can be flexible. I have been involved in drafting entirely new sets of rules which alter the old balance between the interests of members, providers of capital and executives and define clearly where the rights of members begin and end, what issues they are entitled to decide and how significant their representation on the board should be.

There are also advantages beyond the interests of each individual club. Clubs run as mutuals would have reasons to work together – where clubs with the traditional structure do not – in strengthening the links of football as a whole with the community and distributing sensibly the revenue within the game. This makes self-regulation a realistic long-term aim.

The Total Football Mutual

A ‘total football mutual’ would have the following as features of its constitution to build a healthy relationship with its supporters and its community:

  • a clear statement in the rules of the nature of the relationship and its importance as a guiding principle;
  • a representative board charged with responsibility for setting standards and monitoring the club’s success in meeting its community aims;
  • a separate executive board chosen on merit with responsibility for running the club efficiently and in line with its constitution and the wishes of the representative board;
  • a membership without any right to share in the capital of the club on a sale or winding up so that the board and executive would not be under pressure to secure a return or capital growth for shareholders;
  • a modern democratic structure for the election of the representative board and testing community opinion.

Other less radical models might involve a blend of mutual and traditional shareholdings, especially where some part of the club’s activities needs risk capital to make it work. In many cases, there will be a nervousness at first about letting people elected by supporters take ultimate responsibility for the running of the club, so that the rights of supporters and their representatives will be strictly limited. The important point is that, in every case, the structure is giving the supporter a form of ownership which matches his or her sense of the relationship with the club.

Pie in the Sky?

At present a substantial part of the working capital in most clubs is provided by shareholder equity. In the largest plcs, the paper value of that equity might appear to rule out conversion to a mutual structure. This brings us back to our fatalistic theme tune: except in the most desperate cases, supporters do not think they can raise or borrow the sums involved. In many cases, this may be right. There are, however, some features of football clubs which make me wonder whether it is right to discount the prospects of success in substituting mutual and loan capital for equity:

  • the clubs we are talking about have the benefit of two unusually stable and easily collected income streams – gate receipts (which tend to be reliable at a ‘core’ level) and television revenue;
  • many clubs also own a ground with a capital value;
  • the disciplines required by a lender are less likely to be unacceptable to members who have no financial stake in the club than to conventional shareholders;
  • a club operated in this way would have little difficulty in bettering the financial performance of the vast majority of clubs under their present management;
  • the outsourcing of commercial activities, exchanging certainty of return and reduced overheads for the prospect of large profits at higher risk, is a realistic option where there are no shareholders seeking a return.

I think there are clubs where a fully mutual model might be established in the short term. Certainly, the model should be in the thinking of any group of supporters looking at a rescue of a club in financial difficulties. The model may also be useful, however, where there is no prospect of a ‘mutual takeover’ in the short or medium term. It is possible to imagine a group of supporters starting as a pressure group, progressing to a collective shareholding and a formal relationship with a club, then monitoring and/or managing the club’s community activities on its behalf and finally taking control on a fully mutual basis. If the members of the group agreed that they were not in it to make a return on their investment, they might adopt the aims and constitution of the ‘total football mutual’ between themselves and use it as the vehicle to hold shares in the club. The model would work effectively at all the stages from pressure group to takeover.

Conclusion

There will be changes in football over the next few years. The changes will be at best damaging and at worst catastrophic if they do not reflect the concerns of the supporters who make the game what it is. The mutual model makes it possible for this to happen in a structured way, giving the supporters a stake not as investors but as custodians together of the future of ‘their’ club.