New Independent English Football Regulator: A Potential Game-Changer?

Following an English football fan–led review, the UK government recently proposed numerous changes for the game’s clubs, key among them being the appointment of an independent regulator with oversight for many areas of fan concern.

The last two years have been seismic for one of England’s most famous exports: football. April 2021 saw 12 of the biggest, wealthiest, and most prestigious football clubs across Europe launch their plans for a European Super League. Within 48 hours, and amid backlash from fans, pundits, and the UK government, the six Premier League clubs involved (the Premier League being English football’s top division) all announced their formal decisions to withdraw from the breakaway European league.

In October 2021, Saudi Arabia’s Public Investment Fund acquired 80% of Newcastle FC. Chelsea FC was acquired by a consortium of investors in May 2022, and Manchester United, Tottenham Hotspurs, and Liverpool are each reportedly being considered as acquisition targets by various private equity houses. The Premier League’s mid-season January transfer window (typically the quieter of the two windows in which players can be traded amongst teams) accumulated a gross spend of £815 million, with Chelsea alone contributing £323 million to that total.

In the view of the UK government, the enormous sums of money involved pose questions that the current structure is not equipped to answer. The release of a white paper, titled “A sustainable future - reforming club football governance” (the White Paper) on 23 February 2023, seeks to address these perceived concerns. The main proposal we explore herein is the appointment of a new, independent regulator to oversee the clubs’ financial models, ownership, fan involvement, and fair and engaging competition.

Background

The White Paper is the result of an independent, fan-led review announced in April 2021 by the UK’s then–culture secretary. It is important to understand the impetus for the fan-led review to appreciate the issues the White Paper seeks to address.

The first concern raised was that a number of smaller clubs had failed in recent years, with mismanagement often being cited as the root cause. The devastating impact these failures can have on a club’s fan base, as well as the club’s local economy, sparked calls for a fan-led review.

Second, it is no surprise that the failed proposal for the European Super League, announced around the same time as the review itself, influenced the outcome of the review and recommendations made by the fans.

The results of the fan-led review, aiming to “secure the game’s future,” were published in November 2021 and highlighted the need for reform to address the fundamental issues of what the review described as “perverse incentives, poor governance, and defective industry self-regulation.” The UK government has agreed that its intervention is necessary to address the fans’ concerns and to counter perceptions concerning the stability of English football.

White Paper’s Proposals

The most significant proposal is the establishment of a new, independent regulator. As proposed, the regulator would have the power to issue licences to clubs across all professional leagues, and, without such a licence, a club would not be able to play.

Conditions for obtaining a playing licence would enable the regulator to govern the game’s teams, and are proposed as follows:

1. Appropriate Resources: All clubs must have adequate financial and nonfinancial resources and controls in place to meet committed spending and foreseeable risks.
2. Fit and Proper Custodians: Individuals at any club deemed to exercise significant decision-making influence, including owners, key shareholders, and directors, must be fit and proper custodians. The origins of such individuals’ wealth will be subject to greater scrutiny.
3. Fan Interests: All clubs must have appropriate provisions for considering the interests of fans on key decisions and issues of club heritage on an ongoing basis.
4. Approved Competitions: The club must agree to compete only in leagues and competitions that are approved by the regulator based on predetermined criteria to prevent any breakaway, so-called “super leagues.”

Appropriate Resources

Club Level

Historic clubs, such as Bury, Derby County, and Macclesfield Town, have gone into administration, and other smaller clubs are increasingly facing pressure when it comes to the transfer window, due to tighter budgets. The independent regulator would seek to strike a balance to ensure that the pressure on player wages does not create unnecessary insolvency risk.

To ensure the financial stability of individual clubs, it is proposed that the regulator would follow a three-step approach:

1. The regulator would continuously monitor teams’ compliance with the new rules and financial guidelines, aligned with their specific licences. Guidance would be shared with the teams, and it is hoped that a cooperative relationship could be established.
2. If a club is deemed to be “at risk” of insolvency, the regulator would work directly with that club to help stabilise its financial position.
3. If a club remains noncompliant or at risk, the regulator would have certain tools and mechanisms available to encourage struggling teams to take significant corrective action, such as
   1. publicly naming failing clubs,
   2. issuing financial penalties,
   3. implementing the suspension or disqualification of controlling individuals’ involvement in football, and
   4. in extreme cases, suspending the club by withdrawing its licence.

In the event of these potentially severe penalties being imposed on clubs, the White Paper does acknowledge the need for an independent appeals process and suggests judicial review as the predominant route.

However, the White Paper does suggest that there could first be an initial internal review procedure to avoid the need to immediately pursue litigation and to bring clear and certain results more expeditiously; we await further detail on how a tiered appeals process might be structured in practice. It is also unclear how the proposed financial penalties would aid a club struggling to meet its financial obligations.

Macro Level

One issue that the fan-led review sought to investigate was the perceived instability of the football industry’s finances as a whole, including the sizeable income gap between the Premier League and the other, lower tiers of England’s football pyramid. In response to this, the White Paper proposes that the new regulator would periodically assess the industry’s finances at the macro level, with statutory powers to intervene if the distribution of revenue throughout the different leagues were not sufficiently balanced.

The White Paper suggests that, in order to remedy the current imbalance, the Premier League and the English Football League (the body that governs all professional English leagues) could each propose a solution to fix the funding gap, with the intention that the relevant parties reach a fair and equitable understanding amongst themselves without the need for the regulator’s intervention. The White Paper envisages that the regulator would primarily take on the role of mediator with the ability to intervene if required.

Fit and Proper Custodians

It is not uncommon for the ownership and underlying beneficiaries of England’s top football teams to receive widespread media scrutiny.

The White Paper proposes new tests for owners and directors, with the intent of ensuring stronger due diligence on their sources of wealth, a clear financial plan on how they intend to lead the club, and a notion of a fitness and propriety test. There would also be an investigation into the ultimate beneficial owner to avoid complex structures obscuring a club’s true ownership.

An emphasis on corporate governance is also apparent, as the new regulator will look to introduce a new football club corporate governance code (Football Code), which goes beyond the obligations of the Companies Act 2006 and focuses specifically on football and its unique challenges. The White Paper therefore proposes that a detailed assessment of the industry would take place, the results of which would inform the regulator of how best to model the new Football Code. Whilst the Football Code will largely be a product of that review, the White Paper anticipates it would focus primarily on five areas:

1. Structure: Clubs shall have a clear and appropriate governance structure, with a properly constituted board that makes decisions collectively.
2. People: Clubs shall recruit and engage individuals with appropriate skills, knowledge, experience, and independence to further the club’s goals.
3. Communication: There shall be a larger degree of transparency and accountability, where decisionmakers shall engage effectively with fans and other stakeholders in decision-making processes.
4. Standard and Conduct: Clubs shall uphold high standards of integrity and appropriately address breaches of those standards. Emphasis shall also be placed on driving continuous improvement to avoid, rather than retrospectively repair, such breaches.
5. Policies and Processes: The Football Code shall enshrine the applicable laws and regulations to which clubs must adhere, including those suggested in the White Paper.

The White Paper acknowledges that the clubs are of varying sizes and prominence and recognises that measures would need to be implemented to address those differences; for example, by using a tiered compliance system based on certain metrics relating to the size of the clubs.

Fans’ Interests and Approved Competitions

Proposals in the White Paper highlight the need for fan veto rights over certain “heritage” matters. Such issues include changing club names, emblems, and home shirt colours.

The new regulator would be able to prevent English clubs from joining new competitions that do not meet certain criteria. Such criteria are yet to be finalised, but the White Paper suggests that the conditions could include that the new competition (1) be fair and meritocratic, (2) not unduly undermine the sustainability of English football’s existing leagues and competitions, (3) be approved only after the regulator has consulted fans, and (4) be approved only after the regulator has consulted the Football Association. The White Paper states that while all current competitions would likely meet this criteria, its formal implementation would create a “protective lock against English clubs joining breakaway competitions that do not meet these criteria,” with references to the European Super League as a case study.

Although the original form of the European Super League has largely been discarded, the competition’s CEO recently offered the possibility of a new format, with a proposal for a multidivisional league including up to 80 teams, with qualification determined by domestic performance. The White Paper’s proposed legislation would give the new regulator clear guidelines on which competitions English clubs could join, given the established criteria.

Key Issues Not Addressed to Date

Several issues raised by the fan-led review would fall outside the scope of the new independent regulator, including women’s football, player welfare, equality, diversity, inclusion, agent regulation, and the impact of alcohol on the sport. The UK government, as part of the White Paper, reiterates its commitment to liaise with football stakeholders and drive industry action in these areas in order to develop both the men’s and the women’s games.

Next Steps

Targeted consultation with stakeholders and relevant panels will take place in early 2023, and there is motivation for legislation to be implemented swiftly. However, radical legislative change and regulatory upheaval inevitably take time, and the UK government has reserved its position by stating that the new independent regulator will be appointed “as soon as Parliamentary time allows.”

With no clear time frame set out, it is difficult to predict how long it will take for the industry to see the greater regulation fans seek, and whether such upheaval will bring positive change to investment patterns in the football market.

Trainee solicitor Max Banister-Buffery contributed to this LawFlash.