The UK Parliament held the first reading of the Football Governance Bill (the Bill) on 24 October 2024, establishing an independent football regulator in England. The UK Labour government made several changes to the previous version of the Bill.
The previous Bill was introduced in March but was not passed before the general election. Whilst the Bill remains substantially the same, there are several key changes partly aimed at addressing concerns around independence from government and the treatment of parachute payments. Additionally, it aims to further formalise the role and scrutiny of fans in club decision-making.
The previous Bill established conditions that a prospective owner or director must meet before the IFR can ascertain that they meet the necessary honesty, integrity, and financial soundness standards. However, the requirement for the IFR to have regard for the UK government’s foreign and trade policy in connection with any proposed new ownership has now been removed, furthering the IFR’s operational independence from the UK government.
Following warnings from the Union of European Football Associations (UEFA) to Lisa Nandy stating that there should be no government interference in the running of football, this change acts to remove any express connection between the IFR’s decisions and UK government policy.
The UK Secretary of State retains the ability to amend the competitions within IFR’s scope through regulations, with such regulations and associated power under them to remain subject to ongoing government review. Further, a governance statement and guidance may also be published by the Secretary of State in respect of the exercise of the IFR’s functions. UEFA has praised the fan engagement elements of the Bill but continues to voice concerns of potential “scope creep,” whereby the IFR’s powers allow it to potentially regulate English football beyond initial expectations.
The definition of director (or “officer”, under the Bill) has been expanded in the new Bill to include a person who purports to act as an officer of a club, or in accordance with whose actions a club is accustomed to acting.
Under the previous Bill, the IFR was given powers to intervene for dispute resolution purposes if there were disagreements regarding the distribution of revenue, from broadcasting or other sources, from a specified competition between two leagues—or competition organisers. The IFR would ultimately make a distribution order following a mediation process. Parachute payments, being payments made to clubs out of the Premier League broadcasting revenue after they are relegated from the Premier League as a financial buffer against the reduced revenue of a lower league, were specifically carved out of the IFR’s scope of review or distribution orders.
The previous Bill simply required the IFR to ensure a distribution order would advance the IFR’s objectives and not place an undue burden on the commercial interests of either organiser. The new Bill, whilst bringing parachute payments into scope for the review, further requires a distribution order not to lower parachute payment revenue within the year following any team’s relegation below the revenue such team would receive without the distribution order. By expressly permitting the IFR to consider parachute payments as a source of revenue in connection with any distribution order it makes, the Bill has caused mixed reactions among the organisers who will be affected.
In the context of a longstanding disagreement between the Premier League and the English Football League (EFL) regarding parachute payments, the inclusion within the IFR’s scope of review could potentially bring an end to this deadlock by allowing the IFR to reduce parachute payments, as long as such reduction is consistent with the IFR’s objective of financial stability. UK Culture Secretary Lisa Nandy has confirmed that parachute payments will not be abolished altogether, despite the IFR’s ability to reduce them.
Such powers of intervention regarding the distribution of top-flight revenue have provoked concern from the Premier League, which suggests its competitiveness and the capacity of its clubs to invest in the best talent may be negatively impacted by this change. Notably, the EFL’s stance on parachute payments has recently shifted towards reform, rather than abolition. Given such commentary and reception, it seems likely that the IFR will, at least initially, approach any reduction or removal of parachute payments with caution and moderation. However, the potential impact of this change to the Bill on the flow of revenue across the Premier League and the EFL could be significant.
The previous Bill proposed to formalise fan engagement and powers by only granting clubs with an operating license if it met a fan engagement threshold, and attaching a mandatory fan consultation condition to any licence granted, as well as requiring the support of fans before allowing any club to materially change its crest or home shirt colours.
The new Bill takes these engagement standards further by requiring clubs to regularly meet and consult a representative group of fans on key club matters, as well as consult supporters on ticket prices and any proposals to move home ground, such changes only becoming permitted under the legislation once a club has taken reasonable steps to secure fan support. This representative group may also now be required by the IFR to be elected by other fans to prevent any situation where the club strategically selects the representative group.
A club entering administration will now also be subject to a duty to keep fans informed on the process of the administration proceedings.
The State of the Game report providing an overview of the issues and relevant matters affecting English football, originally required within three years of the IFR’s establishment, will now be required within 18 months of establishment, and the IFR will be able to consider parachute payments within the scope of this review. The IFR is also now required to consult the Football Association (FA) and the specified competition organisers prior to publishing the report. Subsequent State of the Game reports must now only be published every five years, as opposed to three years under the previous Bill.
Under the previous Bill, club operating licenses, required by a club before it can operate a team in a specified competition, would only be granted by the IFR if multiple licence threshold conditions were met. Mandatory operating conditions would then attach to any licence granted to ensure clubs operated in line with the Bill’s core aims. The new Bill grants the IFR increased powers and flexibility to impose non-financial discretionary license conditions, allowing the IFR to implement tailored additional conditions to struggling clubs to protect against these clubs’ perceived historical shortcomings.
The IFR’s powers in limiting a club’s spending through discretionary licenses has, on the other hand, been reduced, meaning that a club will always retain discretion on which areas to reduce expenditure on in order to meet the financial resources threshold or condition, and the IFR will not have power to limit any particular item of expenditure.
As set out in the previous Bill, the IFR is to consist of a board and an expert panel. The new Bill contains several minor revisions to the way in which the expert panel, and the IFR’s internal review mechanism, will operate with the aim of mitigating any risk of overburdening the expert panel. These include removing a requirement to use the expert panel for certain enforcement decisions so that the IFR’s enforcement team can instead handle any routine decisions that do not necessarily require the expert panel’s input. Additionally, the cap on the maximum number appointed to the expert panel will be removed to avoid any understaffing issues in a high workload situation.
The IFR may now decline a request for internal review in certain cases where an internal review is clearly not necessary, and may also recover the costs of a review from the requesting person if the review is unsuccessful (having regard to the person’s financial resources). Approval of certain “reviewable decisions”, i.e., decisions relating to certain specific matters listed in the Bill that may be appealed, including the sale or relocation of a stadium or the decision to appoint an administrator (all of which require the IFR’s approval).
An initial period will now apply following the Bill passing into legislation, during which the IFR will only consist of the board until the CEO has appointed the expert panel, after which the IFR will consist of both the board and the expert panel.
Ongoing political developments and the mixed reactions of domestic and international stakeholders such as the English leagues and UEFA will continue as the Bill passes through the legislative process, and potential further amendments to the Bill in response to such developments should not be discounted. As an investor, it will remain key to include a target club’s compliance history with the legislation as part of due diligence, given the potential impact of the new regulatory measures on a club’s operations, as well as the potential severity of financial penalties and sanctions under the Bill.
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