Football's Coming Home… The New Independent Football Regulator

At a glance

Not long before the death of the late, great, John Motson, and on the heels of the Premier League charging Manchester City for allegedly breaking financial rules more than 100 times, the government published its much anticipated White Paper, A Sustainable Future – Reforming Club Football Governance; something we think John Motson would have gladly welcomed.

The White Paper largely adopts and builds on the recommendations of the independent report in November 2021, Fan-Led Review of Football Governance: securing the game's future, led by Tracey Crouch CBE MP and triggered by the European Super League debacle.

The White Paper rightly recognises the importance and uniqueness of football (which is a part of our national identity and DNA):

"Football is not just a sport. It is part of our history, our heritage, and our national way of life – bringing communities across the country together week in, and week out... The English Football League is the world's original football league, while for over three decades the Premier League has been the template for all other leagues to follow... Football is nothing without its fans – and yet in the last two decades, too many of those fans have been let down, ignored or shut out by their own teams. Historic clubs like Bury have gone to the wall, while others have been governed poorly or put at risk of financial collapse – threatening the stability of the wider pyramid. Too often, some owners have forgotten that they are only the custodians of their club, responsible for just one chapter in its history. So now we are stepping in to protect our national game and put fans right back at the heart of football." [Secretary of State for Culture, Media and Sport, Rt Hon Lucy Frazer MP's foreword in the White Paper]

The fundamental point of the White Paper is the commitment to an independent regulator (the "Football Regulator") backed by legislation. This is a stark departure from other countries (e.g., the USA), where governments typically do not regulate professional sports. Indeed, Crystal Palace's chairman, Steve Parish was quick to point out that "It's unprecedented. We'll be the only sporting industry to be regulated by government."

The White Paper will be of interest to all stakeholders in football, as will the 'targeted' consultations the government intends to undertake ahead of finalising its policy and introducing legislation (perhaps prior to the next general election).

Key points

The main purposes of the Football Regulator will be to:

1. Implement a new licensing system – every club, from the Premier League to the National League, will need to be licensed by the Football Regulator. There will be four threshold conditions of the licence: appropriate financial resources; suitable owners; fan interests; and approved competitions. In addition, specific, risk-based conditions may also be imposed by the Football Regulator. The government states that the Football Regulator will:
   
   
   1. use constructive engagement rather than formal intervention wherever possible and, if required, will have strong powers and sanctions to enforce compliance;
      
      
   2. be proportionate and adaptive in its approach. The requirements on clubs will reflect their circumstances, meaning they might vary based on criteria like league, club size, and financial health or riskiness; and
      
      
   3. be subject to legal processes to govern how it uses its powers (including requirements to consult and to meet legally defined thresholds to intervene). Clubs will have the right to appeal the Football Regulator's decisions to a court or tribunal if they feel it has acted unfairly or outside its statutory remit.

The Football Regulator will not intervene on the rules of the game or ticket prices. This will remain the remit of the applicable football authorities.

2. Improving financial resilience of clubs – the government is acutely aware of the need to help prevent a repeat of financial failings seen at Derby County, Bury and Macclesfield Town. Clubs will need to demonstrate good basic financial practices, have appropriate financial resources or 'buffers' to meet cash flows and financial shocks, and protect the core assets of the club (such as the stadium) from harm.
   
   
3. Improving corporate governance – the Football Regulator will establish a compulsory 'Football Club Corporate Governance Code'. This will likely draw upon at least some of principles relevant to corporate codes for listed companies. Clubs will be required to apply the new code and report on how they have applied it, to improve transparency and accountability. The code will be applied proportionally, with regard to the size, league and complexity of the club's business model.
   
   
4. Strengthened owners' and directors' test – the new test will comprise:
   
   
   1. a fitness and propriety test to ensure integrity of owners and directors. The Football Regulator would combine the disqualifying conditions currently applied by the football leagues with selected criteria relating to honesty and integrity, financial soundness, and competence and capability. This will likely draw upon the fit and proper persons tests applied by the Financial Conduct Authority, HMRC, the Solicitors Regulation Authority and the Bar Standards Board;
      
      
   2. an enhanced due diligence of source of wealth (owners). The Football Regulator will aim to mitigate the presence and risk of the investment of illicit finance in clubs and would assist government agencies in conducting enhanced due diligence checks on a prospective owner's source of wealth, aimed at identifying links to criminality or corruption. The Football Regulator would not directly regulate money-laundering or crime, nor would it make unilateral judgments that risk straying into foreign policy; and
      
      
   3. a requirement for robust financial plans (owners). The Football Regulator would assess the owner's financial plans and resources, which the government says would include: proof of sufficient financial resources; financial forecasts; a 'personal guarantee' (owners will be required to declare how much money they intend to invest in the club in the short and long-term, in an effort to make an owner more accountable to the Football Regulator); and contingency plans.

5. Minimum standard of fan engagement – the Football Regulator will ensure clubs have a framework in place to regularly meet a representative group of fans to discuss key matters at the club and other issues of interest to supporters. In this new world, new owners may find themselves having to carefully consider fan enfranchisement (e.g., a representative on the board and fan share ownership).
   
   
6. Protecting club heritage – the Football Regulator will require clubs to comply with the Football Association's rules for club heritage (which effectively give fans a veto over proposed changes to a club's crest (or badge) and home shirt colours), introduced in August 2022. The government thinks this is more practical than the 'golden share' recommended by the November 2021 Fan-Led Review. The Football Regulator will also require clubs to seek its approval for any sale or relocation of the club's stadium. Prior to this, we have seen conscious sellers seeking to protect such matters through the inclusion of contractual protections in sale and purchase agreements for clubs.
   
   
7. Breakaway competitions – the Football Regulator will be able to block clubs from joining closed-shop competitions. This is a direct response to the European Super League.
   
   
8. Distribution of money down the football pyramid – the Football Regulator will have a targeted power of last resort to intervene, however, a mutual agreement between the football authorities remains the preferred solution of the government to resolving the issue of insufficient and destabilising financial flows.

Reaction to the White Paper

Standing back, and certainly from the perspective of fans (football is nothing without fans), the general reaction to the White Paper is positive.

But it really depends on one's position or perspective. For example, the incumbent football authorities are wary of a third party interfering in their existing monopolies. The Premier League has said that it is "vital" that a regulator does not lead to any "unintended consequences" which could affect the global appeal and success of the Premier League. At a time when the Premier League can assert with some confidence that it is the pre-eminent football league in the world, there is a concern that further regulation could undermine this if not brought in in a sensible manner. Some are disappointed that the Football Regulator will not take a more active role in helping to more fairly distribute monies down the football pyramid, as this has been a constant source of discontent between Premier League clubs and the rest of the Football League since the former's inception. While others are disappointed that the Football Regulator will not be able to intervene on human rights grounds if the owner or buyer is linked to states with poor human rights records. And then there are some, like West Ham co-owner, David Sullivan, that are resolutely against any form of government interference or regulation.

Maybe we simply leave you with the famous words of Benjamin Disraeli: in a progressive country change is constant; change is inevitable.

How we can help you

Memery Crystal has experience in football transactions. Among others, Memery Crystal has acted for the sellers of then Premier League club West Bromwich Albion and the buyer (subject to EFL approval) of a high-flying Championship club. Members of our team have also acted on a number of football club sales, acquisitions and minority investments in Premier League clubs, and on high profile player transfers in England and around the world, prior to joining Memery Crystal.

Memery Crystal also advises on transactions involving other sports (including cricket and rugby).

We can help you if you are interested in:

• buying or investing in a football club (including the advice in connection with the owners' and directors' test);
• selling a football club;
• financing a football club;
• real estate matters (e.g., in respect of a stadium or training ground);
• commercial contracts (e.g., sponsorship agreements and kit manufacturer agreements); and
• employment matters (e.g., players, managers, coaching staff, directors and non-playing staff).

We can also assist interested stakeholders in responding to proposed targeted consultations of the government.