Has the fan-led review of football governance got the balance right?

Fan Led Review: A major step forward in ensuring sustainability but more to do on competitiveness.

Much to admire …

It is impossible not to be impressed by the effort and commitment that has gone into the Fan led Review (FLR). The recommendations in the Final Report have clearly been produced by people who love football and want to make the game one we can all be proud of. The report is comprehensive (covering a wide range of issues), detailed (as illustrated by the carefully designed proposals on protecting heritage), innovative (such as with the proposed shadow boards for clubs), and brave with its backing of an Independent Regulator for English Football (IREF) in the face of initial opposition from the football authorities

The review does what it says on the tin, at least in terms of addressing weaknesses in governance and regulatory structure, two of the three major problems it identifies in the current game. The proposals for: IREF and how it will operate; revised owner and director tests; a new corporate governance code; an enhanced focus on equality, diversity and inclusivity; the detailed structure for supporter engagement and consultation; and heritage protection will create a game changing set of checks and balances. And the recognition that more needs to be done to support and develop the women’s game is in stark contrast to any other previous review of the governance of English football.

…but hugely reliant on an untested regulatory model…

With IREF not yet established, it is difficult to know how effective the proposed new structure will be in addressing complex issues. For example, it is unclear if the outcome of the recent deal to buyNewcastle United would have been different under the new owners and directors regime.

Establishing an independent regulator is seen as a panacea by many people in the game, the majority of whom I suspect are not familiar with how regulation works in practice.?Having spent over 3 decades designing, setting up and working with regulators, I have my doubts. Energy and water are subject to independent regulation in the UK but this is not stopping suppliers going bust or waste being tipped into out waters. Consider the exam fiasco two summers ago, a widespread failure of policy and regulation.

…especially with the major financial and economic challenges kicked down the road…

I am concerned about how IREF will operate primarily because of the decision in the FLR not to make definitive recommendations on the distribution of revenue in the English game. In stark contrast to the clear, definitive and detailed nature of the recommendations in other areas, the suggested approach to distribution is much more tentative, somewhat vague and confusing with revenues and costs addressed in different parts of the report.

The recommendations suffer because they are based on a partial analysis of the causes of financial instability in the game. The FLR's proposals are detailed on financial regulation, but these manage the consequences of the game's business model without addressing the root causes of the problem - a sticking plaster rather than a solution. While reference is made to issues such as the need to avoid the “monopolisation of leagues”, the game’s “misaligned incentives", and the proposed objectives for IREF include ensuring a sustainable and competitive future for the English game, the report fails to address how IREF should act to improve competitiveness.

While the assessment that the current model creates incentives for owners to gamble in pursuit of success is correct, this is only part of the problem. The huge income of the Premier League allows English clubs to be inefficient and over-spend. To illustrate this, consider the activity in summer’s transfer window. English clubs massively outspent their peers in other countries, paying out fees way in excess of those other clubs could afford. the same is true with wages. With average pay in the Premier League in 2019, double the level across Europe’s four other major leagues, there is clear scope to use the riches of the English game more effectively.

These behaviours help to explain why the English game has been loss-making in aggregate since the Premier League started in 1992 and create pressure to pay higher wages through the pyramid as clubs compete for talent. Finally, the huge financial disparities between divisions creates cliff edges. This leads to volatility as clubs move up and down and try to bridge the gap.?

…sustainability has been prioritised over competitiveness…

By failing to tackle revenue sharing, the review has prioritised sustainability over competitiveness. Finding the right balance is not easy, this challenge has dominated regulation of the game since the advent of professionalism. This is a huge, missed opportunity: the clumsy attempts to promote Project Big Picture and the European Super League weakened the hand of the richest clubs, there was a one-off opportunity to reshape the game’s finances, but it hasn’t been taken. Surely Project Big Picture provided a starting point? And why did the review panel conclude revenue distribution was an issue, “not for this review to decide”? Puzzlingly, given this stance, the report does set out recommendations on parachute payments, a transfer levy (although how this is connected to distribution is unclear and possibly inconsistent) and suggests the Premier League should make unspecified ‘additional” payments – so close and yet so far.

The hope is that the leagues will agree on a new distribution model although the signs are not positive – presumably, Rick Parry’s recent support for the IREF suggests negotiations are not going well. It is a missed opportunity. The current model of sharing TV revenue relies on the Premier league selling their TV rights as a collective. This provides a subsidy to the 14 or so clubs in the top division who benefit from higher income than if they sold their rights individually. It doesn’t seem unreasonable that the FLR could have used its position to specify how much further the benefit should be shared.

At first sight, the transfer levy to fund solidarity across the pyramid is a good idea. (Although this is no clarity on how this sits alongside the approach to revenue sharing more generally). Transfer spending is volatile and is not the ideal basis for stable financial planning and there is no clear rational, unlike with TV income, why it should be used to fund other divisions. In theory, the proposal might boost the sales of English players, but this would require reform of the academy system and access to young players – without this, the risk is the richest clubs move to hoover up even more domestic talent. A better use of a transfer levy (and one on agents’ fees) would be to support good causes outside the professional game with TV revenue sharing used to increase competitiveness.

On competitiveness, the proposal to allow owners to invest in proportion to a club’s finances is likely to be well received by the richest clubs in each division. Despite the desire not to intervene on distributions, this proposal risks widening the gaps between the haves and have nots and, without firm proposals on salary costs, risks undermining the sensible proposals on financial regulation.

...giving a hospital pass to IREF.

English football generates significantly more revenues than the game in any other country. Properly shared, there is enough money to support the game we want. By failing to tackle revenue sharing head on, the FLR risks undoing the good work in other areas. There is the basis of a governance and regulatory model to ensure sustainability but only if the overall business model is the right one.