Post by QPR Report on May 20, 2009 21:06:52 GMT
Football League
LEAGUE RESPONDS TO GOVERNMENT
The Football League has published its response to the question posed by Andy Burnham MP, the Secretary of State for Culture, Media and Sport in his letter to the football authorities earlier in the season.
The letter from League Chairman Lord Mawhinney answers each of the seven questions in turn and covers a range of issues relating to the financial governance of the game.
To read Lord Mawhinney's letter in full click here.
www.football-league.co.uk/staticFiles/a5/37/0,,10794~145317,00.pdf
AGW/jk/9922
18th May 2009
Rt Hon A Burnham MP
Secretary of State
DCMS
2-4 C***spur Street
London SW1Y 5DH
Dear Secretary of State
Following discussions with my colleagues on The Football League Board, I am now in a position to respond to your letter dated 16th October 2008.
As you are aware, The Football League has been at the forefront of improving the
governance and financial regulation of our national game in recent years. We
were the first football body to introduce a fit and proper persons test for club
directors; to publish fees paid to football agents and to ban dual representation;
to introduce wage controls in our lower divisions; to create sporting sanctions for
clubs entering administration; and to appoint independent directors to its Board.
More recently we have ‘drawn a line in the sand’ by introducing a Home Grown
Players policy and are actively seeking greater opportunities for domestic players
with a new Youth Loan proposal specifically aimed at Under 21 year olds.
Nevertheless, we recognise that there is still work to be done and so we welcome
the opportunity presented by your letter to further contribute to this debate. I
will try to deal with the questions you raise individually although inevitably there
is some crossover where issues become inter-dependent.
1. You ask how we can ensure that financial regulation is more joined up in
order to achieve greater consistency.
Whilst we appreciate that to the outside world football is a simple game
which ought to have common rules, the reality is quite different.
Professional football today is a highly sophisticated business which has had
to respond to a particularly fast changing commercial landscape. The
Football League operates at a different level from our colleagues in the
Premier League, for example. Indeed, it was the advent of subscription
television which directly led to the formation of the Premier League in the
first place.
Our own initiatives, therefore, have been geared to our own circumstances
and, although several of these have been copied across the game, we
have to recognise that our own member clubs need to be convinced of the
appropriateness of each measure. Let me give you an example. As I
have already mentioned, mandatory cost controls have been in place at
League 2 level for some years (voluntary at League 1 level). This was
possible because the owners of League 2 clubs took a conscious decision
to try to limit players’ wages as a percentage of club turnover. More
recently, I personally have tried to convince the rest of the League of the
merits of some form of cost control. Earlier this season, I spent a
significant amount of time and effort exploring various options with club
owners and major shareholders. Unfortunately, however, this was to no
avail. Whilst the majority of clubs in Leagues 1 and 2 were probably in
favour, Championship clubs remained highly sceptical. The main reason
for this was the market place in which they have to compete. Players’
wages are greatly influenced by the ‘ripple-effect’ of the wages paid in the
Premier League as well as the parachute payments paid to relegated clubs
(currently £11.2 million p.a. for two years). Any attempt to restrict wages
by means of a formula proved impossible.
Although we currently have a ‘solidarity’ arrangement in place with the
Premier League – for which we are very grateful – this is subject to reexamination
each time broadcasting deals are renewed. Bearing in mind
that players’ wages are frequently linked to broadcasting income, it seems
to us that it ought to be possible to introduce a mechanical process for
determining at least part of future solidarity payments. For example, this
element could be dependent upon the aggregate Premier League wage bill
for players applicable at any given time with the solidarity payment
including a percentage of that overall figure. This method would have the
advantage of being self-adjusting according to the costs associated with
players in the top flight and also seek to counteract the ripple-effect of
these costs on the wider domestic football market.
2. You ask about the scrutiny of club ownership and make reference to the level of debt in the game.
Whilst we appreciate your concerns in this area, we take the view that
Government itself needs to take a lead here. We have had firsthand
experience of club ownership lying with off-shore investment vehicles
which have proved impenetrable when it comes to transparency. Indeed,
I have had discussions and correspondence with your Cabinet colleagues
on this subject. In summary, we would welcome greater transparency in
this respect but the current legal position prevents that. With regard to
the level of debt, leveraged acquisitions are not something we have had to
face in The Football League bearing in mind the measure of profitability –
or rather lack of it! Nevertheless, I will return to the question of debt in
(3) below.
3. You question whether the rules on insolvency should be re-examined and you make the case for an early warning system.
As you know, we in The Football League probably have more experience in
this area than anyone else in the game. Whilst this is not something
about which we are particularly proud, it represents a further reflection of
the existing financial pressure which currently prevails at our level. In
some respects our emphasis hitherto has been to seek to promote better
financial management by raising the bar in terms of deterrence – hence
our introduction of sporting sanctions. Regulatory sanctions can, however,
only take two forms – monetary penalties or points deductions. We have
taken the view that fines are inappropriate in these circumstances whilst
points penalties have the added advantage of redressing the competitive
balance in favour of those clubs who manage their affairs more prudently.
We acknowledge, however, that prevention is better than cure. To this
end, we will propose at our Annual Meeting next month an initiative which
seeks to provide clubs with an incentive to keep up to date with payments
to HMRC for PAYE and NI contributions. If approved, clubs who fall behind
(with either current debt or time to pay agreements on historic debt) will
be embargoed from signing further players. In other words, if a club
cannot meet costs associated with existing players they would not be
allowed to make further commitments on playing personnel. Furthermore,
we will be seeking authorisation from clubs to get details of their
indebtedness directly from the Revenue and I have agreed this
arrangement in advance with Dave Hartnett at HMRC. We believe that
this initiative will not only help to control clubs’ indebtedness it will also
provide an early warning system with regard to clubs who find themselves
in difficulty. We are very optimistic that this initiative will find favour with
our clubs. It is also another example which demonstrates that the
approach across football will not always be consistent. Nevertheless, we
are hopeful that this initiative will be another major step forward for The
Football League.
4. You question whether the principle of football creditors should be revisited.
I think that we need to be quite frank on this subject and say that The
Football League as a whole is not inclined to move away from this
particular policy. For one thing football operates in a closed market.
Moreover, Richard Caborn when he was Minister for Sport said the
Government acknowledged the reasoning behind this principle.
Nevertheless, HMRC have opposed it since their own preference was
removed in 2003. However our initiative referred to in (3) above should
assist in this respect.
I believe that you should also be aware that tinkering with football
creditors would have far-reaching consequences. The ‘rescue culture’
advocated by current insolvency legislation is not likely to be maintained
within football if debts within the game could be left behind. This would
mean that clubs entering administration are likely to face expulsion by
their peers rather than be given another opportunity to overcome their
difficulties. Furthermore, our long-standing Collective Bargaining
Agreement with the PFA might be jeopardised if Administrators were
allowed simply to cull playing staff unilaterally. The whole registration and
transfer system, which is currently a ‘two-way street’, could subsequently
be unsustainable if employers had a legitimate one-sided means of
terminating the contracts of players who were no longer wanted. For
these reasons in particular this aspect of football’s insolvency policy should
be left alone.
5. You ask whether the fit and proper persons test needs to be strengthened and applied on a consistent basis.
As I mentioned earlier, the original fit and proper persons test was the
initiative of The Football League. Undoubtedly, however, our initial version
was always going to need refining and updating from time to time, and we
continue to seek to improve this particular legislation. In this regard part
of our limitation is restricted resources. However, we would be happy to
work with both The Football Association and the Premier League to see
how these rules can be strengthened appropriately, including how they
might be applied prospectively.
6. You question how competitive balance might be improved within the
professional game.
Arguably, this is perhaps the biggest threat facing the modern game. I
know that the Premier League have justifiable concerns about the impact
of European club competition on their own competitiveness at a domestic
level. Likewise I have already alluded to the ramifications of the Premier
League’s own commercial success on our clubs. These ramifications have
only added to the losses being incurred by Football League clubs,
particularly at Championship level, and the situation is now becoming
acute. We, therefore have two further suggestions as to how this
important aspect could be addressed, both of which might require
Government help.
Firstly, provided the competition rules governing fair trade can be
adequately dealt with then The Football League would not be averse to
joining its television properties with those of the Premier League in return
for an agreed share of the total proceeds. This would certainly ensure no
appreciable deterioration in the present financial disparity between us
which is always a risk going forward. Whilst combining properties might
initially create some concerns, a subsequent ‘bundling’ of these rights into
a number of packages for the marketplace (similar to the Premier League’s
current practice) ought to satisfy the competition regulators.
Nevertheless, it would be helpful to have the Government’s perspective on
such a concept.
Secondly – and once again Government assistance might be required to
achieve this objective – it would help Football League clubs if the transfer
market could be reopened on a domestic level. The introduction of
Transfer Windows by FIFA following discussions with the European
Commission caused a collapse in the domestic transfer market which, in
turn, frustrated the traditional method of re-distributing wealth within the
game. FIFA’s initial objective was to provide contract stability across
international borders in an attempt to prevent a minority of football
markets from monopolising top talent. Whilst it is entirely questionable
whether this has worked, FIFA remain implacably opposed to relaxing the
current regime for fear that players will seek unilaterally to terminate their
contracts early in order to exploit opportunities elsewhere. It is with this
background in mind that individual countries have been prevented from
operating the principle of subsidiarity on a domestic level.
It is clear, therefore, that it would require political intervention in order for
there to be any change in this position. It is an irrefutable fact, however,
that the denial of an ongoing source of transfer income has helped polarise
football finances in this country even further. A return to an ‘open’
registration system where domestic transfers can be concluded throughout
the season would help redress this position. We believe that this could be
justified on the basis that, whilst the movement of players across
international borders may require global regulations which are consistent,
domestic transfers can be controlled by local Collective Bargaining
Agreements. After all, our domestic CBA ensures that all our own football
bodies (the PFA, the FA, the PL and the FL) are all part of a single
community in this respect. Once again, we would be interested in the
Government’s view on this important aspect as well.\
7. You ask if everything possible is being done to bolster the national team
and you raise the issue of quotas for home grown players
As you know, this is another area which The Football League has
pioneered and from next season every club will be required to include at
least four home grown players in its squad for every match. Whilst this is
a relatively modest number, it was important to establish the principle in
order to ensure that the present position did not deteriorate further. It
will be for the clubs themselves to decide whether this number ought to be
increased further in due course. In tandem with our home grown
initiative, we also intend introducing greater flexibility for Football League
clubs to loan younger players next season in order to provide more
opportunities for players aged between 17 and 21 to make the leap from
development football to competitive open-age football at first team level.
However, in return for these initiatives our clubs are seeking greater
security of registration for home produced players. We would commend
these initiatives to the other football bodies.
As I said in my introduction, we welcome the opportunity to contribute to this
debate and express the views of the League’s Board of Directors. If Government
feels that further discussion on these or other areas are necessary then, of
course, we would be willing to participate.
Kind regards
Yours sincerely
Lord Mawhinney
LEAGUE RESPONDS TO GOVERNMENT
The Football League has published its response to the question posed by Andy Burnham MP, the Secretary of State for Culture, Media and Sport in his letter to the football authorities earlier in the season.
The letter from League Chairman Lord Mawhinney answers each of the seven questions in turn and covers a range of issues relating to the financial governance of the game.
To read Lord Mawhinney's letter in full click here.
www.football-league.co.uk/staticFiles/a5/37/0,,10794~145317,00.pdf
AGW/jk/9922
18th May 2009
Rt Hon A Burnham MP
Secretary of State
DCMS
2-4 C***spur Street
London SW1Y 5DH
Dear Secretary of State
Following discussions with my colleagues on The Football League Board, I am now in a position to respond to your letter dated 16th October 2008.
As you are aware, The Football League has been at the forefront of improving the
governance and financial regulation of our national game in recent years. We
were the first football body to introduce a fit and proper persons test for club
directors; to publish fees paid to football agents and to ban dual representation;
to introduce wage controls in our lower divisions; to create sporting sanctions for
clubs entering administration; and to appoint independent directors to its Board.
More recently we have ‘drawn a line in the sand’ by introducing a Home Grown
Players policy and are actively seeking greater opportunities for domestic players
with a new Youth Loan proposal specifically aimed at Under 21 year olds.
Nevertheless, we recognise that there is still work to be done and so we welcome
the opportunity presented by your letter to further contribute to this debate. I
will try to deal with the questions you raise individually although inevitably there
is some crossover where issues become inter-dependent.
1. You ask how we can ensure that financial regulation is more joined up in
order to achieve greater consistency.
Whilst we appreciate that to the outside world football is a simple game
which ought to have common rules, the reality is quite different.
Professional football today is a highly sophisticated business which has had
to respond to a particularly fast changing commercial landscape. The
Football League operates at a different level from our colleagues in the
Premier League, for example. Indeed, it was the advent of subscription
television which directly led to the formation of the Premier League in the
first place.
Our own initiatives, therefore, have been geared to our own circumstances
and, although several of these have been copied across the game, we
have to recognise that our own member clubs need to be convinced of the
appropriateness of each measure. Let me give you an example. As I
have already mentioned, mandatory cost controls have been in place at
League 2 level for some years (voluntary at League 1 level). This was
possible because the owners of League 2 clubs took a conscious decision
to try to limit players’ wages as a percentage of club turnover. More
recently, I personally have tried to convince the rest of the League of the
merits of some form of cost control. Earlier this season, I spent a
significant amount of time and effort exploring various options with club
owners and major shareholders. Unfortunately, however, this was to no
avail. Whilst the majority of clubs in Leagues 1 and 2 were probably in
favour, Championship clubs remained highly sceptical. The main reason
for this was the market place in which they have to compete. Players’
wages are greatly influenced by the ‘ripple-effect’ of the wages paid in the
Premier League as well as the parachute payments paid to relegated clubs
(currently £11.2 million p.a. for two years). Any attempt to restrict wages
by means of a formula proved impossible.
Although we currently have a ‘solidarity’ arrangement in place with the
Premier League – for which we are very grateful – this is subject to reexamination
each time broadcasting deals are renewed. Bearing in mind
that players’ wages are frequently linked to broadcasting income, it seems
to us that it ought to be possible to introduce a mechanical process for
determining at least part of future solidarity payments. For example, this
element could be dependent upon the aggregate Premier League wage bill
for players applicable at any given time with the solidarity payment
including a percentage of that overall figure. This method would have the
advantage of being self-adjusting according to the costs associated with
players in the top flight and also seek to counteract the ripple-effect of
these costs on the wider domestic football market.
2. You ask about the scrutiny of club ownership and make reference to the level of debt in the game.
Whilst we appreciate your concerns in this area, we take the view that
Government itself needs to take a lead here. We have had firsthand
experience of club ownership lying with off-shore investment vehicles
which have proved impenetrable when it comes to transparency. Indeed,
I have had discussions and correspondence with your Cabinet colleagues
on this subject. In summary, we would welcome greater transparency in
this respect but the current legal position prevents that. With regard to
the level of debt, leveraged acquisitions are not something we have had to
face in The Football League bearing in mind the measure of profitability –
or rather lack of it! Nevertheless, I will return to the question of debt in
(3) below.
3. You question whether the rules on insolvency should be re-examined and you make the case for an early warning system.
As you know, we in The Football League probably have more experience in
this area than anyone else in the game. Whilst this is not something
about which we are particularly proud, it represents a further reflection of
the existing financial pressure which currently prevails at our level. In
some respects our emphasis hitherto has been to seek to promote better
financial management by raising the bar in terms of deterrence – hence
our introduction of sporting sanctions. Regulatory sanctions can, however,
only take two forms – monetary penalties or points deductions. We have
taken the view that fines are inappropriate in these circumstances whilst
points penalties have the added advantage of redressing the competitive
balance in favour of those clubs who manage their affairs more prudently.
We acknowledge, however, that prevention is better than cure. To this
end, we will propose at our Annual Meeting next month an initiative which
seeks to provide clubs with an incentive to keep up to date with payments
to HMRC for PAYE and NI contributions. If approved, clubs who fall behind
(with either current debt or time to pay agreements on historic debt) will
be embargoed from signing further players. In other words, if a club
cannot meet costs associated with existing players they would not be
allowed to make further commitments on playing personnel. Furthermore,
we will be seeking authorisation from clubs to get details of their
indebtedness directly from the Revenue and I have agreed this
arrangement in advance with Dave Hartnett at HMRC. We believe that
this initiative will not only help to control clubs’ indebtedness it will also
provide an early warning system with regard to clubs who find themselves
in difficulty. We are very optimistic that this initiative will find favour with
our clubs. It is also another example which demonstrates that the
approach across football will not always be consistent. Nevertheless, we
are hopeful that this initiative will be another major step forward for The
Football League.
4. You question whether the principle of football creditors should be revisited.
I think that we need to be quite frank on this subject and say that The
Football League as a whole is not inclined to move away from this
particular policy. For one thing football operates in a closed market.
Moreover, Richard Caborn when he was Minister for Sport said the
Government acknowledged the reasoning behind this principle.
Nevertheless, HMRC have opposed it since their own preference was
removed in 2003. However our initiative referred to in (3) above should
assist in this respect.
I believe that you should also be aware that tinkering with football
creditors would have far-reaching consequences. The ‘rescue culture’
advocated by current insolvency legislation is not likely to be maintained
within football if debts within the game could be left behind. This would
mean that clubs entering administration are likely to face expulsion by
their peers rather than be given another opportunity to overcome their
difficulties. Furthermore, our long-standing Collective Bargaining
Agreement with the PFA might be jeopardised if Administrators were
allowed simply to cull playing staff unilaterally. The whole registration and
transfer system, which is currently a ‘two-way street’, could subsequently
be unsustainable if employers had a legitimate one-sided means of
terminating the contracts of players who were no longer wanted. For
these reasons in particular this aspect of football’s insolvency policy should
be left alone.
5. You ask whether the fit and proper persons test needs to be strengthened and applied on a consistent basis.
As I mentioned earlier, the original fit and proper persons test was the
initiative of The Football League. Undoubtedly, however, our initial version
was always going to need refining and updating from time to time, and we
continue to seek to improve this particular legislation. In this regard part
of our limitation is restricted resources. However, we would be happy to
work with both The Football Association and the Premier League to see
how these rules can be strengthened appropriately, including how they
might be applied prospectively.
6. You question how competitive balance might be improved within the
professional game.
Arguably, this is perhaps the biggest threat facing the modern game. I
know that the Premier League have justifiable concerns about the impact
of European club competition on their own competitiveness at a domestic
level. Likewise I have already alluded to the ramifications of the Premier
League’s own commercial success on our clubs. These ramifications have
only added to the losses being incurred by Football League clubs,
particularly at Championship level, and the situation is now becoming
acute. We, therefore have two further suggestions as to how this
important aspect could be addressed, both of which might require
Government help.
Firstly, provided the competition rules governing fair trade can be
adequately dealt with then The Football League would not be averse to
joining its television properties with those of the Premier League in return
for an agreed share of the total proceeds. This would certainly ensure no
appreciable deterioration in the present financial disparity between us
which is always a risk going forward. Whilst combining properties might
initially create some concerns, a subsequent ‘bundling’ of these rights into
a number of packages for the marketplace (similar to the Premier League’s
current practice) ought to satisfy the competition regulators.
Nevertheless, it would be helpful to have the Government’s perspective on
such a concept.
Secondly – and once again Government assistance might be required to
achieve this objective – it would help Football League clubs if the transfer
market could be reopened on a domestic level. The introduction of
Transfer Windows by FIFA following discussions with the European
Commission caused a collapse in the domestic transfer market which, in
turn, frustrated the traditional method of re-distributing wealth within the
game. FIFA’s initial objective was to provide contract stability across
international borders in an attempt to prevent a minority of football
markets from monopolising top talent. Whilst it is entirely questionable
whether this has worked, FIFA remain implacably opposed to relaxing the
current regime for fear that players will seek unilaterally to terminate their
contracts early in order to exploit opportunities elsewhere. It is with this
background in mind that individual countries have been prevented from
operating the principle of subsidiarity on a domestic level.
It is clear, therefore, that it would require political intervention in order for
there to be any change in this position. It is an irrefutable fact, however,
that the denial of an ongoing source of transfer income has helped polarise
football finances in this country even further. A return to an ‘open’
registration system where domestic transfers can be concluded throughout
the season would help redress this position. We believe that this could be
justified on the basis that, whilst the movement of players across
international borders may require global regulations which are consistent,
domestic transfers can be controlled by local Collective Bargaining
Agreements. After all, our domestic CBA ensures that all our own football
bodies (the PFA, the FA, the PL and the FL) are all part of a single
community in this respect. Once again, we would be interested in the
Government’s view on this important aspect as well.\
7. You ask if everything possible is being done to bolster the national team
and you raise the issue of quotas for home grown players
As you know, this is another area which The Football League has
pioneered and from next season every club will be required to include at
least four home grown players in its squad for every match. Whilst this is
a relatively modest number, it was important to establish the principle in
order to ensure that the present position did not deteriorate further. It
will be for the clubs themselves to decide whether this number ought to be
increased further in due course. In tandem with our home grown
initiative, we also intend introducing greater flexibility for Football League
clubs to loan younger players next season in order to provide more
opportunities for players aged between 17 and 21 to make the leap from
development football to competitive open-age football at first team level.
However, in return for these initiatives our clubs are seeking greater
security of registration for home produced players. We would commend
these initiatives to the other football bodies.
As I said in my introduction, we welcome the opportunity to contribute to this
debate and express the views of the League’s Board of Directors. If Government
feels that further discussion on these or other areas are necessary then, of
course, we would be willing to participate.
Kind regards
Yours sincerely
Lord Mawhinney