Football Governance Bill (First sitting)

(Limited Text - Ministerial Extracts only)

Committee stage
Tuesday 14th May 2024 Public Bill Committees

[Mr Betts]

Fair enough.

[The Parliamentary Under-Secretary of State for Culture, Media and Sport (Stuart Andrew)]

Q We have heard some accusations that the Bill is over-regulation for football. What is your view on that?

Dr Philippou: It is fairly light touch from a compliance background, if you look at the financial implications and what is being asked for. In summary, you are effectively asking for some budgeting, some basic risk assessment, and knowing the roles of your senior management. It is fairly light touch, if you are running the club properly. From my perspective, it does not look particularly over-regulated. Certainly, from a compliance perspective, I would expect that if you are running the club properly, a lot of that information should be there anyway, and should be easily reportable without adding much burden to clubs.

[Stuart Andrew]

Q You gave us quite a lot of information about the financial situation in both the Premier League and the EFL, but what about the National League?

Kieran Maguire: As far as the National League is concerned, I think the average losses were £970,000 a year. There are no cost-control measures as far as the national league is concerned, so that is why we have seen the recent arrival of owners who have transformed individual clubs, because they have been allowed to achieve effectively unlimited levels of loss. That potentially has implications when those clubs are promoted to League Two, although again they have tended to do very well.

The National League has been intriguing, and certainly issues arose with governance during covid, such as the grants that were given to support those clubs, which proved to be quite contentious. Like both the Premier League and the EFL, there appears to be some form of civil war taking place within—or between—clubs. We talk about the Premier League, the National League and the EFL, but I do not think there is a collective viewpoint within those institutions themselves from an individual club basis.

Dr Philippou: From a financial profile point of view, the National League shows very similar financial issues to League One and League Two. It is not as if National League clubs are free from problems, and the reason why they are in here is because they are pro clubs—it is professional football.

[Ian Byrne]

Q Is there anything in the Bill that imperils the financial sustainability and global success of the Premier League?

Kieran Maguire: The Premier League has been successful because it has gone out to an audience and it has sold its services. There is no reason why the Premier League will not be competitive on a European basis in recruiting players, in respect of these rules. On attracting investment into the Premier League, part of the reason for its success is that we have moved effectively from a duopoly, which is where we were in 2005, to a more competitive product. In my view, if I was an investor, I would like to be able to invest in an industry where the opportunity to break even becomes greater, and I think that is more likely with the regulator than not.

Dr Philippou: We are not seeing much investment from certain areas that you would expect in most businesses. Part of that is the loss-making and the difficulty in conducting due diligence around football clubs. What we see in the Bill should fix that, and therefore we would expect to see more of a certain type of investment. Yes, perhaps there will be less investment from those who would rather not be in a more regulated environment, but that is not the overall picture.

--- Later in debate ---

[Robin Millar]

Q I am curious, then, because the Bill itself is a regulatory Bill. It talks about a licence to operate owners and directors tests, but in some of your replies, you have suggested something much more interventionist—something that is much more warning people about things that will cause them a problem further down the line. Is what you are describing about a regulation of interests rather than simply a regulation of finance? If that is the case, does this Bill focused on finance actually manage to do that?

Kieran Maguire: I think it does deal with the financial issues. Effectively, if the regulator becomes the Martin Lewis of football in giving appropriate advice, that can benefit the industry. Many people enter the football industry with very good intentions. They have been successful in their own roles in their own businesses and think they can replicate that in football, and then they are seduced by the nature of football. For example, you run a club on a sustainable basis, and you are in seventh in the Championship in January. Your manager comes to you and says, “I’ve spotted this centre forward—costs £8 million, wants 30 grand a week, can get us into the play-offs. We can be in the Premier League in six months,” and all your common sense goes out of the window. That is part of the joy of football, but it is also one of the reasons why we have resulted in a loss-making industry. Provided the owner is aware of the consequences of their decisions, all you can do is give advisory assistance, rather than telling them what to do.

Dr Philippou: But there is an element of investment fatigue. We see all these great things, it is all going well and people are pumping money in, and then something happens in their other businesses or they lose interest, and that is when things start going wrong in the industry. I guess that is why there is also the non-financial side of the Bill, which looks at the corporate governance and fixes that side of the game too.

[Stuart Andrew]

Q Do you worry about the competitiveness of the bottom of the Premier League, particularly after three weak clubs were promoted? That relates to some of the questions that were asked earlier. Do you have any thoughts about a reasonable timeframe for approving a takeover?

Kieran Maguire: In terms of the issues at the bottom of the Premier League, three clubs have just been promoted and have almost been relegated. The three clubs above them—excluding Everton, because if it had not had a points deduction, it would have been on 48 points—have been in the Premier League for two or three seasons, so there is an acclimatisation issue. There is also an issue at the top of the Championship. The clubs that have just been relegated have greater resources than their peer group, and that is going to have a yo-yo effect, which we appear to be locking in on a greater basis. That tends to be more of the case in the Championship and League One, where some clubs are moving. That is driven by the culture of the owners. The system at present encourages overspending. We have not seen that in respect of the three clubs that are being relegated, but we did see it to a greater degree with the clubs that were promoted in 2022.

Dr Philippou: Absolutely, there is that competitiveness issue, which we have seen diminish over time. That has a long-term impact on the commercial side and on broadcasting rights, because the less competitive a league becomes, the less likely people are to watch it and the less likely broadcasters are to put money in, so that can also have an impact.

[Mr Betts]

Q On the regulator’s powers, is it unusual to have a regulator that cannot decide to intervene until you have gone through a process, and will step in and do anything only after the parties have failed to reach agreement?

Kieran Maguire: You would hope that the parties would be able to sort something out between themselves. If we did not have a regulator, we would be in a very similar position to the one we have at present. The Premier League has no incentive to be more beneficial, in terms of the distribution of money. It would have to be dragged to the table by the regulator, so that is why the backstop powers are important. The EFL is a fantastic league in its own right. The chances are that anybody who has supported a club in the Premier League have also supported it in the EFL.

When it comes to the regulator using last resort powers, it is effectively the same as the Bank of England. The Bank of England is the lender of last resort, but there are alternatives. Surely the same should be true in football. It is testament to the intransigence of the Premier League, in particular, which is unwilling to look at the broader football issues in the country.

--- Later in debate ---

[The Chair]

I am going to move on to the Minister, as we are going to be short of time.

[Stuart Andrew]

Q The regulator will have a duty to work with the leagues when they are exercising their regulatory functions and have regard to the existing rules within your leagues. How do you see that working in practice, and how are you reforming your own structures to ensure that regulation works effectively? You talked about unintended consequences, Richard—can I just push you to give the Committee a specific example of what those might be?

Richard Masters: It is unclear—a lot of this depends not on the technical drafting of the Bill, but the personality of the regulator, who we are yet to meet. Now the appointments have been made, it depends upon how the regulator and its powers are going to be utilised. For example, if the regulator wishes to put financial controls on virtually all the 116 clubs that it wants to license, I believe that will stop investment into football squads and football in general, and will slow down the growth of English football. That is the principal unintended consequence I would be concerned about.

Mark Ives: On unintended consequences, there are a couple of things, particularly when you consider the size of the National League clubs and how they are staffed. The Bill is written in a way that sets out what it intends; it does not give how it is going to achieve those aims. As far as the clubs are concerned, there is massive uncertainty.

As we see it, one of the unintended consequences is the drain on the resources of those clubs because of the duplication of work and the over-bureaucracy that there may be. For example, we already have a licensing system. Our system includes our football finance regulations, which have been activated since 2013. It is worth noting that we are talking about improving the sustainability of our clubs—but the National League, which is the only division that I can talk about, has not had a club going into administration since 2013, since it brought in its financial regulations. That is not a bad record. Our concern is the duplication of that licensing scheme. As the Minister rightly says, there is a referral back to the league regulations. We had hoped that that would go further and put the onus on the league, on the competition, to be the first to react. If that does not work, then the regulator steps in—rather than create a lot of duplication of work for our clubs, as we see it.

The other issue is costs. The Bill is intended to ensure financial sustainability. Yet the concern of this is that, as with all regulators, the people who pick up that bill are those who are being regulated. I am not sure that the clubs fully understand that. When you are at the bottom level of what is being regulated, the fear is the quantum of those costs. If you have a challenge that goes to judicial review from one of the National League clubs, I suspect that the financial cost on that is not going to be too great. However, if one of the top clubs in the Premier League challenges the regulator, the costs on that are going to be really significant. Those costs get passed on to those being regulated, and they could run into millions of pounds, when the cost of those are being borne by clubs at the National League level. In our view the Bill is not strong enough in clarifying what proportionality means. We have been given assurances: we have had some good meetings with the Department for Culture, Media and Sport, with the Minister and the Secretary of State, where assurances are that it will be proportionate. However, we do not understand what “proportionate” is. So, one of the unintended consequences is the financial and human resource burden on our clubs.

Rick Parry: It is incumbent on us to work with the regulator to make sure that this works for the good of the game. We see big pluses in terms of the regulator bringing independence, transparency and consistency across leagues, which is a bit of a disaster area at the moment. We view it positively: everything we have found so far in terms of engagement with DCMS and in terms of the shadow body that is the regulator is that all these concerns can be addressed. It is going to be a tougher environment, but football needs a tougher environment. We have had 30 years to get this right and we have failed.

Richard Masters: Just to answer your question about what plans the bodies are making to adjust to the regulatory world, we will all have to adjust to the new environment that is coming. I am very happy to do so. Like Rick, we are already meeting with the shadow regulatory team on a regular basis and have had good conversations about how it might work in practice. In reality, I think the performance of the regulator can be managed. We will meet that obligation head on and ensure that they get all the information they need, and we will respond at all times.

The issue that we are most concerned about is what impact that might have on the wider system—beyond the very positive objectives of the regulator to give fans a stronger voice—to improve the sustainability of the pyramid and individual clubs, and to avoid some of the issues we have had in the past. We agree with all that, but it is important to make sure it does not impact on the very good success story that we have at the moment.

Mark Ives: Can I echo that and clarify some points about where we stand on the regulator? From day one, and from when Tracey started the fan-led review, we met the review and we were asked whether we wanted to be part of the regulator. We said yes we did, on the understanding that it would not be too onerous for our clubs, and we would keep a mind on the costs. So we are mindful of that. We embraced the regulator. Our position was always that if there is a regulator, we thought it should be the FA, but for well-documented reasons, we know why that cannot happen. So we move on and embrace the regulator as it is.

Our challenges are not about having a regulator; they are about understanding and clarifying how the regulator will work. We embrace it and we will work with it. We have had some very productive meetings with DCMS and discussions all the way through. All we are trying to do is make sure that it is not too onerous and too costly for our clubs, because we have to protect the interests of those clubs, and they need clarity.

[Damian Collins]

Q Richard Masters, at the beginning you raised some concerns about the checks on new owners. You said you wanted a process that was governed by objectivity and certainty—I think those were the words you used. A lot of people would look at the live example of Everton and 777 Partners and say that that does not look like a situation that is being governed by objectivity and certainty, and that it is the kind of case where the regulator may well have taken a different view from the Premier League and may well have rejected the takeover. Given your concerns about the regulator in this regard, and given that, after eight months, 777 has still not met the criteria that the Premier League has set, I would be interested to know why the Premier League has not rejected it.

Richard Masters: Let me be clear about what the Premier League’s role in this is. As regulator, it is to perform the test. It is not to decide who the current owner wants to sell this club to. That is his decision. At the moment, he wants to continue to have discussions with 777 about it. The Premier League has made very clear the conditions that have to be met by 777 if it wishes to become the owner of Everton. At the moment, obviously, because the takeover has not been confirmed, I will leave it to the Committee to make its own conclusions about where we are with that.

Rick and Mark have talked about some of the benefits of the regulatory ownership test, in the sense that they will get access to more information that we can have, because we are not a statutory body. So we can only get the information that we are provided with and we have strong investigatory powers.

The other thing that Mark talked about was speed. I accept that takeovers that carry on for a very long time are not good for fan certainty. That is why we have a very big team of people who do nothing else in this. All I would say is that over time, particularly in the Premier League, takeovers are becoming increasingly complex. It is not a small undertaking on the part of the regulator to take this burden on. That is why we want to remain involved with it as well. This is very complicated, and we need to make sure that all those decisions are correct, even if that means taking a little more time to make sure that a decision is correct.

--- Later in debate ---

[Stephanie Peacock]

Q Are there any particular topics that you would expect fans to be consulted on but that the Bill does not require?

Kevin Miles: We have had a long discussion with officials about exactly what the scope of engagement with fans should be. We think the fan engagement regime needs to be robust, it needs to be appropriate to the circumstances of all the regulated clubs and it needs to be based on democratic principles, with the composition of the fan representatives being determined independently of the clubs themselves. We have had some conversations about what the particular terms of the content of fan engagement should be and we have been talking to officials and Ministers about that. The list includes strategic direction and objectives of the club, the club’s business priorities, operational matchday issues, the club’s heritage and the club’s plans relating to additional fan engagement. That is as it currently stands.

When we have asked officials about specific examples of that, they have come back, for instance, on ticket pricing, saying “We expect those to be included in business priorities and operational and matchday issues.” However, there is currently a set-up in the Premier League of fan advisory boards that are required, under the Premier League’s rules, to engage with clubs. It seems to officials in the DCMS, as a matter of common sense, that ticket pricing would be one of the things that fans would discuss with their clubs. It seems to me a matter of common sense that ticket pricing is one of the things that fans would discuss with their clubs.

Yet, in the Premier League system, our members tell us that at Newcastle United, the fan advisory board was given three days’ notice of the ticket price increases without any consultation. At Fulham, there is no fan advisory board, but the supporters’ clubs there got four hours’ notice with an embargo before the announcement of ticket price increases. Nottingham Forest announced its prices without any discussion with its fan advisory board or the trust. Similar representations have been made to us about similar experiences at Bournemouth, Tottenham, Arsenal and Liverpool. That is happening already, and that is why we think that perhaps it would be useful to have in the Bill the additional words “including ticket prices”, just to make it explicitly clear.

The general point is that there is a lot in the Bill that depends on the view the regulator takes about what is included and the guidance that is given to the regulator. We would appreciate really strong statements from Ministers in the course of this process. That might help us to avoid the necessity of amending the Bill, but a strong direction from Ministers about what should be in scope and what is required of fan engagement to fill some of those gaps would be really useful.

[Stuart Andrew]

Q First of all, thank you, Kevin, for what you said about the officials. You are absolutely right; they have been superb throughout this whole process. Thank you, too, for your engagement.

I remember when I was first appointed, the first meeting I had was with you and with other fans. It was clear from that meeting that some clubs do engagement extremely well and, as you have just alluded to, there are others that do it differently. Given that fan engagement is part of the licensing regime, do you think that that is going to be sufficient to bring about a significant impact on the quality of fan engagement that we are currently seeing across the board? That is, are we levelling up, to coin a phrase?

Kevin Miles: I very much hope so, and I am optimistic in that regard. It is the first time that we will have had a requirement from clubs to engage with the fans and, to use the Prime Minister’s words, to put the fans’ voice “front and centre” of all those discussions. I do think, though, that there are a lot of details still to be worked out about how that actually looks.

There are some clubs, as you say, that are very good, but one of the illustrations of the limitations of self-regulation has been that when the leagues have been trying to put together their own requirements on fan engagement, because it has to be voted on by their members and agreed by their rulebook, the lowest common denominator tends to be put into the rulebook. We know that there are clubs that will resist the idea. There are owners who think they have nothing to benefit from in listening to the fanbase—their customer base, if you like. We know from experience that there are some who will do everything that they can to get around this. We will need to have an underpinning of that in the regulatory system, and some monitoring of it through the club licensing system. We recognise that this is challenging, because it cannot simply be a look at what structures are put in place. The regulator will have to do more than just monitor that there is a fan advisory board notionally in place. There will have to be some evaluation and examination of the content and spirit of the fan engagement. We are not expecting a fan veto on club decisions, but we are expecting that the fan voice is not just heard but listened to and given due consideration.

Evaluating that is a more complex process. Somebody referred earlier—I think in the first witness panel—to the possibility of Ofsted-type investigations. Maybe in some cases it will require the regulator to be able to consult the fan groups to see how they think it has been done, and to make its own evaluation about whether the spirit of what is intended here is actually being carried forward. That will need to be underpinned by requirements in the licensing condition.

[Ian Byrne]

Q Kevin, on the regulatory principles, I have tabled an amendment saying that supporters and supporter organisations should be added to clause 8(b). Does the organisation you represent agree with that?

Kevin Miles: Absolutely. If you look at that clause, you see that it is about the principles of the regulator. It currently reads that the regulator should,

“so far as reasonably practicable, co-operate, and proactively and constructively engage, with

(i) clubs,

(ii) owners, senior managers and other officers of clubs, and

(iii) competition organisers”.

We think that it is in the spirit of the rest of the Bill if a further provision is included that says “supporters and supporter organisations”. If the Bill really is about giving fans a voice at the heart of the game, the regulator should have that as part of those regulatory principles.

I cannot help thinking that this is an oversight rather than a conspiracy. Actually, the spirit of all the engagement we have had with the Department and with Ministers has been precisely that the supporters’ input into the regulation of the game would be an important component. But I think there’s a requirement for it to go on the face of the Bill in that clause.