Football Clubs in England: Financial Sustainability

James Daly Excerpts

Monday 7th November 2022 Commons Chamber

[Shabana Mahmood]

The hon. Member is absolutely right. We learned through covid that fans are the lifeblood of the game. If we take away fans, it destroys not only the business model but the spirit of football.

[James Daly (Bury North) (Con)]

I congratulate the hon. Lady on securing this very important debate. As ever, it is wonderful to be in the Chamber at the same time as the hon. Member for Strangford (Jim Shannon). However, his point was very much about the premier league. Many clubs are not on the stock market. Clubs like Bury football club in my constituency are small businesses that are the centre of their community. I know exactly what Birmingham City is going through. My team, Huddersfield Town, where I am a season-ticket holder, is going through something similar, although hopefully it will be not as bad as it is for Birmingham. However, there is no regulation in the game. The English Football League and the Football Association do not regulate football teams. That is the problem and it is why we need a regulator.

[Shabana Mahmood]

The hon. Gentleman is absolutely right, and I will come to that point. Without regulation, none of football can thrive. The premier league cannot thrive, nor can all the other teams that are not in that league. It is a pyramid, an ecosystem, that depends on every part of it being well regulated to make sure that some of the smaller clubs—I hate calling them smaller clubs actually, because they mean a lot to their communities—have just as much to offer our national game as the big clubs at the top, which have much more money.

On ownership and how that can change across football clubs, too often, there are question marks over the potential motivations of those who buy English football clubs, which can become vehicles for bolstering the reputations of foreign leaders, politicians and businessmen close to politicians whose interests may run counter to our national interest. Sometimes we know who those people are, but sometimes the true ownership is disguised—a sure sign that there is something to hide. However, in those cases, and this goes to the hon. Gentleman’s point, the club, its fanbase and its value as a community and national heritage asset becomes a plaything of those who have no stake and no commitment to the community, and who do not care for the heritage value—which I consider to be the real value of football clubs—and see it only as a tool of commercial interest.

[James Daly]

I understand the hon. Lady’s point about foreign Governments, and so on. However, we have to understand that a lot of people with malevolent intent take over a football club by borrowing from exotic lenders to then, essentially, take every penny out of that club. These are people with malevolent and often dishonest intent. That is not about the big-picture, wider geopolitical issue that she mentions—I am talking about pure and utter greed by people who are dishonest.

[Shabana Mahmood]

The hon. Gentleman is absolutely right. There is an issue at the bigger end of the spectrum, with the involvement of potentially hostile foreign Governments, but right underneath that there are a number of individuals going to great lengths to disguise where the money ultimately comes from and to disguise their identities. I will come on to that issue in relation to Birmingham City football club. The business model that that creates for football is not sustainable and should not be tolerated in something so vital to the fabric of our national life.

In the end, as the fan-led review found, it is the regulatory underlaps and overlaps in the current system that are allowing bad behaviour to fall through the cracks, meaning that some clubs are left in severe financial distress. The Premier League and the English Football League have their own owners and directors tests, but given that there are several examples of unsuitable owners passing these tests—including those with a history of bankruptcy, those engaged in legal disputes with other football clubs, and even those with serious criminal convictions—let us just say that the tests do not fill anyone with any confidence whatsoever. The fan-led review laid bare all of those issues and the need for an independent regulator and a complete overhaul of the current system in order to prevent the collapse of football clubs across the country.

I am desperate to make sure that Birmingham City football club can be rescued from its current predicament and put on a sustainable footing. It is one of the oldest football clubs in the country. It was founded in 1875 in Small Heath, which much of the country will know as peak “Peaky Blinders” territory, and which is also the part of Birmingham that I was born and raised in. It acted as a rifle range for training soldiers in world war one, and like much of Small Heath it was bombed during world war two. It is steeped in history and has a heritage that Brummies across the city are proud of, but for many years Blues fans have watched with devastation as financial and professional mismanagement has driven their beloved club to the brink.

In 2009 the club was bought by Hong Kong-based businessman Carson Yeung, who was sentenced to six years in prison on money laundering charges just two years later. The club was then bought out of administration in 2016 by the current owners, Birmingham Sports Holders Ltd, a company that is backed up by a convoluted network of shell companies and overseas stakeholders. With a crumbling stadium and a far removed invisible ownership, points deductions and crippling debts, the club continues to swing from crisis to crisis. The once premier league team has not finished higher than 17th for six years in a row.

How did our beloved club get to this point? The first issue is debt, which the hon. Member for Bury North (James Daly) has also raised, which has put the club’s finances under significant strain. The 2021 accounts reveal that the Blues spent £37 million more cash than they generated from day-to-day activities and that they are grappling with over £120 million of debt.

It is well known why and how clubs can get themselves into such eye-watering levels of debt. As the fan-led review notes, our current system creates misaligned incentives, with clubs spending to the hilt to get promoted to higher leagues in order to secure bigger TV deals and financial rewards. This creates an incredibly destructive cycle. The current lack of regulation also means that football clubs can find themselves hostage to malevolent forces acting with intent other than the sustainability of the football club that they have acquired.

What compounds those issues in the case of Birmingham City is its significant reliance on parent companies to bail it out of financial trouble. Birmingham City’s loss would have been much higher had it not been compensated by major shareholder and chief executive officer of Oriental Rainbow Investments, Vong Pech. The club now owes his company more than £22 million, raising serious questions about its financial position. The club’s own accounts state that there is

“a material uncertainty casting significant doubt about company’s ability to continue”,

but

“the directors remain in the view the company can obtain required funding from parent or ultimate parent.”

The fan-led review evidences how it was that these exact practices led to the collapse of Bury football club. As soon as an owner is no longer interested or able to invest, the club faces ruin. This is the worst-case scenario that Blues fans dread, but it shows that across English football a completely unsuitable business model has been allowed to take hold, and it is not sustainable.

--- Later in debate ---

[Stuart Andrew]

I will certainly come to that in a moment; I am sure that is the bit everybody is waiting for—do not hold your breath. [Laughter.]

As I said, one of the first things I wanted to do was to meet the fans. They are the ones who are most invested in their clubs and who go and support them day in, day out, whatever the results, the weather or their fortunes. Without them, football in this country would simply not be the fantastic game that it is.

[James Daly]

Football is obviously all about its fans; does the Minister agree that it has a potential that is untapped by the state? What with the delivery of frontline services at community stadiums, the groupings and support and everything else that goes with that, the added social value is immense.

Does the Minister also agree that it has been an absolute pleasure to sit in the Chamber with the hon. Member for Birmingham, Ladywood? She should be incredibly proud of the passion she has shown for her community and her football team, and every single Birmingham City fan should be proud of what she has done today because it really does matter. Does the Minister agree?

[Stuart Andrew]

How could I possibly not agree with my hon. Friend? He is absolutely right. In the short few weeks I have been in this job I have really noticed the passion that everybody has for the sport. Fans sometimes get frustrated with their club’s performance, but their passion and loyalty are to be admired. My hon. Friend is absolutely right to praise the hon. Member for Birmingham, Ladywood for securing this debate.

As I said, I was keen to hear from the fans first, which is why they were the first people I met when I took on this role. I met representatives from the Football Supporters’ Association, Fulham Supporters’ Trust, Charlton Athletic Supporters’ Trust and Blackpool Supporters Trust to hear their stories. All those clubs had suffered at the hands of owners who used and abused their stewardship. This relates to the point made by the hon. Member for Strangford (Jim Shannon). Some of the stories I heard were frankly shocking, and some of the sacrifices that the fans had to make to make their point were astounding. The fact that Blackpool supporters boycotted their own club for four or five years really does show the strength of their feeling.

Too many clubs have been lost to the cycle of unsuitable owners taking over clubs, stripping them of their assets, as the hon. Member for Birmingham, Ladywood said, and leaving them as empty shells, as my hon. Friend the Member for Bury North (James Daly) said. Too many clubs have been brought to the brink, with owners refusing to fund them any more. We are committed to breaking the cycle of inappropriate ownership, financial instability and poor governance practices. I look forward to the debate that my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell) has secured for tomorrow. He mentioned the issue of cryptoassets; I am sure we will be having that conversation for a good few months.

Since my meetings with fans, both the Secretary of State and I have met representatives from the football authorities—the FA, the Premier League and the English Football League—to understand their perspectives on reform, too. The policy is complex and it is important that we get it right. We are talking about matters of finance and governance, and I make no apology for taking the time to ensure that I have properly considered all the issues before me. That is why we continue to engage and hear views from a wide range of stakeholders, including the football authorities and, most importantly, the fans’ groups.