Football Clubs (Insolvency)

Jim Shannon Excerpts

Tuesday 18th March 2014 Westminster Hall

[Justin Tomlinson (North Swindon) (Con)]

I apologise for arriving late, but I had to serve on a Delegated Legislation Committee. It is a great pleasure to support both this debate and the private Member’s Bill of my hon. Friend the Member for Folkestone and Hythe (Damian Collins).

I am an unabashedly huge football fan, and I have two brief points that are slightly too long for an intervention. My first point is on the Insolvency Act 1986. I represent North Swindon, and we have Swindon Town football club, which has entered administration twice and avoided it on many other occasions. We have had a number of owners, some good and some less good. The hon. Member for Coventry South (Mr Cunningham) mentioned St John Ambulance, and his point applies to Swindon, too. We had a number of good local businesses—genuine suppliers—that were left high and dry each time the club’s ownership changed. Various wealthy people managed to get away completely unscathed while those who were working hard to support our vital community football club were left with their fingers burned, which made it a lot harder for the town to continue trusting the new owners.

My second point is on transparency. We have heard about the situations in Portsmouth and Coventry, and the same applies to many football clubs across the country. As supporters, we simply do not know who is responsible for the football club and who is ultimately making the decision to spend more money than the club can viably sustain. I have previously called for every football club to have an elected fans representative on the board. Ultimately, we need business people who are good enough to raise sufficient money, but stupid enough to go and waste it chasing domestic success when running the club, and an elected fans representative would at least always ensure transparency.

My hon. Friend the Member for Portsmouth North (Penny Mordaunt) described people trying to work out who the administrator was, but the fans representative would provide a link inside the football club. The football clubs would benefit, because at the end of the day, we long-suffering supporters are the customers. We buy the season tickets, the replica shirts, the Christmas presents, the programmes and the pies at half time. Having that rep on the board would offer a link to those customers. The rep could suggest where things are going right and where there are further opportunities to grow, as well as perhaps being the front that liaises with the local community, building trust in and support for the club.

[Jim Shannon (Strangford) (DUP)]

I also apologise for not arriving on time for the debate. I was also on a Delegated Legislation Committee and I took a little bit of time to get down here. I am pleased to have the chance to support this debate. I support Leicester City, and have done since I was a wee boy. We are looking forward to going back to the premier league, but we have had difficulties in the past. The loyalty of supporters and their contribution to their club, whether socially, physically, monetarily or in time—they might attend all the matches—are important. I totally support the hon. Gentleman’s point that the clubs should have within their administration some method whereby supporters clubs, or individuals on behalf of supporters clubs, can have an input into what happens.

[Justin Tomlinson]

I thank the hon. Gentleman for his comments, which I agree with. I see that representative being elected through the supporters trust network. We have had a number of Supporters Direct events in Parliament, and we have all seen at first hand the fantastic work that it does.

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[Justin Tomlinson]

I believe the individual ended up at Carlisle, and the club had a chequered time under his stewardship. Time and again, we are seeing people coming in for various different reasons without the interests of those football clubs at heart. I understand the world of business, but these clubs are valuable community assets. The Government need to apply pressure to the Football League and the Premier League, because it is in their interest to get their houses in order.

[Jim Shannon]

The hon. Gentleman is being gracious and kind in giving way again. We are referring to the English Football League. Will there be an opportunity for the Minister to look at what is happening in Scotland and the other leagues? I think of Rangers FC, which is an institution. I have supported the team since I was a young boy. The club has dipped in and out of administration and still has difficulties in the board room. The club is important: at its past three matches, 115,000 fans have come to support it. Does the hon. Gentleman feel that we have to look beyond the English league to the leagues in Scotland, Northern Ireland and Wales?

[Justin Tomlinson]

I absolutely agree. The issue affects football clubs across the country. In Scotland, there is the worrying experience with Hearts. As with Portsmouth, people are trying to do deals, but even the club cannot identify the owner.

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[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure to serve under your chairmanship again, Mr Streeter. I thank my hon. Friend the Member for Coventry South (Mr Cunningham), and the hon. Members for Portsmouth North (Penny Mordaunt) and for North Swindon (Justin Tomlinson). There was also a good late substitution when the hon. Member for Nuneaton (Mr Jones) came on to the pitch. Most of all I thank the hon. Member for Folkestone and Hythe (Damian Collins) for securing the debate. The manner in which he advanced his excellent, eloquent argument was first class, and he set the tone for the rest of the debate. He closed his remarks by explaining that the issue is one that arguably affects all our communities. It certainly affects millions of football fans.

I was particularly pleased that my hon. Friend the Member for Wirral South (Alison McGovern) was here, because she is a fan of Liverpool football club, and Bill Shankly, one of this country’s greatest ever managers, famously said:

“Some people believe football is a matter of life and death, I am very disappointed with that attitude. I can assure you it is much, much more important than that.”

In many ways that is true, as we have heard today. Football makes a remarkable contribution to society. In my own patch, about a fifth of Hartlepool’s population travelled to Cardiff’s Millennium stadium to see Hartlepool United against Sheffield Wednesday in the league one play-off final in 2005, where we were cruelly robbed by an appalling refereeing decision. [Interruption.] It was a fabulous stadium.

Football provides a place with a sense of identity and belonging, and a recurring theme of the debate has been that clubs are much more than merely businesses. They are vital social institutions that bring and bind communities such as the people of Hartlepool together. There is a strong case for saying that in matters of business, governance, ownership, transparency about those matters and insolvency, the wider effects on society and communities should be considered.

It always strikes me as odd that, given football’s central importance to our society and communities, its finances are often precarious. Every year, Deloitte, a firm for which I used to work—I draw the House’s attention to my entry in the Register of Members’ Financial Interests—produces a review of football finance. The latest review showed that in the 2011-12 season, the total revenues of the 92 clubs in the top four divisions of English football exceeded £3 billion for the first time. However, the Premier League accounted for almost four fifths of that total. Lower down the leagues, it is a different story. In the 2011-12 season, the average revenue of a league one club was £5 million, with an average net loss of £2.4 million; and in league two revenue was £3.3 million, with an average net loss of £0.3 million.

My local club, Hartlepool United, has had its fair share of flirtations with insolvency, although not in recent years, thankfully. We are infamous for a record number of re-elections to the Football League, and in the 1980s there was a time when we owed £52,000 to the Inland Revenue and a six-figure sum to other creditors. We were days away, in 1983, from being wound up, and the bailiffs took the goal posts, goal nets and grass cutter to pay the debt—not that we noticed much, because that year we finished third bottom, with a goal difference of minus 30. The only people below us, funnily enough, were Hereford United. It is funny how things go. We were actually wound up in the High Court in 1992-93 but the town’s club was saved by a great man—Harold Hornsey—and that helped to put Hartlepool United on a much better, sound financial footing.

[Jim Shannon]

Even though a club may be small, it makes a contribution to its town or city, and to society, and gives people pride even when it is not playing as well as it might or as well as people would like. Those are important factors for communities, and we should not take away from that. Perhaps a club will never become a Manchester United, Liverpool or Rangers, but it can always be an Ards football club, or a Hartlepool United. Those things are important to society.

[Mr Wright]

I must disagree with the hon. Gentleman. In my lifetime, Hartlepool United will become a Manchester United or a Liverpool, and I will live to see us lift the champions league trophy, so the hon. Gentleman is wrong in that respect. He is right, however, about the vital contribution that clubs make to local businesses. Hartlepool borough council recently undertook an assessment of Hartlepool United’s economic impact on local businesses and, astonishingly, the club provides something like £5 million to Hartlepool’s economy.

The figures I have quoted show how inherently uncertain is the business model on which much of football is based. The hon. Member for Folkestone and Hythe said that 46% of clubs have been through a formal insolvency procedure since 1992. No other sector of the economy has had that level of insolvency, which highlights—this was one of the hon. Gentleman’s most articulate points—the possibility of reckless spending. Entry into the premier league—the most exciting and followed league on Earth—could mean as much as £50 million to a club. It is the glittering prize to which all supporters and owners aspire, but it leads to reckless gambles in the transfer market, which could undermine the financial viability and long-term security of a club. Some argue that the football creditors rule prevents clubs from spending money on players whom it cannot afford, but we have heard today that that is far from the case. The football creditors rule means that there is no inherent brake on transfer spending or on—as the hon. Gentleman said—the shared risk of a club not being paid for the transfer of a player, because football creditors are paid in full at the expense of other unsecured creditors.

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[Jenny Willott]

The hon. Gentleman makes an interesting point, but I have to confess that I do not know the answer. If it is okay with him, I will write to him after the debate to clarify that point.

When a football club is sold, which takes it out of insolvency, the purchaser generally funds the payment of the football creditors, or other funds that do not belong to the club are used. A different pot of money is therefore paying for the football creditors. That is one of the reasons why the football creditors rule does not breach existing insolvency law. Were the funds to come from the same pot, it would breach the law, because it would be treating different unsecured creditors differently. Nevertheless, today and on a number of occasions in the past, it has been suggested that the football creditors rule should be abolished through legislation. The hon. Member for Folkestone and Hythe has made that point today.

The number of Football League club insolvencies has declined significantly in recent seasons. In the 2003-04 season alone, six clubs became insolvent. Five years ago, there were around three or four failures per season. Happily, however, there have been no football insolvencies at all so far this season and only two in the season before that, and in one of those there were no football creditors, so the situation seems to be improving slightly. Insolvency is not the cause of a football business’s problems; it is a symptom arising from an underlying lack of financial stability.

The hon. Member for Hartlepool (Mr Wright) and other hon. Members mentioned financial fair play; the football authorities have made significant moves in recent years to put clubs on a stronger financial footing. They have introduced an early warning system for tax debts, salary caps and an agreement on financial fair play rules, which will ensure that clubs do not spend more than they earn. Those measures are possibly already having a beneficial impact in increasing financial stability, which will lead to a decrease in the number of insolvencies.

[Jim Shannon]

I intervened earlier to ask hon. Members what talks the Minister has had with other Administrations, because the Scottish Football Association is separate, and sport is devolved to the Northern Ireland Assembly and the Welsh Assembly. I am not trying to be nasty, but I want details on any discussions that the Minister has had with the devolved Administrations on these problems, which are very apparent in other regions of the United Kingdom of Great Britain and Northern Ireland.