Football Management

Commentary on the management of over 160 English football clubs by Dr John Beech, winner of the FSF Writer of the Year Award 2009/10 Twitter: @JohnBeech Curator of! Football Finance

When a club is at its most vulnerable

Posted by John Beech on March 27, 2011

A week can be a long time in football, but, having been out of the country for a week, working in the Tirol, I find it quite surprising in some ways how little has happened, or, to be more precise, resolved itself.  Two ‘sagas’ which have been on my radar screens for several weeks have made no real progress towards a denouement – the cases of Plymouth Argyle and Wrexham.  For both clubs, fans face the continuing uncertainty of who will be the new owners.

The former is now in the hands of an Administrator, and the sale of the club seems, at least at the time I write, to hinge on the issue of how much previous owners are prepared to write off with respect to Home Park (1).  In the case of the latter, well, one reason I haven’t blogged on the trials of the club is the sheer rate at which stories have been breaking.  Ian King, over at TwoHundredPerCent, has been doing an excellent job in keeping the story up-to-date with added interpretation and comment, but even he seems to have grown just a tad weary of following the wilder intricacies of the competition to buy the club.  Arguably the only ray of sunshine for Wrexham fans has been the fact that they have been spared Stephen Vaughan as owner.

While there is a significant difference between the two clubs in terms of who is selling the club – an Administrator on the one hand and (how on earth do I summarise the situation at Wrexham?) let’s just say a sale by the latest of a series of ‘benefactors’ – what is particularly striking is an obvious similarity.  When it comes to the sale of a club, it is the club as ‘company’ that is for sale, and any concerns for the club as ‘construct’ take a seriously back seat.  [If you are not clear about the distinction I am making, see an earlier posting.]  There is, of course, an inevitability about this, but surely there should systems in place to ensure that the continuity of the club as ‘construct’ is not compromised through a bad change in club as ‘company’.

At present there are two checks in place – the ‘Fit and Proper Person Test’ and the handing over of the ‘Golden Share’.  There are so many examples of the repeated sale of a football club – think Portsmouth, with four owners last season, a period in Administration, and still an uncertain ownership for the future – that it is obvious that these two checks are woefully inadequate.  Amazingly the FA set up a committee (no, I know that’s not amazing, but bear with me) back in 2003 to sort out an effective Fit and Proper Person Test (1), and I take it as self-evident that we do not yet have one.  Similarly, the ‘Golden Share’ is normally handed on to new owners with little thought to the wellbeing of the club as ‘construct’.

Football governance, and its current inadequacies are very much on the agenda, and I live in hope of serious change.  (My submission to the House of Commons Select Committee is downloadable here; all submissions are available here.)

Increasingly I am minded that the introduction of a rigorous system of club registration is the reform we need to improve football governance.  One of the major difficulties I see for any reform is the issue of transition to a new system.  For example, advocates of introducing the Bundesliga system with ’50 + 1′ fan ownership seldom explain just how the current share holdings of the club will be transferred to fan ownership – which 50%?  A club registration system can be designed so that the well run club need make little or no changes to become registered.  Badly run clubs would have to reform, and, when a club changes hands, the new ownership would be placed under close scrutiny.

It’s just a pity that any reform will come too late to remove the current worries of Plymouth Argyle, Wrexham, Portsmouth, etc., etc. fans.  All they can do is pray is that their club as ‘company’ is delivered into ethical and benevolent hands, and that their club as ‘construct’ survives without, in the worst case scenario, an ‘Accrington Stanley, Aldershot, Maidstone United or the many more recent non-league examples’ discontinuity and the need for resurrection.  Nobody wants another club to face the need for resurrection, but, at present, the checks in place make it likely that some club will have to go through that drastic process in the future.

If club registration is to be effective, it is vital that the body which oversees it has teeth.  An unreformed FA would not be my choice.  In the current climate though, the dream of a reformed FA is perhaps not totally unrealistic.

UPDATE – 29 March 2011

Interesting piece by Matt Scott of The Guardian here.  All four strands he suggests will be incorporated into a Football Governance and Major Events Act are long overdue, but why just football?

10 Responses to “When a club is at its most vulnerable”

  1. John Beech said

    My response to an off-blog query: “Do you mean ‘club licensing?'”

    Well, yes and no – it’s a matter of semantics. Certainly I would envisage a system that had rigorous scrutiny, and defined pre-requisites – pre-requisites that would quickly debar the wrong kind of owner. I’ve nothing in principle against the ‘tick box’ approach of the current Fit and Proper Person Test; its inadequacy lies in its lack of the boxes which need to be ticked. The reason I avoided the word ‘licensing’ is its implications of any unnecessary bureaucracy.

    Proof of funding certainly needs to be in the list of boxes. A more grey area though is proof of commitment.

    If we are going to get semantic, perhaps another word is needed – more demanding than ‘registration’ but less bureaucratic than ‘licensing’. Any offers?

    • SjMaskell said

      ‘Approval’? As in ‘seal of …’?

      Would require a goverening body prepared to apply criteria with suitable vigour however …

      • John Beech said

        Aye, there’s the rub…

        The answer may be in an independent body covering the registration of all professional sports clubs. Only those that register would gain any benefits that may roll in as the EU ‘specificity of sport’ emerges, e.g. with respect to any exemptions in employment law, competition law etc.

    • Steve Grant said

      I think “proof of funding” is often used as the yardstick when it comes to the changing of ownership of football clubs.

      Surely it shouldn’t be a pre-requisite of a new owner that they have the funds in place to bankroll the club? The club itself should be self-sufficient, so then the only checks required are that the new owner is capable of running a business (and it would be fair to say that a football club is not an ordinary business), that there are no potential conflicts of interest among any related companies/people, and that there is no trail to criminal proceeds.

      • John Beech said

        Certainly not – I definitely wouldn’t want ‘ability to commit financial doping’ as a box to be ticked!

        I was thinking rather of someone taking over an indebted club running at a loss. That person would need surely to have sufficient funds to keep the club going until he/she had turned it round – a situation where self-sufficiency didn’t currently exist in other words. I’m thinking Sulaiman Al Fahim and Ali Al Miraj, as you can probably guess. Their lack of funding left Pompey perilously close to a discontinuity of club as ‘construct’.

  2. Steve Grant said

    But in that situation, where do you draw the line between what is “recovering from a loss-making situation” and “pumping money in to keep the club running on an unsustainable level”?

    I would argue that anyone in a position to buy a club that is in a significant loss-making situation should be forced to present a credible business plan with projections over 1, 3 and 5 years, with various contigencies built in (e.g. promotion, relegation, increase/reduction in sponsorship deals, etc) which will be based upon the club’s income as it stands, in order to get it back to a break-even situation and then a profit-making one. Once the club is in that position, it can then look onwards and upwards.

    As far as I can remember, Mandaric had Pompey running at a profit after the first season in the top flight, so funding shouldn’t have been an issue. The only questions to ask of Gaydamak should have been whether he was a genuinely “fit and proper” person (by our means, not the PL/FL’s). Given what was already known about him (links to his father and criminal proceeds, companies he’d been directors of having been liquidated, etc), he wouldn’t have been able to buy the club in the first place. Obviously that probably would have meant no FA Cup win, but it would also probably have meant no season ticket in the High Court.

    If Gaydamak hadn’t bought the club, there would have been no way in for the likes of al-Fahim, the mythical al-Faraj and Chainrai.

    • John Beech said

      I agree that there needs to be a time limit. There also needs to be proof of funding that the club will survive until then.

      I largely agree with your Pompey analysis, although I think the weakness of the existing benefactor system was exposed by Gaydamak’s decisions a) to stop being a ‘benefactor’ (and I’m sure you’d accept that I am anti-benefactor model anyway) and b) sell to ‘multi-billionaire’ (NOT) Al Fahim.

      ‘Transition’ is definitely a key issue here – not just from one system of governance to another, but also in the approval, to pick up Sj’s word, of new ownership.

  3. SjMaskell said

    It can’t all be laid at Gaydamak’s door however. There are two other stopping points in the Pompey story – the al Fahim takeover point and the Chainrai ‘3rd party loan’ point. Fahim had no funding in place but what was in effect leveraged debt (to Sacha) to take over the Club. Falcondrone (Al Faraj) came in with nothing other than a third party loan of circa £5m from Chainrai (immediately secured on Fratton Park) in effect another leveraged buy out. Claims for potential funding were soon disproved in both cases. The PL were checking the opacity of Falcondrone’s finances some four weeks after the take-over when it is claimed that the club had to rely on further money from Mr Chainrai. Allowing leveraged buyouts on an unsustainable business must be questioned here. This returns me to my ‘vigorous governing body’ point, was the fault the PL’s complicity in allowing a business to run whilst insolvent in the hope of a white knight arriving?????

    When Gaydamak bought the club he clearly had funds – upfront to go by his purchase of players in January 06. If we are talking about ethical approval as well as financial approval, I’m all for that. But where do we draw the line, given that ethically and financially Mr Chainrai stands up to scrutiny to a reasonable degree?

    • John Beech said

      Good points Sj.

      I feel that a rigorous process (whatever we call it!) would have certainly precluded the takeovers by Al Fahim and Al Faraj.

      In the case of Chainrai, he acquired the club by accident/poor business judgement. He was de facto already the owner before any process kicked in. It is the circumstances in which he ‘made’ the ‘purchase’ which need to be precluded by systemic change. Chainrai does, in my opinion, ‘stand up to scrutiny’, but it’s the ‘sale’ to him by Al Faraj that doesn’t. The problem with Chainrai is his openly declared position that he didn’t want to own the club (and was possibly rather surprised when he did).

      Gaydamak is more problematic. It’s a case of a ‘benefactor’ becoming unable/unwilling to continue in that role. Again, it’s systemic (and cultural) change that is needed. A transitioned move to the Financial Fair Play protocol would ensure that the circumstances were not repeated.

      I don’t want to stop this interesting debate, but if anyone wants to widen it beyond Portsmouth I’d welcome that too. No Plymouth or Wrexham fans, for example, wanting to contribute? Coventry City fans for that matter as well, given the recent developments. Cardiff City fans? I could go on… but won’t!

  4. […] When a club is at its most vulnerable […]

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