What is the independent football regulator?

After a couple of notable club insolvency events (and some near misses) with a catalyst in the shape of the European Superleague, the government commissioned Tracey Crouch’s report into the state of the game. The outcome of the report led to cross-party support for the creation of an independent regulator.

The regulator will be tasked with improving financial sustainability of clubs, ensuring financial resilience across the leagues, and protecting the English game. Its approach will be multi-pronged. It will operate a licensing regime for clubs wanting to compete in (it is anticipated) the top 5 leagues and the domestic cups (with various financial and non-financial conditions attached to obtaining and maintaining such a licence). It will also have certain powers to protect the fabric of English football including the ability to suspend or revoke the licence and impose financial sanctions up to 10% of a club’s revenue for certain breaches.

What’s new about Labour’s proposed independent football regulator?

(a) Broadening of the ‘backstop’ power

This power enables the regulator to intervene where the leagues are unable to agree on the distribution of revenue received by the leagues, from TV rights deals and any other sources of revenue to be determined in future regulations.

Importantly, the old Bill expressly excluded parachute payments from the scope of the backstop power, meaning the Premier League would have retained its broadly unfettered right to award (substantial) payments to clubs relegated to the Championship at a level of its choosing.

The new Bill removes that exclusion, meaning the government could, after consulting the regulator, The FA and the leagues, expressly capture parachute payments in the scope of the backstop power.

This is particularly important to the EFL, which sees the substantial parachute payments currently provided to relegated clubs as making it difficult for other clubs to compete for promotion to the Premier League.

(b) Removal of the government’s ‘foreign and trade policy’ considerations from takeover decisions

Unsurprisingly, the Bill removes the requirement for the regulator to have regard to the government’s foreign and trade policy objectives when determining the suitability of a prospective or current owner of a club. This comes after UEFA sent a letter to the government expressing concerns about ‘government interference’ in football.

(c) Fan engagement

Clubs will need to meet certain licensing conditions to play in core competitions. One of those conditions is a requirement to regularly consult people elected to represent fans. The duty includes consultation on: (a) strategic direction and objectives; (b) business priorities; (c) operational and match-day issues; (d) heritage; and (e) plans relating to additional fan engagement. The new Bill clarifies that ‘operational and match-day issues’ includes ticket pricing.

(d) EDI reporting

Clubs will also need to submit corporate governance statements. In addition to the brief details we currently have on what the statements will need to include, they will need explain what action the club is taking to improve equality, diversity and inclusion. Premier League and EFL clubs are already required to do work in this space to comply with the EDI standards of the leagues, with effective EDI plans and strategies forming a key pillar of that work. However, it is likely that the regulator will require more prescriptive reporting, and sanctions for non-compliance include the publication of a ‘censure statement’, requiring the appointment of a skilled person to overcome the issue, a financial penalty and, in particularly serious cases, the suspension or revocation of the operating licence.

(e) Restricting club spending

There has also been a slight relaxation of the regulator’s powers from that contemplated in the previous Bill. The regulator will be able to impose ‘discretionary licence conditions’ on a club’s licence in certain circumstances. However, the new Bill expressly prohibits the regulator from imposing a condition that restricts a club’s expenditure of a particular kind or a particular transaction – it will only be able to restrict overall expenditure and not, for example, player spending.

What should clubs be doing now?

While not yet in force, it may become law fairly quickly. The Bill is substantially in the same form as that put forward under the previous government and has wide cross-party support.

While the regulator will be tasked with providing a lot of the finer details, clubs should be considering certain things already.

Financial resilience and risk planning

Clubs will be required to submit and follow a financial plan which, as a minimum, will include amount and sources of funding, expected revenues and expenses, financial risk assessments and plans for managing financial risks. While the leagues already have rules in place in respect of providing future financial information, risk planning is something some clubs may benefit from giving further consideration to.

Officers

The regulator will have powers to disqualify or order the removal of officers (and owners) and to exclude their involvement in key business decision-making activities. Such powers will be based on the individual’s honesty and integrity, and whether they are financially sound. Officers must also be competent in their role, having regard to their qualifications, experience and training.

Much of this doesn’t expand the scope of the existing tests conducted by the leagues, which deal with things like convictions, bankruptcy and the like (although the regulator will have the ability to add further relevant factors to its assessment). That said, the definition of an ‘officer’ stretches the current tests. Clubs should be considering the suitability of all people responsible for decision-making in relation to any of the club’s affairs where the way in which they are managed could give rise to serious consequences for the club. Most senior managers are likely to be caught by this definition.

Fan engagement

While existing rules require, for example, consultation with supporters on material changes to the club crest and home shirt colours, and a level of engagement with supporters/representatives on big issues, the Bill will make fan involvement a much wider, more formal and structured operation, as above. The regulator also has the ability to identify specific representatives or groups whom any given club should be speaking to on these matters, as well as to compel clubs to create a fan-elected group.

Equality, diversity and inclusion

The new requirement to report on equality, diversity and inclusion activities reflects the government’s intent for society as a whole to make a more concerted effort in this sphere. The recently published Employment Rights Bill will require employers with at least 250 employees to create and publish an annual ‘equality action plan’ showing steps they are taking to advance equality of opportunity between male and female employees (see our article on the Employment Rights Bill here).

In addition, the government intends to require such employers to report their ethnicity and disability pay gap (alongside gender pay gap) in future legislation, which will presumably be followed by a similar ‘action plan’ requirement.

We discussed the case for voluntary ethnicity pay gap reporting, as well as overcoming the challenges inherent in data collection activities of this nature here.