Thursday saw the release of the Government’s White Paper on Football Governance.
This a policy document produced by the Government that sets out their proposals for future law.
Click HERE to read the accompanying statement.
For the first time, a new Independent Regulator for the men’s elite game will be established in law to oversee the financial sustainability of the game, and put fans back at the heart of how football is run.
Football fans and their clubs will be given greater protections under a radical transformation of the rules governing how the Game is run in England. Full details are below.
Chief executive Nigel Clibbens gives us his take on the latest developments.
How did we end up here?
It’s important to remember why we have reached this point.
The indisputable success of the game both at home and abroad are there for all to see, and the Premier League leads the way as probably the biggest and best team competition across the globe.
However, that’s not the whole story. We also know that there are real challenges which threaten the stability of the game, and that of clubs both big and small.
The combined net debt of clubs in the Premier League and Championship had reached £5.9 billion by the end of the 2020/21 season. Colossal losses are still being incurred by almost every club, year in year out, throughout the whole pyramid – including in the Premier League and National League.
For example, Everton has made losses of £371m in the last three years to 2020/21 and losses in six of the last seven years. Chelsea lost £900,000-a-week under Roman Abramovich over his 19-year period of ownership.
High risk decision making, rule braking, points deductions, huge reliance on continuing funding, ‘donations from owners, ownership uncertainty, distressed clubs vulnerable to approaches from opportunistic rogue owners, unsustainable spending to keep up with rivals, institutional structures that support vested interests - these are all part of the ‘normal’ football culture we have become accustomed to.
We see all of these features in League Two, and club’s like Bury, Macclesfield, Oldham and Scunthorpe have suffered.
We have seen financial pressures affect Carlisle United - first hand. We are not immune, and in fact, we are more vulnerable than most clubs due to our reliance on Football Fortune while other clubs are subsidised by their owners.
Clubs and the football pyramid are special and need a special approach
Community football clubs like Carlisle United are unique and special institutions. Football is a different and a special ‘business’.
When people compare clubs and football to other ‘normal commercial business’ organisations its naïve and fundamentally flawed. Applying free-market economic rules that operate in traditional profit-making commerce like shops and supermarkets to football doesn’t work – as proven by what happens in the real world in clubs.
For those in any doubt consider, in what other ‘normal commercial business’ do we see:
- Teenagers volunteer to come in to paint the ’shop’ they spend money at? Click HERE for the WRE makeover story.
- ‘Customers’ donate cash to stop the store they ‘shop’ at going bust, or pay its bills, when those who run and own it have run out of money or got it wrong? Click HERE for crowd funder stories.
- ‘Customers’ stay loyal to one store over their lifetime despite being frequently disappointed when they go there.
- The ‘Business’ honours their lifelong ‘Customer’? Click HERE for In Memoriam details.
- ‘Customers’ share collective emotions and experiences that last a lifetime and are remembered for generations? Certainly not at Tesco.
- ‘Staff’ routinely go from the small community ‘corner shop’ to the big ‘Super Market’ to immediately be vital in the biggest and most successful businesses the next day later?
- ‘big business’ recruit key vital staff from the small local community ‘corner shop.’
- ‘big business’ loan their future star staff to the small local community ‘corner shop’ to develop and learn the ropes and make their mistakes elsewhere.
Whether its players, coaches, executives or staff the pyramid matters. Football is special, clubs and fans are special, and the pyramid they all share needs its own special approach.
The importance of thriving and sustainable clubs in the game up and down the pyramid should be beyond debate (but, even saying that, their social value and impact is still undervalued and only truly appreciated when threatened with disappearing).
Yet we see clubs in the pyramid that play a vital part in the wider success of the whole game are increasingly fragile. That is not good for the Premier League either.
We all have a mutual interest in the prosperity of the Premier League. Given the reliance of the pyramid on the Premier League, it’s not in anybody’s interest to harm it. A strong Premier League is vital to the pyramid, but also a strong pyramid is important to the Premier League. The Premier League does not operate in isolation from the pyramid.
Failure to reform
The inability/unwillingness to change and reform in the face of failures and numerous warnings from all quarters and years of time to do it, demonstrates why football institutions cannot be left to self-regulate the wider game without oversight and independent intervention.
Conflict of interest, vested interest and differences of interest, how the FA, EFL, PFA and PL are structured and governed, and historic legal agreements, all make changing the game almost impossible. This is a huge institutional system problem - not a criticism of any individuals.
It’s been clear for a long time that the game needs a fundamental financial reset and external intervention in order make it sustainable so that all clubs can continue to serve their supporters and communities long into the future. That needs to come without damaging the parts that make the game successful – they need encouraging.
Those within the game who complain of this intervention only have themselves to blame. Even in the face of numerous warnings over the last three years, this institutional failure has continued. As the imposition of an Independent Regulator has loomed larger there has still been no sign of real change, much to the frustration of the EFL and clubs – but this is not a surprise.
The Sports Minister yesterday again said: “The industry failed to act despite repeated calls to reform” and that they had been “forced to step in.”
Independent Regulation
We are strong supporters of an Independent Regulator and reform of the game.
Going back to June 2021 we were founder members of Fair Game (click HERE for more) to campaign for it after the collapse of Derby, in September 2021. Click HERE for more information. I reiterated that support and detailed the structural issues the Game was unable to fix on its own. Click HERE to read that.
I agree with the Premier League: “It is vital that regulation does not damage the game fans love to watch in the deepest professional pyramid in the world, or its ability to attract investment and grow interest.”
I don’t see that it will.
A new Independent Regulator will strengthen the pyramid giving investors, fans and communities confidence in the governance of our clubs and the sustainability of their futures. This should be good for all. It should be able to address the failures the existing institutions have been unable or unwilling to – this is critical.
This is a landmark moment for the future of the game that represents a once in a generation opportunity. It must be seized upon to address the institutional system failures that those running the institutions that control the game have been unable to sort themselves over the last 30 years.
The new Independent Regulator must have teeth if it is to make a real difference.
I believe the Independent Regulator should be primarily involved in issues like distribution of income, spending control and parachute payments. To fix these critical financial issues that the EFL and PL have had years to sort, but cannot. Distributions need to reward well run clubs.
Financial change
In terms of financial reset, we support the EFL in its core aims of:
- financial redistribution - we don’t know what that could mean in financial terms for us.
- an end to parachute payments, spreading funds more evenly across the Championship with more money the higher clubs finish in the table (called ‘merit payments’).
- strengthened cost control to ensure new financial flows don’t just lead to higher spending - cost control is also essential to maximise the gains from any new money. Experience shows, while some small steps have been made, these have not been strong enough and clubs have been unwilling to make any radical change.
What next?
Last chance for a financial deal?
Sadly, even in issuing the proposal for reform yesterday, and despite nearly three years of encouragement to sort a new financial distribution, the Government has given even more time and encouragement for the institutions in the game to mutually agree.
The Government has again kept the door open to no deal until the very last minute before a Regulator goes live (maybe two years). This stance just encourages further delay. Faced with giving up money now, or in future to the pyramid, the Premier League has no incentive to move quickly. Faced with constraints in future, the incentive is to get what you can before a Regulator starts.
Rick Parry, the chairman of the EFL, says that clubs are “getting nowhere” in negotiations with the Premier League for greater financial distribution.
Without any Regulatory support, I expect a familiar story for EFL clubs in trying to agree any new financial distribution. I see any new money offer from the Premier League to be accompanied by requirements for very radical change to many aspects of the elite game – change before a Regulator arrives and without its oversight and before future constraints.
As well as a new Regulator; changes to EFL Cup, FA Cup, EFL Trophy, Academy EPPP compensation and operations, overseas player limits, loan arrangements, relegation up and down in League Two, safeguards to protect club independence – I would not be surprised to see them all on the table. Time will tell.
Challenges ahead for EFL clubs
If any new money comes to the EFL, that will also bring its own challenges for the EFL and for its own clubs to face. Specifically, the allocation of cash between EFL divisions – at present the Championship clubs (without PL parachutes) get four times more money than Leagie One and League Two combined.
The 80/12/8 split of Premier League income between EFL divisions is something the Championship clubs totally control. The risk is that the financial gaps between Championship and the other divisions creates new cliff edges that just move problems down the pyramid.
EFL voting arrangements are important. Championship Clubs have a blocking vote on anything meaningful that affects their division. This means they can dictate to League One and League Two clubs. While League Two may face the largest impact of the future operational changes, the Championship is where the largest financial issues are. Vested interests don’t just occur between leagues but also within them! Again, this may need to be decided before a new Regulator, and without its oversight?
Clubs need to implement new tougher and meaningful cost control measures. At the same time, I don’t expect changes to cost controls or an Independent Regulator to bring a levelling up on the field, or an end to owner subsidies off it.
In football cash is king, so I expect those owners who have the cash resources to provide equity and subsidise a club will still be able to do so. The focus will be on source and certainty of funds. Importantly, those clubs without that extra cash in place should not be able to take the big spending risks and gambles some have in the past, in an attempt to keep up.
With club licencing applying to the National League and the interrelation with League Two in the pyramid, the promotion and relegation transitions both operationally and financially must work. The two leagues must be fully aligned.
For almost all clubs, I would see no fears in the proposals for protection of club heritage assets. Problems in that area have been rare but the protections should stop opportunists.
It’s hard to envisage any requirements on fan engagement that would be problematic for Carlisle United, given our current position and work in that area.
After a long wait the White Paper is a big moment for our game and a very welcome development. There is huge detail still to emerge, and it is still just the beginning ...
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Background - Detailed White Paper proposals
Yesterday saw the release of the Government’s White Paper on Football Governance.
Click HERE for more.
This a policy document produced by the Government that sets out their proposals for future law.
For the first time, a new Independent Regulator for the men’s elite game will be established in law to oversee the financial sustainability of the game and put fans back at the heart of how football is run. Football fans and their clubs will be given greater protections under a radical transformation of the rules governing how the Game is run in England.
It comes:
- Four years since the Government made a manifesto pledge to hold a Fan-Led -Review
- nearly two years since the Government formally triggered the launch of a Fan-Led Review of football in April 2021 (after plans for a breakaway European Super League by a select group of Premier League and other European elite clubs were shelved after widespread fan and public condemnation)
- 15 months since the final report and recommendations of the Independent Fan-Led Review of Football Governance was published in November 2021 https://www.gov.uk/government/publications/fan-led-review-of-football-governance-securing-the-games-future/fan-led-review-of-football-governance-securing-the-games-future#SRB
- 10 months after the Government accepted recommendations from the Fan-Led Review of Football Governance, led by Tracey Crouch MP
The White Paper is the next stage of further consultation. The Government will now begin the process of engagement and further consultation with selected stakeholders. Plans to bring forward legislation will be announced as soon as parliamentary time allows.
In Parliament yesterday, a further 18-24 months before a Regulator is in operation was referred to. Legislation and an Independent Regulator operating in football, while closer is still some way off.
It covers five key areas:
- Bring in a new Independent Regulator make sure clubs are financially resilient.
Primarily focused on financial stability, it will be tasked with ensuring “stability of wider football pyramid” and clubs with “sound financial business models”. This leads into Club “Licencing system” for the top 5 tiers (including National League) and improved governance through the introduction of a Football Club Corporate Governance Code;
It will have three specific primary duties:
- Club sustainability - the financial sustainability of individual clubs.
- Systemic stability - the overall stability of the football pyramid.
- Cultural heritage - protecting the heritage of football clubs that matter most to fans
- Strengthen Owners & Directors Test . This links into the “suitability” and “source of funds” with enhanced due diligence, to know who owners are and ensure a “vigorous” test of being fit & proper
- Give fans a greater say to stop changes to vital club heritage assets without consultation (like colour and new stadiums). Implement a minimum standard of fan engagement
- Block clubs joining closed shop leagues (like the European Super League)
- Fall back powers over financial redistribution. The Regulator will have a targeted power of last resort to intervene in relation to financial distributions, to deliver a solution if football fails to find one itself. This a power to intervene to protect the game but only if no agreement. This will be to “facilitate” discussions and “arbitration”
EFL position
The EFL has been very consistent and simple in its approach. It has called for:
- financial redistribution
- an end to parachute payments, spreading funds more evenly across the Championship with more money the higher clubs finish in the table (called “merit payments”)
- cost control to ensure new financial flows don’t just lead to higher spending
Several attempts to have a serious dialogue with the Premier League about the financial model of English football have come to nothing.
The EFL is the only one of the three football authorities to have supported the Fan Led Review’s key recommendations and welcomed the Government’s response published in April 2022.
The EFL’s purpose is to achieve the financial sustainability of football clubs throughout a thriving and competitive pyramid that will enable clubs to live within their means and continue to serve their supporters and communities long into the future.
Currently, English football is nowhere near meeting this objective with EFL clubs forecast to lose £350m this season, with this shortfall having to be met by club owners. Therefore, clubs (and their supporters) are left deeply exposed if this funding does not materialise.
The EFL believes that the route to sustainability is to halve the financial gap between the bottom of the Premier League and this will require a fairer redistribution of the game’s revenues throughout the football pyramid. There is enough money in English football to achieve this as demonstrated by the £800m plus spent by top-flight clubs in the recent transfer window, 79% of the total spending by Europe’s big five leagues.
To achieve club sustainability across the pyramid, the EFL is proposing a 75/25 split of the pooled distributable revenues of the Premier League and EFL , along with the introduction of merit payments and the ending of parachute payments to relegated clubs.
The EFL is clear that any new approach to financial re-distribution will also need to be accompanied by suitable financial controls to ensure that any additional money does not simply fuel player wage and transfer inflation but instead helps clubs to live within their means.
