Written evidence submitted by The Football Association (The FA) (FG 32)
· English football has evolved as primarily based on a market-orientated model incorporating football specific regulations intended to balance appropriately the interests of supporters, clubs and competitions whilst allowing the opportunity for clubs to invest in potential playing success. Professional clubs are unique from other commercial organisations in the sense that the implications of their failure (on supporters, their communities and their competitions) are considerable and require mitigation.
· The current governance structures of the game are based on a regulatory model of subsidiarity. The Football Association  (The FA) works in cooperation with the delegated authorities of the Premier League and the Football League on rules designed to uphold the integrity of competitions and protect the interests of supporters and players alike. The FA would acknowledge that there is an important and continuous challenge to be faced in terms of the speed in which rule changes are made and the manner in which they are openly communicated.
· The FA considers that the aggregate level of debt in the professional game is of less relevance than the ability of individual professional clubs being able to service their debt through their own business models. The annual rise in debt and equity financing in many clubs in the pyramid highlights an underlying issue of the sustainability of this business model. The FA and both the Premier League and Football League have been working collectively to ensure that the sustainability of club finances is reviewed and protected and the recently introduced rule changes reflect this work.
· The FA supports the ability of Supporter Trusts to be able to hold shares and to own professional clubs, but would not endorse any form of arbitrary mandating of this practice. It is The FA's belief that this model is of much greater potential lower down the professional and semiprofessional game structure where the financial barriers to entry are lower and where the scope for a Trust to engage directly with the local community is greater. As such it would look to work with the Leagues to ensure there are no existing barriers in place to Trust ownership, and furthermore urge the Government to consider what incentives could be identified in the fiscal regime. The FA would also support new initiatives to encourage best practice reporting between club owners and supporters as a means to better information sharing.
· Whilst The FA recognises the vital role Government plays in the development of sports policy and in the encouragement of sport to deliver a positive social impact, it does not believe that Government would be justified in directly intervening in the running of English football.
· The FA recognises that it is important to learn from the best practice governance arrangements both across football and wider across other sporting bodies. However, it also notes that the unique nature of English football and its evolution makes replication as opposed to benchmarking more difficult. It is three years since The FA last reviewed its own governance structures and as such there is currently an internal review underway which will include benchmarking of other sports bodies and the UK Corporate Governance Code (formerly the Combined Code). This review was commissioned by The FA Board in December 2010 and will report to the newly-appointed FA Chairman. The Committee will be kept up to date on the process of this review.
· A series of supplementary documents are attached to this submission in appendix form. If the Committee requires any further information it should contact The FA Group, Head of Public Affairs, Robert Sullivan at [email protected] .
Should football clubs in the UK be treated differently from other commercial organisations?
1. The model of football club ownership in England has long been established as one based on benefactor investment. Investment into clubs from individual, corporate, cooperative or organisational benefactors provides support to the day to day football related revenue generation of the club. Like any other commercial organisation, clubs seek to balance these income sources with the costs of successfully operating, and accordingly have to make investment and expenditure decisions based on the associated levels of financial risk. This market-orientated approach is applicable at all levels of the professional game. Professional clubs, like all commercial organisations operating in the UK are subject to UK Company Law which seeks to maximise the opportunity to generate revenue and attract investment whilst at the same time mitigating against the risks and consequences of financial failure.
2. However, The FA believes that although professional clubs operate within this broad commercial framework they are different to other commercial organisations and therefore require an additional (limited but unique) regulatory approach. Specifically professional football requires unique regulation due to the impact and consequences of the financial failure of clubs. These include:
· Should a club be forced out of business and cease to operate, its supporters (unlike consumers in another market) find it more difficult to transfer their support;
· The identity of football clubs to their location and communities makes them a unique part of the social fabric and enhances the importance of their continuing existence;
· The fact that football clubs take part in competitions which require the fulfilment of fixtures to uphold their integrity means that the failure of one club has a direct impact on all the other clubs within the same competition.
3. Therefore, where football clubs are regulated differently from other commercial organisations, it is to ensure that the interests of supporters, the long-term sustainability of all football clubs and the integrity of football competitions can be protected. 
4. In addition, The FA would also note that the predominantly market-orientated nature of English football requires discretion in the identification and implementation of regulation according to the stature of individual clubs. Professional clubs at the top of the Premier League are global, commercial operations with worldwide fan bases, whereas clubs within the semi-professional structure are more community-centric in their operations. Whilst the principles of how both these types of club are regulated are, and should be, consistent, it is important that they are applied with respect to these very differing circumstances.
Are football governance rules in England and Wales  , and the governing bodies which set and apply them, fit for purpose?
5. The FA acknowledges its responsibility to ensure that the rules governing English football, both on and off the field are fit for purpose in terms of their protection of supporters, players, the clubs and the competitions in which they play. This is a significant challenge due to the rapid evolution of the game on and off the field and the impact of globalisation and it requires the cooperation and partnership of all the football authorities.
6. The regulation of football is based on a model of subsidiarity. FIFA, the world governing body of football, set out a series of 'Rules/Laws' relating to the game to which all association football must adhere. The FA is the delegated body by which these Rules/Laws are implemented in the English game. In turn The FA itself sets out a series of rules and regulations to cover both the playing and administration of the game at every level from Premier League to grassroots football (FA Rules). In order for any club or competition to be sanctioned to participate in English football they must comply with these FA Rules. Furthermore, The FA delegates authority for the rules pertaining to the running of competitions to competition authorities, such as the Premier League and The Football League. Each League works with its clubs to agree the 'rules of its competition' which are then submitted for approval to The FA on an annual basis.
7. The FA's Executive team (led by the General Secretary) work with their colleagues at both the Premier League and Football League to ensure that The FA Rules that govern professional football are kept appropriate and up to date. As a consequence of this approach over recent years many changes have been made to the rule books of The FA and the leagues. 
8. The FA endorses this process of self-regulation for its effectiveness in introducing changes to the game with the support and buy-in from its key decision makers. Furthermore it allows for flexibility across the differing levels of the game where standardisation may not be appropriate but encourages uniformity where it is possible. The FA provides the oversight function to this process.
Central to the role of The FA in developing, implementing and reviewing The FA Rules is the Football Regulatory Authority (FRA). The FRA as a committee of The FA has a delegated authority from The FA Council to administer and exercise various powers and functions relating to the FA Rules including the following:
· Formulating, proposing amendments to and publishing the Rules or any other relevant rule or regulation of the Association and any changes to them from time to time.
· Monitoring compliance with and detecting breaches or possible breaches of the Rules, the Laws of the Game, the statutes and regulations of FIFA and UEFA, the rules and regulations of each affiliated association and competition or any other rule or regulation of The FA or offences of possible offences under any of them.
· Being responsible for disciplinary matters (save for those reserved by Council/Committees/ Regulatory Commissions/Appeal Boards) including taking appropriate measures to detect, enquire into, investigate and prosecute breaches or possible breaches of relevant rules etc.
10. To ensure a balanced representation across the game, the FRA is made up of twelve Commissioners, four from each of the professional and national games, and four independent representatives who bring a variety of different experience and expertise.
11. The FA would note that one of the biggest challenges facing the football authorities particularly in recent years has been the ability to openly communicate the many rule changes to the public and media. Meeting this challenge is important in helping to avoid false perceptions developing amongst supporters and commentators. For example, recent enhancements to the financial regulation of the game developed and agreed by the Leagues and The FA have not filtered into the public consciousness. This inquiry may prove beneficial in this regard.
12. Furthermore The FA would also acknowledge that there will always be disagreement about the pace and scope of rule change in responding to the changing demands of the game. Traditionally English football's approach has been to be reactive, pragmatically responding to incidents once their full implications are clear. It is reasonable to consider in the future whether a greater balance between this approach, and a more proactive oversight approach that maintains the coordinated control of the game within the principles of consensual self-regulation could be achieved.
Is there too much debt in the professional game?
13. As outlined, the predominantly market-orientated model of English football has traditionally relied on the private investment of individual and corporate benefactors. External capital injections into clubs are a long-standing part of the game at all levels; they are used to develop playing potential, improve facilities and in turn generate returns from increased football related revenue. The funding of external capital investment into clubs can be benefactor or debt supported, and the trend to the latter in recent years has mirrored the trends of other commercial markets.
14. It is the belief of The FA that the aggregate level of debt funding in itself is not necessarily a problem that needs addressing. However, it is the view of The FA that any funding of clubs reliant on 'non-football generated' income should not be tied to undue financial risk which may have consequences not just for the financial stability of the club but for the integrity of the competitions as well. Therefore the ability for individual clubs to service their debts, and openly demonstrate their ability to do so on a regular basis, is central to the current regulatory approach.
15. As such all the football authorities have moved to ensure that Premier League and Championship clubs can demonstrate that they do not have outstanding debts to other clubs on an annual basis, and that they are no more than 3 months in arrears with their HMRC requirements. Furthermore clubs are now required to provide 'future financial information' to their relevant competition authority on an annual basis to ensure that they have a credible financial plan to allow them to complete their fixtures in a season. This is part of a coordinated approach that seeks to ensure that all debt is serviceable within a sensible regime.
16. The FA also welcomes the UEFA Financial Fair Play initiative to which it was a key contributor. Financial Fair Play will set a framework for balancing football expenditure with football revenue over time for clubs competing in European competition. The FA endorses this principle subject to an allowance for initial capital investment when appropriate that can help maintain the opportunity for new investment to enter the game, and looks forward to working with UEFA and the Premier League in implementing the required rules.
What are the pros and cons of the Supporter Trust share holding model?
17. The FA believes that the ownership of football clubs should be open to all and any individual or organisation under any model that is legal and approved by the relevant competition authorities as per the sanctioned rules of the game.
18. The FA for many years has been a significant investor in the supporter representation movement, providing financial support to not only Supporters Direct and the Football Supporters Federation, but also the National Association of Disabled Supporters and the Gay Football Supporters Network. The Football Supporters Federation is represented on The FA Council.
19. The FA strongly supports the view that Supporter Trusts definitely have a role to play within the game and there are many examples where they have been and continue to be successful. However every football club is unique. There are no uniform circumstances from which a football club can construct its financial position to enable a Supporter Trust Share holding model and hence we would caution against pursuing its imposition in any arbitrary manner.
20. It should be noted that several Trusts have played a significant part in raising funds for clubs (particularly those lower down the leagues) when they have been in financial difficulty, and it is this challenge (the ability to access and coordinate investment funds) that most inhibits the wider adoption of the trust shareholding model. By the nature of the financial requirements involved it is clear that the model may prove to be more suited to those clubs further down the pyramid of professional and semi-professional football where the scope for a Trust to engage directly with the local community is greater.
21. We would also note that a Supporter Trust is no guarantee of long-term financial stability. Many of the difficulties faced in running a struggling football club are particularly challenging for whoever takes control. Furthermore, in order to develop and progress up the leagues a club needs to raise capital and Supporter Trusts, like any other owner, have to equate the risks of attracting external investment to spend on the club with giving up whole or part control of the club itself.
22. The FA commits to working with both the Premier League and Football League to ensure that there is nothing in the existing rule books that creates an additional barrier to entry to supporter trust ownership. Furthermore we would urge the Committee to consider ways in which the current fiscal regime might be altered to help incentivise Supporter Trust Shareholding.
23. Rather than the issue of 'shareholding' The FA would highlight to the Committee the importance of improving communication and information sharing between supporters and clubs. The majority of professional clubs are exemplary at the way in which they communicate and involve their fan bases'; it is a core principle to them and rightly their fans demand it of them. The FA strongly endorses this best practice and will continue to work with the Leagues and Clubs to assess whether these practices require formalising. For instance UEFA, as part of their licensing requirements, will ensure each club that plays in UEFA competitions from 2012/13 will be required to have a Supporters Liaison Officer as a go between with supporters. This is a proposal we will support whilst looking at other potential reporting/engagement requirements between clubs and their supporters.
Is Government intervention justified and, if so, what form should it take?
24. English football has over the last 150 years become an inherent element of our nation's social fabric. Its key events punctuate our calendar and its highs and lows provide a steady back-drop to our daily lives. Moreover, in more recent times it has become of great economic significance to the nation, employing thousands of individuals and generating an annual income of over £1 billion into the Exchequer. English football does not expect to fulfil such an important social and economic role in isolation from elected representatives and The Government.
25. The FA very much welcomes the views of Government (and all politicians) and considers them an important stakeholder in helping us to ensure the ongoing good governance of the game. Indeed The FA believes that there is a mutually beneficial role to be enjoyed between football and politicians of all Parties. Increasingly policymakers have recognised the value and impact sport can have in helping to achieve wider social policy objectives. The FA is particularly proud of its work in communities, with disadvantaged groups and helping to increase participation in sport and much of this work has been achieved in partnership with Government and its funding body Sport England. This partnership involves regular review and open and 'honest' discussion on a range of issues which we value.
26. However, The FA believes that there is no justification for direct intervention by Government into the running of English football. It is unclear on what basis such intervention might be justified as the externalities that are traditionally cited in cases of direct market intervention are not applicable. Furthermore, we would ask the Committee to note the examples of other football nations where 'direct intervention' has resulted in restrictions being placed on international team participation by FIFA.
Are there lessons to be learned from football governance models across the UK and abroad, and from governance models in other sports?
27. Whilst English football has developed a unique model over time, it would be wrong to not recognise where lessons might be learnt from other football or sports governing models. However, every model is different due to the unique circumstances in which they have developed, and whilst some best practice may be transferable many aspects may not be. Indeed The FA would highlight its own role in providing best practice support on a range of football governance and administration issues for a number of developing football governing bodies across the globe as an example of adopting and applying best practice as opposed to seeking to replicate arbitrarily.
28. The FA is currently undertaking an internal review of its own governance arrangements. This review was commissioned by The FA Board in December 2010 and will report to The FA's new Chairman on the commencement of his post on 1 February 2011. Specifically this review will consider sports and other relevant industry benchmarking and also review the latest recommendations in the combined code. It is three years since The FA's last governance amendments and it believes it is good practice to review these arrangements again. Any recommendations made will be consulted upon across the game prior to implementation, and The FA will ensure that the Committee is kept informed of the review's progress.
 A brief introduction to the role and remit of The FA is provided in the appendices.
 A full compendium of all the rules and regulations applied to football clubs across international, regional, national and competition boundaries is provided in the Appendix to this document.
 The Football Association has no jurisdiction over Welsh football
 A matrix of the recent rule changes in professional football implemented through football authority co-ordination and self-regulation is provided in the Appendix to this document.
|©Parliamentary copyright||Prepared 18th February 2011|