Blog: The Fundamental Role of the Independent Regulator of English Football – Last Word on Baseball

The Fan Led Review of Football Governance has officially recommended the introduction of an Independent Regulator of English Football (IREF),

Tracey Crouch, Conservative MP and the Chair of the Review, has compiled together numerous recommendations for the government and Parliament to consider.

The goal of the independent regulator is to prevent English football from suffering any more severe consequences after the impact of COVID-19, the attempted Super League and the fall of Bury and Macclesfield Town.

Crouch directs a strong argument at the beginning of the Review to those resisting change.

“For those who say that English football is world leading at club level and there is no need to change I would argue that it is possible simultaneously to celebrate the current global success of the Premier League at the same time as having deep concerns about the fragility of the wider Fan Led Review of Football Governance foundations of the game,” Crouch said in the 162-paged document.”

She further added: “Action must be taken, and with the previous track record of the authorities not responding to advice there is no evidence to suggest that this time it will be different. The time has come for the Government to take action, that is why a new independent regulator is needed to help fix the rising problems and ensure the future stability of our beautiful game.”

The Fundamental Role of the Independent Regulator of English Football

Unsuitable alternatives

Before directly recommending an Independent Regulator of English Football, the Review offers possible alternatives to solving football’s regulation and how each one is unsuitable to the industry. In a way, this is to dismiss views from within the Premier League that a new regulator is not needed.

The first is to leave the market alone and let it resolve its issues itself. Immediately, this is deemed ” deeply unsatisfactory” as history shows clubs enter administration due to this. Following on, it identifies that a football led response will cause a conflict of interest. Bodies like the Premier League and the English Football League (EFL) mould their regulatory and commercial interests together, causing reform hard to agree upon.

Similarly, Crouch deters that co-regulation between football bodies and the Government can work. She noted that the constitutional fabric of the governing bodies will remain the same as they will still prioritise their commercial interests. In addition, disjointed cooperation between the bodies and a lack of oversight will continue. Requesting Parliament to pass legislation whenever new problems occur is also time-consuming.

This is why the Review settles on an IREF, which would be created by an Act of Parliament. The independent body has the flexibility and agility to respond effectively to financial, regulatory and governing issues. Doing so neutralises the factor of self-serving club interests during contentious discussions.

Significantly, supporters, communities, clubs and Parliament will hold the regulator to account, particularly the Digital, Culture, Media and Sport Select Committee. Like any organisation, the regulator will need to publish an annual report of performance and finances.

Objectives and powers

The recommended IREF would operate on clear objectives, a reasonable scope and the power to enforce proper reform. It would work with clubs on issues and only resort to sanctions if needed. These can include compliance orders, compensation, reputational damage, fines, points deductions, transfer bans, ownership and director sanctions and, in the most extreme scenario, the IREF appointing an administrator to take over the club.

The Review explicitly says that any regulator “must be evidence driven, proportionate and only intervene when necessary”.

Any outcome should be of benefit to the fans, as the overarching objective is to protect the long-term health of the game. To achieve this, the regulator’s duties include assessing finances and financial distributions, overseeing the owners and director test, equality, diversity and inclusion, supporter engagement, heritage protection and licensing. The Review stresses that the IREF must not interfere in commercial decisions taken by clubs (e.g. ticket prices).

A licensing will allow the regulator to enforce its rules on clubs. They would need to be granted a license to operate from Step 5 of the football pyramid. Annually teams will renew their licence to ensure they are compliant with rules that may change from year to year.

A three-step process of advocacy and compliance, investigation and enforcement and sanctions is recommended alongside an efficient appeals mechanism for clubs if it is needed at any time. The powers of the IREF range from asking for proportionate information within the legal parameters to issuing and suspending licences if needed. Any breach of a licence will need to be displayed thoroughly and analytically.

The Board and Funding

The regulator will consist of an expert panel and chair which are separate from the Government and the clubs. The Football Association should have an “observer status” on the board eventually but recommends against their immediate involvement. Crouch is wary of possible resistance to reform and recognises the FA require constitutional itself.

Furthermore, the Review criticises the FA’s ability to regulate the sport. It questions whether the current resources and mechanisms are sufficient and does not believe they have the capabilities to deal with the issues the Review has identified.

To pay for its costs, the IREF will draw income from the licence fees. This cost for the clubs will be the same, but the Premier League will have a bigger burden of covering the majority of the regulator’s running costs. This is not anticipated to be “excessive”. However, using other possible revenue streams, like fines, may be used to keep the body functioning.

To begin, Crouch recommends the regulator operates in a “shadow form” before the required government legislation has been passed.

Financial Regulation

In a volatile environment where club finances are seeing obscene losses, it is an understatement greater authoritative scrutiny and regulation is needed. In just one example, 16 Championship clubs were spending more money on wages alone than they brought in money. Three clubs were close to seeing their wages double that of their turnover.

An independent regulator will introduce new measures of financial regulation. The Review dismisses the current Profit and Sustainability rules and discusses either a fixed salary cap, a fixed salary cap with a luxury tax or a wage cap proportionate to turnover. Every alternative has its pros and cons identified, leading to a new method of regulation being proposed: prudential regulation.

To put it simply, this is a technical term to govern organisations of different sizes with flexibility and a reasonable administrative burden. The idea is that a culture of good behaviour is embedded into the club’s ethos by working with the IREF frequently.

They are forced to think about risk management and financial requirements to remain stable by setting capital and liquidity requirements. This includes income, cost control and their system of sustainability. ‘Buffers’ will be implemented in the case of shocks to the finances. The regulator will closely scrutinise their finances once documentation has been sent and could demand, or even force, teams to make improvements.

To combat inflation and destabilising other clubs, the Review recommends that the IREF has a proportionate mechanism to manage owner subsidies based on the size of a clubs finances, the success of the injections and if they are having a negative impact elsewhere. Also, a transition plan is concluded to be a good method of diverting clubs away from failing business plans.

Moving onto the complicated nature of agents, it is recommended that the UK Government works with international authorities, like FIFA, to regulate their activity. Crouch admits the issue is too complex and rife internationally for the IREF to effectively control them. In addition, this topic is outside the scope of its objectives and to include it will increase costs greatly.

New Owners’ and Directors’ Tests

The Review gets straight to the point regarding the current, and different, Owners’ and Directors’ Tests for the Premier League, EFL and the National League: they are unsuitable and the IREF would bring in new tests. In its view, there should be one test for the owners (those that own at least 25% of shares or those acting as a consortium) and one test for directors (shadow directors, executive managers or any person similar despite their job title).

In addition to disqualification criteria (for example, bankruptcies and criminal convictions), a new Owners’ Test will involve an IREF review of their business plan, financial resources and due diligence of source of funds. The latter will involve a thorough process to ensure there are no links to money laundering or other criminal activity. Furthermore, evidence of funds should be detailed in a minimum three-year financial plan for the club.

On the other hand, under these plans, directors will be subject to a demonstration of skills, experience and qualifications. They must declare any conflict of interest as well as personal, business or professional links to the club owner, or another club owner.

An integrity test is also recommended for owners and directors which is based on the standard one used in Government institutions and departments.

Crouch seeks a middle-ground between the current ‘entry only’ basis and annual checks. The results of the tests will be published when the ‘entry only’ phase has been completed, while both owners and directors must declare their compliance with any changes within one month. Owners then must pass the test again every three years. The ‘highest risk’ clubs will be prioritised every year to ensure they are still suitable. If breaches, the IREF should have the power to issue sanctions.

Finally, the identity of the Ultimate Beneficial Owner (UBO) must be revealed to the IREF as a part of the licensing system.

 

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