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A new year is the perfect time for a fresh start, and Rob Freeman has been looking at ways that football could clean up its financial act once and for all in 2010 with five eminently implementable rule changes that would improve the game for all of us. The chances that any of them will be acted upon are, of course, remote, but that doesn’t mean that we shouldn’t throw them into the ring to be discussed.

Financially, football is doomed. This may seem like a bold statement, but it’s certainly not the first time you’ll have heard it. It definitely won’t be the last, but with all the threats of points deductions, transfer embargoes and Fit and Proper Persons Tests (FAPPTs) in place, clubs are still continually spending beyond their means. From the top of the game downwards, clubs are being run by people doing everything they can to get as far as they can, and as soon as they think they hit trouble, they know that there’s usually someone prepared to come along and step into the breach. No real loss, no comeback, no punishment.

Ironically, the club most people would blame for it all, would be Chelsea. Ironic, because last week Chelsea announced that they are now virtually debt free, having been over £700m in the red this time last year – most, if not all of which has been converted into shares by owner Roman Abramovich. An easy enough route for Chelsea to take, but it can only realistically be done with so-called “soft debt” – debt owed to the owner(s). Of the other 19 Premier League clubs, only Aston Villa (£75.5m according to their last published accounts), Fulham (£174m) and Wigan (£43.1m) have a majority of “soft debt” – however in the Latics’ case, they also owe £23m to Barclays Bank, an alarming amount to owe should they fall from football’s elite.

Other clubs have tried to follow in Chelsea’s wake by bringing in a similar “sugar daddy”, whether it be a real bankroller, a new owner who can’t back up their spending with actual money in the bank, or owners who look like the real thing, but don’t even spend their own money in acquiring the club in the first place. Chelsea were by no means the first to try to spend their way to the top of course, but they were by far the most successful. Jack Walker’s money helped Blackburn win a single Premier League title, Elton John’s millions helped Watford reach an FA Cup final. On a smaller scale Dave Whelan bankrolled Wigan to the top flight, but Lionel Pickering and Jack Hayward were two of the many whose promised success did not come when they opened their bank accounts into their club funds.

At the end of last season, David Conn, writing in the Guardian, listed the financial statuses of the 20 Premier League clubs based on their most recently published annual accounts. Every single one of them was in debt, fourteen of them posted a pre-tax loss, and Everton’s profit ran to a measly £26,000. Between them, they had lost £225m in their most recent financial years, and between them, they were in over £3billion in debt – almost double the amount that the Premier League as a whole will receive from the current three-year domestic TV contracts – their biggest source of income. Wigan’s accounts made no attempt to hide the fact that without the backing of Dave Whelan, the club were insolvent. Portsmouth have just been served with a winding up order, and then we have Hull City. Hull City arrived in the Premiership with just £1m worth of debt, yet the price of competing (or rather, just staying up) saw former owner Adam Pearson return with the club a reported £27m in debt, and faced with the task of paying £18m of that off by the end of the season.

Outside the top flight, things are just as precarious. Newcastle may have lost some of their top earners, but are being kept afloat by Mike Ashley’s loans and stadium sponsorship – again, more soft debt. Middlesbrough’s situation is a lot less clear. Their most recent accounts (for the year up to December 2008) were due at Companies House by September, however, these are late, and still have to be filed. One thing that was logged with Companies House a fortnight ago was Barclays Bank registering particulars of a mortgage for the value of £77m (presumably for the Riverside and the club’s training ground), with the shares of the club being listed as security. Elsewhere in the division we have Crystal Palace failing to pay their players on time, and being the subject of two transfer embargoes relating to the non-payment of player bonuses and an instalment for the transfer fee of Alan Lee to Ipswich. Other clubs have soft debt and hard debt as a result of being relegated from the top flight, running out of parachute payments and even chasing the riches of the Premiership.

Outside the Championship, and there are still finance issues, ranging from Stockport and Bournemouth being in long term administration, Accrington Stanley being subject to a transfer embargo for being behind with tax payments, the ongoing sagas of Notts County (now faced with their second winding up order of the season), Chester City and the matter of their owners, Weymouth almost going out of business, King’s Lynn being wound up, and much, much more.

Often in these cases the same names come up time and again. In Mark’s review of the year, Peter Ridsdale’s name came up in reference to the taxman taking Cardiff City to court for £1.2m in unpaid taxes – Cardiff’s finances don’t appear to have recovered from when Ridsdale’s business partner Sam Hammam left the club. And Wimbledon fans will certainly remember how Hammam was the original architect in their club leaving SW19. Another name that comes up time and again is Ridsdale’s eventual successor at Leeds, Ken Bates. John Batchelor’s name is one that is almost expected to hover into view when a lower League Two or Blue Square Premier team is looking for a new buyer. Notts County fans pointed to Peter Trembling’s time at Everton, when saying how great their future under their new owners Munto Finance would be. Former Deputy Chairman of Notts County Peter Storrie seems to be a convenient enough scapegoat at Portsmouth (a club he arrived at in controversial circumstances), but West Ham fans will remember his Bond Scheme with less than fondness.

All of these people pass the Fit and Proper Person’s Test as suggested by the FA and the Football League, whether they are seen as Fit and Proper by the fans of the clubs that they have been involved with, yet clubs continually find themselves controlled by the same people, with very few appearing to learn from any “mistakes” they may have made in the past. When launched, the FAPPT was heralded by then-Football League chairman Brian Mawhinney, who claimed that it was the most important step taken in terms of bringing “new standards of corporate governance to football”. Ironically, the FAPPT was introduced at a Football League AGM in Chester in 2004, yet the current incumbent of the post of chairman at the Deva Stadium only fails the FAPPT because he is disqualified from being a director. In fact, the only man in football who fails the FAPPT, but isn’t barred from being a director of any other company in the country is Marlon King, not because he is currently imprisoned, but because he was found guilty of sexual assault.

In other words, the FAPPT is essentially toothless. Presumably the reason it is toothless is because for the League to have implemented it, it needed to be voted on by the clubs (and therefore the very people that have to pass the FAPPT), and for the FA to implement it, it needed to be voted by the FA committee – five of whom have to pass the FAPPT. Meanwhile, the punishment for what the Football League calls “an insolvency event” doesn’t get handed to the individuals who were responsible for the club running insolvently, it gets passed on to the club, – essentially the fans and any prospective new owners. This season, there are two clubs currently in administration – Stockport County and Bournemouth), yet the only club running with a points deduction is Southampton. As it stands handing a 10 point non-appealable penalty for entering administration is no incentive for exiting administration in the most honourable way, in other words, by settling the debts, rather than agreeing to pay a small percentage of them. Yet, Southampton’s new owner Markus Liebherr did just that, yet the penalty stays. Punishing Liebherr for making Southampton debt free. Punishing the Saints fans for having to see the club see the effects of being so skint for so long in the first place.

The other side of the coin is the argument that the fans were happy with the success that overspending brought, but that isn’t always the case. What success brought the administration that Bournemouth and Stockport are in? And then we have Luton. The fans campaigned for years against bad owner after bad owner, yet got handed the biggest shafting of all time. First of all in November 2007, the Football League’s 10 point administration penalty helped condemn then to relegation to League Two, then followed it up by adding a 20 point sanction for the way that the club exited administration – as well as a little extra kick in the teeth for “previous insolvency events”. These previous events weren’t deemed worthy of penalty at the time that they had originally occurred, and had also happened over a ten year period. Hypocritically, the League’s own FAPPT only looks at “insolvency events” over a five year period, and wouldn’t consider then retrospective to the test being introduced. Just to help Luton on their way out of the League, there was another 10 point penalty and £50,000 fine applied by the FA for various “financial irregularities” concerning payments to agents. The four directors responsible were fined a total of £19,750 – but as the FA are powerless to impose fines on people outside the game, these fines are unlikely ever to be paid. The six agents were censured as to their future conduct, and incurred no financial penalty for the money they had received in contravention to the FA rules.

So, no real punishment for individuals and draconian ones for the clubs, so it is unsurprising that clubs continue to be run into the ground and way beyond their means, because the clubs will always be bought out, and the authorities will continue punishing the entities, because they need to be seen to be taking action. Is this not wrong? Does this not need to change? Don’t we need to actually bring club officials and spending into line? Don’t we need to change the way football works financially? I can think of five ways to help – in order to make the individuals (rather than the fans) more accountable for their actions, and to at least try and prevent club officials trying to write off debts, rather than just punish their clubs when they do:

1. Strengthen up the FAPPT. Short of being disqualified as a director, having an unspent conviction or being on the sex offender’s register, it’s nigh on impossible to fail the FAPPT. In terms of conduct with football clubs, you have to had two insolvency events at clubs within a five year period to fail the test. This should be widened, so that there is no limit in terms of how long a period an individual has been involved in the game, and that any individual who has ever been disqualified as a director cannot be a Fit and Proper Person to run a football club. It should also take into account any behaviour from before the FAPPT was first released. While this would not widen the net a lot, it would stop Stephen Vaughan re-emerging at a club – in fact, thanks to his time at Barrow, he would have failed the test when Chester entered administration in May.

2. Remove the 10 point penalty for administration, and make indivduals responsible for their actions, by getting them to lodge a financial bond that is only returnable upon Fit and Proper behaviour. Prior to the introduction of the points deduction in 2002, administration was seen as a bad thing, with the threat of losing the club concerned. Then Leicester City entered administration, but still managed to keep a promotion campaign going, ultimately reaching the Premier League, having managed to jettison the vast majority of their debt. Since then, eleven football league sides (Rotherham on two occasions), three Conference Premier sides, and six Conference regional sides have gone into administration. None of the owners have received sanctions from the football authorities, and indeed the chairman of the first side after Leicester to enter administration (Ipswich Town’s former chairman David Sheepshanks) sits on the Football Association board. Admittedly, many owners lost out financially, but that is not always the case. In many cases, the owners going into administration have retained ownership of the club for little or no loss. In that respect, the only people who are guaranteed to be penalised by a points deduction are the only people who have no control over it – the fans.

To replace the points deduction, the FA should introduce a scheme that gives club owners and directors an incentive to live within their means, and a means of punishing those who cannot, and use administration to reduce debt. With this in mind, I would include, as part of the FAPPT a pledge that the official signing it will do their utmost to run the club within its means and not look to use insolvency events to reduce debt, and asset strip for personal profit. With this, they should have to post a returnable bond (the amount of the bond would depend on the level the club is playing) that is only returned once the official leaves the club, as long as they haven’t had an insolvency event, or asset stripped the club. Owners who have not had insolvency events, but have had actions that have caused transfer embargoes (usually late payments to players, other clubs, and as from this season, the taxman) would see part of their bond withheld. This may hopefully change the attitudes of the likes of the Accrington Stanley officials were in no rush to get the transfer embargo the club was under (for late payments of £75k to the taxman and £50k to the PFA) lifted, as it meant that they had to keep their squad at a set number, as though they were incapable of managing their club efficiently without the punishment being in place. In cases where the bond (or part of it) would not be returned, and would instead go towards FA grassroots campaigns. Upon an insolvency event, the official should have to re-apply to meet the conditions of the FAPPT, and post a new bond.

There would be one exception to this – a representative of a Supporters Trust would not need to post a bond in order to pass the FAPPT. However, in cases where the Trust runs the club (as opposed to be majority owners, as was the case as Notts County), because the bond is not there to be returned, and because the Trust representatives are elected by fans – then the ten point deduction should remain as an potential punishment.

3. Remove the seemingly arbitrary points deduction for failing to exit administration without a Company Voluntary Arrangement (CVA), and make it easier for clubs to agree a CVA by giving the taxman the same priority as football creditors. This might seem the easiest to do, but it is ultimately the most ambitious. Until Leeds went into administration in 2007, every League club that had ever entered into administration at one point (and at that point, we’re in the region of 40-50 clubs over the decades) had exited administration with a CVA. A CVA is an agreement between the company and the creditors to pay a percentage of what is owed over a set period (usually five years). Since 2007, Leeds, Luton, Rotherham and Bournemouth have all failed to reach a CVA because of one creditor: HMRC – the taxman. And there’s a reason for this. Until 2003, when a company entered administration, the taxman was always considered a supercreditor. In other words, despite whatever was agreed in the CVA by the creditors, supercreditors receive everything they’re owed. The taxman now has a policy of only voting in favour of CVAs when there are no other supercreditors. Which is bad news for football clubs in administration, as creditors that hold “football debts” (i.e. other football clubs, the FA, the Football League and other football authorities and the PFA), are considered supercreditors, because the club will not be allowed to continue competing (and essentially trading) unless football debts are paid off in full. This is important, because it stops Club A buying player X from Club C for £3million on a four year contract, only to pay the first instalment of £600k, and then go into administration and look to pay 10%, 5% or even 1% of the remaining £2.4million while retaining the players services. On paper, this appears to be difficult, because the Enterprise Act of 2003 removed the status of the taxman of a supercreditor. However, surely the football rules that state that all football debts have to be paid, could be widened to state that the taxman also has to be paid in full, in order to continue competing.

4. The club plays in the English League system, and is situated in either England or Wales, so the company that owns the club should also be registered in the UK. No, that’s not a bit of Little Englander inside me trying to get out, but surely a company that does all of its business in the UK should be paying UK taxes. Arsenal are considered one of the most continental style clubs in the English game, yet they are one of the few clubs in last season’s Premier League that are registered in the UK. Other clubs are registered in Jersey, the Isle of Man, the British Virgin Islands, Bermuda, and even the Cayman Islands via Delaware. However, in the last accounts filed by Arsenal (for the year ending 31st May 2009), they state that their entire turnover originates in the UK. Now, if a club like Arsenal, who play several competitive matches across the continent generate all their turnover in the UK, where is the justification for an English Premier League club to be registered in Jersey, other than it being a tax haven? Clubs are forever going on about their work with the community, and the FA’s bid for the 2018 World Cup is very community centric (as long as you’re prepared to suspend that belief when the Franchise Bowl is included as a potential venue) – shouldn’t the FA be encouraging its member clubs contributing financially to the community the same way that it’s supporters do?

5. Bar the transferring of the ownership of the stadium the club plays in, to anyone bar the football club or the local authority. Surely a no-brainer, and in fact an idea that was floated by the football authorities a few years ago, but never got voted in. Brighton & Hove Albion, Wimbledon and Wrexham are just three clubs that would have benefitted from such a rule that would be simple to implement, and at the same time something that could only really be opposed by someone with an eye on asset stripping, or using as security to spend beyond the clubs means. The ideal situation appears to be the setups at Ipswich Town at Newcastle United, where the ground is owned by the club, but the land the ground is built on, is owned by the local council. Mike Ashley may not have seen the assetless situation of St James’s Park as beneficial while he was trying to sell the club, but it certainly protected the club from the sort of would-be owners who were only interested in buying the club if they owned the prime city centre based land the club was situated on.

Five small improvements (at least I think so, anyway), each one designed to make the individuals, rather than the clubs face the punishment of their actions. Will these ever happen? I doubt it – because as long as the individuals who have a say in the rules of the way the game is run, they will continue to ensure that the clubs, rather than the individuals will take the punishment. Just in case.

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