So, with the sad, but inevitable news Derby County have gone into administration after years of grossly over spending, there are many calls on social media railing about how the “authorities” should have stopped this.
In this blog, I am going to share a few of my thoughts on the topic and explain why I am of the view the authorities get unfairly blamed. I come at this from someone who has seen four teams I watched suffer financial problems.
Newcastle United – whilst not necessarily financial problems, they have an owner who is hated by the fans and seems to do all he can to avoid spending his money on the club.
Darlington – they have had numerous financial crisis dating back to 1982 and partially contributed more recently by the costs of their then ground at Darlington Arena
Leyton Orient – so nearly went out of existence, and did fall out of the football league under the owner of Albanian Bechetti
Spennymoor United who did go out of business before a new club was formed in the summer of 2005
Reading that list, perhaps you should be worried if I start watching your club. It seems that I may be an albatross.
The first thing that should be born in mind is that the number of football clubs that go out of business is far below the average across all business types. Football clubs do get into financial trouble, but few actually are wound up. In recent years, Macclesfield Town are the only EFL/ EPL club I can thing of to be wound up and even then by the time they had been wound up they had ceased to be in the EFL.
Those complaining about the “authorities” on social media not doing enough all seem to not understand the difference between the Football Association (FA), English Football League (EFL) or English Premier League (EPL). The FA are the governing body for football in England. The EPL and EFL run competitions that clubs compete in and all three are separate organisations.
All these organisations have separate rules for clubs in their competitions. I have seen for example people complaining Manchester city got treated differently by UEFA for breaching the UEFA version of Financial Fair Play, compared to how Derby or Sheffield Wednesday were treated by the EFL for breaching EFL rules. That is a bit like complaining someone in Russia got a different sentence for a public order offence there to someone in England for a public order offence here
The starting point here is that all these organisations are governed by English Law and must act in accordance with English Law. The Companies Act governs the ownership and running of Companies in England. All football clubs in the EPL or EFL are Companies.
Various people suggest that the “authorities” (often not specifying which body they mean) should have prevented an owner from buying a club. Firstly, they are looking back with hindsight. Yesterday, the owner of Fleetwood Town appeared in Court charged with financial crimes. He has not been convicted and people are saying the authorities should not have allowed him to pass the “fit and proper test” (FPT). At the time he bought the club there was nothing to suggest he was not fit and proper and indeed the mere existence of criminal charges is not reason to say he is not fit and proper given he has not been convicted of anything. The FPT can only be carried out on information known at the time it is applied. The “authorities”, do not as far as I am aware have the ability to travel forward in time and use hindsight.
It has repeatedly been said on social media that the FPT is not fit for purpose. I think this is partly because people do not understand what its purpose is or what the EFL or EPL can actually do, given they are limited to acting in accordance with English Law.
If say the leader of Russia, wanted to buy Derby County and purchased the same, the EFL (or EPL as appropriate) have no power to stop them doing so. The purchase of a company is governed by Company Law. So if Mr Putin bought the shares in Derby County, he in English Law owns the football club.
So, what is the FPT and what is the point of it. The FPT basically looks to see who is funding / owning the club and are they good for the money and of good character. So in my imaginary situation, what can the EFL do if they decide Mr Putin does not pass the FPT? They cannot legally prevent the takeover by Mr Putin as that is a matter governed by the Companies Act. What the EFL can do ultimately is not approve the takeover and as a final resort, they can remove the football share from Derby County. As they did in 2020 from Bury.
Withdrawing the football share would have the effect of expelling Derby from the EFL and ultimately, the may find themselves having to apply to re-join the football pyramid in the 10th tier, the Midland League or similar. This is a league where generally gates of 100 people are considered good. Almost certainly it would mean the end of the club as it could not operate at that level and maintain the ground at Pride Park. Back in 2012, Darlington ended up in 9th tier (for financial reasons) and had to move out of the Darlington Arena, and out of Darlington for several seasons.
If the EFL says someone has not passed their FPT and that person refuses to relinquish control of the club, then if the EFL removes the football share it effectively brings about the end of the club in football competitions. Thus bringing about the very situation the FPT was supposed to guard against!
So those calling for the FPT test to be stronger appear to fail to see that the consequences could be that more clubs go out of existence.
The FPT test in reality acts as no more than a check or an obstacle to someone running a club. It does not and cannot prevent someone buying a club. To think it does is to show a complete lack on English Law.
Football fans also need to look at themselves, its everyday on social media you see fans demanding their chairman spends more money, eg why doesn’t he put his hand in his pocket and buy x” OR “We need a bigger squad” etc. This is exactly what the owner of Derby County has done, and finally he reached a point when he can’t or won’t continue to throw good money after bad and turns off the tap of money. Fans then turn on the owner, calling him corrupt and saying it’s the EFL to blame for not doing enough in their FPT to stop such a person becoming the owner of the club.
Fans create huge pressures on their clubs to spend money chasing the unlikely dream of promotion, Europe etc. The reality is that only 3 or 4 clubs in a division n can achieve promotion. All the other clubs are not going to reap rewards for their excess spending and are heading like Derby and so many others to financial disaster.
In this respect the situation at Newcastle United is interesting. Mike Ashley operates on the basis the club will not spend money it does not have and insists on paying transfer fees upfront, rather than spreading the debt over several years. To be honest, this is a laudable approach and financially very prudent. The situation at Newcastle is much more complicated than that and the contempt shown by Mike Ashley towards the fans, with his refusal to do interviews, issuing false claims of taking cup competitions seriously etc cause huge resentment with all fans.
Also, he has not spent any money on ground maintenance or improvements and as such the stadium is looking shabby and run down. Even the corporate sections are looking shabby and run down and are not attractive to the prawn sandwich brigade, they running down the value of the club.
Derby County over speculated and paid the price. Newcastle United under Mike Ashley are spending the bare minimum to retain their place in the EPL and are letting facilities run down. It is clear Ashley is hoping someone will buy the club and have to pay for the refurbishment of facilities.
The situation at Orient a few years ago was again one of an owner stopping funding a loss making enterprise after losing £millions over the previous couple of seasons. The owner it has to be said tried to interfere in team selection and got through several managers. However, it should be remembered that the club, like all professional football clubs is a business. Owners of a business can run their business in any way they like. This seems to be something that many football fans fail to appreciate. The claims its “our” club not the owner’s club is emotional nonsense that football encourages because it breeds customer loyalty. You wouldn’t continue to shop at Tesco every week if you got awful produce at a high price. You would look around for a better grocery supplier. However, football promotes this idea of tribal loyalty from its fans and thus fans turn up week in week out even when the product is rubbish and you are treated like crap. An example of this is the huge crowds Newcastle continue to get despite the anger at the owner and the way he treats the fans with open contempt.
Back in the early days of football when players largely played for their local teams, it is understandable that people had a tribal loyalty. These days few clubs have local players and there is a large number of foreign mercenaries playing for teams that have no loyalty at all to their current team. These mercenaries demand a move when there is a sniff of an extra 50p a week from another club. The same is true of managers, and even owners. They have no loyalty to the business, but they want fans to have blind loyalty and to pay up their money every week.
This blind loyalty to a club is why fans are treated so much with contempt. The prices charged for football over the last 40 years for admission have risen far faster than inflation, but fans continue to pay stupid prices willingly.
This alone suggests the average football fan either is not discerning about the product or does not think about finances.
Most football clubs that get into financial trouble is because of overspending by the owner rather than because of any criminal or improper financial dealings. Yes they are some sharp accounting practices at some clubs in relation to the presentation of their accounts, especially in relation to Financial Fair Play (FFP) rules. This overspending is encouraged or even demanded by fans, until the proverbial hits the fan. Then the same fans blame the “authorities” for not stopping the owner buying the clubs years before, even though they have no such ability in English Law. For these powers to exist, the government would need to change the law before the football “authorities” could try to prevent such takeovers. This seems to escape the football fan who brainlessly lashes out at the EFL, EPL or FA instead
Another regular call when clubs like Derby get into financial trouble is that Manchester United, Man Chester city, Chelsea etc should bail them out. Again those making such calls seem to want to reward a club for its financial mismanagement. No one says Tesco should bail out Mr Patel’s corner shop when it is losing money. So why should football businesses bail out other badly run businesses?
Another cry is that the EFL / EPL should run/ finance a club that is in administration until a new buyer can be found. Firstly, those making such calls fail to think about where such money would come from. It would have to come from the other clubs in such competitions. This would penalise the well run clubs who have managed their finances accordingly and reward the profligate club in administration by making the well run clubs pay to bail out the profligate. This would mean that effectively clubs are paying their rivals to compete against them and allowing the profligate club to pay wages for players the well run club decided were too expensive.
This is without the clear and obvious conflict of interest there would be is the EFL / EPL were to run a team or teams in that competition
This is a long rambling post, but to sum it up I am trying to say:
1. Football Clubs are businesses and the owner can run them as he wishes. He takes the rewards or bails out the loss making club.
2. When a club ends up in administration, it is the owner who loses most if not all of the money he has put into the club.
3. Fans are merely customers and do not have any right to demand an owner run a club the way they want. They can however, vote with their wallets, i.e. stop funding the club if you do not like the way it is being run.
4. The EFL / EPL can do little under English Law to stop someone buying a business. Their ultimate sanction is to remove the football share which will cause the immediate and inevitable collapse of the business – they very thing fans want to prevent happening.
So, what can the EFL / EPL do? The first thing would be to tighten up the FFP rules and for the EFL / EPL to work together and end the situation where if a club breaches FFP in the EFL, but gets promotion to the EPL then do not get punished until or if they are eventually relegated. Sanctions should apply whichever division a club are in.
The FFP investigations need to move at a faster pace, to try to reduce the time lag between the breaches of the FFP rules and the punishment
Punishments need to be made far more sever, both in financial terms and in terms of points deductions. For example make a minimum 30 point deduction for breaching FFP, with the ability to increase the punishment depending on the seriousness of the breach.
Allow the points deduction to be used over more than one season – for example if a club ends a season (in which they were sanctioned for breaching FFP rules) on 50 points and if they had 10 points deducted they would be relegated, then the remaining 20 points deduction would apply the following season. Thus making the punishments so swingeing that clubs would not risk breaching the FFP rules. In addition the rules on FFP need to be tightened up to allow clubs less wriggle room.