This was the first hearing of the Select Committee’s inquiry into football governance.
Members present:
Mr John Whittingdale (Chair)
Ms Louise Bagshawe
David Cairns
Dr Thérèse Coffey
Damian Collins
Philip Davies
Paul Farrelly
Alan Keen
Mr Adrian Sanders
Jim Sheridan
Examination of Witnesses
Witnesses: Patrick Collins, Mail on Sunday, Sean Hamil, Birkbeck Sport Business Centre, University of London, and Professor Stefan Szymanski, CASS Business School.
I shall begin with the examination of Professor Stefan Szymanski by Ms Louise Bagshawe;
Ms Bagshawe asked, How robust do you think the English model of football is?
Professor Szymanski: "Partly I think the question is what do you mean by the English model of football? Are you talking about professional football? Are you talking about football in the top leagues––the Premier League, the Football League? Are you talking about the national team game? Are you talking about grassroots? Are you talking about local club football? Are you talking about, indeed, mass participation in football on an informal scale? Part of the problem is which bit we are talking about.
If we talk about the professional game, my view is that the professional game is extremely robust and very successful. We have the most successful football league in the world in the Premier League. We have the most popular lower tiers of football anywhere in the world: the English Championship is by far the most popular second league in the world, the third tier and fourth tier are very strong. They have very high levels of attendance and of income. Although on the face of it people say, "It looks like they have lots of individual problems", taking the system as a whole, it is very robust.
If you think about the national team, obviously people talk about issues with that, but that is a very special problem. If you think about the grassroots, in terms of participation, people participate very strongly in football in this country. There are lots of facilities and I would say overall I think it is fairly strong and robust".
Sean Hamil, Birkbeck Sport Business Centre also responded to the question asked by Ms Bagshawe and he said, "It has a lot of strengths, but there are problems, and I think that is the reason why this Committee is conducting this investigation. The professional leagues are strong in the sense that they generate a lot of turnover, a lot of people want to watch it and English teams perform comparatively well in European competition, but if you focus on one key financial indicator, there have been 53 incidences of financial administration in English football since 1992. There has not been a single year since the foundation of the Premiership that the clubs collectively have made a pre-tax profit. Football is different but turnover is vanity, profit is sanity. I have got a copy of the Portsmouth administration document here. It is sorry reading, and one of the problems is that essentially what you have in administration is that, because of the football creditors rule, the key football creditors all get paid 100%, which means that the tax authorities get proportionately less and all the small creditors, such as St John Ambulance, do not get paid. Even looking at that as an isolated episode, that should be intolerable. I recommend that everybody read this document, because it is available on the Portsmouth website, and all the administrations follow the same pattern.
It should not be acceptable in any industry that says it is a private business but has a loss-making financial model. Essentially, it receives a de facto subsidy from the public purse through the non-payment of taxes. To be fair to the football authorities, they have recognised this fact and we now have early warning for tax payments, but there has been a long history of non-payment of taxes at football clubs, and you have to ask why is it only now that it is being addressed? The reason, in my opinion, is because the tax authorities have finally said, "Well, we’re going to get serious here".
The other fundamental problem with a loss-making model is that it is about the quality of the owner that you get. If you have a scenario where someone of the quality of Delia Smith, a successful entrepreneur or Sir John Madejski, successful entrepreneur and local boy who tried to build a sort of major sporting institution in his hometown, decide it is not worth it and that they would like to get out, I think that that is a problem.
Similarly, if you look at the Liverpool situation recently, in the nick of time, there was some very effective work by the interim chairman and his team to deal with failed owners who basically bought the club with borrowed money It’s all very well to say that money invested by new owners is money being brought into the game but where you have a leveraged buyout, money is going out of the game. In our written submission from Birkbeck, we acknowledge all the many strengths of English football. It is very important to do that if you want to have a balanced discussion, but there has to be a realistic assessment of this particular issue. If you are losing money year after year after year, I’m sorry, that is a problem. Secondly, we have the recent example of the lack of financial regulation in the credit crisis. I make no bones about this: there is a role for effective regulation. That is the lesson of the financial crisis. The only question is what form it should take".
Patrick Collins of the Mail on Sunday, also stated that Essentially, he "agreed with very much of what Sean has just said. If it were sufficiently robust, we would not be having this Committee at all. I also think that the game tends to get judged on the success or failure or otherwise of the Premier League, which is a mistake. The Premier League has great weaknesses, which spring possibly from its foundation. I think it was conceived in the spirit of greed and over the years it has probably got a good deal greedier. This is one of the central problems of the game: judging everything by how much money it can make rather than what sort of contribution it can make.
The solution is obviously far broader than this, but the notion of having two independent directors of the FA is an excellent one, because one of the central things that is going wrong with the game is the ongoing conflict between the Premier League and the FA. That has to be resolved. Once that has been resolved, we can look at the game much more calmly. I have some hopes of this Committee because it has been long, long overdue that Parliament has taken a proper look at it. I have urged for years that there should have been an inquiry of this sort and I am very pleased that you have decided to have one.
Ms Bagshawe had a follow-up question, If we think of the structure of English football as a pyramid, from the Premier League down to League One, League Two, Conference, semi-professional football, has the overall introduction of the Premier League, would you say, strengthened or weakened the English football pyramid as a whole? and she asked Mr Hamil, what he thought.
Sean Hamil replied: "I think any high-level competitive league where people want to watch it is a good thing, so I don’t think the Premier League is a bad thing. It would show a lack of focus on the part of the Committee if the way that it proceeded was that there is a problem with the Premier League. I don’t think that is the problem. The issue, as you allude to, is the relationship between the Premier League and the rest of football.
It is well recognised in all sports models that there is a pyramid, because the grassroots provide the players, even in an international marketplace, but they also provide the fans and the whole participation culture creates the interest. It is well recognised that there should be solidarity from the top to the bottom. The critical issue is how that solidarity relationship is organised. My own view, it won’t surprise you to hear, is I think there should be greater solidarity between the Premier League and the grassroots, either through the Football Foundation, through payments down to non-league football or through partnership with the FA. But the Premier League itself is not the problem. The problem is that the relationship has got out of kilter, and you can see that, as Patrick alluded to, most obviously on the board of the FA where, instead of having a unitary board that tries to serve the interest of the wider game, you have two sectional interests who are not quite sure how to relate to each other".
Professor Szymanski also agreed with Sean, "about this not being just about the Premier League. One thing you need to take into account is the context of English football around the time the Premier League was formed. The history here is that in the post-war era, up until 1985, attendances were continuously in decline at English football. We all know the history of what the problems were in English football: neglect of investment, poor facilities, poor crowd control, hooliganism, a sense of danger and it not being a safe place to be.
If you look in my written submission, I show a chart of the actual movement of attendance in English football; that reverses in 1985 and since 1985 it has gone continuously in the opposite direction. In terms of people going to football, we have just got back to where we were in 1960, and one of the things this Committee should think about is what brought about those changes. Why has English football become so much more popular? The Premier League is part of that in the sense that the Premier League was motivated by the advent of satellite broadcasting, which was again motivated by partly or largely by deregulation of broadcasting in Europe, which created competition to own broadcast rights, which created competition to be able to show things like English football. That competition bid up the value of the rights, which brought money into the game and that money has been used to buy players and make the game more attractive. That is that part of the story.
Of course another part, as Sean would probably draw your attention to, is the improvement in football stadiums, which was motivated partly out of Government intervention following the Hillsborough tragedy and the Taylor report that followed on from that. But I would also point to another big change, which was an internal change that happened in English football in the early 1980s, which was that following the recession of 1980-81, the Football League authorities looked at football again and said that one of the problems in English football was that it was not commercial enough. You could not pay directors, you could not pay dividends and, essentially, the Football League’s own investigation concluded that it needed to adopt a more commercial approach. That is what, I think, underlies all the changes that have gone on in the last 20 or 30 years. Football has become more commercial. Of course this has caused a lot of outrage because ticket prices have gone up, and there is new merchandising and new ways of selling football. Certainly people of my generation or older look back and say, "Oh well, things must have been better in the past."
But in reality you have to look at the level of national and international popularity of the game and say, "Well, it has really been very, very successful." Sure, there are issues you can talk about and problems that you might focus on, but the overall background picture should be one of this is one of Britain’s most successful export industries right now and, before you think about interventions that the Government might make or the state might introduce, you should ask yourself, "Could we jeopardise any of that success and popularity in the future?"
Ms Bagshawe proceeded onto ask Patrick Collins if he had anything to add, particularly in relation to how the Premier League affects the other strata of English football?
Patrick Collins: I think, and it is going way, way back to roughly the time Stefan was talking about, some people have a certain yearning for the kind of equality which prevailed before 1983, when each club took their home gates and paid the away team 20% of that gate. The result was a rough equality among the 92 clubs. In fact, going right back to 1965, the first television contract for the season was £5,000 when the 92 clubs received around £50 each. I would not recommend that, but after that in 1985 when it started to change-the first division took 50% of the revenue from television, the second division 25% and the third and fourth 25% each-it produced a game that I agree had many of the problems that Stefan spoke about but it was also an age in which clubs succeeded by virtue of their ability. Derby won a league title and Nottingham Forest won two European cups, not because they were richer than the rest but because they found a manager who was better than the rest. The game seemed to be then centred on sport rather than money.
It is absolutely inconceivable that you could have a Derby or a Nottingham Forest, totally inconceivable. They couldn’t approach the feats that they did. I find some regret in the way that the Premier League came and corralled the huge percentage of the money and made a much more unequal game. So you now have people coming into the game with huge spending power, you have a sheikh here, another guy up there, who can determine the course of the season by the power of their purchasing. Sport lost a great deal when it lost the kind of equality that used to prevail.
Another follow-on question was then asked by another committee member, Mr Adrian Sanders. "As we are going to be dealing with supporters trusts in this inquiry, I have to declare I am a member of the Torquay United Supporters Trust. That leads me nicely to my question: is there sufficient redistribution of income down the pyramid to sustain football’s structure in the longer term?
Professor Szymanski: That is a very good question. I guess again it comes down to what one would mean by "sufficient" in this context. In a sense, you don’t need any money to trickle down the pyramid in order for there to be people interested in playing football and people to want to play. For example, if you cut off all solidarity mechanisms now from the Premier League to the lower levels, the lower levels would all continue, people would still go to watch. If you went to a school and asked how many kids would like to play Premier League football, if you cut off all the solidarity mechanisms, that number of kids would not go down. Ultimately, football is a game played by people and the key incentive is, "Do you want to play this game?" and that is not going to change, regardless of the solidarity mechanisms.
That does not mean to say there is no justification for money trickling down, and it is perfectly reasonable to say that money should come from the top levels in order to help provide facilities and provide investment and maybe improve the quality of the game. That is no doubt true, but again one of the things we should perhaps ask ourselves is: where do we want our footballers to come from? A lot of people are very concerned that there are not enough young footballers coming from this country and too many footballers coming from abroad. In other words, Premier League money is being used to track down talent globally rather than nationally. Is that a bad thing? Should we think that it is more important that we have more English footballers or more Welsh or Scottish footballers, rather than having more African footballers? We have not had any major stars in the Premier League from India, for example, but no doubt that will come at some point, and more Chinese players and so on. Is it bad that they spend their money on that?
In a sense, when you talk about the trickle down and is there enough money being redistributed, ultimately all the money that gets spent in football goes on footballers in one way or another, and the teams at the top are looking to find the best players that they can. I do not see any particular reason to say that there is not enough money currently going down to the lower levels.
Sean Hamil: Your question brings us back to the problem of loss-making. On the current system, there is a famous academic paper by Peter Sloane that says what sports club owners do is they maximise utility not profit. They want sporting success, therefore they always overspend. Alan Sugar used the rather crude expression "the prune juice effect" about Tottenham: money goes in one end and out the other end to players.
What happens in that scenario is that unless you are able to deal with this fundamental challenge about how you can stop clubs spending more than they earn on salaries, you will always have chronic financial instability. To go back to the trust example, I was an elected director of Supporters Direct. It is well known I am a passionate supporter and continue to be, but one of the problems we faced at Supporters Direct, post-ITV Digital, was that 17 clubs went into administration because of a collapsed TV deal. At one point I think there were seven league clubs in fan ownership, basically because there was an investor strike, because no one would buy a league club in that brief period of 18 months, so it was like a financial accident and emergency. The volunteers took over, they cleaned up the balance sheets through voluntary labour, fans’ investment, and at the end of the period when the situation stabilised of course the fans said, "We can’t compete because our rivals have got a sugar daddy.". So what happened? They were reluctantly forced to sell back to private owners. In other words, financial virtue did not have its own reward.
That is why the principles of UEFA financial fair play are absolutely critical. The fact they happen to come from Europe is neither here nor there. They should be applied in every league in Europe independently because what happens is that if you are overspending on players you are not spending on disabled facilities for local fans, you are not spending money on that family facility, you are not spending money on that outreach into the community. Stefan, who is one of the most pre-eminent sports economists in Britain, throughout Europe, has written extensively about this whole business of somebody has to pay somewhere along the line.
Mr Sanders: asked: Where do you regulate and who regulates?
Sean Hamil: It is absolutely clear who should regulate. The regulators should be the football authorities but the Government has a role in nudging them in the right direction. If you take the Taylor report, football could not reform itself at that point; Government had to intervene and say, "We’re sorry, but you’re going to have to modernise your stadia." I think we’re at a similar turning point.
From 1992, four factors came together to create a perfect storm for football. First of all, stadia were being modernised with a 25% subsidy over 1992 to 1997 from a levy on the pools betting duty. English teams had just re-entered European football in 1990. The pay TV revolution had just started, and we had just started 15 years of uninterrupted economic growth through to 2007 and, as we all know, as growth rises, a disproportionate amount is spent on leisure. That ended in 2007. We are in a paradigm shift now and it is important that the football authorities focus on that. Things have changed. European money is now a necessity not a bonus. The TV money domestically has plateaued. They have to pay for their own stadia money now and we are in a financial downturn. That is an appropriate time for reflection. But to come back to your fundamental point, something has to be done about loss making because loss making basically means spending everything you have on players and not building the club as a viable institution, which not only benefits its shareholders but also the wider community.
Mr Sanders: You mentioned the football authorities. A lot of people give that answer, "The football authorities should do something". Who are the football authorities?
Sean Hamil: The FA should be the lead body because the FA is the governing body of football, and on the board of the FA are representatives of the Football League and the Premier League. When people attack the FA, they are actually attacking the Premier League and the Football League as well. It is the governing body. If you read the submissions from the Premier League, they acknowledge the relationship and so on. There is no need to reinvent the wheel. What is necessary is to recalibrate the relationship between the two leagues and the FA and, in my opinion, to allow the FA to get on with its historic role of governing the game in the wider interest. The job of the leagues is to run two successful leagues. It is not to govern football.
Mr Sanders then stated, Can I come back to my original question about the pyramid? The pyramid is not just about an agreement of income going down; in the past a lot of transfer money also went down the pyramid that now tends to go overseas. Would Patrick want to say something on that? There also used to be more redistribution within by sharing of gate receipts, which went out of the window, which clearly benefits the bigger club against the smaller club.
Patrick Collins: The transfer money point you make is very relevant. In the last transfer window, I believe I am right in saying that the leagues outside the Premier League benefited by about £12 million, which is obviously peanuts given that about £200 million was spent. So this doesn’t happen. We hear about this trickle-down effect. One of the great dangers of the so-called trickle-down effect is that when a monstrous fee is paid, for instance like the one that has just been paid for Fernando Torres, it sets the bar at a different level. People who have other players to sell say, "Well, if he is worth that, mine must be worth that." It is not just the fee but of course the ancillaries that go with it, the salary even more so than the fee. I do not know what Chelsea are paying Torres but it would be enormous. The next agent will know what Torres is being paid and he will negotiate on that basis. The idea of this wonderful pot of money going down and doing good all over the place seems to me to be a misnomer.
I take Stefan’s point that the Premier League has fulfilled many of its aims and ambitions, but I remind you that one of the central reasons it was brought into being, one of the reasons under Graham Kelly, who I believe is speaking to you later, under the blueprint for football he devised, which effectively brought the Premier League into existence, was that the Premier League would make for a successful England team: because of the extra time players would have to prepare because of fewer games and so on, we would have a successful England side. As we all well know, every two years we have inquests and eruptions when first England fails at the World Cup and then it goes out at the European Championships. The Premier League does a good job of preparing the world’s players to perform at major tournaments, but since there are fewer and fewer English players playing in the league it does less well with England players.
I shall carry on with this first hearing into 'Football Governance' in my next blog...Later! I'm hungry :)
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