Inevitably and predictably Premier League clubs and their media chums are lining up to pour scorn over the proposals contained within Tracey Crouch’s Fan Led Review. Claims from Aston Villa’s Christian Purslow of “killing the golden goose”; Steve Parish of Crystal Palace “unintended consequences….stymied….run by UK Government”; Karen Brady of West Ham United “we do not live in Russia, China or North Korea”; and Leeds United’s Angus Kinnear “Maoism”.
Well, I want to offer an alternative view. A view that says a properly and independently regulated professional football game can not only protect the League pyramid, but add value to Premier League club shareholdings without losing competitiveness domestically and across Europe.
A view that Tracey Crouch and her team must sell to the Premier League on the strength of the argument or ultimately if the Premier League don’t buy into, be enforced upon them.
The owners of Premier League clubs are looking down the wrong end of the telescope. Rather than seeing this as an opportunity to invest in the pyramid thereby securing the professional football ecosystem, they see it as inefficient clubs putting out the begging bowl demanding more handouts. How wrong and narrow minded is that view?
The case for greater governance and independent regulation is set out extensively in Tracey Crouch’s report. I am interested in its impact on Premier League clubs, the clubs below the Premier League and the pyramid as a whole.
Without detailing the changes let’s assume that the removal of parachute payments and a reduction in the revenue differentials between each league was achieved. I.E. greater levels of income were distributed more evenly across the English Football League and the income differential between each division and particularly the Championship and the Premier League were significantly reduced..
What impact would higher revenues have on the English Football League?
Higher revenues without governance and regulation would just pour fuel onto an already wholly unstable situation. Without financial regulation it would add a significant inflationary effect on wages and transfer fees thereby reducing stability not increasing it. Thus increased revenues and a more equal distribution of such requires some form of spending cap. Many academics and industry experts are currently offering different models – a hard cap, a fixed percentage cap for example – the key will be to create a system that doesn’t bed in existing income advantages, although fairer future income distributions reduces that problem to a degree. A system such as Fair Game’s sustainability index, rewarding good governance and compliance may assist on this admittedly complex area.
I’d argue that along with higher revenues to EFL clubs comes a responsibility to use some of that money in investing in community assets, infrastructure and academy/youth/women’s football. Why would I argue that? Well, firstly it offers support and assistance at a local level, it further embeds clubs into their local communities and helps grow the game. Secondly and perhaps more importantly from a financial perspective, better facilities, better academies must lead over the medium to long term to the prospect of producing “home-grown”, local talent. An improvement in infra-structure, better coaching, better academies improves the chances of smaller clubs recruiting young talent, developing that talent and then playing either for the club at a senior level or being sold higher up the League in exceptional cases.
The result of the above financially (and again with the assistance of better regulation allowing clubs to profit from young player development) ought to be over time, less reliance on buying in players and future player trading profits from player sales.
The key to making higher income value enhancing for clubs clearly depends on the higher income not just flowing through to higher player wages and transfer fees, but on investing in the game itself through facilities and people.
Making English Football League Clubs more investible
The current owners of English Football League clubs are the bravest investors in football. Other than in exceptional circumstances they’re almost guaranteed to make a loss as a result of the competitive pressures to spend more than you earn in order to have a chance of succeeding on the pitch. There’s also the inequitable distribution of monies, for example parachute payments for relegated clubs (particularly in the Championship). From a traditional view of investing it’s almost impossible to put a value on a football club whose main assets are usually their players, in some cases their stadia, and of course, lose money week in week out.
Robust, independent regulation can change that. If the regulation reduces income differentials between divisions and clubs, if it places a restriction on player spending, and rewards investment in infrastructure and people, then most of the issues above reduce significantly.
That being the case it opens the door to fresh investment. Investment at a local level, or indeed fan level for the smaller clubs, and in the case of the Championship draw attention from the wave of institutional money and existing sports owners internationally, particularly the US.
That has to make the English Football League more sustainable and much more competitive by improving standards across the board. Making these clubs investible should increase the quality of the investors (no slight on those current owners who already do an excellent job) with a resultant improvement in the product (football), governance and professionalism of the management. I accept entirely this is not always the case but with the introduction of regulation and greater scrutiny, it should be so.
Benefits to the owners of Premier League Clubs
There is substantial evidence across many industries and jurisdictions that good corporate governance combined with effective independent regulation, increase the value of companies for shareholders through a combination of higher and more consistent profitability and resulting higher multiples in terms of the value of the equity. Whilst football clubs do not by the by make regular profits and their valuations tend to reflect fixed and intangible (player squad) asset value and performance on the pitch, this reflects the current poor governance and self regulatory nature of professional football.
Independent regulation with proper financial controls, and also greater controls on those fit to own and govern football clubs has to be the way forward. It will ultimately prove beneficial to good owners. It should ultimately if properly empowered chase out the “bad” owners.
Professional investors, those charged with producing a return for their clients, should invest more sensibly and sustainably than wealthy individuals or State controlled funds that have no scrutiny or accountability. It would be hugely beneficial long term if regulation emphasised and promoted this distinction. Additionally professional investors should recognise their duty to promoting the long term security of their club, the Premier League and the football pyramid itself. The best investors not only want to see their companies succeed but recognise the responsibility towards their chosen industry. In football terms the pyramid is the industry. Whilst the very largest clubs will always have one eye on their competitive position within UEFA competitions, there has to be an obligation (enforced by regulation if necessary) to ensure the sustainability and competitiveness of the pyramid.
So, independent regulation viewed through the correct end of the telescope offers much to all parts of the game. It should provide for a more sustainable, fairer, more investible pyramid. That produces significant benefits for the game overall, including the Premier League.
The benefits of good independent regulation for Premier League owners should produce a more stable investing environment, an opportunity through effective financial regulation to make profits. It should attract better quality investors not just those that see the casino element or political advantages of owning a club. It would encourage longer term investment and greater investment in infra-structure and people. As a result, over time it would increase the value of their equity. Premier League clubs are considered cheap on a global basis, certainly when compared to US sporting franchises, this is an opportunity to reduce that value gap. Owners would be well served to consider this rather than react on the basis of narrow self interest and short termism.