Professor Len Shackleton is an Editorial and Research Fellow at the IEA; Victoria Hewson is Head of Regulatory Affairs and Research Associate.
Scott Benton MP has argued here in favour of Nadine Dorries’ proposal to impose an Independent Regulator (IREF) on English football, claiming that somehow it would contribute to the ‘levelling up’ agenda.
We disagree, and have explained why in detail in our IEA paper, Red Card.
The Government plans to implement the recommendations of Tracey Crouch’s recent Fan Led Review of Football Governance, published in November. This called for major changes in the way English football is run, with government not only imposing a regulator but also mandating major changes to the way clubs are run.
The Review proposes replacing self-regulation, the way football has operated for well over a century, with a regulator modelled on the Financial Conduct Authority.
The usual justifications for state interference in the private sector relate to misuse of market power or external costs imposed on the rest of us. Neither factor holds in relation to football.
Instead, the Crouch Review focuses on the supposed financial instability of clubs – a curious justification, not used in other sectors, where occasional business failures are seen as the price we pay for dynamic markets reacting to changed consumer demand.
In any case the Review’s concern ignores history, which shows very few clubs closing permanently. This industry is almost unique in that most businesses in operation a century ago are still around today.
Even Bury FC, whose expulsion from the EFL is made much of in the Review, has started playing again at the bottom of the pyramid and has just won promotion in its first full season.
There has long been tension between the legal and commercial reality of football clubs as private businesses, and the way many fans understand the club they support as ‘belonging’ to them. Private legal owners sometimes take actions conflicting with the views of such fans.
But in modern conditions clubs are inevitably owned by corporations or rich individuals; experiments with fan ownership have usually had to be abandoned, as at Portsmouth and Brentford.
Under the proposed regulatory model, clubs will be required to submit a plethora of information, including highly detailed business plans and frequent financial updates. There will be strict limits on permissible losses.
Clubs must restructure boards and put inequality, diversity and inclusion programmes in place. They must set up arrangements for a fan body to hold a ‘golden share’ giving veto powers over certain club decisions, and separate arrangements for a ‘shadow board’ to be consulted on most matters.
All must be approved before a licence, to be renewed each year, is granted. Monitoring and collating this material, and investigating clubs for potential breaches – which in serious cases could involve the IREF temporarily running clubs – will require a substantial number of regulatory staff. The cost will be passed on to the clubs.
While proposed licence fees will be on a sliding scale, with Premier League clubs paying most, they will certainly be substantial even for lower-league teams – and the compliance cost of box-ticking will likely be considerably greater.
Costs to Premier League clubs could run into hundreds of thousands of pounds. Even a National League team might face annual costs of tens of thousands of pounds. The Review does not attempt a cost-benefit analysis to justify this.
Several measures recommended in the Review involve substantial new restrictions on owners’ property rights. These could be challenged in the courts and give rise to substantial compensation claims. If upheld, they could deter future investment in football – and perhaps in the wider British economy.
Perhaps the most un-Conservative proposal – which Benton specifically endorses – is to give the IREF power to redistribute money from the Premier League to lower-league clubs.
Of course there has long been considerable financial redistribution within football. But it has always been voluntary. The idea that an unaccountable body should in effect be able to ‘tax’ private businesses to redistribute income to other businesses is extraordinary.
And it’s not as if this would necessarily produce the result Benton hopes for – greater financial stability for lower-league teams. Experience suggests it will largely be dissipated in higher player wages and transfer fees.
Regulatory interventions like this will disincentivise new owners from investing in clubs. Such investment enables movement up leagues, while helping clubs to remain competitive and develop stadia or facilities.
Strict control of spending, a key feature of the proposals, is a recipe for mediocrity and will simply entrench the position of today’s leading clubs. Paradoxically, it could hit smaller clubs the hardest: the glamour of a big name such as Manchester United or Liverpool will always attract moneybag suitors. Benton’s Blackpool, less so.
Imposing a regulator to act in the common good is always superficially attractive, but as Kwasi Kwarteng has said, regulation should always be “necessary and proportionate”. The reality of regulatory intervention in the ownership and operation of football clubs seems likely to create as many problems as it resolves.
The case for imposing a regulator on a world-leading football industry is weak and is not something a party supposedly in favour of private business and a lively civil society should endorse. Benton, and the Government, really should think again.