In 1981, the Football Association scrapped Rule 34 from its laws of the game.
The stipulation ensured that no director or owner of a football club could be paid a salary
of dividend for their ‘custodian’ role. Since that watershed moment, the acceleration
of English football’s capitalistic tendencies has been exponential.
In 1992, the breakaway Premier League was formed so that established clubs would not
have to share as much of their revenues with the lower divisions. Then came the connected
booms in media rights and sponsorship as the Premier League nailed its early distribution
and marketing strategies.
The influx of money into the sport has generally translated to player wage inflation, although
without the FA’s Rule 34 it became apparent that clubs were at a bigger risk of being
manipulated by their owners for profit. This fear, coupled with the fact that loss-making
at club level in the 1980s and 90s had been habitual, led to lobbying against the FA for
improved regulation. In 1997, Sir John Smith, former Deputy Commissioner of the Metropolitan
Police, recommended a test on shareholder suitability in a report commissioned, but
later dismissed, by the FA.
In 1999, a Labour government emergency unit, the Football Task Force, reached the same
conclusion. In 2003, an Independent Football Commission, imposed on the reluctant FA by
the Labour government, called for the enforcement of “proper corporate and financial governance.”
The FA, Premier League and Football League finally agreed to lay down regulations vetting
the background of owners in 2004, naming it the Fit and Proper Persons test.
There are variations of the test, dependent on which governing body regulates the club
in question. Nevertheless, each test aims to:
1) prevent anyone who holds a criminal record from owning or directing a football club,
2) protect football clubs from people who do not have the long-term business interests
of the club, and..
3) prevent anyone who lacks integrity from becoming an owner or director of a club.
A possible owner or director who has undergone the test will be disqualified if he or she
is found to have: an unspent criminal conviction of fraud or dishonesty, in the United Kingdom
or overseas; been declared bankrupt; been declared unlawful to act as a director of
a UK-registered company; been a director of a football club that was declared insolvent
more than twice; been banned form a sport ruling committee, accredited association or
other regulator; breached FA rules on betting; or been, or still is, on the register of sex
offenders.
Originally, the test applied to people who wished to become shareholders of more than
30% as well as directors of football clubs.
In 2009, though, Richard Scudamore announced amendments would be made to the Premier League’s
test to sync with UEFA’s licensing standards, expanding the ‘fit and proper test’ to
any shareholding of more than 10%.
Since its inception, there have only been a small number of public cases of individuals
failing the test.
In 2009, Stephen Vaughan, then owner of Chester City, was the first to be barred after his
involvement in a £500,000 VAT fraud case while a director of Widnes Vikings rugby league
club, although he merely transferred his shares to his son.
In 2012, Craig Whyte, the controversial character who sent Rangers into liquidation 10 months
after purchasing a controlling stake, was found to have failed the test following an
independent inquiry by Lord William Nimmo Smith.
In a different vein, former One Direction boy band member, Louis Tomlinson, and his
business partner, John Ryan, failed the test in 2014 having raised only £757,000 of the
necessary £2m needed to complete a takeover of Doncaster Rovers.
While the introduction of a Fit and Proper Persons Test is in no doubt beneficial for
the sport’s integrity and financial health, it has not been without a significant amount
of criticism.
A primary issue with academics is the scope of the regulation, with its focus limited
to ‘integrity’ and ‘financial’ aspects.
In Jonathon Michie and Christine Oughton’s 2005 review into the corporate governance
of football they found that the test ‘failed to address the sociocultural importance of
clubs more generally’. This is most plainly illustrated by neither the words ‘fan’
nor ‘supporter’ being present in any of tests’ stipulations.
In a similar vein, the fact that the Premier League and Football League are the bodies
that enforce the Fit and Proper Persons Test seems flawed when it comes to regulating governance.
Both sporting organisations have a clear economic motive as business entities.
Attracting the richest owners to invest their personal wealth into the English football
pyramid would likely increase the quality of the competition, which, in turn, will attract
more consumers and commercial ties. Therefore, there is a conflict of interests between economic
incentives and protecting supporters. Sean Hamil, a lecturer at Birkbeck University on
the Economics of Football, stated in a Government report session: “The job of the leagues
is to run two successful leagues. It is not to govern football.”
As it happens, the test is ineffective at scrutinising its stated aims, let alone the
social responsibility aspect.
The example of Portsmouth FC is particularly prevalent. One of the owners in that four-year
period was Russian entrepreneur Vladimir Aleksandrovich Antonov. In 2009, his Lithuanian bank – Snoras
- was barred from trading in the UK by the Financial Services Authority (FSA) for failing
to provide necessary information.
Nevertheless, the Football League allowed him to purchase Portsmouth FC in June 2011.
Five months later, Antonov had stepped down after his holding company, Convers Sports
Initiatives (CSI), was placed into administration. Portsmouth FC would also enter administration
in February 2012.
The Football League later defended its actions, stating: “the steps taken by the Football
League were based upon evidence of proof of funding, together with related business plans.
It appears that the evidence was at best misleading and possibly fraudulent with the league not
being alone in accepting this evidence.”
Thaksin Shinawatra’s purchase of Manchester City is another egregious case. The business
tycoon and former prime minister of Thailand had been ousted by a military coup in 2006,
following allegations of corruption and human rights abuses. Despite this, and several warnings
from Human Rights Watch, Amnesty International and Transparency International, Shinawatra
passed the Premier League’s ownership test and the City board accepted the purchase in
June 2007.
According to Birkbeck University lecturers, Geoff Walters and Sean Hamil, ‘Scudamore
proclaimed that the League was unable to prevent an individual who faced criminal charges from
an unelected military government from owning a club’. A few months later, however, Shinawatra
was found guilty of corruption by a democratically elected government and a warrant for his arrest
was issued. The Thai millionaire sold Manchester City to Abu Dhabi United Group, making a profit
of £20 million in less than a year.
The high-profile cases of the Glazer family purchase of Manchester United and Tom Hicks
and George Gillet’s purchase of Liverpool are more complicated. Both parties used a
controversial purchase method called a Leveraged Buyout (LBO), where essentially the cost of
purchase is paid by loans against the future value of the asset, ultimately burdening both
clubs with substantial debts. While this is by no means illegal, it is an incredibly risky
strategy and in the case of Liverpool nearly saw them go into administration before Fenway
Sports Group stepped in (2010).
Shortly afterwards, and despite contrary evidence, Richard Scudamore argued that the club was
‘never at any risk’ of going into administration due to a number of interested parties, also
adding that the Premier League was powerless to prevent “another Hicks and Gillet happening”.
Accrington Stanley chairman, Andy Holt, who is particular critical of the state of lower
league football finances on Twitter, told the Totally Football League Show recently:
“I think it’s a disaster. It’s a bit like me breathalysing you tomorrow morning
and expecting you to not be on the beer tomorrow night, driving your car back from a party.
It doesn’t predict any future behaviour, and it doesn’t control any future behaviour.
So there’s absolutely no point in it…