“Events, dear boy, events” – so said Prime Minister Harold Macmillan when asked the greatest challenge for a statesman. Those tasked with governing English football would likely concur, having most recently had to manage the knock-on effects of a war fought thousands of miles from any Premier League ground on at least one of England’s top-flight football clubs.
Existing tests appear outdated
Such periodic “events” drive public discourse around who is allowed to own a football club and the tests which they must be subject to, with consequent pressure on regulators to review and strengthen rules and guidelines such as the much-maligned “Owners’ and Directors” tests relied upon by the English Premier League and English Football League. Even before the latest demonstration of how international sanctions regimes could impact football, “events” had more broadly contributed to a climate of increasing political, cultural, and regulatory focus on who owns football clubs in Britain, not least the failed effort by leading European club sides in 2021 to form a breakaway, invite-only, Super League that many fans felt went against the very spirit of competitive sport.
Chelsea will not be the only major English club to change hands in coming years, with quiet rumblings that a number of owners are considering their position in the face of a near-guaranteed economic downturn and a glut of private equity money looking at sports clubs and leagues as potential investment opportunities. At present, purchasing an English football club requires the prospective buyer to pass a series of tests that largely consider historic instances of insolvency or criminal conduct, or conflicts of interest in the form of ownership of another domestic club.
But in a world where oligarchs, states, and sovereign wealth funds are buying clubs, rather than the "local lad done good" – a business figure who, having achieved significant financial success, decides to invest some of their wealth into their local football club – these considerations no longer appear to be fit for purpose. There are numerous examples where dubious buyers have slipped through the regulatory nets, one such example being the former Thai Prime Minister Thaksin Shinawatra, who purchased Manchester City in 2007 after having been ousted in a military coup and been subject to allegations of corruption. In 2020, Wigan Athletic was plunged into an insolvency process weeks after its takeover by owners based in Hong Kong, who almost immediately decided to withdraw all operational funding.
The direction of travel is towards more stringent regulation
Rightly or wrongly, sport is held to a higher standard than the corporate world as a whole and there is a growing groundswell of opinion that football clubs, which at their heart are community assets, should not be owned or controlled by individuals or entities that don’t have their best interests at heart, or whose reputations and activities are such that they damage the image of the club. These concerns were an area of focus for the 2021 UK government-backed review into football governance, which was led by Conservative MP Tracey Crouch.
Her report, which canvassed a wide range of stakeholders including supporters, governing bodies, representatives of leagues, and various professional associations, concluded that “there have been many instances of owners and directors whose suitability is at the very least questionable.” To address this issue the review suggested that a new independent regulator should replace the existing tests, which would subject prospective buyers to four demands:
- submit a business plan for assessment by the new regulator
- provide evidence of sufficient financial resources to cover three years of operation
- be subject to enhanced due diligence checks on source of funds
- pass an integrity test
Points 3 and 4 raise serious questions including what would be a source of funds that would prohibit a prospective owner from purchasing a club? Would a sovereign wealth fund linked to a state which has faced human rights accusations fall foul of the new guidelines? In an environment where rumors abound that owners of certain clubs are fronts for individuals whose finances have been generated through dubious means, how will the ultimate source of funds be identified? And, would an integrity test prohibit such an owner regardless of their source of wealth? The review sets out a series of standards that the integrity test should consider, namely:
- whether an owner is of good character, which would consider whether there is any reliable evidence that demonstrates otherwise and that the regulator has no grounds to doubt their good repute
- matters such as criminal history, civil, administrate, or professional sanctions, and any other relevant information
- their proprietary past business dealings
- frequently occurring "minor matters" which suggest the proposed owner is not of good repute
- and consideration of the integrity and reputation of any close family member or business associate
These tests are clearly more subjective than the existing criteria and would require the new regulator to make nuanced decisions about issues that do, or do not, constitute indications that the prospective owner is of good character or repute. Interestingly, recent events suggest that these tests are being applied in a fashion already, or at the very least are leading to increased public pressure on prospective buyers of football clubs in England. This was demonstrated by the recent public apology by a prospective bidder for Chelsea FC on behalf of his father who had expressed negative sentiments about the Islamic faith.
New responsibilities for regulators and sellers
This example also makes clear that any new tests will increase the burden on sellers of football clubs. If, for example, a seller approved a bid that was then to fail the tests, they would likely be forced to accept a less attractive bid from another buyer costing them financially and wasting their time. Sellers will likely need to consider conducting their own due diligence to ensure that any prospective buyer will pass these tests. Having said that, it’s likely that the seller’s view of “reliable evidence” that there are “no grounds” to doubt the proposed buyer’s good repute will differ from the wider public when there is significant money at stake.
The UK government announced in April 2022 that an independent oversight body for football will be in place before the next election. Whether or not the conclusions of the government review are implemented in their entirety, it seems clear that we are moving towards a more stringent and holistic regulatory focus on who we allow to own our football clubs. Both sellers and buyers, as well as regulatory authorities and sports’ governing bodies, will need to ensure that their due diligence processes are up-to-date and robust in order to deal with the developing regulatory landscape around football club acquisitions and ownership.
© Copyright 2022. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.