Regulatory reform and the future of English football

The Government has finally published its white paper on 'A sustainable future - reforming club football governance' (the White Paper) in response to the Crouch Review, which sees the majority of the review's proposed recommendations set to become law.

Lawyers from Mishcon de Reya's Sports Group, who co-authored the chapter on Financial Regulation in Football in the leading textbook 'Football and the Law', offer their initial insights into the prospective changes to the regulatory landscape.

What is the Crouch Review?

Major developments over the last five years spurred the Government on to explore ways to improve ownership, financial sustainability, governance and regulation in English football. These include Bury FC's expulsion from the English Football League (EFL), the impact of COVID-19, the acquisition by Saudi Arabia's Public Investment Fund (PIF) of the majority of the shares in Newcastle United FC and the failed attempt by six Premier League (EPL) clubs to join the highly controversial European Super League (ESL).

This culminated in a Fan-Led Review of Football Governance that was prepared by Tracey Crouch MP and published in November 2021 (the "Crouch Review"). It set out 10 key strategic recommendations, which were part of 47 recommendations in total (the Crouch Review).

What are the key announcements in the White Paper?

Alongside the creation of an IREF, the White Paper, which runs to almost 100 pages, sets out a number of key recommendations that will be enshrined in statute:

Licensing System – the requirement for clubs to obtain a licence in order to compete at the professional level, which will be predicated on them agreeing not to join the ESL (or other similar breakaway leagues).
Owners' and Directors' test – introduction of a more stringent owners' and directors' test, which critically will include an "integrity" element to it.
Clubs' Cultural Heritage – rather than introduce a 'golden share' for fans to protect key parts of clubs' heritage and identity, other measures will be taken to prevent against changes to a club's name, badge, home kit colours and stadia sale or relocation without fan approval.
Financial redistribution down the football pyramid – the IREF may intervene, as a last resort, if the EPL, EFL and the FA fail to agree a new financial settlement (that would see a greater distribution of money generated by the EPL).

(The White Paper touches on issues associated with women's football but avoids making specific recommendations, noting a separate review of the women's game in England is underway.)

Whilst not within the White Paper and instead running parallel to those reforms, the Government has confirmed that it will undertake a review of the efficiency of the current visa system. The intention of this is to ensure that the English football retains its ability to attract global talent to its leagues.

Legal analysis

Simon Leaf, Partner and Head of Sport, comments that "today's announcement is truly unprecedented. If the White Paper becomes law, it will arguably amount to the most significant intervention into the sports industry by a government. Without doubt, whilst the reform that will garner the most attention is the creation of an independent regulator of English football (IREF), there are a number of other potentially seismic changes that have also been announced that are likely to be strongly resisted by those at the top of the game."

Could we see legal challenges to the reforms?

Simon notes that "despite the release of the White Paper, this is by no means the end of the story. The White Paper itself acknowledges that there are a number of areas – ranging from potential restrictions on leveraged buyouts of clubs all the way through to the specific owners' and directors' tests and additional FFP-related regulations that will apply – where either the Government has not decided what the approach should be and/or this will be left to the IREF to determine, so there is time for such proposals to be tailored to meet concerns raised. However, where that is not possible, ultimately clubs will for the first time have the ability to challenge these types of decisions by way of Judicial Review, which will be truly revolutionary and would see football-related cases decided in a courtroom rather than in private – albeit, this is several years away."

Will investors be put off?

On the attractiveness of the EPL to investors, Simon states that: "we expect that the new licensing requirements, restrictions on new formats and changes to enhance the protection for certain aspects of clubs' heritage, which would give fans and the IREF more of a say over the clubs' badges, home playing kit and stadia, thereby weakening what existing owners can do, to also attract intense discussion over the coming months.

In the short term, these measures are unlikely to hold up the on-going sales process at clubs like Manchester United but in the medium to long term, the Government will need to walk a delicate tightrope to ensure that, if implemented, the new rules do not put off potential investors from acquiring other EPL clubs as the risk of not having an annual licence renewed is likely to impact what new owners are willing to pay.

In short, the Premier League is reported to contribute over £7 billion to the UK economy every year. If these proposals are not handled delicately, the Government may end up either killing or severely wounding the 'golden goose' that is the Premier League, potentially reducing tax revenues and boosting other leagues. Ironically, this would also harm fans in the process."

Have the original proposals been diluted?

Managing Associate Tom Murray says that "just as important as what is in the White Paper, is what is not in it. It is surprising that not all of the Tracey Crouch proposals have made their way into the White Paper in full. There is no sign of proposed automatic 'relegation' clauses (that would have seen automatic cuts to player remuneration), no sign of an introduction of a transfer levy for top-flight clubs and no further regulation of agents – something that will come as slight relief to many stakeholders at the top of the game."

Additionally, Associate Oliver Millichap, observes that "the passage from report recommendations to White Paper to legislation and implementation is not always smooth, and certainly not guaranteed. We expect that when the ink dries on the latest announcement, the creation of key protections for clubs' heritage to be a fertile ground for intense discussion before it is given the green light.

Rather than requiring every club to introduce a 'golden share' to obtain fan consent if a club wanted to make certain changes (such as its name, home kit colours and any stadia sale or relocation), alternative means are being pursued. In particular, in order to protect key parts of clubs' heritage and identity, the FA would act as the regulator. Clubs will need proof that a majority of fans favour changes to things like badges and home kit colours. Although no further details have been provided, this should effectively give fans a right of veto. That said, the IREF would act as a regulatory backstop so that it can implement its own rules on this, if it deems necessary to protect fans. Additionally, it is proposed that the IREF will approve any stadia sale or relocation, which may lead to disputes between IREF, clubs and supporters."

Have there been changes to the Owners' and Directors' test?

Associate Matthew Scola, commenting on insolvency law, noted that "As expected, following the controversial purchase of Newcastle United FC by PIF, the White Paper contains provisions to implement a new owners' and directors' test. It contains three key elements – a fitness and propriety test to ensure the integrity of owners and directors; enhanced due diligence on the source of owners' wealth; and a requirement for owners to provide robust financial plans. This test from IREF will be the minimum standard for prospective owners and directors, and leagues will be entitled to add their own test criteria outside of that set by IREF.

As well as the extra layer of testing being applied at the point of entry for prospective owners and directors, the White Paper's commits to increase IREF's oversight of owners and directors to ensure their suitability on an ongoing basis as part of an annual compliance statement. Any changes in circumstances could trigger a retest of the relevant owners or directors. Likewise, IREF would have the power to retest owners and/or directors at any given time, or potentially in regular intervals. As the plans move beyond this embryonic stage, it will be interesting to see whether this finds the correct balance between the noble intention to avoid unscrupulous owners and a pragmatic approach to governing those who run football clubs.

The demise of historically significant clubs competing at the lower echelons of the EFL, such as Bury and Macclesfield Town, will help usher in a new financial regulatory framework for English football operated by IREF. Despite the eye-watering spending of England's top football clubs in recent years, over 60 football clubs have entered administration since 1992. Unsurprisingly, therefore, the White Paper says that the current rules within the regulatory landscape have been inadequate at mitigating financial distress. The precise mechanisms of the new financial framework remain ill-defined. However, it is notable that the White Paper states that the Government is giving further consideration to empowering IREF to "appoint a trusted third-party to run the club, as a last resort, in pre-defined circumstances where it is in financial difficulty but falling short of insolvency". If this position is ultimately adopted, it will be fascinating to see the interaction between IREF and the existing UK insolvency system, which has ultimately been invaluable in helping the vast majority of football clubs survive their periods of financial distress."

The state of play – what is the path from law to implementation?

The path from White Paper to law and implementation will likely be a rocky one. The Government will now undertake a consultation and engagement process with key stakeholders on the reforms, with legislation to be brought forward in due course but no timeline has been provided yet.

The reforms in White Paper come at a time when the football industry is experiencing unprecedented changes. These include reforms to FIFA's agent regulations (as we explore here), the charges levied against Manchester City and the likely announcement of a voluntary ban of gambling sponsors on the front of football shirts.