Football is an industry built on passion and commitment, with clubs steeped in tradition and soaked in the hopes and dreams of supporters captivated by the rollercoaster of emotions that professional sports can bring. It follows that football clubs are not normal businesses, and the stewardship of those clubs is a key role, heavily impacting on and off-field performance, with owners charged with protecting what many consider to be community assets.
Owners Under Scrutiny
In recent years, the ownership of English clubs – both in the Premier League (EPL) and the English Football League (EFL) – has come into sharp focus. The effort by owners of a number of EPL clubs to initiate a breakaway European Super League in 2020 caused widespread outrage, immediate back-pedaling, and a raft of apologies to fans and football at large. The ownership of Chelsea, acquired by Roman Abramovich in 2003, came under scrutiny in the wake of Russia’s invasion of Ukraine in February 2022, followed by a forced sale when Abramovich was sanctioned by the UK Government.
Historically, there are numerous examples of dubious buyers slipping through the regulatory nets, one such example being the former Thai Prime Minister Thaksin Shinawatra, who purchased Manchester City in 2007 despite a backdrop of allegations of corruption after his ousting in a military coup. Portsmouth FC had a horror run of five owners between 2009 and 2013 (a period in which they were relegated three divisions and placed into an insolvency process twice), including one who stole the money to purchase the club from his wife, one sentenced to prison for illegal arms deals and another that had to surrender the club when arrested in London (he was later convicted of a £65m fraud in the High Court).
In the EFL, in 2020, Wigan Athletic were relegated after being plunged into an insolvency process weeks after their takeover by owners based in Hong Kong, who almost immediately decided to withdraw all operational funding. The insolvencies and subsequent extinction of North-West clubs Bury and Macclesfield in short succession in 2020, amid concerns about the conduct of their owners, caused significant introspection.
A Changing Public Mood
All of this led to increasing public discourse around who is allowed to own an English football club and the tests which they must be subject to, with consequent pressure to review and strengthen rules and guidelines such as the “Owners’ and Directors’” tests relied upon by the EPL and EFL when considering whether potential acquirers could be considered fit and proper to own clubs in their leagues.
Until March 2023, purchasing an English football club required the prospective buyer to pass a series of tests that largely considered 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 are being revisited by the EPL and the UK Government.
The insolvencies at Bury and Macclesfield, the thwarted threat of the European Super League, and the events at Chelsea all contributed to the UK Government’s Fan Led Review of English Football and the subsequent release of a white paper in February 2023, which set out the Government’s intentions to install an independent regulator for English Football. One of the key areas of focus for the regulator will be an owners’ and directors’ test, with the white paper indicating that the regulator will establish new owners’ and directors’ tests consisting of three key elements:
- a fitness and propriety test (owners and directors)
- enhanced due diligence of source of wealth (owners)
- a requirement for robust financial plans (owners)
It also sets out that:
- Fitness and propriety tests would be designed to ensure that prospective owners and directors have sufficient integrity, honesty, financial soundness, and competence to be suitable custodians of football clubs
- The regulator would combine the disqualifying conditions currently applied by the EPL and EFL with selected criteria that address specific harms identified in the review
- The regulator would conduct fitness and propriety tests for owners and directors, and potentially for other individuals at a club deemed to exercise significant decision-making influence, and clubs would be required to declare their ultimate beneficial owner
Premier League Strengthens Tests
With the introduction of the regulator unlikely to be any earlier than the 2024-25 season, on March 30, 2023, the EPL announced that its clubs had unanimously voted in favor of a raft of changes to the league’s owners' and directors’ test, to come into force with immediate effect. The announcement indicated that further changes were also under consideration.
The approved measures include the introduction of an independent oversight board, lowering the threshold to be considered to have control of a club, widening the number of individuals to fall into the scope of the test, and a program of continuous monitoring (i.e., revisiting the fitness of owners and directors throughout their tenure rather than just at the point of acquisition or appointment).
A host of new “Disqualifying Events” was also announced, including:
- A new Disqualifying Event for individuals/companies subject to government sanctions
- A new Disqualifying Event for human rights abuses, based on Global Human Rights Sanctions Regulations 2020
- Extending the list of criminal offenses resulting in disqualification, to include offenses involving violence, corruption, fraud, tax evasion, and hate crimes
- Extending the list of regulatory authorities, suspension from which will result in disqualification
- Broadening the scope of the insolvency provisions, to enable the league to take action against individuals involved in previous insolvencies in a wider range of circumstances
- A new power for the league to stop those who wish to become ‘directors’ where they are under investigation for conduct that would result in a ‘Disqualifying Event’ if proven
How Easy Will It Be?
The EPL announcement also indicated that greater clarity and transparency are to be provided over the due diligence to be conducted by the EPL on a takeover, with an agreed, published list of "Acquisition Materials" that must be provided to the league to facilitate its due diligence.
However, given the worldwide appeal of the EPL and the scrutiny its clubs and owners are under from the media, fans, and increasingly, politicians, they are in an unenviable position in administering these tests. This is particularly true in the initial exercise of re-reviewing the expanded list of existing owners and directors of clubs, which will be time consuming and tougher than many people realize.
Where the previous rules precluded only those convicted of more serious crimes, the new regulations disqualify a much broader group of potential owners and directors, ranging from those convicted of tax evasion to any individuals who have been repeatedly suspended from a professional body in the UK or abroad.
While the resources required to conduct red-flag checks are usually readily available in the UK, it is a very different and varied picture overseas, which is important given the tidal wave of overseas investment in English football. Take Saudi Arabia; while judgments from commercial courts are available online, other court records can only be searched in person.
Even where information is accessible online and language barriers can be overcome, the complications usually continue. The Saudi example is instructive here again, as online court records only include cases from 2017 onwards, while the government’s modernization push means that the availability of data is improving all the time.
There is also the not-so-simple question of ensuring that searches relate to the correct individual. Names like Alexei and Mohammad can be translated and transliterated in any number of ways. Certain names are so common that the only way one can hope to confirm whether the individual in court records is the same one you are investigating is with additional, culturally specific information like a patronymic (a name that is based on the given name of someone's father or their father's ancestors).
How to Deal With the Subjective?
While these linguistic and cultural factors can complicate routine red flag checks, an even greater challenge is posed by the more subjective side of the EPL’s new regulations.
The most headline-grabbing feature of the updated guidelines was a rule disqualifying human rights abusers, though this did not provide detail around how that term will be defined. Here, too, decision-makers will need context, potentially around the actions of a given state or the role of any individual.
In some cases, clubs may find that they cannot get the answers they need without conducting human source inquiries in relevant jurisdictions. Consider, for example, the new rule disqualifying someone who is under criminal or regulatory investigation. In many countries, information about ongoing regulatory proceedings can only be procured through conversations with a network of existing contacts – a network unlikely to be immediately available to regulators without experienced external support.
Following The Money
The challenge of investigating a potential owner’s source of wealth brings all of these points together. The concern, of course, is that funds used to acquire clubs have been procured improperly, are the proceeds of crime, have come from sanctioned individuals or entities, or belong to someone entirely different from the purported prospective owner.
While the changes to the EPL rules do not explicitly reference investigations into sources of wealth, it seems inevitable that this will form part of the due diligence process, in the same way that the independent regulator anticipates focusing on this issue, which is potentially the trickiest test of all.
There is a practical point, that the extent to which one can obtain public documents about a person or company’s financial background varies wildly by jurisdiction; in some states, companies are not required to file financial returns while in others even personal tax returns are publicly available.
Looking past the numbers on the page, understanding how someone has made their money can be deeply context-dependent, requiring local expertise. For example, in certain jurisdictions, including much of the Middle East, it is a challenge to easily delineate between the funds of the state and those of influential political figures or members of the extended family of state rulers.
Increasingly club acquisitions are being made through investment funds or by conglomerates and getting behind potentially complex corporate structures to understand who investors are will require significant levels of disclosure and interrogation – that is before beginning the exercise of identifying where their money has come from.
Extended due diligence of this type is not an exercise to enter into lightly and requires significant expertise. All of this can ultimately mean that having a presence on the ground and conducting conversations with well-placed contacts come to be an essential part of the due diligence process.
Unpicking some of the subjective points above will be incredibly difficult, and judgment calls will certainly be required in relation to interpreting the rules and establishing the source of funds. Where judgment calls (supported by legal opinion) are required, inevitably procedural and legal challenges will follow, either from disgruntled sellers or frustrated buyers.
The EPL has already experienced this in the case of the sale of Newcastle United to the Saudi Public Investment Fund, with incumbent owner Mike Ashley launching legal action against them following the initial rejection of the sale. Expect more to follow as regulation tightens.