Following the UK government’s white paper on reforming football club governance published at the beginning of 2023, the results of the government’s consultation with the industry and key stakeholders have now been released. The latest report sets out the key focus areas and reveals the current outlook on what the new independent regulator might oversee.

We explored in a recent LawFlash the UK government’s playbook for the reform of football club regulation in England, as laid out in its February 2023 white paper A Sustainable Future: Reforming Club Football Governance. [1] The white paper centered on the creation of an independent regulator—a move prompted by financial unsustainability in the sport, with clubs consistently operating at a loss and relying on external funding.

The government, while acknowledging the benefits of industry-led reform, has asserted that this alone would be insufficient to guarantee the level of independent oversight of clubs’ financial modeling, ownership, and fan involvement that the game needs.

The white paper spotlighted several key issues, including the need to address commercial growth of the sport, fragility resulting from poor governance and industry self-regulation, and threats of breakaway competition, such as the European Super League, alongside zeroing in on the importance of the sport to local economies and communities.

THE CONSULTATION RESPONSE

The UK government issued a consultation paper in response to its white paper on September 7, 2023. With only a small dissenting group emerging to question the case for reform, the majority of stakeholders welcomed the government’s proposal for an independent regulator.

The targeted areas for consideration included the scope of the regulator, independence of the regulator, consistency of approach, managing the regulatory landscape, and financial distributions.

DEFINING THE SCOPE

A number of stakeholders expressed concern that the regulator’s scope was too narrow. Our previous LawFlash highlighted these issues, echoing stakeholder worries that the narrow scope would lead to neglect of crucial areas such as women’s football, player welfare, grassroots football/semi-professional clubs, equality, diversity, and inclusion. On the other hand, concerns from stakeholders arose regarding the regulator’s potential for uncontrolled expansion into matters beyond its intended responsibility, such as competition.

The Four Threshold Conditions

The government’s response was to emphasize that certain areas, while not subject to direct regulation, may still fall within the regulator’s purview through the lens of its “four threshold conditions”:

• Appropriate financial resources
• Suitable owners
• Fan interests
• Approved competitions

See also our March 31 publication, which covered these conditions in greater detail.

The government’s reasoning for these considerations is that it does not want the regulator to “spread itself too thin” by covering areas outside of its “primary objectives.” As such, intervention is proposed only in areas where there is clear evidence of a market failure that (1) risks causing harm and (2) cannot be solved through industry self-regulation.

That said, the government has made sure to recognize those groups raising concerns with regards to diversity, equality, and player welfare, among others, and acknowledges that there is more to be done. The government will continue to work with key stakeholders to address these matters outside of the new regulator’s framework. For example, a separate independent review into the Future of Women’s Football was launched in September 2022, focusing on growing the women’s games’ audience and financial health.

Impact on Competition

Certain stakeholders also had the view that regulatory action pertaining to financial sustainability could have an impact on competition (and vice versa), such as disqualification or removal of a license. The government has responded that they are working with stakeholders and regulatory and legal experts to draft the legislation in such a way that guarantees the regulator has a tightly defined scope, follows its statutory duties and objectives, and continually engages with the industry to ensure it only acts where “appropriate.”

THE IMPORTANCE OF OPERATIONAL INDEPENDENCE

Independence emerged as a central theme of the consultation report, not only in the context of the regulator’s oversight but also in its physical housing. Stakeholders, including legal, academic, and industry experts, voiced concerns about the regulator’s credibility, demanding independence from (1) existing football governing bodies, such as FIFA, UEFA, and the FA, and (2) the government to “avoid the risk of politicisation.”

The government, acknowledging these concerns, emphasized the importance of independence to uphold the integrity and impartiality of the regulator’s decision-making. While it seems that operational independence is set to be a cornerstone of the legislative design, concrete details on how necessary safeguards will be implemented will likely not be revealed until draft legislation is published.

REGULATORY MODEL

Adoption of a Bespoke or Standardized Approach

Stakeholders were divided on whether the regulator should adopt a bespoke or standardized approach to the regulatory model. The argument for a standardized model, applying regulatory measures across all levels of the football pyramid, stems from a fear of complexity and inconsistencies with bespoke licensing for 116 clubs. However, the government argued that applying uniform conditions to a National League club as if it were a top Premier League club would be a clear mismatch.

While the regulation will be consistent, it appears that license conditions will still need to be bespoke to some degree, with the government promising “flexibility and agility” in its approach. The government proposes that the regulator assess clubs against consistent measures so that regulatory objectives can be met while also ensuring that the diversity across football clubs is duly considered and taken into account in the process.

Level of Detail

Questions arose surrounding specific definitions, operational processes, and intervention timelines. While the specific draft legislation will not be released until later on in this process, the government responded that the legislation would include regulatory powers, definitions, thresholds, and operational processes, and it is currently collaborating with stakeholders and industry experts on these items.

Financial Regulation

Across the board, stakeholders endorsed the idea of football clubs regularly providing a broad range of financial information. On the topic of debt, opinions vary, with some suggesting the need for caps on borrowing, while many argue that the type of debt and a club’s ability to repay were the more critical factors.

The hope among most was that the regulator would take a case-by-case approach to debt, with a more narrowed focus on high-risk and high-cost debt as well as “soft financing,” where clubs are able to borrow sums at below-market interest rates to avoid insolvency or collapse despite having no means or incentive to break even or reform their financial management in the longer term.

Stakeholders also emphasized that prevention should be the primary focus and intervention should be a last resort only in severe cases. The government aligned with the notion that this will not be a “zero-failure” system, acknowledging concerns and assuring that clubs will not be burdened by financially unsustainable counterparts. The consultation paper did not give specific examples as to how this might be addressed, but suggested that support would be given to those clubs with more limited resources.

Enforcement

The topic of enforcement sparked discussions around sanctions and their application. Stakeholders expressed concerns about financial sanctions conflicting with the goal of financial sustainability. For example, the removal of a club’s licence, deeming it “non-credible,” could risk club collapse.

While the government admitted that sporting integrity matters are best left to existing football authorities, such as UEFA and its Financial Fair Play Regulations (for which Premier League team Everton was recently awarded a 10 point penalty for breaching), it stressed that the regulator would indeed share relevant evidence to assist in investigations.

PROCEDURAL SAFEGUARDS

A handful of stakeholders requested further clarity as to the appeals process, key among those requests those calling for details on which cases could be subject to judicial review or a full merits review, with some suggesting the use of specialist judges to hear cases.

In response, the government stressed once more that it is developing the appeals process with legal and regulatory experts and the industry itself, with an aim to find a balance between the risk of “frequent, prolonged, and/or costly litigation” undermining the regulator and ensuring that it “acts within its statutory remit” and can be held accountable, with its decisions being fairly challenged where necessary.

NEXT STEPS

Looking ahead, it is currently unclear when these measures will be implemented, with the government clarifying that it is “moving at a pace to deliver this much-needed, coherent and effective model of regulation.”

His Majesty, King Charles III, also made clear in his inaugural King’s Speech at the opening of Parliament in November 2023 that football reform is a priority for this government, stating that “legislation will be brought forward to safeguard the future of football clubs for the benefits of communities and fans.”

However, as legislative details unfold, the balance between regulatory certainty and adaptability will be crucial. Businesses navigating the football market should be observing how the regulator’s approach aligns with their own goals and how legislation could provide a roadmap for compliant growth.

The regulatory changes will undoubtedly increase the complexities for existing or future investment in English football clubs. Investors should start to consider these upcoming regulations as part of enhanced due diligence processes as clubs will need to be closely examined on how they position themselves to comply with the new regulations.

Trainee solicitor Paige Brown contributed to this LawFlash.

[1] A sustainable future - reforming club football governance. Presented to Parliament by the Secretary of State for Culture, Media and Sport by Command of His Majesty (published February 23, 2023).

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