Why the Football Governance Bill is good news for investors and fans alike
Two big forces have been reshaping football and the sporting landscape in England: the surge in regulation, and the tidal wave of investment.
With the Football Governance Bill soon to enter law, the question remains if, and how well, these two forces can coexist.
The stated intentions of the bill are clear enough. Make sure clubs are financially sustainable across all divisions, financially resilient, and in keeping with the heritage of English football.
Preserving heritage is an easy task when your owners are local successes.
Jack Walker, a steel magnate, took over Blackburn Rovers in 1991 to guide them to their first top division title for 81 years.
Mark Stott, considered Stockport’s most successful entrepreneur, secured the return of Stockport County FC to the Football league in 2022 by putting community over capital.
But things are different now. The influence of global capital and private equity in sport has only grown in recent years.
Overseas money has come in from the US and the Middle East for a combination of financial investment and publicity purposes, with Clearlake Capital at Chelsea just one example of investors seeking to grow revenues via effective, smart, and commercial operations both on- and off-pitch.
Capital and community are not natural friends, so balancing strong team performance on the pitch with a good matchday experience for fans is crucial.
Anybody tuning into Wrexham’s Hollywood duo, Ryan Reynolds and Rob McElhenney, will know that they have pulled off a rare feat, turning community spirit into international brand power.
At a high level, so far, so aligned with the bill’s vision. Yet there are some areas of potential conflict.
The Club World Cup has split opinion over whether it deserves its place in an already congested global football calendar.
And while the lavish sums involved are clearly advantageous from the perspective of the participating clubs’ revenues, what remains to be seen is the impact it has on their on-pitch performance in the coming season if a by-product of their involvement is player fatigue.
This may be a key topic for clubs when they are engaging with fans with a different perception of priorities. With the regulations seeking to place fans closer to strategic decision making, this could be more of an area of challenge for clubs.
Bill is a bet on governance supporting football
Then there is the regulator’s role in restricting participation in breakaway tournaments and intervening in the distribution of broadcast revenues.
Broadcast revenues are great growth drivers for investors, but pressure from the regulator’s backstop power to intervene will reduce the flexibility that the top clubs have in using their respective negotiating power to control their earning potential.
Historically there have been owners who saw clubs as a property rather than a sporting opportunity, and there were many examples of clubs hitting financial difficulties following the separation of ownership of club and stadium, followed by underinvestment in the team.
This has rightly faded in recent years, and so the regulator’s power to assess the fitness of new owners, while welcome, is not likely to have much of an impact on new well-capitalised owners coming in with a sustainable investment mindset.
Speculative buyers with limited financial means and less robust financial plans will face more scrutiny and challenge.
Compliance costs will rise for clubs, but these are unlikely to affect well-funded investors as much as the ongoing constraints with the now familiar Profitability and Sustainability Regulations (PSR).
In the end, the bill is a bet that stronger governance will support the soul and stability of the game and its revenues, giving much comfort to investors looking to invest in English football.
While it could restrict the ability of clubs to make changes to competition structures and calendars to maximise revenues, these restrictions support the heritage of the game, which is in the interests of all stakeholders, from wealthy owners to match going fans.
Alex Dixon is a Private Equity M&A Partner at Travers Smith LLP.