FC/plc

This was written during the research stage of my final major degree project. It’s not intended to be authoritive, yet I feel it is still informative, and highlights a few issues and historical facts I never knew about football and the business it’s become.

Football Becomes Big Business

Football is often regarded as the people’s game but it was in public schools and universities that the modern game was developed. A game that can trace its roots as far back to the fourteenth century where opposing villages and towns battled over an inflated bladder, fighting and maiming each other as players raged through the streets. The nineteenth century saw games with rudimentary sets of rules regarding taking and attacking opposing villages territory—these being the ‘goal’. The industrial revolution, the formation of a police force and the shift of people into the cities saw the end to these games.

They remained in the privileged and cocooned world of the public school system however, and with the reforms brought in by headmasters the game became toned down and regulated. Football was seen as a method of encouraging sportsmanship and teamwork. It was here that The Football Association (The FA) was formed in 1863 as a means of creating a standard set of rules. It was a firmly amateur organisation that believed in the game being played for the competition and the sport alone.

Professionalism

Graduates from the universities, as well as churches and schools promoted the sport, as it would encourage physical health and moral values. The game caught on massively with clubs sprouting up across the country—especially in the North and Midlands. As the game popularised and competition increased between clubs, illegal payments started to be made to players. In 1885, and against its beliefs, the FA was forced by threat of a breakaway to legalise professionalism, but in doing so it continued to regulate the excesses and protect the game from the effects of commercialism.

Now that clubs were able to pay players, they needed regular fixtures in order provide an income. It was with this in mind that William McGregor of Aston Villa formed the Football League in 1888, starting with 12 clubs. From the start, the league thought it important to maintain equity between the clubs that played in it. Gate receipts were shared between clubs that meant the bigger clubs couldn’t dominate just because they could make more money through the gates. Later a four percent levy of overall gate money was collected into a central pot and shared equally between the clubs. Another action that maintained equity between clubs was that of a maximum wage. However this is now seen today as a restriction by the upper class FA on the working class players, and was eventually scraped in 1961.

Professional football continued to thrive, and by 1921 the Football League had four divisions. Clubs did make money, but in an amateurish way. The majority of a clubs income was from that of admission charges and that made by in-ground catering. Clubs outgoings were spent on player’s wages (which were capped) and so little money was spent on grounds, which remained basic.

Whilst the amateur FA governed the game and ran the national team, the professional Football League was merely a competition registered with The FA that ensured clubs had regular fixtures and both organisations maintained a largely harmonious relationship.

The power of the league strengthens the Association and the authority of the Association safeguards the league

William Pickford, FA President 1937/8

This relationship was to deteriorate after the Second World War with the breakdown of the class system. As the upper class FA began to waver, the Football League became more powerful, and arguments between the two became more common—club versus country often being a catalyst.

Breakaway

The re-distributive nature of the Football League (matched by the maximum wage) ensured the safeguarding of every club. Very few clubs went out of business over the course of a century, and these measures alongside The FA’s Rule 34, ensured the games popularity and survival. The sixties saw the first signs of sponsorship and television entering football. Whilst the bigger clubs were more attractive to sponsors and likely to attract a greater number of TV viewers, the Football League maintained its re-distributive structure meaning all revenue was shared equally among 92 clubs.

In 1965, the BBC paid £5,000 for its Match of the Day highlights and each club received little more than £50 as a result. As money grew with the success of the game, resentment came from bigger clubs, most headed with a new breed of chairman not keen on having to share the wealth with the smaller clubs. The first threats to the structure of the league came during the 80’s. Threats from ‘the big five’: Manchester United, Liverpool, Tottenham Hotspur, Everton and Arsenal to form a breakaway ‘Super League’ lead to concessions being given by the smaller clubs with more money and voting rights given to bigger clubs. The gate levy was also reduced to 3% with home clubs allowed to keep gate receipts. 1988 saw a private deal made between the big five and ITV to get themselves shown almost exclusively on TV. However there remained an element of redistribution: Division One received 50%, Division Two received 25%, with the remainder shared between the Third and Fourth Divisions.

The Hillsborough Disaster

The 15th April 1989 and a semi-final FA Cup clash between Liverpool and Nottingham at Hillsborough was an unfortunate turning point in the history of English league football which saw 96 Liverpool supporters crushed to death.

The ensuing Taylor enquiry was to find in it’s interim report that their was an appalling record of safety management at Sheffield Wednesday, failure by the local council in its safety regulatory duties and mismanagement of the crowd on day by South Yorkshire Police. However there was no change of staff at Hillsborough, and no memorial erected until 10 years after the disaster. The chairman who presided over this policy later became the chairman of The FA Premier League. Lord Taylor’s final report:

• recommended grounds should be made all-seater,

• proposed reducing pools tax, with savings passed onto the Football Trust who could then award grants,

• stated rebuilding should not be an excuse by the clubs to raise ticket prices,

• believed the League and FA both failed to regulate clubs effectively in terms of fulfilling safety duties,

• found the ethos of public service in the boardroom being widely betrayed. Chairman and directors were more interested in power struggles and share dealing than their clubs supporters,

• called for the fullest reassessment of the policy for the game.

The government however only enacted on the all-seater requirement and the giving of public money in the form grants to fund the rebuilding of grounds. Grants of up to £2 million per stand were given to the very directors criticised in report who went against the reports recommendations, and systematically increased their ticket prices. These new stadiums lost their atmosphere, and became notably bland and faceless. Clubs tended to insist on supporters staying seated though this was not a requirement by law. These new grant funded stands were also used as an opportunity to install corporate boxes, as well as banqueting and conference facilities. As for the families affected by the disaster, they received no financial support and out of the whole horrible episode undoubtedly finished the worst off, achieving no justice for their loved ones.

Premier League Formation

As its response to the disaster and answering Lord Taylor’s call for a full reassessment of the game, and anticipating the forthcoming TV deal, the Football League published ‘One game, One Team, One Voice’. It recommended:

• FA and League should bury the differences that had grown between them, and become a single authority,

• a new 12 man board formed at The FA (in place of The FA Council) with six members from each organisation,

• the new FA would run the whole spectrum of football; amateur and professional, from top to bottom for the good of all,

• TV deals would be done for the whole of football, money distributed according to needs of running a healthy game.

It was around this time that Rupert Murdoch’s Sky satellite television system had been launched in the UK, but with nothing to tempt viewers, it was a tremendously under subscribed and close to going bankrupt. It knew only football could attract viewers, and was prepared to spend big in order to attract the sport to the platform. Such lucrative offers made a breakaway from the money sharing Football League far more tempting and it wasn’t long before the ‘big five’ chairman met in secret with Greg Dyke (then at LWT) who agreed to buy TV rights if they were to form a breakaway ‘Super League’. But if they were to gain credibility for the breakaway they would need the backing of The FA.

The Football Association at this time was preparing its own response to Hillsborough—its ‘Blueprint for the Future of Football’ published in 1991. It saw unity as a threat to its administrative pre-eminence and so supported the formation of the breakaway league as a means of self-preservation that would also deal a fatal blow to the Football league. The report in essence:

• no longer protected football from commercialism,

• believed football should move upmarket to ‘chase more affluent middle class consumers’,

• saw The FA as pre-eminent in football administration,

• backed Super League proposal in the form of an 18-member Premier League tied to a system to promote excellence, that would ultimately lead to success for the England team.

So 1992 saw the first games being played in The FA Carling Premiership. However, with all the former Division One clubs realising the benefits of Premiership membership, all 22 First Division clubs resigned from Football League. This was against the FA’s proposals as a greater number of teams meant more games—detrimental to the national team and promotion of excellence. It could of forced the membership of only 18 clubs, but decided not to bother. However, the number of clubs was later reduced to 20.

They shared the £305 million bid by Sky (which outbid Greg Dyke and ITV) between them, with the only concessions to the Football League being £3 million in compensation and allowing clubs to be promoted to and relegated from the Premiership. Clubs that were relegated would receive ‘parachute payments’. The following TV deal in 1997 saw £607 million paid, and last deal in 2001 saw a massive £1.6 billion paid out.

Redistribution

Just as enough money was coming in to fund a reform of the whole of football, from the Premier League to the grassroots and in between, the system of redistribution had ended. Not only that but wage inflation soon moved down into lower divisions, players believing they should also have their wages increased at the same scale as that of players in the top league. But the lower leagues did not have the same sort of revenues to support them and many semi-professional clubs soon found themselves in trouble.

As for the grassroots of the game, where tomorrows players are to be found, there was considerable neglect. Playing fields became victim to local authority cuts—either finding themselves in states of disrepair used for housing and industrial developments. These cuts also affected school leagues, and even when they produced Premiership footballers, the money didn’t filter down—Manchester United paying only £100 to Manchester Schools FA when Nicky Butt was signed to them.

Government Reform

1997 saw the country elect a new Labour government who recognised that commercialism was damaging football. It set-up a task force to enquire into various issues affecting the game formed by supporters, governing bodies, public figures and informed academics. This mix sometimes meant it was hard to achieve consensus, especially with members of the Premier League. The task force produced four reports:

Eliminating Racism from Football—March 30th 1998

This lead to racist chanting being made criminal offence.

Improving facilities for Disabled Supporters—July 29th 1998

Disabled facilities are now compulsory at all grant-aided ground developments

Investing in Community—January 11th 1999

Two bodies were formed:

• Supporters Direct—A government backed initiative set up with £750,000 budget that would encourage supporters to buy and hold football clubs shares mutually.
• Football Foundation—A body to administer spending of 5% of the Premier Leagues TV revenue (£80m over 3 years) matched by lottery grants, to spend on grass roots football facilities.

Commercial Issues—December 22nd 1999

This area of enquiry lead to little agreement between various parties and two separate reports were produced, the majority report favouring an audit commission and ombudsman. Footballs governing bodies unsurprisingly preferred a system of self-regulation. The government facing pressure from the Premier League supported this report which led to the creation of the Independent Football Commission (IFC). This body would oversee the running of football in commercial areas such as ticket prices and merchandising, but only with the power to ‘name and shame’ bad practice.

Football Foundation

The Football Foundation was formed in 2000 by the Government, replaced The Football Trust. It has a 53m investment programme with money sourced from The FA Premier League, The FA, Sport England and the Department of Culture, Media and Sport (DCMS). The foundation—the UK’s biggest sporting charity—is based at FA Headquarters in London. It aims to deliver:

• a new generation of modern facilities in parks, local leagues and schools throughout the country,

• capital and revenue supporting the running of grass roots football,

• strengthening the links between football and the community to harness its potential for a force for good in society,

• REFF—Register of English Football Facilities. Database of all football facilities, their state of repair and demand.

Two recent examples of how the foundation has helped make a difference are in Colchester and Burnley. The Colchester United Football in the Community Scheme was given a £11,537 grant to fund to mobile floodlights to provide evening coaching schemes for local young people. This radical project uses the mobile floodlights to take football to local housing estates, and help provide professional coaching opportunities for children. Meanwhile, Burnley Borough Council received a £150,000 grant to fund pitch drainage and construct modern changing facilities at the Prairie Playing fields in the town. The council hopes these improvements will boost participation rates, especially amongst under represented groups.

Future

The future looks likely to see history repeating itself, but this time on a European level. G14 is a group the 14 top European clubs including Manchester United and Liverpool whose ultimate intention is to see the creation of a European breakaway league with the prospects of even greater wealth. The group has already been successful in lobbying UEFA for an expanded Champions League with the threat of such a breakaway.

The thought of a Europe wide league is not looked forward to by the fans, with increased ticket prices, less home games (away games being abroad) and the loss of local rivalries. But it would also see the Premiership become second division, and the football league even less attractive to television revenue. It could be quite likely that at the next round of TV deals, Rupert Murdoch—the only bidder likely to be available, will be pushing for the European breakaway, with the usual bribe of more money for the G14 clubs.

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The Business of Football

The first football clubs were formed by friends, workmates or existing sporting associations, and were simply a way to enjoy playing the game and competing. With the onset of professionalism and larger crowds, the first football grounds began to be built. Larger clubs became limited companies so as to protect their members from the liabilities of wages and ground development. However they remained clubs in spirit, and fast became the focus of local communities.

Companies in Football

Inevitably the popularity of the professional game attracted entrepreneurs who were interested in the game as a commercial profit-making exercise, and clubs such as Liverpool, Chelsea and Portsmouth were formed in this manner.

Businessmen who tended to own clubs at this time presented their activities as a form of public service. Their task was to keep the clubs in good health, rather than to make money. Indeed The FA had safeguards to protect the game from commercialism. It’s Rule 34 stated:

• No member could draw a salary as a director of a football club. (In 1981 this was amended so that a single director could be paid, and today there is no restriction on the number of paid directors, but they do have to work full-time at the club)

• No member could derive an income from owning football company shares; dividends were restricted to 5% of a shares face value

• If a club was to be wound up, any surplus assets had to be distributed to local sporting benevolent funds or local sporting institutions. This protected football clubs from ‘asset striping’

Directors often described themselves as custodians—as putting something back into the local communities, but in many cases such a role was very useful. Their enhanced profiles allowed many self-serving businessmen to receive perks, do deals and make money illegitimately. Many have argued that these amateurishly run clubs, combined with the class system, created poorly run businesses with owner-directors having little regard for supporters and their comfort and safety.

However the rules preventing clubs becoming businesses ensured the game remained affordable and accessible to all. Admission for children was free even at the big clubs and clubs saw their support passed down from generation to generation, with the game becoming a big part of popular culture.

Floatation

Although Alan Sugar’s Tottenham Hotspur became the first club to float on the stock market in 1985, it wasn’t until the mid 90’s that the rest of football’s chairman saw this as a new way to make money. Sugar (left) managed to by-pass The FA Rule 34 by creating a holding company—Tottenham Hotspur plc—with the club merely a subsidiary whose assets were transferred to the holding company. This model was used by successive clubs.

These were the first tentative steps towards turning football from a sport into a business—and industry within the entertainment sector. Supporters were no longer seen as fans, merely a ‘captive market’ whose support was ‘inelastic’ as the more a club charged for tickets, the more they would pay. For the bigger clubs, with national (and international) fan bases, such conversions into business became successful. In 1997 Manchester United had 3.29 million supporters, Liverpool 2.18 million and Newcastle United 1.42 million. This audience would happily buy into a clubs various aspects of merchandising, and being ‘brand loyal’ meant clubs such as Manchester United could more or less get away with releasing three replica versions of their kit within one season.

Rule 34 was still in existence, and yet even though it was fully aware that clubs had found a loophole, The FA’s allowed this practice to continue, believing ‘market forces’ should be allowed to do their work. The FA had by now abandoned its role of protecting football from the forces of commercialism—indeed it practically encouraged it in its blueprint. With the floatations, the 90’s saw massive growth in the game, new and improved stadiums, imported foreign players and a game that appealed to a wider (more affluent) audience. It also saw inflated players wages and transfer fees, increasing ticket prices and abandonment of the game at grassroots. Those who made the greatest gain were of course the chairman, making massive personal fortunes from the sale of their shares.

Supporter Involvement

Ten years ago Northampton Town Football Club was faced with extinction after continual financial mismanagement. Supporters of the club decided that enough was enough, and with the future of the football club that they loved and supported resting on a knife-edge, decided it was time that ordinary supporters did something to help save professional football in the town. They succeeded in raising £60,000 with the help of local businessmen and the clubs administrators, and in return set up a trust owning 18,000 shares (8% of the club), and can elect a director to the board.

Successes have included moving the club to Sixfields Stadium in 1994, a ground that was built and owned by the council and rented by the club. This saved the club from the major expenses of its upkeep and made the club less venerable to potential asset-stripping businessmen interested in the ground. The trust has remained vital to the health of the club, especially this year when the club has gone up for sale, by ensuring any potential owner of the club has its best interests at heart.

Looking at a means to increase fan participation within the sport, the governments football task force looked at the success at Northampton Town and used this to form the basis of Supporters Direct, a government initiative funded by public money, and based at Birkbeck, University of London (home of the Football Governance Research Centre).

Supporters feel they have a real stake in their clubs. They are not just brought through the gates and fed bullshit by the board. The club is woven into the community, and there are many great advantages to that.

Humans create rituals which fulfil our craving for solidarity, for expressions of comradeship and loyalty. In a world which is losing its sense of togetherness, there is a great requirement for places in which solidarity can be found. I believe that is what football support is all about.

Brian Lomax, Northampton Town’s first Supporter-Director

Supporters Direct aims to give support, advice and information for those wishing to play a responsible part in the life of the football clubs they support. Legitimate objectives of a supporter trust will include:

• Influence—the formation and running of representative bodies for supporters

• Ownership—acquisition of shares in FC’s to pool the voting power of individual supporters to further the aims of supporter trusts.

• Representation—securing democratic election of supporter’s representatives to the Boards of Directors of individual football clubs.

However such trusts tend to only be successful when clubs are in danger. Some supporters now question the validity of the trusts objectives at Northampton Town, and newly founded trusts such as those at Walsall and at Premiership clubs such as Aston Villa, tend to attract only a small proportion of club’s total fan base. This needs to change—especially at smaller clubs in lower divisions which are more likely to head towards financial ruin. At such clubs long-term objectives can be to see the club owned by the fans (as has happened at Chesterfield) whose loyalty is likely to last far longer than some ‘white-knight’ new chairman. But these trusts are equally important at larger clubs whose owners are becoming ever more powerful.

Unbalanced Books

Football clubs have now become to rely on TV revenue as their main source of income, and expected successive deals to be larger and bring greater wealth. This was the case in 2001 when the last round of TV deals were made, but were no doubt the last time football was to attract such large amounts of money—£1.6 billion being paid by BSkyB and ITV for Premier League matches and highlights respectively. The Football League had also managed to secure a lucrative contract of £315 million pounds from ITV Digital—the digital terrestrial platform backed by media giants Granada and Carlton. These deals were done at a time of the ‘dot com bubble’, where media companies believed large payments for such events would come good in the end.

Of course in terms of the Premier League, that is probably true, but the match up of both the lowly subscribed ITV Digital and less attractive Football League was a flawed proposition from the start. ITV Digital was in a similar position to that of Sky in the early 90’s. Where as Sky gambled its fortunes on the Premier League—whose teams attract supporters from across the country, ITV Digital secured rights to all three Football League divisions, whose supporters are more locally based and more likely to go the grounds than watch the games on the telly. ITV Digital was also flawed as a platform, weak signals and a coverage that didn’t cover the country meant that those who did decide to watch their local team probably couldn’t receive it’s ITV Sport Channel anyway. The situation wasn’t helped by not being able to secure carriage of the channel on Sky—whose platform attracted around 6 million subscribers.

It was with this in mind, that Carlton and Granada, making a loss of £1 million a day from ITV Digital, tried to renegotiate its contract with the Football League to who it still owed £178.5 million over two years. Unsuccessful in its attempts, it pulled the plug on ITV Digital, leaving 72 football clubs without important TV revenue, and perhaps 30 in serious financial trouble—some of who were already in administration.

Increasing Players Wages

Many fans saw the ITV digital crisis and immediately blamed the TV companies. But the crisis only really brought forward problems regarding TV deals that would have emerged next year, and these problems are likely to affect even the Premiership.

The problem lies with players inflating wages, and chairman’s increasing willingness to spend big on players transfer fees and more importantly wages, regardless to whether the funds actually exist to pay them. The top players such as Michael Owen and David Beckham can expect to attract between £70-100,000 a week. Lesser players also expect similar rates of pay, whether they’re actually worth it or not. When the Premier League has become the only league that matters, chairman have no option but to gamble their clubs futures on securing membership, and paying the wages to attract the otherwise unattainable players.

QPR was at one time in the Premiership, but is now in administration languishing in the lower league positions, having lost £27 million in four years. As a Premiership team it had 61 professional players, some who would never make the reserve team, let alone the first. It’s youth team players were on equally ridiculous salaries—employing two players who would hardly make the youth team yet still earned nearly £100,000 a year.

If you give a club £50m they’ll spend it. If you give a club £100m they’ll still spend it. And what does it get spent on—transfers and salaries.

Alan Sugar, Former Chairman Tottenham Hotspur FC

This has been possible in the past because TV companies were expected to pay more and more money for rights with each successive deal. But next time round, Sky—the only real contender for rights available to the clubs now, is likely to only put forward a considerably reduced offer to what would have been expected, yet players are unlikely to agree to reduced salaries.

Players wages have led to fans believing the players are no longer motivated because they get paid whatever the outcome of the games and is leading to a detriment of game in general. Suggestions of reintroducing maximum wages per player or divisional wage caps are means of clubs needing to save themselves from themselves.

Responsible Business Management

The situation with players wages has only arisen because clubs forgetting football is a sport not a business. As a football club, you don’t need to make profits just avoid sustained losses. But as chairman of football businesses, they tend to have their feet firmly in the City, believing in its philosophies such as the market will regulate itself naturally quoted from Southampton chairman, Rupert Lowe.

However there are signs of change in the game, and some clubs such as Preston North End, are starting to realise the benefits of running clubs responsibly. In 1994, Preston was brought by the Baxi Partnership—a major employer in Preston and the country’s largest employee owned manufacturing company—who wanted to put something back into the community.

The 40% Baxi ownership and large supporter shareholding help preserve the ethos of the football club, which is to serve its supporters, to build and be successful.

Bryan Gray, Chairman of Preston North End and Baxi Chief-Executive

Although this is the usual spiel given by companies looking to take over clubs, this time it was generally meant. Not that the club is run as a charity—it is run to make a profit, but for a purpose—for the club. The club was floated on the Alternative Investment Market, but not for Baxi to cash in on its shares, but to raise money for the club. Gray believes that good design is integral to a football club’s sense of itself and projection to the community:

Even people in the city who don’t like football are proud of the stadium as a well designed piece of Preston architecture—the club has immense good will in the city.

Bryan Gray

This belief extends to the clubs merchandise. It’s store was crafted by its merchandising manager Steve White, a designer and a lifelong North End fan. The store stocks kit designed by White and manufactured by the club itself. White also brought in a range of clothes and leisure wear, branded with a discreet ‘PNE’ logo.

Every professional football club has a fund of loyalty in its town. If the club produces merchandise which is well designed and good value, people will be glad to be associated with it… these really are not difficult ideas. They’re absolutely basic to any good businessman.

Bryan Gray

Conclusion

Football has essentially reached half-time, and now has to decide whether it is to continue as a sport, with the many benefits to the communities it supports and to society in general, or as a business with benefits only to a few of its players—be them on the pitch and in the boardroom.

There should really be only one choice. Football needs to remain, indeed must remain a sport, but at the same time learn the lessons of its past. It should embrace the would of business, but not to the extent it has done. Chairmen must now start to behave responsibly, for the future health of the game. The players need to except that for their sport to thrive, they need except lower rates of pay; if a player earned just £5000 a week, in just two weeks they would have earned a similar amount to that of a nurse in a whole year. The argument that others in the entertainment industry earn large amounts is flawed if people start to except that football is not in such an industry, it is a sport, played for competition. Players should be playing for the game and not the money.

The games governing bodies—especially The FA, should play a more important role—not in promoting football to those with money, but those who truly support the game. It should look to ways of furthering players careers after they can no longer play—be it coaching, teaching or even in other trades. After all, if our World Cup winners can do it, there’s no reason why todays players can’t. It should again return to a role of protecting football from the forces of commercialism, yet promote good business practices. It’s petty rivalry with the Football League should be put to rest at long last, and perhaps start to make the moves suggested by the league in 1991, and move to become the sole authority in the English game, as in other countries. This can only bring with it benefits—one which should be to agree television deals for the whole of the game, not disproportionately to the different leagues.

The fans also need to see their role extend, from that of mere spectator, to investor and take more interest in their clubs, and this will no doubt lead to bigger and brighter futures. Of course journalism will maintain the role of spectator, but it needs to take a more scrutinising role in the reporting of not only activities on the pitch, but of it in the worlds of business and politics.

It’s only when such reforms have taken place, some perhaps harder to adapt to then others (especially in terms of players wages) that the sport can truly thrive and be seen in a healthy state. However, if this was ever to happen it would need the consent of the bigger clubs, whose chairman are unlikely to support any move that may see them make less financial gain in the short term. But it’s this sort of short-sightedness that has brought the game to its dangerous position today.