Since the year 2000, there have been 44 instances of a football club in the English Football League having been placed into administration. That’s close to half of all 92 Football League clubs, a bizarrely high number, suggestive of a serious flaw in the way in which football clubs are managed in England. Whilst UEFA’s Financial Fair Play rules go some way to preventing – or at least punishing – clubs slipping into financial toil, there is more that could be done to ensure that supporters don’t lose the clubs their communities’ treasure.
There are two major types of ownership structure for football clubs in England: i) A public limited company regulated by the stock exchange to which it is registered or ii) a private limited company which has shareholders who hold sway over the direction in which the football club is going. Most clubs are run as private limited companies; i.e., Chelsea under Roman Abramovich. Chelsea ultimately answer to the board of directors and the shareholders. Many owners occupy both positions, and as such, there is little preventing them from making decisions independently.
The main exception to this rule is Arsenal, as they have a parent company. The parent company is a public limited company; Arsenal Holdings PLC. Public Limited Companies have their shares listed on a stock exchange where they are traded and regulations must be adhered to.
There are pros and cons to clubs registered as public or private limited companies. For example, in the case of Chelsea, having a super-wealthy owner like Abramovich has been largely positive. The Russian is committed to the club, prepared to spend copious amounts of his own money, and ultimately, appears to be a fan himself, potentially adding that extra level of security long-term. You could also make the argument that a lack of the ‘red tape’ that comes with registering as a public limited company allows Abramovich to take decisions quickly, and enact his positive vision without restriction.
The cons are rather obvious; for the clear majority of clubs entering administration do so due to poor management by private owners. Portsmouth serve as a prime example of a club whose precarious strings of negligent owners resulted in three relegations and a mass of severe, at times potentially fatal, financial issues.
With clubs registered as public limited companies, these risks are reduced. Public limited companies have significant governance rules and laws to abide by, resulting in a greater security to the company as every move made is scrutinised.
You might imagine that it is the clubs with the wealthy, private owners that are best-placed, but a recent study has found that clubs registered as public limited companies have a better firm performance than private limited companies. Given that public limited companies are less likely to experience financial issues as a result of ownership, and on the whole experience better firm performance than their private counterparts, it could fairly be suggested that England’s football clubs all be encouraged to consider the shift.
Both forms of company are, in their own ways, flawed when it comes to running football clubs, however, public limited companies are more heavily regulated than private limited companies and as such, there is far more scrutiny over the actions taken by the clubs, which appears to lead to greater financial protection.
Despite football’s television-boom, there are significant issues with the financial regulation of the sport. Leyton Orient’s recent collapse clearly illustrates the need for discussion and action around these topics. There are solutions beyond FFP; changes to common ownership structures could be an example of a positive action.
If you want to read more about ownership structure, or are interested in corporate governance in football – you can read James Earlby’s E-Book on the topic, which can be found here.