Episode Transcript
[00:00:17] Speaker A: Welcome to the A and M Sports Briefing, a podcast focused on the business of sport. I'm Jonathan Brown, your host for today.
In each episode of the Sports Briefing, we'll speak with a guest with unique insights into some of the challenges and opportunities that are faced by sport as it grapples with an increasing evolving landscape of institutional capital, regulation, geopolitics and technological advancement.
Today's guest is Adam Crockett, who for the last five years has lived and breathed the evolution and birth of the independent football regulator for English clubs, the first such statutory regulator of football globally. Adam's just joined A and M as a senior advisor to our sports practice. And, Adam, we'll dig into your views on the IFR shortly. But firstly, a warm welcome to the podcast and to A and M. Thanks
[00:01:00] Speaker B: very much for having me, John.
Pleasure to be here. Can't wait to discuss the independent football regulator and other regulatory issues.
[00:01:09] Speaker A: Great. So, first, let's set the scene before we start. Financial rules and regulations impacting English clubs have made a lot of news in recent years. We've become increasingly familiar with terms like profitability and sustainability across the Premier League and also the English Football League, or efl.
Clubs have suffered points deductions. They've also faced fines for breaking the rules.
Governing bodies and competition organisers that have got jurisdiction over English football include the Premier League, EFL and even for clubs lower down the pyramid, the National League.
When you look at clubs that are participating in European football, they fall under the remit of UEFA rules. And into that mix now is striding the independent football regulator, which was formed actually, after some government intervention. I wanted just kind of briefly touch on the background to the ifr, first of all, to set some scene and some context. So it was first sort of mooted, I guess, seriously, after a number of insolvencies in English football and in particular the demise of Berry and Macclesfield in the efl.
There were also regular repeat issues in the press and elsewhere with club owners that had reputational concerns or even a habit of not paying player wages.
But the final straw, if we can describe it as that, I think, was the plan of six of the Premier League clubs five, six years ago now to join a breakaway European Super League. And if you remember, those plans fell apart pretty quickly, following anger, I guess, and protests from fans.
And this really exposed the disconnect between the owners of the clubs and the fans of the clubs. And I think the perception of fans and media and even politicians was that some of the owners can be relatively transient.
The ownership of the clubs and they just didn't understand the culture and heritage of the clubs that in many cases could be over 100 years old.
So on the back of that came the, the government intervention. So the UK government, they initiated what was called a fan led review into the state of the English game.
And that review took a while, but it included a recommendation for an independent football regulator that was aimed at stabilizing clubs that I think very often loss making in English football and also to reconnect ownership with fans and potentially increasing the rigor that's applied to the process to decide whether owners can be considered to be fit and proper to run football clubs.
Many of these clubs, as I said before, I think that effectively community assets, they've been around for a really long period of time. So the IFR is now up and running. The impact is going to be felt by clubs really from this season onwards. But we've just had the transfer window that's closed for English clubs and it has not stopped the spending, spending. So Premier League clubs have just spent a record 3.5 billion pound on players.
So now to you, Adam, before we get into the detail, you've had a really unusually close view of the, the creation of the independent football regulator. So I think your insight for people listening to the pod is pretty unique. Can you talk us through firstly your involvement and how we got from the fam led review that I just mentioned there to where we are today.
[00:04:12] Speaker B: Very happy to, I think might take one step back even further just so people can understand my role on this. So 2021, I'm sat happily as a civil servant in the business department, working on competition policy, thinking about big tech and how do we deal with the tech monopolies.
And the Super League kicked off and I was watching the Manchester United game and the Ferrari that came off the back of that coming to work on the Monday and Boris Johnson has said we're going to drop a legislative bomb and no one, including Boris Johnson, knew what that meant. But Downing street came to my team doing competition policy and said it's competition law, something that we can use to stop this.
And that led to a five year journey to this conversation today.
But basically Tracy Crouch was the former Sports Minister. She was asked to come in and lead this review, the family review, and take a root and branch analysis of the regulation and governance of English football. And it was a manifesto commitment, I think it was in all the manifestos in the 2019 election. But the Super League encouraged the government to bring forward that review and it did you know, it took, I think, a fairly balanced view. It had a good panel of experts advising it, people from Premier League clubs, EFL clubs, from fan groups, from people like Dan Jones, who's worked in the industry for a long time as an advisor to come up with a package of reforms that could tackle some of the issues that I think 100 hours of interviews and thousands of documents have produced.
I think, you know, broadly speaking, I am going to be biased because I worked on it, but a fairly simple and a fairly neat solution. So as you say, John, trying to encourage better financial prudence from clubs, starting from the whole point of how you run a business. Have you got a sensible business plan?
What does the business plan say about how a football club is going to be run? Does that highlight any risks? And if there are any risks, can they be mitigated? And that's the central theme of how this new regulatory regime is going to work, as you say. Again, know, football obviously has owners and directors tests. They are, I think, an attempt to build on how a statutory regulator might do this. Well, it, it, the IFR's regime is going to have the levers of government and the state to be able to do a more robust process around that and then some heritage protections. And I think, you know, trying to enshrine in law that you can't just change the name of a club or the badge of a club without properly consulting your fans.
I think, you know, so all things equal, a fairly narrow set of requirements, hopefully largely unobjectionable if done properly.
But obviously the central theme of all of this is rather than football doing the regulation itself, it is the creation of a brand new independent statutory body that will be actually implementing this regime. So rather than the Premier League or the EFL being both the competition organizer and the regulator, having a properly independent body oversee what, even if it is a simple framework, is a quite powerful framework. And I think that's, that's the crux of it, basically.
[00:07:41] Speaker A: Thanks. And actually just a quick question on the fan led review, because I'd said at the start that one of the reasons that the fan led review was initiated was the demise of a couple of clubs lower down the pyramid. So Berry and Macclesfield. But they were not the only insolvencies, they were just the two that were actually terminal. But the European Super League, it really involved the biggest clubs in the country. And if I think back to that period of time you mentioned the United game, you had mass protests at Manchester United matches, Liverpool, Chelsea. So the biggest clubs in the land where fans were effectively, you know, revolting, if you like. So did you see that in the fan led review? Did you were fans of clubs from the top of the leagues all the way down through the, the pyramid, down to the National League? Were they consulted about this?
[00:08:31] Speaker B: Yeah, I think part of the process with any good piece of work, I suppose, is to do a proper evidence collection.
And absolutely the fan groups were, were a key to this. It was called a fan led review, after all. So, you know, clubs from the likes of Liverpool and Manchester United were consulted just as the supporters of clubs much lower down the pyramid. Because, you know, you know, and I know what it takes to run a club. The issues you face as a fan or as a football club at the top of the game are just so different to at the bottom of the game. So, you know, I think very clear early on that when Tracey was doing this review, she did want to reflect that nuance and that difference between different football clubs.
[00:09:17] Speaker A: Great, thanks. Okay, so one thing that I wanted to address was what I would say is probably a misconception that's worth us touching upon. So I spoke before about the various different rules that impact football and whether it's profitability and sustainability or it's the UEFA equivalence. And I just wondered is the idea that this is just another extension of those feels to be wrong? So it's not an extension of financial fair play.
But could you talk us through what's fundamentally different about the IFR and the regulatory regime that clubs are currently under compared to what it will be like under the ifr?
[00:09:57] Speaker B: Very happy too. And I think, I think one thing that is worth just pointing out is that eventually the Premier League at least has made a move to change the type of regulation and the problem that the new independent regulator is setting been set up to do through its new SSR regime. But basically the central premise of what the evidence showed was the incentives in the game are to go and spend as much money as you can as a football club to get the best talent to move up the league, to get more prize money or to get promoted or to get into Europe or to win titles.
And, you know, there is very clear evidence the more that you spend on players, the better you perform on the pitch.
But that is a structural incentive to overspend.
Now, you know, I was there on, was it Tuesday night or Monday night watching the transfer window, desperate for my football club to go out and spend as much money as they can. I'm a fan like anyone else, but when you have that Structural pressure, it can cause problems. Now, obviously, there is a lot of money in the game and there are some very wealthy people who own football clubs.
And absolutely, I think it doesn't matter whether you are a fan or you are the government looking after the economy and wanting to see the industry grow.
People going out and spending money is a good thing for the economy, all things equal.
But I think the central premise of what the review showed was it's fine that that happens and there's any number of instances where that happens, that everyone thinks they're a good owner until they're not, until they get fed up of having to hand over a huge check regularly. So what Tracy did, where the government landed as well in terms of its response, was rather than the way that football thinks about doing regulation, which is let's cap how much you can lose or let's cap what you can spend on players relative to your turnover or some other model like that, it's actually more of a trying to ensure a soft landing. So have you properly thought through in your business plan how you're going to operate, where the money is going to come in, what have you forecast ahead and then have you identified risk? And most importantly of all, I suppose have you then got plans in place to mitigate that risk? So if, you know, a shock happens or the owner does need to work away, that the club is resilient enough to withstand that.
And so this is rather than the way football works, where it is a black and white test. You know, obviously the squad cost ratio looking at 70% of player costs, broadly speaking of turnover, is where you're allowed to spend if you're in UEFA, or 85% plus some additional tolerances if you're in the Premier League.
This is a move to away from rules, sorry, to principles based regulation. And what the regulator basically halted a regime were the legislation sets out a football club essentially needs to be financially sustainable, which means can you deal with a stress or can you deal with that issue where the owner walks away and the IFR is basically going to be testing football clubs to see are they financially sustainable, are they financially sound? These are the phrases that you'll see in the legislation and the ifrs working towards and what it does have within that, then rather than bright line tests and everyone being absolutely clear, this is the way that you're sustainable if you are at this ratio, it doesn't do that, it's more the regulator will put out guidance that says these are the types of things that you should do. And here's the types of systems we'd like to see in place for us to be comfortable. So it's a different way of working. The regulator has broad discretion to interpret the legislation and it does obviously need to help industry understand what it's got to do.
But the central premise of what it's trying to do is avoid 65 administrations. I think since the Premier League was created by having that softer landing and rather than using prescriptive ways of doing that, it's looking at using a more principles based approach of looking in the round at where a football club's risk might sit.
[00:14:25] Speaker A: Yeah, and I think that principles based approach and the discretion generally that the IFR is going to have, I think fascinates me. And I think we'll probably talk about that a bit further on in the pod.
But the discretion part of it definitely seems central to the regime itself. So thinking of it from a club's perspective or an owner's perspective, does it mean that understanding the IFR's attitude to risk is going to be as important to them as understanding the actual legislation itself?
[00:14:55] Speaker B: Yeah, so I think it's really important to understand a couple of aspects. So the IFR does have broad discretion to interpret the different bits of the act. So what is financial soundness? And you and I, John, you know, we have different backgrounds, we will think about that in a slightly different way.
And I think it's really important to understand that a regulator might look at things very differently as well. So, you know, reading the guidance they put out, engaging with supervisors, trying to understand where its risk tolerances I think are important and I'm sure we'll talk about the state of game report in due course. But you know, there are going to be indicators of how the IFR is, is assessing that risk. But I think the other aspect of it is this isn't a strictly legal exercise. And I know that the temptation can be to think, just go to your lawyers and ask them to interpret this. Well, actually what we're talking about is business planning, commercial activity, operations, finances.
So I think just narrowly thinking about this in a legal sense is only going to get you so far because of that discretion that the IFR has. So I think properly engaging with the material that they put out and interpreting what they're saying is key, or just having a familiarity with how regulators like this work, I think is also key.
Now that obviously sounds like the Wild west to a degree that how are you meant to know whether you're compliant with the regime or not?
I think first thing to say is that guidance and those sorts of pieces will be reasonably clear on the types of things that clubs are going to need to do. But I think the other things to point out are there are proper checks and balances on this system. It is going to have to be governed by public law, the, the regulator. So it can't just make wild decisions about how it's going to actually interpret the act and, and regulate clubs. It can be appealed to the Competition Appeal Tribunal. It has requirements to be proportional, it has to be consistent. So while it is a very different way of doing things, it's also an opportunity for well run clubs to really go out there, show that they've engaged across the business, properly understood what the IFR is trying to achieve, properly set out how they are achieving that within their business and they are a well run and sustainable club and try to fit what the IFR is looking to do to their own circumstances and business model. So there is huge opportunity through this type of regulation rather than, you know, a strictly accounting process that you might see with the likes of the squad cost ratio.
[00:17:35] Speaker A: Okay. And having had discussions with clubs and leagues, potential owners and lots of sports lawyers, I think the gut feel about how this may pan out differs depending on who you speak to.
And I think there are some people that just think it's going to go away and that, you know, we'll hear about it for a few months and then it will disappear and that there's enough regulation in football already and others have a completely different view. And you've written some really good blogs on the subject of the IFR already, which I would encourage people to go away and seek out. But one of the things that you suggested was that the IFR is ultimately going to find itself under pressure to be more interventionalist than some people currently expect, at least initially. So could you talk about that? What do you think would drive that?
[00:18:26] Speaker B: Yeah, a couple of things. I think it's hard to look at some of the headline figures and I'm not privy to any sensitive information, but you can, you can obviously see clubs accounts online and there's a lot of reporting that goes on now about business of football.
You know, you look at the Premier League last year, over a billion pound of losses in the industry to an end to an industry with, you know, 7 billion pounds of turnover. They are figures that I think regulators instinctively will be nervous about.
So, you know, I think just some of the headline numbers are things that will spook a regulator to a degree, but I think it's actually Just more on the political side. So there is political opposition to the new independent regulator. The Conservatives have said they don't support it. Reform have said they, you know, they don't support it either. It doesn't feel a very Nigel Farage thing to do.
So, you know, where does that leave you as an ifr? Well, you've got Andy Burnham, who is a big supporter of this, actually, but, you know, when he was the Manchester mayor, he regularly endorsed what the independent regulator was set up to do.
And equally, there is.
There is this piece about how do you show that you are something that should carry on? And the regulator, I think, will come to the calculation that by improving things, whether that is making sure that clubs don't get into financial distress, improving the overall balance sheets of clubs, if you can show as a regulator that you are doing those things, you are more likely to endure, I think, is the calculation that they will. Will have come to. So. Well, how will they think that they can do that? Well, how do you improve balance sheets? You probably try to tackle some of the excesses as they might see it.
So, you know, obviously we've just had the transfer window close, a lot of spending going on and a lot of debt and interconnected debt.
I know that they are interested in debt. It's one of the levers that they can try to tackle. If they can show a story of trying to bring down the debt pile in the industry or certain types of the debt, I think. And that would probably mean that they would have to intervene or if they can say this is the liquidity position of the industry and, you know, there's this amount of days that can be covered if the, you know, the owner's support is cut off. And if they can extend that and show their interventions are improving the financial health, then I think that that's the sort of case a statutory regulator will want to make. And the only way that I think they can reasonably do that is by intervening, by putting requirements on clubs.
And I think that's basically a combination of the financial circumstances they're inheriting, as they might see it, and the politics of how they'll want to appeal to the broader political community.
[00:21:28] Speaker A: Okay. And then when people hear the word intervention, as well as nervousness, I think they're probably thinking fines, enforcement proceedings.
But in practice, what do you think that sort of regulatory intervention could look like for a football club?
[00:21:43] Speaker B: Yeah, so I don't. I think a couple of points worth making here, John. So the first one is this isn't a type of system like we're seeing in football where someone is alleged to have breached, there's a big investigation, there's points deductions and then there's follow on damages. It's not that kind of regime really.
And in fact, I would expect enforcement activity to be quite rare.
And that's basically actually a consequence of how the regulation works. If the IFR looks at a club and the way it's run and is concerned with how it's run, rather than saying, we're going to take enforcement action against you, they just simply have the power to say to a club, well, you need a license to operate. We can impose discretionary license conditions, that's the actual phrase from the legislation on you. And they can do that on a club's liquidity, it can do that on the debt pile a club has and how that is being managed and the rates that's being paid. And it can do something about the costs and the overall cost base of a club.
So how I think intervention actually plays out here is as part of that licensing process, it sees risk, it has, you know, think and instinct that it wants to show it's doing a good job. It, it tries to mandate or try to encourage clubs to have more liquidity in the business or more regularity on when owner injections are coming in, or to try to push industry to bring the debt power down. I think that's how intervention would work. Now people might think, well, what if I don't want to do that? Or what if my owner doesn't want to do that? Unfortunately, the law of the land is you are going to need a license to operate in this industry in the next couple of years, sorry, at the end of this year and well, sorry, applications from the end of this year, I should clarify next year you will need a license to operate and from there the IFR can impose conditions where it sees risky business practices. So it can require you to bring down your debt pile or ensure there's more liquidity in the club. And I think that's how intervention will work.
And it's the law of the land to basically make sure that the clubs do that.
[00:24:01] Speaker A: Okay. And then one of the early opportunities, I guess, to understand what the IFR is thinking is going to be the state of the game report. And my understanding of that as we record this in the first week of September, is that it's due out pretty, pretty quickly from now or pretty soon from now, I should say.
You've described this as being hugely consequential. I'm not sure that the general public are aware of the state of the game report. So can you talk through what the report is and why it's going to matter so much?
[00:24:32] Speaker B: Yeah, I mean, I think that's right.
I think very few people actually have realized just how important it is and it will be important to a number of things. You know, we've not talked about one of the regulators most powerful tools which is the ability if the Premier League, the EFL or the National League can't agree on new financial package, the IFR in certain circumstances can actually mandate an agreement.
But. And it will, you know, this report is going to be central to shaping that discussion. Clearly conversations going on at the moment. But what it basically is is it's an economic and a financial analysis of the industry.
How does it work, what do the headline numbers show? They have the ability to ask clubs for lots of information. I know that they've been doing that over the last six or eight months and they can go beyond some of the reports that are out there which set out headline figures on, you know, from the P L on club's financial position. It can get into the cash accounting position of clubs or the financial flows or the business practices of clubs. And that's, you know, they've been going through this process really of properly trying to understand how is the industry working to answer the question ultimately is it financially sustainable? Are there risks they're worried about and what does that mean for how they're going to intervene?
And while I think some of the headlines are probably not going to be too inconsistent with some of the reporting that everyone will have read over the last couple of years about the financial health of football, I do think it will get into some important questions about, you know, are there structural problems in the industry that mean spending excessively is a necessity or you know, that the. Is there an over reliance on owner funding? It will get into some really interesting questions about, about how the industry works. But I think where for the clubs, where it's most interesting will be, I think this is going to have to be the IFR setting out its evidence base because while the previous bits I've described show that it's got broad discretion and it can intervene in quite a strong way, it can only do that if it's got evidence. And this really is going to be its evidence base for setting out, you know, what are the problems it's seeing and how is it making that case that there is a problem.
And equally, I think either implicitly or potentially explicitly, it's going to set out its risk tolerances about, you know, in what circumstances does it or what does it really worry about and in what circumstances is it a real worry? And effectively, when it might need to intervene and impose discretionary conditions so you can have a report that's going to go out diagnostically, what does it think of the industry? But I think it's also going to set out other structural problems it's concerned with and when might it feel it needs to intervene and in what circumstances.
All of which can be helpful because it's a roadmap for clubs to understand.
This actually is where we might have a problem as a business or where our regulator might push us.
[00:27:58] Speaker A: Thanks for joining us and stay tuned for the second part of this interview with Adam Crockett, where we'll talk about how clubs can practically prepare for IFR licensing, from evidence gathering and risk and audit committees to building the right relationship with with their assigned regulatory supervisor.
The IFR's own challenge of being consistent and proportionate across very different clubs will be discussed, and the risk of duplicating existing rules from the Premier League, EFL and UEFA. And finally, we'll ask what success could look like three years from now, including why investment levels might be the real test of whether the IFR has got it right.
