Governance and ownership issues in football and its ties to economic crime

Decades of self-regulation and rapid expansion has led the sport sector to lag behind other industries in corporate governance and policy implementation, as demonstrated by the consistent media exposure documenting scandals at football clubs, and at National and International Sport Federations. On Wednesday April 28th 2021, the Economic Crime Series: Governance and Ownership Issues in Football was held online. The event was organised and chaired by Prof. Lisa Jack who welcomed two speakers, Dr. Rob Wilson and Mrs. Christina Philippou. The Risk & Compliance Platform Europe also took part in this webinar and has subsequently covered it on its website.

Dr. Rob Wilson is the Head of Department for Finance, Accounting and Business Systems at Sheffield Hallam University. He has been involved in academic and applied work in football, finance and governance since 2010. His research team has recently secured an Economic and Social Research Council (ESRC) funded project to examine the financial impact of COVID-19 on football and its communities. He has also consulted for the English Football League.

Mrs. Christina Philippou is a Principal Lecturer at the University of Portsmouth and a qualified Chartered Accountant. She spent eight years working as a forensic accountant for a Big Four firm in London, undertaking disputes and expert witness work such as fraud, insider trading, bribery, corruption investigations, regulatory and US sanctions compliance work, anti-money laundering, compliance, and fraud risk reviews. She has also taught football finance modules for the Premier League.

Live spectatorship numbers for an average, top-level competitive football game

Dr. Wilson kicked off the seminar by stating that football is and has always been in the news. If we think back to the late 80s and early 90s, football was in the news, not for its financial reasons, but for things that had to do with something much more sinister, such as crowd behaviour and hooliganism. He continued by stating that the backdrop for the European football landscape was quite precarious. Furthermore, if we tracked spectator numbers, he said that what we saw from about 1948 to 1988 was this very steep decline in live spectator numbers, which went from around 50,000 for an average game for a top-level football competition, to around 15,000 in the mid 80s.

He stated that these numbers are quite important in terms of understanding where football comes from. A well-known sociologist who worked at Sheffield Hallam University by the name of Chas Critcher published a paper in 1985 where he talked about the death of football as we know it. In his paper, he also talked about how football was resigned to a post-industrial society. He also said that there was no financial reward to be made, and that it was a sport that was going to be cast aside to the dark ages.

The English Premier League – making the competition more exciting and the players more fit

Dr. Wilson continued by stating that we have a very similar situation appearing now across European competition with the suggestion of a European Super League, which was all driven around revenue generation and cost control. When the Premier League kicked off in 1992, each club in the league was given 38 million pounds per year to facilitate their move away from the football league and into the Premier League, with the proviso that the competition would be much more interesting and exciting, and that the players would be fitter and faster and stronger, and that they would earn more money.

Dr. Wilson then mentioned that we additionally saw a steady increase in the tv rights package (or broadcasting rights) over the course of the next 25-30 years, up to where we are today. So, we’ve moved from a situation where clubs were earning 38 million pounds per year and having around 60 games on television every season, to a situation where we now have just under 200 games per season – broadcasted live – and with each player in the Premier League earning a minimum of 120 million pounds to run their businesses.

However, what we’ve also seen, as he stated, is huge inflation and huge transfer fee inflation. So, despite the fact that those clubs have many millions now in their resources, they are also spending much more than they earn. He additionally stated that although we may have more exciting Premier Leagues and European competitions with fitter players today, we are still having the same problems with football that we had in the 80s.

The European Super League and independent regulators in football

Dr. Wilson then shared his thoughts on the European Super League. He believes that it was a very rushed job. The media also didn’t pick up on the fact that there was a lot of negativity around the European Super League as a concept. He said that the word that was used a lot in association with this league was ‘greed,’ and that these clubs were trying to make as much money as they possibly could.

He then posed a question to Mrs. Philippou: do you think the government can do anything about the regulation in football? Mrs. Philippou stated that the problem here is what an independent regulator can do, even if it’s just about applying the rules that these governing bodies or leagues set for themselves. She stated that you also have issues with a few players who have been allegedly accused of money laundering or fraud. Furthermore, she said that in the Fédération Internationale de Football Association’s (FIFA) code of ethics, it explicitly states and talks about illegal, unethical, and immoral behaviour and bringing this repute to the game.

She said that it’s crucial when you actually have somebody independent saying ‘okay, we’re just going to apply your own rules, but we’re also going to monitor and apply these other set of principles as well.’ So, it’s not just about simply carrying out one test and that’s it, but it’s also about ensuring that these checks are going to be carried out routinely every year. Mrs. Philippou believes that if this is achieved, then regulation in football can change, even by its own standards through creating more robust measures.

There are so many elements to regulation – where do we even begin?

Dr. Wilson stated that there is always a grey area when it comes to regulations. He also mentioned that there are two things to consider here: one is that clubs can’t afford these regulators and nor can the governing bodies, and second; that there aren’t enough regulators in place to carry out all those checks and balances. He further stated that football has millions and millions of revenues at its disposal, but that it spends all of it on its players and its transfer fees, so there’s not actually a lot left over to address and to deal with some of these regulatory issues in football.

Mrs. Philippou stated that the concept of self-regulation also comes into play and that this is where you get conflict of interests. This is one benefit that you would have with an independent regulator. It’s also important for somebody external to go in and look at the checks and balances. She said that once you’re in a club and you’ve got one of the votes, who’s going to then go ‘we’re going to look at these regulations and actually apply them against you.’

So, from her point of view, an independent regulator would have more of an ability to do that. However, she noted that there are so many issues with regulations, where do you even begin? Do we start with financial regulations? Or are we looking at the ethics side? Or are we looking at financial crime, human rights or diversity? She said that there are so many elements to regulation, and that kind of becomes problematic in itself as well.

Football as a loss-making industry – why do people invest in loss-making businesses?

On another note, Mrs. Philippou also said that we’ve kind of seen clubs use their financial and legal muscle, and that just shows how much money they have to throw at things, if they want to. Ultimately, the issue from an economic crime perspective, is that football, in general, is a loss-making industry – from the club side. So, the question then is: why do people buy loss-making businesses? She stated that there are some very legitimate reasons, for example from the fan ownership side with people saying that it’s a community asset, and with them believing very strongly in football as a sport.

You also have the ego and prestige side of it as well. This is a limited asset, and these kinds of people typically want to become an owner to gain prestige, fame, or celebrity status, etc. However, besides these reasons, the question still remains: what is the real reason why people invest in loss-making businesses? Mrs. Philippou stated that it’s because of money laundering and tax evasion. Linked to this, she also said that you have people that come from areas where you have political upheaval, and that they want to move their money into a jurisdiction where it’s safer, which from an economic crime standpoint, is a legitimate reason to be moving your funds.

Are issues around tax and non-compliance significant in football?

The moderator of this seminar, Prof. Lisa Jack, then posed a question to both of these speakers from the audience: are issues around tax and non-compliance significant in football at the moment? Mrs. Philippou stated that it depends on the regulation. There are a lot of issues around the potential for tax evasion in terms of the transfer market and transfer fees. She stated that there have been cases, especially with funnelling money through image rights and not declaring them in the right ways that they should, for example.

Dr. Wilson added that he has also started to see a lot of offshore companies being set up, not just at the club level. It is very untransparent, and players themselves set up as limited companies, and offshore as well, so you can’t really see the money trail that goes through those types of companies. He also said that there were stories of Premier League players linking up with charities and pushing money through them and benefiting from it in the early 2000s and in 2010 as well. However, this has begun to decrease, especially in the UK where issues in football have been recognised and thus, they have begun regulating and investigating into those kinds of issues more heavily and seriously.

Why do football clubs get treated differently compared to other businesses?

Dr. Wilson stated that he does not know why football gets treated differently. He said that the football business seems to be run on a highly emotional scale while most other businesses tend to be much steadier. You also see many things in football that you probably would never see in a mainstream business.

There was also another question from the audience that asked about ownership and foreign owners coming into the British game in particular. Dr. Wilson stated that what we shouldn’t forget is that some of the worst owners we’ve seen in English football have been British, and on the other hand, some of the best owners we’ve seen in the Premier League happen to be from overseas countries.

He also stated that he doesn’t believe that this should be designated as a domestic versus foreign ownership issue because football has become very global, and it receives investment from all four quarters of the globe. He believes that it is about personality rather than where you come from.

Conclusion

During this seminar, Dr. Wilson and Mrs. Philippou drew on ongoing research to examine governance and ownership issues in football and beyond, as well as to how these tie into economic crime. More specifically, they discussed the advent of the English Premier League and about making the competition more exciting. Independent regulators and the important role they play in football was also brought up, where they highlighted how crucial it is to have someone external carrying out checks and balances on a yearly basis.

The interesting question of why people continuously invest in loss-making businesses was also explored, with the answer seemingly pointing to money laundering and tax evasion, according to Mrs. Philippou. Finally, a question was raised by a member of the audience on why football has always been treated differently to any other business, to which Dr. Wilson stated that this was due to football being a highly emotional-run industry.

Article credit: https://www.riskcompliance.biz/news/the-english-premier-league-the-european-super-league-and-independent-regulators-governance-and-ownership-issues-in-football-and-its-ties-to-economic-crime/