Regulation is a Messi affair

The beautiful game has been a national fixation for more than 100 years and has been doing perfectly fine without legislative oversight.

Ill-advisedly this is exactly what the Fan Led Review set up by government and led by Tracey Crouch MP recommended to Parliament in its report last November.  It called for an independent regulator (IREF) alongside a package of measures to implement under the guise of bringing financial stability and protecting the equity stake of fans.

Now, a new report by my colleagues at the IEA, Red Card, has shown that these recommendations, such as enhanced owners’ and directors’ tests and shadow boards for fans, won’t fix any of the problems in the sport, but may instead introduce legal difficulties and makes investment in the industry far less attractive.

The Review mentioned three points of crisis indicating the need for regulation similar to that of the financial services industry: the collapse of Bury FC, the Covid-19 pandemic and the attempt to set up the European Super League last April. What it fails to mention is the rebirth of Bury FC as fan-owned Bury AFC, the lapsing of all Covid restrictions in the UK and the fact that the European Super League was quickly dismissed by the self-regulating market of football.

As Red Card explains, several recommendations seem to encompass outright expropriation of property rights– a fan-held ‘golden share’ will allow fan groups to veto certain changes regarding to the ‘heritage’ of the club – which would include their grounds. Imagine if Arsenal never moved out of Highbury and into the Emirates – their capacity would be almost half of what it is today, likely leading to even higher ticket prices.

Other recommendations essentially expropriate the property rights of owners by depriving them of the management and enjoyment of their assets. The imposition of a shadow board of fans would diminish the owners’ abilities to manage and direct their business in the way that they best see fit.

Impairing the economic rights of investors in this way can be equivalent to expropriation in investment law, and will likely reduce the resale value of clubs. Under bilateral investment treaties the UK has with their home countries, foreign investors may be able to claim compensation equal to the value of the investment expropriated. Given the perhaps extravagant value of famous premier league clubs and the effect of the regulations on the resale value of clubs, it is fair to believe that this would be no small amount and could cost the British taxpayer billions.

These measures make investing in and owning an English football club far less attractive. No investor, from a Saudi Consortium to a local businessman will not want to own a football club he has no control over. Driving out investment in the football industry and sending a wider message undermining the UK’s credentials as a reliable trade and investment partner is surely not what football fans and other citizens want.

The review also neglects the compliance cost incurred to small clubs as a result of some measures. Most clubs at lower levels are basically SMEs run in part by volunteers and owners with little wider business experience. Making the owners of Grimsby Town pass integrity tests and submit detailed business plans, financial projections and a commitment to an approved equality, diversity and inclusion action plan hardly seems appropriate or makes it more financially stable.

Of course, the underlying assumption of the Fan Led Review was that there is a divergence between the business interest of private owners and the interests of fans and local communities in the heritage and sustainability of their clubs. What seems more likely though, is that the interests of owners and fans are aligned much more closely than the interests of the regulators and fans.

Owners want to pump money into their respective clubs in the hope of trophies and glory– sounds very similar to what fans want. Meanwhile, regulators want sustainable investments, burdensome licences and strictly controlled spending on wages in a club – something fans are not known to lobby for. The recent sanctions on Roman Abramovich and Chelsea FC, which have been done “not… to punish Chelsea through sanctions…[but] to ensure Chelsea can continue as a football club”, hint as to us the destructive effect of legislative regulatory power.

This attempt to regulate an industry that has been successfully self-regulating since its origin is an effort to fix problems that don’t exist and if implemented, will introduce much bigger unintended troubles.