Thursday, February 4, 2010

Stupid Questions Part 1: The Premier League's Fit and Proper Persons Test

There are several problems when blogs/media operations get involved with in-depth discussions of sports league financial models; it's complicated, and journalists love a good, simple story i.e. Big Bad Corporation = Bad, Fan = Good.  I graduated with a Bachelor of Arts in philosophy, so while I could go on and on about a possible Adornian aesthetic of football, I'm not really equipped to delve into the finer points of winding up orders or the unique qualities of a single-entity league structure.

But I think it's important to try to learn about these things in light of a) the increasing financial problems faced by both big and small Premier League teams alike and b) the endless back-and-forth in MLS circles about whether Don Garber has created the perfect model for the sustainable financial growth of smaller market sports in America, or whether he's settled for his small potato operation and doesn't have the gonads to take the cap off and liven his shit up.  The more we know about both football league models, the more we might be able to rationally compare the successes and failures of either, and whether they indeed have anything to learn from one another.

Now, the only way though I can ever figure any of this out is by asking potentially very stupid questions.  And I don't expect any of you to provide answers; rather, I'm just going to put these questions out there, to see what might stick and what might need revising.  If I can't find a relevant answer, I'll send them to the appropriate authority, in this case, 

So I want to begin today with some very preliminary questions about the corporate structure of the Premier League and its relationship between club owners/directors, and specifically, how this relates to the (in)famous Fit and Proper Persons test.  So, to wikipedia.  Let's consider how the Premier League came into being in 1992; the top flight clubs breaking away from the Football Association's Football League in order to independently negotiate their own television rights and sponsorship rights in order to make more money and better compete in Europe (this is all neatly elaborated in this 1999 court decision btw).  In other words, the clubs wanted more independence in negotiating lucrative broadcast and sponsorship deals in order to get more money.  I think we can say, "mission accomplished," but with some fairly large caveats, among them, the built-in bias toward Champions League qualifiers (that's for another post on revenue). 

As wikipedia blandly puts it (or completely unreliably puts it, depending on your views on wikipedia) : "the Premier League is a corporation in which the 20 member clubs act as shareholders."  Those clubs are independently owned and operated, and they elect the chairperson, a chief executive, and a board of directors.  The FA maintains a special board veto vote over the appointment of the chief executive and chairman, and in the imposition of rule changes, but does not oversee "day-to-day operations".

So, in other words, the Premier League shareholders are the majority club owners, and the FA has no say in the Premier League's operation.  Fine.  Now to the Fit and Proper persons test, initially instituted in 2004 to try to regulate majority club stakeholders.  Initially, it was enacted primarily to prevent known criminals from buying Premier League clubs.  But this past summer, the Premier League responded to government pressure by strengthening provisions regarding public disclosure of owners, as well as providing measures for the league to respond if they consider any of their clubs to be a "going concern."  David Conn also wrote last summer that the provisions "check where the money is coming from to fund a club and must pass it as legitimate," although I'm not sure how exactly.

So far so good?  No seriously; is this okay?

Now, read that Guardian article.  The Department for Culture, Media and Sport Andy Burnham was pissed off that the question of "leveraged buyouts" that is debt-loaded club acquisitions, hadn't been addressed in the new Fit and Proper test.  To which Richard Scudamore saucily replied:
"Acquisition debt is only available to those whose assets are worth lending against in the first place.  Clubs have been managing debt for 20 years. They are also able to adjust their cost base...The word 'debt' is like an onion.  The minute you start to strip off the ­layers, your eyes start to water because it gets harder and harder to grip, because it's complex. The people best qualified are directors of companies, accountants, banks."
So, in other words, let the club accountants and the banks take responsibility of the potential harm of leveraged club buyouts like those at Manchester United.   So my stupid question is this: why would the Premier League shareholders, that is, the club owners, ever vote on a provision that would effectively discriminate against acquisition debt, the same approach that got them involved in the Premier League in the first place?  What would be the point, from their perspective?  And how could someone force owners to address these concerns after the fact, outside of a real risk of insolvency? These aren't rhetorical, I mean it.  I don't know.

Also, the Portsmouth crisis continues, and is such a fucking mess that it makes my head hurt.  More questions...

1 comment:

ronvelig said...

The Premier League split from the Football League, a competition that was not controlled by the FA. In fact, it could be suggested that the FA encouraged the split to reduce the control that the Football League had over football.

There is of course little reason that the clubs would vote in policies that would outlaw the methods that they themselves used. However, as that might make it more difficult to buy the bigger clubs, that could make the league even more of a closed shop.

The problem I see is that using financial strategies like this assume that these "businesses" are run purely from a financial perspective, and aren't actually teams of men running about and occasionally making mistakes. Some clubs gamble their future income to succeed now. Eventually this will come back to haunt a major club, most likely right now being Liverpool