Financial sustainability and good governance: The potential impact of an Independent Regulator to the English football system

Two key facets within the White Paper are financial regulations, as the Regulator’s core focus, and the establishment of a compulsory ‘Football Club Corporate Governance Code’, aiming to combat three core underlying problems within the English football pyramid:

1. The structure and dynamics of the market give rise to incentives for reckless financial overreach by owners of clubs;
2. The financial and operational management at many clubs is deemed inadequate, exacerbated by poor corporate governance; and
3. The existing self-regulatory structures have proved ineffective at addressing issues.

Financial regulations

For the Regulator to ensure the financial regulations are successful and achieve their objectives, whilst simultaneously avoiding unnecessary regulatory burden on clubs, they should be designed with reference to the following characteristics:

• Outcomes-based, meaning a greater focus on core financial principles, such as financial planning and monitoring, that support long-term financial sustainability for football clubs;
• Collaboration with key stakeholders, including the football bodies (and their existing regulations) and clubs, to deliver an effective and efficient regulatory mechanism; and
• Adaptive, risk-based approach, meaning the regulations should be tailored based on differing degrees of risk across the top five divisions and facilitate a flexible, real-time monitoring approach which can identify changing risk profiles of clubs, as macro factors evolve and individual circumstances change

From a football club’s perspective, the establishment and application of core financial principles and compliance with the financial regulations is an important part of practicing good corporate governance.

Corporate governance

English football has some inherent complexities and is subject to the challenges of the macro-economic, societal and football environments. Football clubs are expected to satisfy the varying demands of a broad range of stakeholders, from their own passionate fans to broadcasters and sponsors and their local communities. Furthermore, there is often a broader expectation, alongside enhanced public scrutiny, for football clubs to be at the forefront of societal change, particularly on key issues such as diversity, equality and inclusion, health and wellbeing and environmental sustainability. Having core structures in place, alongside good governance principles, is critical for football clubs to navigate this challenging environment.

The core principles of good corporate governance can be established and adapted to different scales of clubs in the top five divisions of English football with reference to the key elements of Deloitte’s Governance Framework, being:

• Governing bodies: an appropriate board and/or committee structure and composition, with due consideration given to expertise and independence of personnel, overseeing the strategic direction and critical activities of the organisation;
• Leadership and culture: clearly defined purpose and strategic goals enhancing stakeholder (both internal and external) confidence and understanding of a club’s direction;
• Setting up for success: an operating model with clear roles and responsibilities aligned to the purpose and strategic goals promoting accountability, consistency and collaboration across all departments of the club;
• Establishing boundaries: clearly defined policies and processes with an associated control and risk monitoring framework to help mitigate and prevent risks to the organisation; and
• Managing and reporting: appropriate information availability and reporting promoting accountability through assessment of performance and facilitating effective and efficient decision-making critical to the successful management of the club.

Each of the elements above are important for a club to maintain and build stakeholder confidence and value, provide the foundations for success (both on and off-pitch), create alignment and accountability and enhance a club’s ability to respond in a rapidly evolving environment. Having said that, by its very nature, sport has winners and losers, and good governance is not a guarantee of on-pitch success. For many fans, on-pitch performance will override concerns about the governance and finances of their club, and this will be one of the challenges that the Regulator’s communications strategy should seek to manage.

Recent examples of poor corporate governance practices within football clubs and the wider sports industry include the financial collapse of Bury FC and recent racism/sexism scandals in rugby and cricket. Such instances have had considerable adverse implications, including facilitating inappropriate behaviours causing significant harm to key stakeholders’ well-being and ultimately, the reputation and value of clubs.

As established within the White Paper, instances of poor governance have “allowed owners to act unilaterally, pursuing short-term interests with little accountability or scrutiny”, which has led to situations of reputational damage or financial failure of clubs. The introduction of a specific corporate governance code for football clubs can help clubs to practically implement minimum levels of governance, and could also be designed to encourage them to go beyond such levels to further protect and enhance a club’s reputation and value.

Looking ahead

Ahead of the introduction of a ‘Football Club Corporate Governance Code’, clubs looking to improve their corporate governance can make tangible progress by:

1. Assessing the club’s current structure and operations, with reference to principles contained in examples such as Deloitte’s Governance Framework set out above or the UK Sport’s Code for Sports Governance, and by determining key priorities and areas for improvement;
2. Establishing and communicating the implementation of good governance practices and procedures, such as establishment and communication of strategic objectives/priorities and regular communication and discussion of key management information; and
3. Regularly monitoring and evaluating governance within the club to drive a constant cycle of improvement and avoid stagnation in an ever-evolving environment.

Financial sustainability and good governance are core pillars for the wellbeing and growth of football in England and globally. The impact of the Regulator will empower clubs to establish solid foundations and recognise how practical good governance can help transform their organisation and support long-term financial sustainability. Fundamentally, the devil will be in the detail and considerable resource, effort and collaboration will be required to ensure the Regulator’s operational success and the achievement of its strategic purpose.

Deloitte’s Sports Business Group has helped to design and establish financial regulations and functions in sport and work with football clubs and other sports organisations to assess and enhance their corporate governance.

This article was originally published in the 2023 Deloitte Annual Review of Football Finance, available to download here.