Will the Football Governance Bill promote a more financially sustainable pyramid?

On 19 March 2024, the UK Government released the much-anticipated Football Governance Bill (“the Bill”) which introduced the Independent Football Regulator (“IFR”). The 130-page document covers a range of important areas, including the introduction of a new licensing framework for all clubs in the English football pyramid down to National League level. In this blog, we focus specifically on the potential impact of the IFR on the financial sustainability both of individual clubs and of the overall English football pyramid. These are areas of particular interest following LCP’s deep dive report on football sustainability in July 2023, and our current work analysing clubs’ latest accounts for a follow-on report early this summer. The Bill shows a clear, positive intent for the IFR to deliver real change to the English football industry, and promote more financially sustainable business practices. Ultimately, though, the challenge will be whether the IFR can achieve its objectives whilst at the same time not ‘interfering’ with the sporting and financial competitiveness of the professional game in England.

What are the IFR’s objectives?

The IFR’s key objectives are to promote financial stability, both of individual clubs and of English football as a whole, and to safeguard football heritage. Its aim will be to achieve these objectives without adversely impacting upon sporting competitiveness or jeopardising investment into the game. It is quite easy to see how the introduction of new checks and monitoring processes could deter some investors in the short-term. However, financial sustainability is about longevity. In our view, the Bill will encourage improved business planning and strategic thinking, which will be positive for long-term financial stability. This should result in clubs becoming more attractive over time as a sustainable investment, rather than as a gamble or a vanity project.

How will different stakeholders be impacted?

• Football clubs: More rigorous and detailed financial and business planning, with a greater focus on governance, and on risk management and mitigation.
• Prospective owners / investors: More robust due diligence and stricter criteria to get ‘approved’ as an owner of a football club.
• Competitions (eg the Premier League ) New requirements to notify the IFR of risks to the financial stability of clubs in the English football system. Will need to adapt to a new level of oversight and transparency.

Overall, the presence of the IFR should create more stability for clubs in the longer term, though the new compliance and reporting requirements will mean significant additional obligations and costs. These could prove problematic, particularly for smaller clubs with limited staffing and financial resources, unless additional funding is made available as part of the transition process.

How will the IFR be implemented?

From our long experience of working in regulated environments, the Bill should be viewed as very much a first step. The key challenges, once the Bill receives Royal assent, will be to establish:

• how the Bill’s provisions will be implemented in practice;
• the extent to which the IFR will become involved in the operations of clubs, owners and competitions;
• and the ability and desire for the IFR to use its powers.

Several questions remain which need further clarity, including:

• What steps would the IFR take if a prominent football club’s licence is at risk?
• How long will all clubs have to meet the licensing criteria once these are set by the IFR?
• How will the IFR requirements interact with the Premier League or English Football League’s current rules and framework?
• Would the IFR have the power to force changes in for current owners (ie who passed the tests before the introduction of the IFR), if for example a current owner does not meet the standards of the more rigorous tests?

In practice this will evolve over time as the IFR consults with stakeholders and looks to implement the Bill.

Monitoring the financial health of multiple football clubs

For the IFR to be effective, it also needs to have in place a robust mechanism to monitor the financial health of clubs across the football pyramid.

In our view, this has three key features:

1. Regular flow of information;
2. A methodology to assess and score clubs;
3. Clear triggers for IFR action.

Combining these three features will create an actionable framework and allow the IFR to use its powers as appropriate. It will be important that information provided to the IFR is generated consistently across clubs and is provided in a standardised format. A key advantage for the IFR, compared to some other regulatory bodies, is that football clubs tend to operate in very similar ways and their finances are generally comparable, which should make it easier to benchmark football clubs and create a standardised approach.

How we can help

LCP combines financial expertise with a deep understanding of the football industry, all underpinned by decades of experience supporting our clients operating in complex regulatory environments. This unique combination enables us to offer tailored support in a variety of areas, including:

• Financial health assessments and due diligence (for clubs and their current owners, potential investors, or other stakeholders);
• Ownership suitability support;
• Strategic advisory, including creating and/or critically assessing business plans;
• Assessing the potential financial impact of different scenarios (eg relegation / promotion);
• Risk management; and
• Regulator and stakeholder engagement.

In addition, we can support clubs with ensuring regulatory requirements are met in both business-as-usual scenarios and at the time of one-off events (eg change of ownership). Get in touch with me, or one of my colleagues in our Sport Analytics team, if you’d like a chat about how we can help.