Podium: New rules for running football clubs

From a talk given by the sports lawyer to a to a conference at Birkbeck College, London, on the governance of football
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IF YOU want to know someone's taste in food you might ask: "Where's your favourite restaurant?" If you want to know their taste in drink you might ask: "Which is your local?" If you want to know their taste in football, though, you ask: "Which team do you support?" The word tells us a lot about what makes a football club special.

Although we use restaurants and pubs - and sometimes talk as if we own them ("it's my local") - we don't really expect to have any say in the way they're run. But we expect the club to come and listen to us in supporters' club meetings or to answer our letters criticising things that are done in the transfer market.

This has implications for the way a football club is run. Most football clubs in the UK are limited companies with shareholders and directors. The shareholders own the business. The directors run the club and have financial responsibilities to the club's creditors and responsibilities to the shareholders to run things in line with their wishes.

In most businesses, provided they stay within the law, the directors and shareholders can do what they want. If the directors mess up on a massive scale, it's a matter for them and the shareholders to sort out.

Football's not like that. Football's recent history is one of guerrilla warfare between the fans and the legal owners. In some cases, the fans have been formidable and have out gunned the board in business experience or PR skills. In other cases, the fans have pursued crazy campaigns with no understanding of the real issues. In all cases, the dispute has been damaging to the club.

The essential components of professional football clubs are that they need a ground to play on, training facilities and a squad of players with a skilled (or lucky) manager. They have income from television, sponsorship and gate receipts but they do need working capital in the form of equity or loans, or both. They must be professionally managed in their commercial activities if they are to exploit opportunities and survive in the Premier League, or keep their heads above water in the lower leagues. And they also need true supporters, not just people who turn up regularly, or occasionally, to watch a game.

The trick is to find a structure which balances these various needs and the interests of those concerned. The problem with any structure based on a traditional limited company is that the supporters never progress beyond a nominal shareholding or a token presence on the board.

A possible answer to all this lies in the "mutual" structure - in legal terms an industrial and provident society rather than a limited company. Until recently, co-ops or public benefit societies, such as housing associations, have operatedunder 19th century rules. People have now begun to realise that the mutual structure has great potential where the primary aim of an activity is not to make money, or where a community need is being met.

Some of the thinking which has been developed is relevant to football, particularly the point that, although fans like to think they "own" their club, they are not looking for a financial return. Indeed, many of them in their hearts feel there is something wrong in people making money out of football.

The first advantage of the mutual structure is that the members of a mutual society are its owners but have only nominal shareholdings - the rules can say that they cannot sell their shares at a profit and cannot realise the value of their shareholding on a sale or winding up. Members of a mutual can accurately reflect the real relationship between a fan and a football club, and the pressure of the need to make a return to shareholders can be removed.

The second advantage is that the structure can accommodate the need for professional management. This has been a problem with mutuals in the past, but it is now possible to register rules which reflect clearly the balance of power between a representative board which takes a broad view of the wellbeing of the society, and an executive board which has to deliver results on a day-to-day basis.

The third and most important advantage is that the structure can be flexible. My firm, Cobbetts, has developed entirely new sets of rules which alter the old balance between the interests of members, providers of capital, and executives - and define clearly where the rights of members begin and end, what issues they are entitled to decide and how significant their representation on the board should be.

If we are imaginative about it, a mutual structure can reflect accurately and healthily the true relationship between a football club and it fans.