Examination of Witnesses

Football Governance Bill – in a Public Bill Committee am 9:30 am ar 14 Mai 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Richard Masters, Rick Parry and Mark Ives gave evidence.

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston 10:10, 14 Mai 2024

Welcome to the new panel. We will now hear oral evidence from: Rick Parry, Chair of the English Football League; Richard Masters, Chief Executive of the Premier League; and Mark Ives, General Manager of the National League. For this session, we have until 11 am.

I call the first Member who wishes to ask questions, Stephanie Peacock.

Photo of Stephanie Peacock Stephanie Peacock Shadow Minister (Digital, Culture, Media and Sport)

Q Thank you all for joining us. The reason we are here is that self-regulation of football has not worked, particularly in relation to financial sustainability. Obviously, therefore, the Government have introduced this Bill, which we support. One of the key parts of the Bill is the owners and directors tests. Do you think that the current owners and directors tests are fit for purpose? Does the Bill improve them? Will you continue with your own owners and directors tests when the regulator is conducting their tests? Those questions are to each member of the panel.

Richard Masters:

We obviously support very strong ownership tests; we believe we have one at the moment. With the Bill, in terms of the way it describes the owners test, I think there are a lot of questions that still need to be asked and we may ask them in our written submission to this Committee. Thank you very much for giving us the opportunity to speak to everyone today and to put our perspectives across.

We very much support a strong ownership test. The question about whether it has been successful—I believe it has been more successful over time. Obviously, an ownership test is relatively new in football. Football has been around for centuries; the ownership test is a relatively recent intervention. Football has responded to issues—regulatory issues—as all regulators do. Football is already a highly regulated industry. We—the Premier League—are already regulated by the FA, by UEFA and by FIFA, and we are a regulator ourselves. So, the Bill and the new independent regulator for football are going to be an additional regulatory layer.

In all of our discussions with the Department for Digital, Culture, Media and Sport, we have been quite clear that we would like to continue with our own test and obviously the closeness of those two tests is quite important, and the consistency of results that come out of them is quite important as well.

When you read the Bill, one of the things that you probably notice in comparison with the Premier League’s current test, which is very similar to that of the EFL, is that it will probably capture a broader group of people and it is more subjective. One of the things that we have been quite careful about over the years is to make sure that the test is as objective as possible, because that creates more certainty and less legal challenge. We would like the Committee to think about that as they observe the Bill and to give as much clarity as possible to competition organisers on the issue of ownership.

Rick Parry:

Where the regulator can help is in bringing greater transparency. Football does not do transparency very well; it likes to live in the dark. Greater consistency across leagues and statutory powers will be extremely helpful in terms of capturing information. The threat of criminal sanctions for failing to comply is pretty potent and pretty powerful—something we cannot compete with.

We will certainly not be having a parallel test; we do not want duplication. We are very happy to throw our support behind the regulator and recognise that a better test is something that we will be very happy with.

Mark Ives:

First of all, thank you for allowing us to be here today; I appreciate that.

From an owners and directors test point of view, we are—from the National League—in a slightly different position than our colleagues in the Premier League and the EFL, in that the National League is governed by the FA regulation for the owners and directors test. I have spoken before about the powers that this Bill will bring with the ODT and I welcome that. I think it will give us, or give you, greater ability to be able to get access to information that we do not have. Although the current test is being reviewed from the FA’s position, it is primarily a self-assessment, which, of course, comes with many problems. I welcome the owners and directors test. I would urge Government to ensure that speed of operation is good, because the time it takes to get somebody approved is really important for takeovers and everything else.

The other challenge with the ODT relates not only to when owners come into a club, but to the question of when, during their lifetime within a club, their suitability changes. We need greater detail on how that will look. When does someone who is a good owner at the start of their tenure suddenly turn out to be a bad owner halfway through that tenure? Of course, it will be difficult, once somebody is in, to make a substantial change—not impossible, but it will be difficult. We need to think how we manage that from a National League perspective. We do not have a queue of people waiting to take over clubs, so we need to think about the consequences of the test on existing owners. Again, I would share the views that the leagues’ action to sense-check that as we move forward and make sure that clubs are compliant is really important.

Photo of Stephanie Peacock Stephanie Peacock Shadow Minister (Digital, Culture, Media and Sport)

Q Communications from the Premier League have stopped short of outright rejecting the Bill, but have warned against unintended consequences. Could you outline what those unintended consequences might be?

Richard Masters:

I will do my best—thank you for the opportunity to do so. In general, I think we are supportive of the objectives of the Bill, and we want to see those objectives work. We are obviously concerned that what is, to all intents and purposes, a very successful industry is not harmed. It is very important that the Premier League, at the top of it, is able to continue with its success and growth—not just for the sake of the Premier League, but because that success and growth helps to fund the rest of the pyramid. We are happy to share our success, and we have a strong track record of doing so.

We would like this Committee to look at the unintended consequences of regulatory interventions that are unnecessary—proportionate regulatory interventions dealing with the issues that are arising. To use a motoring metaphor, we agree that if you are speeding, there should be regulatory tools to intervene, but we would not want to see the speed limit reduced from 70 mph to 50 mph to keep everybody safe. We think that would be a step too far.

As Mark alluded to, our core concerns are always about increasing the pool of investment that comes into football. The Premier League is successful because it has been able to create an atmosphere where people want to invest and buy football clubs and put their money behind the aspiration of moving up the pyramid. We see examples of that all the time, and we think that is really important. We need a strong and vibrant pyramid. To us, it is about long-term certainty and proportionate intervention. If those things are not correct, we might see some of the unintended consequences that I have explained.

Photo of Stephanie Peacock Stephanie Peacock Shadow Minister (Digital, Culture, Media and Sport)

Q Do the Premier League’s own rules not specifically address the way money is invested into clubs? What is different, therefore, about the regulator monitoring this?

Richard Masters:

The Premier League has a number of financial regulatory tools at the moment, such as our PSR regulations, which you will all be aware of. They are really about competitive balance, but also have an aspect of sustainability to them—essentially a limited loss situation. Where clubs are loss making, they have to provide two years of financial information to the league, and if they are loss making beyond a certain threshold, they have to stand behind the business plan of the club and provide a secure owner funding commitment to the league. The Premier League does have sustainability rules in place, as do the EFL and the National League. Perhaps it would be good for the Committee to hear about how all that works. There are measures in place, but they will be different.

What we are seeing in the Bill is prudential regulation, which is born out of the financial services industry—obviously there are not many parallels between banking and football. We are worried that prudential regulation could be too interventionist and could tie up or deter investment to the detriment of the whole football pyramid.

Photo of Stephanie Peacock Stephanie Peacock Shadow Minister (Digital, Culture, Media and Sport)

I have one more question for all three of the panel.

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston

I am going to move on to the Minister, as we are going to be short of time.

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

Q The regulator will have a duty to work with the leagues when they are exercising their regulatory functions and have regard to the existing rules within your leagues. How do you see that working in practice, and how are you reforming your own structures to ensure that regulation works effectively? You talked about unintended consequences, Richard—can I just push you to give the Committee a specific example of what those might be?

Richard Masters:

It is unclear—a lot of this depends not on the technical drafting of the Bill, but the personality of the regulator, who we are yet to meet. Now the appointments have been made, it depends upon how the regulator and its powers are going to be utilised. For example, if the regulator wishes to put financial controls on virtually all the 116 clubs that it wants to license, I believe that will stop investment into football squads and football in general, and will slow down the growth of English football. That is the principal unintended consequence I would be concerned about.

Mark Ives:

On unintended consequences, there are a couple of things, particularly when you consider the size of the National League clubs and how they are staffed. The Bill is written in a way that sets out what it intends; it does not give how it is going to achieve those aims. As far as the clubs are concerned, there is massive uncertainty.

As we see it, one of the unintended consequences is the drain on the resources of those clubs because of the duplication of work and the over-bureaucracy that there may be. For example, we already have a licensing system. Our system includes our football finance regulations, which have been activated since 2013. It is worth noting that we are talking about improving the sustainability of our clubs—but the National League, which is the only division that I can talk about, has not had a club going into administration since 2013, since it brought in its financial regulations. That is not a bad record. Our concern is the duplication of that licensing scheme. As the Minister rightly says, there is a referral back to the league regulations. We had hoped that that would go further and put the onus on the league, on the competition, to be the first to react. If that does not work, then the regulator steps in—rather than create a lot of duplication of work for our clubs, as we see it.

The other issue is costs. The Bill is intended to ensure financial sustainability. Yet the concern of this is that, as with all regulators, the people who pick up that bill are those who are being regulated. I am not sure that the clubs fully understand that. When you are at the bottom level of what is being regulated, the fear is the quantum of those costs. If you have a challenge that goes to judicial review from one of the National League clubs, I suspect that the financial cost on that is not going to be too great. However, if one of the top clubs in the Premier League challenges the regulator, the costs on that are going to be really significant. Those costs get passed on to those being regulated, and they could run into millions of pounds, when the cost of those are being borne by clubs at the National League level. In our view the Bill is not strong enough in clarifying what proportionality means. We have been given assurances: we have had some good meetings with the Department for Culture, Media and Sport, with the Minister and the Secretary of State, where assurances are that it will be proportionate. However, we do not understand what “proportionate” is. So, one of the unintended consequences is the financial and human resource burden on our clubs.

Rick Parry:

It is incumbent on us to work with the regulator to make sure that this works for the good of the game. We see big pluses in terms of the regulator bringing independence, transparency and consistency across leagues, which is a bit of a disaster area at the moment. We view it positively: everything we have found so far in terms of engagement with DCMS and in terms of the shadow body that is the regulator is that all these concerns can be addressed. It is going to be a tougher environment, but football needs a tougher environment. We have had 30 years to get this right and we have failed.

Richard Masters:

Just to answer your question about what plans the bodies are making to adjust to the regulatory world, we will all have to adjust to the new environment that is coming. I am very happy to do so. Like Rick, we are already meeting with the shadow regulatory team on a regular basis and have had good conversations about how it might work in practice. In reality, I think the performance of the regulator can be managed. We will meet that obligation head on and ensure that they get all the information they need, and we will respond at all times.

The issue that we are most concerned about is what impact that might have on the wider system—beyond the very positive objectives of the regulator to give fans a stronger voice—to improve the sustainability of the pyramid and individual clubs, and to avoid some of the issues we have had in the past. We agree with all that, but it is important to make sure it does not impact on the very good success story that we have at the moment.

Mark Ives:

Can I echo that and clarify some points about where we stand on the regulator? From day one, and from when Tracey started the fan-led review, we met the review and we were asked whether we wanted to be part of the regulator. We said yes we did, on the understanding that it would not be too onerous for our clubs, and we would keep a mind on the costs. So we are mindful of that. We embraced the regulator. Our position was always that if there is a regulator, we thought it should be the FA, but for well-documented reasons, we know why that cannot happen. So we move on and embrace the regulator as it is.

Our challenges are not about having a regulator; they are about understanding and clarifying how the regulator will work. We embrace it and we will work with it. We have had some very productive meetings with DCMS and discussions all the way through. All we are trying to do is make sure that it is not too onerous and too costly for our clubs, because we have to protect the interests of those clubs, and they need clarity.

Photo of Damian Collins Damian Collins Chair, Draft Online Safety Bill (Joint Committee), Chair, Draft Online Safety Bill (Joint Committee)

Q Richard Masters, at the beginning you raised some concerns about the checks on new owners. You said you wanted a process that was governed by objectivity and certainty—I think those were the words you used. A lot of people would look at the live example of Everton and 777 Partners and say that that does not look like a situation that is being governed by objectivity and certainty, and that it is the kind of case where the regulator may well have taken a different view from the Premier League and may well have rejected the takeover. Given your concerns about the regulator in this regard, and given that, after eight months, 777 has still not met the criteria that the Premier League has set, I would be interested to know why the Premier League has not rejected it.

Richard Masters:

Let me be clear about what the Premier League’s role in this is. As regulator, it is to perform the test. It is not to decide who the current owner wants to sell this club to. That is his decision. At the moment, he wants to continue to have discussions with 777 about it. The Premier League has made very clear the conditions that have to be met by 777 if it wishes to become the owner of Everton. At the moment, obviously, because the takeover has not been confirmed, I will leave it to the Committee to make its own conclusions about where we are with that.

Rick and Mark have talked about some of the benefits of the regulatory ownership test, in the sense that they will get access to more information that we can have, because we are not a statutory body. So we can only get the information that we are provided with and we have strong investigatory powers.

The other thing that Mark talked about was speed. I accept that takeovers that carry on for a very long time are not good for fan certainty. That is why we have a very big team of people who do nothing else in this. All I would say is that over time, particularly in the Premier League, takeovers are becoming increasingly complex. It is not a small undertaking on the part of the regulator to take this burden on. That is why we want to remain involved with it as well. This is very complicated, and we need to make sure that all those decisions are correct, even if that means taking a little more time to make sure that a decision is correct.

Photo of Damian Collins Damian Collins Chair, Draft Online Safety Bill (Joint Committee), Chair, Draft Online Safety Bill (Joint Committee)

Q It would seem that there is a real role for the regulator here, because the regulator could make this a lot simpler by saying, “You demonstrate the proof of funds and where you’re raising those funds from, and until you can do that, the answer is going to be no. You can come to us when you’re ready.”

Richard Masters:

It may be that they could come to conclusions quicker. I would imagine that that is possibly correct in that circumstance, but obviously, I cannot imagine what the situation would be like if we had a regulator in the current example that you raise. Obviously, I know a bit more about the background to it all. I cannot say too much about it, but I do think there are some benefits to the regulator working in tandem with leagues on this particular topic. That is true.

Photo of Damian Collins Damian Collins Chair, Draft Online Safety Bill (Joint Committee), Chair, Draft Online Safety Bill (Joint Committee)

Q How would you respond if you were overruled? What would be the effect if the regulator took a different view from you?

Richard Masters:

Maybe a bit like “The X Factor”, you need two green ticks to get in. That is it, and in terms of the Premier League operating its own test, in the unlikely event that the regulator said yes and we said no, that person could not take over that club, and vice versa.

Photo of Matt Rodda Matt Rodda Shadow Minister (AI and Intellectual Property)

Q This question is for Rick Parry. Where a potential owner has a track record of being associated with clubs overseas that have got into difficulties, do you believe the Bill has enough powers to prevent that in future?

Rick Parry:

I think so. I do not think there is any reason to be doubtful at this moment, and within football we have been refining the tests that we apply over time. A decade ago, I think the tests were probably inadequate and overly simplistic. We have definitely refined them. We take a closer look at people’s track records, and I am not fearful that the regulator will be unable to do the same.

Photo of Brendan Clarke-Smith Brendan Clarke-Smith Ceidwadwyr, Bassetlaw

Gentlemen, one thing thatQ has been raised is international investment and creating a level playing field with other leagues. Do you still have any particular concerns there? One of the previous witnesses we interviewed suggested that, at the moment, what we are doing is very light touch. Do you think that is still the case? Richard, perhaps I could ask you that first.

Richard Masters:

As you know, professional football exists in a global marketplace, and the Premier League is, by most available metrics, currently the most popular in the world. We want that to continue, but it is a competitive marketplace. You could not say that 20 years ago, but it is true today, and we would like it to be true in 20 years’ time. We have been able to do that by collective effort, and the clubs continue to invest in creating a really exciting football competition.

I think the key difference between the Premier League and its other European competitors is the competitive nature of it. We can talk about full stadiums, home and away fans, fantastic brands, and the history and tradition of the English game—all those things are incredibly important, but the key difference between us and the Germans, the French, the Spanish and the Italians is that you have jeopardy from top to bottom. That goes to the funding of football and the financial mechanics behind it, and the key ingredients that go towards that competitive nature and the jeopardy in English football. We do not want to damage that jeopardy at all.

In order to be able to better fund the pyramid, we have to be successful, and to be successful, we have to be able to continue to find football-led solutions to the problems we have. The regulator has a specific role, which is to step in when individual clubs have problems and to oversee certain aspects of the game, but I still believe that football needs to be football-led. The three bodies—or four, if you include the FA—can do a good job of that in the future, in the same way that they have done a good job of it so far.

Photo of Brendan Clarke-Smith Brendan Clarke-Smith Ceidwadwyr, Bassetlaw

Q Thank you. Rick, is that also the case for the EFL?

Rick Parry:

We think that in a better regulated environment, where there is more clarity and certainty, we will get better-quality owners—there is no reason to believe that we would not. There has been a lot of talk about investment, which is a curious word in football. To me, “investment” means sensible investment in assets that generate returns in football, but it tends to mean excessive spending and then owners moving on. What we are trying to do, in making clubs sustainable, is reduce the dependence on owner funding—as we have heard previously, owner funding is fabulous, until it is not. We have seen it with Mel Morris, we have seen it with Bolton, we have seen it with Reading: owners come in with high ambitions, but either get fed up, run out of money or become ill, and then the clubs fall off a cliff. If we have a better system of redistribution, making club solvent, then we are not dependent on that ownership culture.

Photo of Brendan Clarke-Smith Brendan Clarke-Smith Ceidwadwyr, Bassetlaw

Q Thank you. Mark, at the moment, the regulator covers only the top five tiers—obviously, it is going to cover the National League, but not National League North or South, or below that. Do you think that is the right way forward? Do you think it should be wider, or do you think it should be narrower?

Mark Ives:

I think that, from a National League perspective, we are in a fortunate position. We run a licensing programme, and part of our ethos anyway, without the regulator, is to properly prepare our clubs to go into the EFL, whether they come from step two, National League North or South, into step one, the national division. If you look at the history of our clubs that have been promoted into the EFL, the vast majority of them have succeeded and continue to do so—this year you have only got to look at Wrexham’s story and everything else. That touches on your issue about foreign investments. Our challenge is to make sure that clubs that come up from step two are suitably prepared, through our licensing programme, to step into being regulated.

Equally, when somebody who is being regulated falls out of step one, sometimes because they have challenges, the issue for us is to ensure that they continue to get the support that the regulator may have given. As they go into step two, it is incumbent on us—it is still our competition—to ensure that they get the same checks and balances, to try to turn around whatever issues are there and give them a chance to grow again.

Photo of Ian Byrne Ian Byrne Llafur, Liverpool, West Derby

Q I first put on the record that we thank you, Richard, for your support on tragedy chanting. You have been fantastic. I also put on the record my thanks to you, Rick, for accepting the 13,000 signatures we gave you in 2001, I think, to stop Liverpool moving from Anfield to Speke, which would have been a disaster for our heritage. That was without the Independent Football Regulator, so well done.

My question is about financial sustainability, the profit and sustainability rules, and the lack of authority within the scope of the Independent Football Regulator. All supporters want a predictable, transparent, principled, proportionate, fair and timely system. Richard, from a Premier League perspective, I think that if you speak to the supporters of the clubs—Everton or Forest—they do not feel as though they have had that. There has been lots of confusion about the whole process and how punishment has been meted out. Then there is what happened with Manchester City—115 charges, but nothing as yet. Why would we not want to protect the integrity of the process—and the Premier League and, when it comes to that, the EFL? Why would we not want to give to the Independent Football Regulator the ability to mete out punishment in a fair and transparent manner?

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston

Order. While cases are pending, I ask Members to be careful about naming individual clubs in matters that may be sub judice.

Richard Masters:

Thankfully, the cases you referenced have concluded now, before the end of the season, which at least gives some certainty. It has been a difficult period. This season has been the first time that the PSR rules have been activated—if we may call it that—in the Premier League. It has been a difficult experience, although Rick has more experience of it, and it is a difficult situation for fans of those clubs to live with, but if we have financial rules, we have to enforce them. I think that most people accept that, if they take a step back.

The question is: does the system work? Is the system transparent? No. The question you are asking is: should the regulator not look after all that? I think that the decision that the Government have taken, which is the correct one, is that this is for football bodies to look after. They are essentially getting involved in the running of the sport and the sporting competitive issues that exist within the game. I would not support, Ian, the regulator looking after those rules. The regulator has a clear remit to look at the sustainability of football clubs.

Photo of Ian Byrne Ian Byrne Llafur, Liverpool, West Derby

Q You feel that a good job has been done by the Premier League this season with regards to those clubs.

Richard Masters:

It is a different topic. I am very happy to have a longer conversation with you about it.

Photo of Ian Byrne Ian Byrne Llafur, Liverpool, West Derby

Q On the scope of the regulator, Rick, would you concur with Richard’s opinion?

Rick Parry:

I would actually, yes.

Photo of Ian Byrne Ian Byrne Llafur, Liverpool, West Derby

You think it is down to the leagues.

Rick Parry:

It is the boundary of where football authorities deal with the rules that govern the competition. As Richard said earlier, part of the role of the PSR rules is competitive balance, rather than the sustainability of individual clubs. There is an element of crossover, but I do think that PSR squad cost control rules, or whatever replaces PSR, should fall firmly with the leagues to operate. We agree on that.

Mark Ives:

May I add to that? I think it is important. We have our own financial regulation. If there are gaps in the financial regulation, then challenge the league —tell us where you think those gaps are for us to change. I would argue, as I said earlier, that the history of the clubs at our level is that our financial regulation works. As Richard said, it is it is only as good as ensuring that those regulations are applied, and we have applied them.

Two things about applying the regulations are that it is not just about sanctions, but about helping the clubs to make sure that they do not fall off the edge. In a few high-profile cases in the National League, we have actually been able to save some of those clubs and ensure that they do not go to the wall—I will not name them, but you know who they are. We have been able to assist those clubs to make sure that they survive. To come back to what the Minister said earlier about passing some of the issues over to the leagues, this is one example where we should have total autonomy to do our thing, and for the regulator to step in if we are not doing it.

Photo of Ian Byrne Ian Byrne Llafur, Liverpool, West Derby

It is about making sure this is transparent, and there has to be confidence in the integrity of the process.

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston

Ian, we are going to have to move on.

Photo of Robin Millar Robin Millar Ceidwadwyr, Aberconwy

Q The difference between the three leagues is quite striking, in terms of the levels of investment, the scale and the nature of the operations that individual clubs run, and the way that they fail. In the last session, we heard about two quite contrasting pictures of the regulator. Dr Philippou talked about the Bill providing for a very light-touch regulator, but Mr Maguire seemed to talk about something much more interventionist that monitors things and intervenes when problems might be about to occur or develop. I am curious about how each of you sees that balance playing out, and how important it is for your league. Perhaps I can start with you, Mr Masters.

Richard Masters:

I am probably going to start repeating myself. I think that light-touch, proportionate regulation can work, and when the Committee is scrutinising the Bill, it should try to ensure that that is the case—that the regulator has the powers to intervene at the right moment. One of the things that we have argued for—

Photo of Robin Millar Robin Millar Ceidwadwyr, Aberconwy

Sorry, just to be explicit, my question is whether you think that the regulator is there to control bad actors or whether the regulator is there to intervene when it sees that somebody is about to make a mistake.

Richard Masters:

I think they are both the same thing. I do not think that we should put in place broad protective measures to ensure that nobody can ever hurt themselves. What I do think is that the regulator intends to be preventive, and we will be supportive of preventive regulation to stop bad things happening, and of the regulator having the power when bad things are happening. I think those three things are subtly different and quite nuanced, and I hope that the Bill can reflect that.

It comes back to the personality of the regulator itself, which has not been formed yet; key appointments have not been made. If the Bill is structured in a particular way, and the personality of the regulator is such that it enforces on a proportionate and light-touch basis, I think that it can be made to work and will help football.

Rick Parry:

I would like to broaden the conversation and touch on the regulator’s systemic responsibilities, which we think are really important. The purpose of the EFL, which we defined four years ago, is to make clubs sustainable. As I said earlier, that means reducing the dependence on owner funding. To do that, you need redistribution to make them solvent and better regulation to make sure they are not profligate; the two must go hand in hand.

We think that the Bill goes a very long way towards addressing the regulatory aspects properly. What it does not do is address redistribution properly. It has ducked the key issues on that. The danger is that, if it is completely effective on regulation but ineffective on redistribution, it will just be failing to license clubs, and we will have many EFL clubs not being licensed and going out of business. That cannot possibly be the objective of the regulator.

Mark Ives:

It is an interesting question. As you say, the differences between the three competitions are striking. If I understood you correctly, the question was about there being failings in all three. If we are talking about financial sustainability, I am at a loss to see where that failing has been from a National League perspective, for the reasons that I outlined before. That is one of the reasons why I support a lighter-touch position from the regulator, but we need to ensure that there is a safety net there for the sport, so that you to step in when that is needed. As I say, from a National League perspective, the record has been quite strong. When the fan-led review first kicked off, there was a misunderstanding as to what the financial regulations in the National League are, and it was not until, I think, the second meeting that we had with the fan-led review, when that was explained, that people understood and realised what steps are being taken by the National League. That is the background as to why we think there is a lighter touch.

Photo of Clive Betts Clive Betts Chair, Levelling Up, Housing and Communities Committee, Chair, Levelling Up, Housing and Communities Committee, Chairman of the House of Commons Members' Fund

Q I want particularly to look at clause 55(2)(b), which you are probably all very familiar with. Could I ask for your view on that provision—the removal from the regulator’s backstop powers of the ability to look at parachute payments? Did you lobby Ministers to include it?

Richard Masters:

We do not think that parachutes should be part of the backstop power.

Richard Masters:

Well, when asked for our opinion, did we express it? Yes, we did, and I am very happy to repeat it here, Clive. The backstop power is a very novel power, and it should remain so. It should incentivise football-led solutions, which I believe it intends to do. It drives mediation and negotiation. At the very end, if the people at this table cannot come to an agreement, it is able to impose a solution in one specific area, which is solidarity—the funding of the rest of the pyramid, normally from the Premier League down. Any party has the ability to trigger that mechanism once every five years. All of that has been discussed with all of the people at this top table along the way, and it is right that it was, and right that everybody had their opportunity to express their views. Solidarity, parachute payments, is part of the football pyramid and has been for over 30 years. This is not just between the Premier League and the EFL, but intra-EFL and from the EFL into the national league as well, where there is a generous parachute system for clubs coming in and out of the national league and into league two of the EFL.

Solidarity is relatively new. It came around in 2007 when Lord Mawhinney, once of this parish, agreed a small deal with Richard Scudamore, the then chief executive to the Premier League. Over the past many years we have agreed a number of different arrangements. The current arrangement—which is still in existence; there is no cliff-edge—was agreed in 2019. At the moment, the amount of solidarity that comes out of the Premier League to the EFL is around about £130 million a year. This is the part that we think should be adjudicated on if there is to be a backstop power, not parachutes. Why not parachutes? Because they are a competitive balance tool. They obviously have an impact on sustainability as well, as all financial regulations do. Without parachute payments, the Premier League would not be competitive at the bottom end. You will hear from clubs this afternoon that will be able to talk about parachutes from their own perspectives. One is Brighton, which came up without a parachute.

If a club wants to be competitive within the Premier League, which is a brutal meritocracy and that is why people love it, then you have to be financially supported. That is the principal purpose of it. If you want the Premier League to be competitive and to be the economic powerhouse that it is, and to continue to redistribute its success, then we have to have parachute payments and I do not believe they should form part of this regulatory regime.

Rick Parry:

Yes. First of all, we think that the way the clause is drafted is intellectually incoherent because it says that parachutes cannot be included in the definition of revenue—they are not revenue, they are distribution. To take Richard’s point that they should be used separately from solidarity, it is interesting that solidarity payments to championship clubs are literally pegged to parachute payments. They are defined as being 11% of a parachute payment, so they are intertwined.

In terms of the practical effect of what the clause says, if we look at the 2021 figures, five parachute clubs received £233 million between them and 19 championship clubs received £79 million in solidarity. So what we are saying is that we can apply the backstop and all its might to the £79 million, but we cannot touch the £233 million. That seems to be the ultimate definition of fiddling while Rome burns. Why you can view one without the other, I do not even begin to understand.

In terms of the effect of parachutes, just in case people are not across it, if we go back to 2010-11—which is not that long ago—they totalled £30 million. They represented 7% of the aggregate turnover of all championship clubs. By 2020-21, they had risen to £233 million and 39% of the aggregate turnover of the championship clubs. They have become the cuckoo in the championship nest. They are enormous. So if you exclude them from the backstop, you might as well not bother with a backstop, frankly.

Photo of Clive Betts Clive Betts Chair, Levelling Up, Housing and Communities Committee, Chair, Levelling Up, Housing and Communities Committee, Chairman of the House of Commons Members' Fund

Q We had a very detailed submission from the EFL, explaining your understanding of the current distribution of media money within the EFL and the Premier League and what the challenges were. I do not think we have had anything similar from the Premier League, have we? You have not given us your understanding of the current position and what you would like to see it changed to, if you want to see any change?

Richard Masters:

Sorry, Clive—

Photo of Clive Betts Clive Betts Chair, Levelling Up, Housing and Communities Committee, Chair, Levelling Up, Housing and Communities Committee, Chairman of the House of Commons Members' Fund

The EFL have given us their understanding of the current distribution of funding within the Premier League and the EFL, particularly around media funding, and what sort of changes they would like to see. I do not think we have had a submission from the Premier League identifying what your understanding of the position is and what changes, if any, you would like to see.

Richard Masters:

We have our current agreement and it was agreed in 2019.

Richard Masters:

It is a perfectly legitimate debate to be had—is the funding of football correct? That should be reviewed on a periodic basis. We have an agreement that stretches out way into the future and either party can terminate it after three years. The current agreement is about to become five years old, so once the state of the game report is done, the regulator will turn its mind to other issues. We are very happy to express our views on the distributions within football; we are not shy of doing that.

Photo of Tracey Crouch Tracey Crouch Ceidwadwyr, Chatham and Aylesford

Q The panel will appreciate that the UK has nuclear weapons and there is coding for what happens in the event of a catastrophic diplomatic failure. All that coding is well thought through but the outcome is never 100% certain, and he who pulls the trigger is not always going to be the winner. Do you appreciate that part 6 of the Bill is the nuclear equivalent for football? Do you also appreciate that, really, part 6 should never be triggered, and the only way it will be triggered is if there continues to be a catastrophic failure, between the parties on the panel, to come to a deal? Do you appreciate that part 6 has been written into the Bill because, frankly, you guys have not come to a deal?

Mark Ives:

We are talking about the backstop?

Mark Ives:

Yes, I am aware.

Photo of Tracey Crouch Tracey Crouch Ceidwadwyr, Chatham and Aylesford

Q Mark, I will come to you for your views but—with no disrespect—I would like to hear what Richard and Rick say.

Richard Masters:

I had not likened it to nuclear armageddon but it is an important issue. We have made attempts to come to a new deal but it has not worked yet. As I have said repeatedly, football solutions are the right way forward and the best solutions. I do not wish to be in a situation where the backstop power is being activated by any party, so I agree with you in that respect.

Rick Parry:

We take a rather different view inasmuch as we do not see it as being armageddon or catastrophic. Football has manifestly failed and it will because the market forces are such that it is not an equal negotiation. We have very little negotiating power. We cannot threaten to leave and attach ourselves to the Bundesliga or La Liga, so we are basically stuck.

We think that if the regulator has clearly defined objectives, in terms of systemic sustainability, then as the fan-led review said, as the “One Year On” report said, as the White Paper said, and as the Government response said, it is the regulator that should have targeted powers of intervention. Intervention implies doing something positive. At the moment, the regulator is not actually allowed to do anything at all because it is reliant on the two leagues—the bodies that it is regulating—to step in. We believe the regulator should have those powers. The fan-led review is an enormously important and extremely helpful piece of work—an independent, objective, transparent study that has never been done before. The review will have a view on parachute payments and we are not, by the way, saying there should be no parachutes; we are discussing their level and the ability to fix them independently. We believe that, to make the Bill work, in the event that the fan-led review highlights problems, the regulator should be able to institute the process. We do not think it is armageddon. We do not think it is nuclear. We think it is logical.

Photo of Tracey Crouch Tracey Crouch Ceidwadwyr, Chatham and Aylesford

Q Do you think it is a game of Russian roulette, though, Rick?

Rick Parry:

No, we do not see it that way because so much hinges on the fan-led review—on the objective study. If the EFL were to trigger the backstop—and we hope we would not need to, or we never would—we would actually see that the EFL position would be something very similar to the fan-led review. It is the fan-led review that will inform the regulator as to whether it is able to meet its strategic objectives. It is not for the leagues to decide whether the regulator can meet its objectives; it is for the regulator to decide. If we were pushing forward a solution, I think the likelihood is it would be extremely close to what the fan-led review recommended. Why would it not be? It is not Russian roulette at all.

Richard Masters:

Mark should definitely speak, but the only thing I would say is that you can observe the difference in incentives that now exists because of the regulatory power—the backstop power. It is the third person in this discussion. One of the issues that I would like to highlight to the Committee is that the backstop power creates different incentives because there is a third person who will adjudicate in the end. Since 2007, we have been able to come to agreements bilaterally, away from the gaze of the public eye, and do increasingly generous deals and share our success. We are happy to continue in that vein. I would like to point that out.

Mark Ives:

There is an additional dimension for me, as far as the backstop is concerned. The backstop is really important to our clubs. We are at the base of the system, as I said earlier. We only get money from the Premier League. The solidarity payments we get from the Premier League are extremely helpful. However, there is a gap between our clubs and the EFL clubs. We could come to an agreement with the Premier League over our next round of solidarity payments. It is extremely helpful and, as it looks on the surface, it is very good. We could accept that. However, then there could be a deal between the Premier League and the EFL that has an impact of widening that gap, and that is not good for the game because the gap is already very wide.

I urge you to look at the difference in the solidarity payments across the game, including ours, and where that difference is. It would seem to be difficult, then, for us to be able to activate the backstop. We hope we never need to do it. However, it is an important aspect of the game to enable us to make sure that that gap does not get wider.

We know where we are; we know where we sit in the pyramid, and we are proud to sit there. However, we cannot afford for that gap to get wider. I would urge the wording of—

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston

The last question is to Rachel, because I think you are repeating yourself.

Photo of Rachel Hopkins Rachel Hopkins Llafur, Luton South

I will summarise my question, so each of you can reply about the state of the game report. How important is it? Are there any specific topics you think it should cover? Should it be initially within a certain timeframe, and subsequently, at what sort of intervalsQ ?

Richard Masters:

It is critically important and we look forward to playing our part in it. The key issue we have is in relation to its regularity. It should come as quickly as it can, and be done properly and efficiently. However, after that, we believe it should not be at three-year intervals, which would lead to almost perpetual discussion about the state of football. There should be a longer period of time. We are suggesting that five years is the appropriate time for the regularity of those reports.

Football has had a lot of uncertainty—through covid, and through the regulatory interventions that we are now talking about. I believe that football does better when it has certainty. Our commercial deals are becoming longer, so we are doing four-year commercial agreements. I think the EFL’s are five years. Most of our international revenue is tied up over six-year agreements. If you look at other industries, Ofcom’s review is every five years. I think the telecoms industry review is every 10 years. Three years is incredibly short. It would be like painting the Forth bridge—once you have finished one report, you will have to start another. It is great for the economists and the consultants; it is bad for the competition organisers and the clubs.

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston

Q I will give the last minute to Rick and then Mark.

Rick Parry:

I echo what Richard said in terms of the report being incredibly important. It is important that it is comprehensive and able to address every issue facing the game, including parachute payments. The big point we would like to make is that we think the three-year interval for the first report to be completed is much too long. We think that should be a maximum of a year. We see no reason why it cannot be completed within a year. We actually think three years is fine, inasmuch as eight of the last Premier League TV deals have been on a three-year cycle; the champions league TV deal is on a three-year cycle; parachute payments operate on a three-year cycle. Football operates on a three-year cycle. However, the big report is the first one, and we think that the subsequent ones would be fine-tuning; they are not going to be a complete reinvention.

Mark Ives:

I will be quick. I echo the importance of the report and it will address things that the regulator does not cover. It will address things that are important to our game and that the fan-led review spoke about, things that are outside the scope of the regulator—and I understand why they are outside its scope—such as three up, three down, protection of players, and all of that sort of stuff. It is really important that the emphasis on those things is not lost, and we have the ability to deal with that. The report is there to highlight the wider issues within the game.