Football Governance - R3 responds to Committee's Report
Lee Manning, R3 President:
“R3 welcomes the Committee’s recommendation of legislation to ban the use of the Football Creditors Rule. R3 believes this will ensure a level playing field for all creditors and ultimately will help improve governance and financial prudence within football clubs.
“The football league argues the ‘Football Creditors Rule’ ensures all money remains in the game and preserves the integrity of competition. But here is the truth - most football clubs are bust, few exist under a sustainable business model and off the pitch professional football is far removed from an ethos of ‘fair competition’.
“The impact of the ‘Football Creditors Rule’ is inequitable and contains several anomalies which challenge the suggestion that the rule is intended to preserve the integrity of the game. Whilst it ensures the totality of a player’s contract is paid as a super-priority, it does not extend to those working in the club shop, the grounds man, other coaching staff and other trade creditors who supply the club with goods and services.
“A club that willingly sells a player with an element of the fee deferred and payment instalments should not be given super priority for the debt when it was free to negotiate the terms of the sale, including an upfront payment. These should be treated the same as any other commercial transitions.
“The impact of the ‘Football Creditors Rule’ challenges the general principle in insolvency that all creditors of the same class should be treated equally. In football club insolvencies, under the ‘Football Creditors Rule’, players’ contractual obligations and other clubs owed money from players they have sold are paid as a priority ahead of all others. The cost of meeting this obligation is invariably so significant that it substantially erodes the ‘pot’ of funds available for the unsecured creditors. In addition, the rule also reduces the value of any offer made by a potential purchaser of the club who was obliged to fulfil these financial obligations.
“As a matter of policy the rule is unfair. In an ordinary business sale an Insolvency Practitioner sells a business for the benefit of all creditors, whereas a football club is sold principally for the benefit of football creditors. Small businesses are the lifeblood of the UK economy and are likely to play an important role in any economic recovery. It would therefore seem counter-productive to create a situation where unsecured creditors, who are typically small businesses, lose out to football creditors, especially as many of the latter are often highly-paid footballers. Indeed, whilst much is made of the importance of football clubs to the local community, local suppliers are often the major unsecured creditors in an insolvency situation, along with HMRC and consequently suffer the greatest losses.”
R3 Press Office