Bolton and Bury: review of football finance rules needed

Thought should be given to shifting responsibility for ownership and financial oversight to a new independent unit, created by the leagues. Further consideration should also be given to establishing additional safeguards by tightening ownership tests, including a new bond scheme to safeguard clubs from a financial cliff edge and introducing the power to intervene in the running of clubs.

The problems experienced by Bolton and Bury are not the first cases of financial woes in English football. In 1997 I led a supporters group that helped save AFC Bournemouth from potential extinction having been given five days to prove the club could survive or be put out of business. We were one of the first.

In my five years as chairman of the club I witnessed the challenges of maintaining a competitive side whilst trying to balance the books, building the stadium we still play in and now in my 45th year of watching the side play am enjoying our fifth successive season in the Premier League. Yet over 40 professional sides entered insolvency between 1997 and 2012. That group includes teams that all survived, four of which are current members of the Premier League. Others who lived to play another day have been less successful including Chester FC, Wrexham FC, Darlington FC and Port Vale FC. That clubs generally do survive either directly or as a phoenix club rising from the ashes does not, in my view, preclude looking to see how and in what way things might be improved.

Insolvency is not simply an English problem. Multiple clubs have faced this issue across Europe. The 40 plus insolvencies in England have seen football's regulations evolve as the sport's governing bodies seek to protect against financial mismanagement. Unlike 1997, today new owners coming into clubs are assessed as to whether they are 'fit and proper' to run those clubs, while various versions of financial fair play rules have subsequently been introduced in an effort to prevent clubs from overspending and getting into difficulty, at UEFA and domestic levels.

The fact that Bolton and Bury now face a real threat of going out of business shows, though, that whatever the intention, somehow along the line the regulations in place have not prevented the current situations arising. It is hugely important to maintain the integrity and stability of a competition – for supporters, sponsors, other team owners – by having fair and even rules not just of law but also of membership of a competition that achieve that aim.

Football clubs need to comply not only with company law. As members of competitions they must also meet the membership conditions for playing within them. In my view, the barrier to entry into ownership and the ongoing review and assessment of financial performance should be raised.

It can be easy for supporters to lay the blame at football authorities for allowing clubs to get into financial difficulty, but simply it is not their job to run clubs day to day. In our work we witness the considerable effort leagues do put into financial review and ownership tests. Ongoing financial review does take place with clubs preparing business plans and submitting these on an annualised basis. Leagues do put conditions on transfers of ownership. Yet current situations demonstrate that to preserve and protect clubs regulations do need reassessing and the whole process of acquisition and management of teams made subject to greater review. Having advised on multiple takeovers and financings, it is clear that leagues are, however, placed under considerable pressure and that their resources are being stretched.

Serious consideration should be given to requiring club owners at acquisition to take out a bond that, if cashed in, would cover at least a percentage of the running costs for that club in the event of financial default. This measure would give greater protection to clubs and also serve as an additional barrier to any unscrupulous individuals seeking to gain entry to the football market.

There is also a strong case for a new independent unit to be created and tasked with assessing prospective changes in ownership at clubs. The administrative burdens on leagues are significant and in depth assessments of ownership arguably detract from many other tasks a league needs to perform. Often competitions have a governance structure where member clubs and their representatives can find themselves in the position of having to take decisions that impact on direct competitors. Creating a new body, independent but acting in accordance with the rules, could assist existing leagues and provide a resource for all competitions, which is particularly important given the system of promotion and relegation between leagues.

An independent unit in England could, for example, be given the powers to scrutinise owners and the clubs more closely. It would take responsibility for approving changes of ownership and also to ongoing fiscal review of clubs, working closely with the leagues. The powers would extend to a US-style approval process with a far more intensive system which would include empowering the independent unit, in the most serious of cases where clubs have defaulted on wages or other bills, to step in to appointment an experienced executive team to manage the club for a short period of time before problems escalate further. It would allow for greater investigation and potentially more time to devise rules to protect against more controversial issues that have arisen recently such as the sale of stadia to club owners that have seen clubs securing, at least in the short term, a cash boost. Clear reference points would need to be established to ensure a fair process.

Stiffer deterrents could also be introduced to dissuade clubs from living beyond their means. Instead of facing points penalties for breaches of financial regulations, the rules could allow for automatic relegation for clubs that fail to meet their financial obligations.

While controversial, a form of salary cap could also be evolved to develop either an overall cap on the amount that can be paid to players rather than a percentage of the income the clubs generate. Such a measure is unlikely to be effective in the Premier League, where an argument could be made that it would hinder competition. However, it could help regulate spending on players in the lower leagues where revenue streams are more limited and prevent insolvencies.

Regardless of the outcome over the coming days with Bolton and Bury – and let's hope it is positive for both clubs with such a rich tradition in the English game – these two situations provide football with an opportunity to step back and review the rules and regulations. It has been heartening to hear the clarion call from senior executives within the game to call for ideas and reforms. As all stakeholders urgently seek to preserve not only the clubs but the integrity of the game itself it is the next stage of football's evolution, securing the future of clubs at the heart of their communities

Trevor Watkins is a specialist in sports law at Pinsent Masons, the law firm behind Out-Law.