Regulation and governance in European football

1
Regulation and governance in European football

• Ownership structures of football clubs
• Governance structures
• Licensing

2
Czech Republic Ownership

• joint stock companies
• FC Bohemians 1905
• SK Slavia Praha
• AC Sparta Praha and
• FC Banik Ostrava

3
Governance

• Joint stock companies management and supervisory
  board
• General meeting
• - elects management and supervisory board
• - changes Articles of Association
• - approves company's financial statements
• In other industries Employees elect one-third of
  the supervisory boards members if the company
  has more than 50 full-time employees
• No licensing system

4
Licensing

• Since Feb 2004. For all 32 clubs of 1st and 2nd
  division
• Legal criteria
• e.g. all professional football clubs have to be
  joint stock companies
• Financial criteria
• e.g. financial statements, payment of any unpaid
  transfer commitments and liabilities towards
  staff
• It has been common practice to punish cubs which
  fail to comply
• with a ban on transfers until the clubs have
  paid-off all football
• creditors (e.g. players, coaches or agents). The
  licensing system is
• currently under revision.

5
Belgium Ownership

• association de fait
• (non-profit organisation)
• limited companies
• Standard de Liège, Germinal Beerschot, Sporting
  du Pays de Charleroi, KV Oostende, OH Leuven

6
Governance

• Annual reports have to be published
• Statutes have to have specifications on
  elections, method of nominations, duties and
  powers held by directors and by shareholders
  meeting
• Shareholders are entitled to file for suit with
  the courts where the auditor is considered
  ineffective
• If the shareholders own 1 of the voting rights,
  or own shares worth at least 1.25 million, they
  can file a suit against the directors on behalf
  of the sociétés anonyme
• some shares are issued without voting rights

7
Licensing

• clubs can only be granted a license if their
  accumulated debts are not football related
• debts to other clubs, the league, players, social
  authorities, or tax would lead to a refusal of
  their license application.
• clubs must have a legal entity and they are
  required to give evidence of payments relating
  to, e.g.
• players salaries
• social security
• taxes on wages
• pension funds of the professional football
  players
• debts to the FA and other clubs

8
Licensing

• all clubs in the first division have to undergo
  three financial audits, in March, June and
  October.
• Clubs have to inform Belgian FA about identities
  of all investors
• Licence Commission (FA) assesses the
  documentation that is provided by clubs, and upon
  compliance will grant the licence.
• non-complying clubs have to fulfil additional
  requirements. e.g. a full statement of assets and
  liabilities for a longer period.

9
France Ownership

• Most clubs in Ligue 1 are structured as Public
  Company for Professional Sport (SASP)
• 66 of French clubs are owned by just one
  individual.
• There is no administrative control on the
  transfer of shares
• The SASP can pay dividends to its shareholders
• Generally, there are almost no shares available
  in French football clubs

10
Licensing

• National Board for Management Control
• (Direction Nationale du Contrôle de Gestion
  (DNCG))
• independent auditing body established under the
  umbrella of the LFP
• Its main role is to
• assess the financial and legal status of clubs
• if required due to debt, prevent the recruitment
  of new players
• audit payrolls
• declare that the failing clubs should be
  relegated.
• provide clubs with information and technical
  assistance
• control the takeover of football clubs, by
  assessing the solvency of the corporations that
  aim to buy a club

11
Germany Ownership

• Members Associations
• Hamburger SV
• FC Schalke 04
• VFB Stuttgart 1893
• Limited companies
• Eintracht Frankfurt AG
• FC Bayern München AG
• SV Werder Bremen GmbH Co. KGaA1
• FC Koeln GmbH Co. KGaA
• Listed Limited Company
• Borussia Dortmund GmbH Co. KGaA

12
Bundesliga Simplified structure of the 501
structure
13
Licensing

• Balance sheet and profit and loss data for the
  most recent and current playing year
• Assure the payment of any unpaid transfer
  commitments or provide evidence of an agreement
  on revised payment terms.
• Detailed information about holdings in other
  companies and has to be committed to the license
• Additional obligations have to be fulfilled by
  clubs that report negative.
• cash security deposit

14
Licensing

• limited companies have to be majority controlled
  by the parent club (members association)- 501.
  
• competence criteria of the business management
  team (financial education, experience in
  accounting, media matters)
• members associations must ensure in their
  statutes that it is the members who elect the
  chief executive of the management board, or all
  of the management board's members.
• guidelines regarding the responsibilities, voting
  rights and general management of the different
  parts of the clubs, e.g. for the members meeting
  and the management and supervisory board.
• the members meeting is defined as the highest
  institution of the clubs.

15
Fan Liaison Officer

• Licensing system regulates that each club has to
  appoint fan liaison officer(s) and has to report
  his or her name(s) to the DFL.

16
Italy Ownership

• share companies (majority of clubs)
• Inter, AC Milan, Regina Calcio, Bologna
• (listed Lazio, Roma and Juventus)
• limited liability company
• Livorno, Spazia Calcio, Chievo Verona

17
Governance

• Listed clubs have to follow different codes of
  corporate governance (compliance?)
• low value of transparency and accountability
• Single tier model board of directors board of
  statutory auditors
• Interlink between ownership and control

18
Licensing

• No domestic licensing system in place but certain
  conditions to be fulfilled
• Register with National Sport federation
• Provide copy of shareholders register
• List of members of management
• FA may request information about shareholders
  owing gt10

19

• Spain Ownership

• Members Associations
• Barcelona (156,366 members)
• Real Madrid (69,000)
• Athletic de Bilbao (34,373)
• Osasuna (15,016))
• SADs (Sporting companies)

20
Governance

• Members associations
• One member one vote
• elections take place according to different
  timeframes at each club (Barça and Real Madrid
  hold elections every 4 years)
• maximum number of consecutive terms is 2
• all members over the age of eighteen with one
  years club membership can vote
• Annual meeting is the main democratic authority
  of the club

21
Ombudsman

• Osasuna and FC Barcelona
• assistance, counselling and defence of the
  members rights in their relationship with the
  club
• member of the club, with recognised prestige,
  elected for 5 years, with a maximum mandate of 10
  years
• proposed by the board of directors, requiring a
  supporting vote of three fifths of the annual
  meeting
• ombudsman also has to explain their activities in
  an annual report

22
Governance

• SADs
• subject to the general regime of Public Limited
  Companies
• voting rights are in accordance with the
  percentage of shares held
• there is the theoretical possibility of sharing
  dividends, although they are seldom paid

23

• number of shareholders is often quite high, their
  individual participation in the companys
  corporate life is often not significant
• shares in a SAD are normally split into two
  blocks a large controlling interest and a widely
  dispersed holding amongst the supporters
• 5 of shares entitles to request an external
  audit, allowing to check for possible
  irregularities in the management of the club
  (Betis)

24
Licensing

• financial regulations proscribe clubs from
  incurring debts to its players and employees,
  other clubs, or the state - bank debt or personal
  debt is not covered
• requires interim (six monthly) and annual
  reports, the latter of which include audited
  accounts
• auditing includes shareholders register,
  notification of changes in share ownership
• Neither members of a club registered as a
  members association, nor the shareholders of a
  SAD, are entitled to request any action from the
  League against their affiliates as a consequence
  of mismanagement by their respective board of
  directors
• If any member or shareholder has a claim they
  have to sue in the civil courts, which is a
  process that involves significant delays.

25
Does licensing help to improve financial
sustainability?

• Belgium
• all but two clubs have posted losses over the
  2006/07 season
• Italy
• combined losses of Serie A clubs over the last
  ten years are a staggering 1.3 billion. (40m in
  2006/07)
• Spain
• aggregate debt of Spanish clubs in 2006 was 2.16
  billion
• players' union received 161 complaints, against
  19 teams in 2006/07 (14,718,535 in unpaid
  salaries)
• 4,148,530 in third division
• dominance by Real Madrid and Barcelona (50 of
  total turnover)

26
Does licensing help to improve financial
sustainability?

• France
• increased revenue by 62m (7)
• Lowest growth
• Germany
• Financial difficulties of lower league clubs
• 45 wage ratio (average in Europe is 62-64)
• Despite a 184m increase in revenue in 2006/07,
  wage cost increase only 12m
• 250m operating profits (PL 141m)
• Most profitable league in Europe
• What about performance on the pitch?
• All 18 clubs of the Bundesliga reported operating
  profits in 2006/07 (up from 12 in 2005/06)

27
Conclusion

• Licensing systems vary across Europe
• Licensing systems concentrate on financial
  regulation
• Governance recommendations
• Compliance is relative
• UEFA Licensing