In 1981 the English Football Association (FA) got rid of rule 34. Rule 34 stated that no director or owner of a football could be payed a salary of dividend for their custodian role. Since getting rid of this rule, the money in football as increased at an astronomical rate.
Almost a decade later in 1992 the FA Premier League was formed in a breakaway attempted to earn the top clubs more money as they felt they deserved it. From this media rights and sponsorships became lucrative.
The influx of money into football has tended to go into player wage inflation as they are the stars. However due to no rule 34, clubs were easier to manipulate by their owners for financial gain at the loss of the club. This along with the amount of money clubs had lost during the 1980s and 1990s started calls for better regulation on owners.
A few years late in 1997 Sir John Smith, the former Deputy Commissioner of the Metropolitan Police, recommended that there should be a test on shareholder suitability to prevent them from using clubs for their profit. This was recommended in a report commissioned but it was later dismissed by the FA.
In 1999 the Labour government emergency unit called ‘The Football Task Force’ reached the same conclusion that Sir John Smith did. This along with Labour pressuring the FA led to an individual football commission called for a proper corporate and financial governance in 2003.
The FA, Premier League and Football Leagues agreed to implement regulations. This would include background checks on potential shareholders/owners. In 2004, the ‘Fit & Proper Persons Test’ was born. Depending on which governing body is doing the test for the club in question, there will be variations. Despite the variations, there are three clear aims.
Firstly, they aim to prevent anyone who holds a criminal record from owning or directing a football club. Secondly, they are there to protect football clubs from people who don’t have a long-term business vision for the club. And lastly, they prevent anyone who lacks integrity from passing this test and becoming an owner or shareholder of the club.
A potential owner will be disqualified from the test if:
He or she are found to have an unspent criminal conviction of fraud or dishonesty
Been banned from a sport ruling committee accredited association or other regulator
Been declared unlawful to act as a director of a UK-register company
Been a director of a football club that has been insolvent three or more times
Been declared bankrupt
Breached FA rules on betting
Been or still is on the register of sex offenders
Originally this only applied to people who wished to gain more than 30% of a club or directors of football clubs however, in 2009 this changed. It was Richard Scudamore who announced changed would be made to the Premier League’s test to apply with UEFA’s test. This expanded it to any shareholder of more than 10%.
Since it has been implemented, only a small number of people have failed. In 2009, then owner of Chester City, Stephen Vaughn was the first to be banned. This was because of his involvement in a VAT fraud worth approximately £500,000 while he was director of Rugby League club Widnes Vikings. However, this wasn’t too much of a problem as he just transferred his shares to his son.
Three years later, Craig Whyte, the man who sent Rangers into liquidation only 10 months after buying a controlling stake, failed. He failed after an independent inquiry led by Lord William Nimmo Smith.
In 2014, former One Direction member Louis Tomlinson and his business partner John Ryan failed. They failed at they only raised £757,000 of the required £2,000,000 for the takeover of Doncaster Rovers.
The test has come under a lot of criticism. This is despite it being beneficial to the financial health and integrity of football clubs. The criticism is mainly aimed at the test only focusing on integrity and finances. After a 2005 review by Jonathon Michie and Christine Oughton, they found that it doesn’t mention the words ‘fan’ or ‘supporter’. This means it fails to address the social and cultural importance of football clubs in more general terms.
Another criticism is that the Premier League and EFL oversee the tests which caused conflict of interest. This because they both have a clear economic motive as business entities. If the richest invested their personal wealth, it would increase the quality of competition which would attract more consumers and commercial opportunities. The conflict of interest comes with economical incentives and protecting the clubs and their supporters.
An example of someone who got through the test when they shouldn’t have was at Portsmouth. Vladimir Aleksandrovich Antonov’s Lithuanian bank, Snoras was banned from trading in the UK by the Financial Services Authority in 2009. They were banned due to them failing to provide necessary information. Despite this he purchased a share in Portsmouth in June 2011. Five months later he stepped down after his holding company was placed in administration and Portsmouth followed in February 2012.
Thanksin Shinawatra’s purchase of Man City is another example. The former Prime Minister of Thailand had been ousted by the military in 2006 following evidence leading to corruption and Human Rights abuse. Despite this and warnings from Human Rights Watch and Transparency International, his takeover of the Citizens was completed in June 2007 after passing the Premier League’s test.
Shinawatra was later found guilty of corruption by a Democratically Elected Government, this was enough for a warrant of his arrest. He sold Man City for a £20 million profit to the Abu Dhabi United Group.
The Glazer family’s purchase of Man United is another case as they bought the Red Devil’s using a ‘Leveraged Buyout’. This meant the purchase is completed by loans against the asset’s future value. This burdens both the club and the owners as seen by Man United’s monumental debt. When George Gillet and Tom Hicks bought Liverpool, they also used the ‘Leveraged Buyout’. This technique isn’t illegal but incredibly risky and in Liverpool’s case, it nearly saw them enter administration.
Accrington Stanley owner Andy Holt said “I think it’s a disaster. It’s like me breath analysing you tomorrow morning and expecting you to not be on the beer tomorrow night”.
The test is here to stay but does it work? With the current coronavirus pandemic putting club’s finances into disarray, only time will tell if clubs can survive because of their owners.