172: Clause 22, page 15, line 3, leave out paragraph (c)
Member's explanatory statement
This amendment removes the ability of the IFR to restrict a club’s overall expenditure.
My Lords, I shall speak also to Amendment 173A in the name of my noble friend Lord Moynihan and Amendment 173B in the name of my noble friend Lord Hayward.
The amendments in this first group carry on from our discussion on the licensing regime on the previous day of Committee. The amendments rightly deserve their own group since they relate to the specific financial conditions that clubs will be required to abide by as part of their licensing conditions. My Amendment 172, which is in the name also of my noble friend Lord Parkinson, would remove Clause 22(3)(c). That provision permits the regulator to restrict the overall expenditure of a regulated club. We do not believe the regulator should be able to attach a discretionary licence condition which places an overarching restriction on a club’s expenditure. This is surely an overreach of the regulator’s financial powers. The point has been made on many occasions, not least by the Minister, that the aim of this Bill is to ensure the financial sustainability and resilience of football clubs. How would telling a club how much money it may spend aid it in achieving that goal?
The key thing here is not expenditure but profit. Spending £50 million on a player might sound like a lot, but if that player is worth £60 million, I think we would all call that good business. An expenditure cap could stop that happening. If the goal is financial sustainability, surely the focus needs to be on profit or cash, not on expenditure. It is almost like a manager of a football club saying, “Look, it’s not just good enough that you go out and win today. We want you to score in the first half, then the other team can equalise and then we need you to score the winner in the last couple of minutes of the game”. It is trying to micromanage and overengineer. No one can ever do that.
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In a similar way, we are trying to make sure that we are looking at cash and profit and not expenditure. By trying to restrict expenditure, we are trying to achieve a degree of control which is overbearing, hyper-restrictive and not necessary or workable—and actually it could be detrimental to the sound finances of a club.
This power to restrict overall expenditure—I am happy to be corrected by the Minister—is almost unique among regulators. As far as I am aware, the FCA does not have a blanket power to restrict expenditure. It can do so only if a firm is under investigation or has been found to have seriously breached FCA rules and is deemed a risk to the financial stability of a market.
This Bill does not contain any safeguards or guidance over how, when or under what circumstances the regulator may impose such expenditure limits. It could, if it wanted to, impose them at any time. This is a very specific concern that I hope the Minister will address. Even the possibility of the regulator imposing such expenditure limits would unnecessarily encroach on the ability of clubs to effectively manage their financial sustainability and resilience.
I will leave my noble friend Lord Moynihan to speak to his Amendment 173A, and may come back to that, but I will speak some more to Amendment 173B, because my noble friend Lord Hayward is unfortunately ill and not able to join us today. This is regarding the issue of capital buffers. I must start by thanking the Minister for a good discussion on this with the team. I think we all understand what we are trying to do here and there are good intentions behind it. At the same time, often noble Lords have a misunderstanding of this area.
I have heard noble Lords mention on a few occasions how bad it was that, for example, a club only had £25,000-worth of cash. That is not looking at the whole picture, because it does not matter how much cash there is; it is whether the club has assets to cover it. Most companies—nearly every company in the FTSE—will have net debt rather than cash. That is called an efficient use of your balance sheet. Anyone with a mortgage—which, let us face it, is a lot of people—will have net debt rather than overall cash. Again, I think most people would say that buying a home is a responsible thing to do. What matters is that you have the overall assets to cover your liabilities, and your overall balance sheet. This amendment seeks to require the regulator to look at the overall financial health of a club and look at all the assets—the players on their books, the stadium and all of them. I hope that noble Lords would agree that is very sensible.
That brings me to my final point. There is also a clause stand part notice in my name and that of my noble friend Lord Parkinson, looking to remove Clause 22 in its entirety. A concern has been brought to me by many clubs. When I say clubs, I mean the Brightons and Brentfords of the world, which I think we would all agree are model clubs and exactly the sorts of clubs we want to support so that they thrive. There is a stage in their life when they are like any start-up business; you are investing and your costs will be higher than your revenue. That is exactly what those clubs did. They invested in players and had a good plan behind it. You could say, at that stage, that they were unsustainable.
At that stage, they were totally dependent on their owners to bankroll them—in this case, Tony Bloom. A reasonable regulator could then say, “Ah, well, you’re dependent on your owner; what if they change their mind? How sustainable is that?” Or we could have unintended consequences. Matthew Harding, I think we would all agree, was a very reputable owner of Chelsea; he tragically died in a helicopter crash. Chelsea then were in severe financial difficulties. Again, I do not think any of us could have catered for that. Roman Abramovich, until the invasion of Ukraine, was seen as a pretty reputable owner. I do not think anyone could have predicted that, either.
The consequence in all those situations is that the regulator is likely to take into account those risks and say “Well, okay, we need a buffer, we need some sort of cash, some sort of liquidity ratio”, as in the case of the FCA—I have heard the shadow regulator mention this—which often deals with banks. This is exactly the concern of the Brentfords of the world. I was written to by their chairman, who said:
“This could create in effect a ‘closed shop’—where only a handful of clubs can genuinely compete for success and European qualification, more akin to other, less successful European leagues. This would be much less exciting for fans and would undermine the Premier League’s global appeal. For Brentford FC, a club that has risen against the odds to the Premier League, such restrictions risk stifling our ability to grow and compete with larger, established clubs. This could unintentionally entrench the dominance of the ‘big clubs’, reducing opportunities for ambitious teams and diminishing the league’s competitive integrity. Preserving a system that supports success stories like Brentford is vital to maintaining the Premier League’s unique excitement and global appeal.
I had the opportunity to meet with Paul Barber, the Brighton CEO, the other day, and he said very similar things as well. Those are precisely the sorts of clubs that had the plan, that invested early on, where their expenditure was higher than their cash, which would be restricted by these types of moves. That is the whole concern about Clause 22.
I do appreciate, as I mentioned before, the Minister and her team, and their good intentions in doing this, but I really fear that Clause 22 could have a massively damaging effect to aspiring clubs from the Premier league and the lower divisions. Remember that Brighton and Brentford came out of lower divisions; often, they were down in League One before they started their ascent. That will affect the overall attractiveness of not just the Premier League but of all the English Football League teams as well. That is why we are concerned and calling for the removal of the whole clause. I beg to move.