Volume: 15 Issue: 11
Questions have been raised as to whether the Premier League’s rules governing football club ownership need to be reformed following concerns relating to club financing arising out of the ‘Paradise Papers’ data leak which came to light on 5 November 2017, which allegedly includes documents relating to the buying and selling of shares in two football clubs by two businessmen involved in a joint venture. The 13.4 million documents leaked from law firm Appleby and made public by German news outlet Süddeutsche Zeitung, dubbed the Paradise Papers, have sparked a call for changes to the rules intended to safeguard the independent ownership of Premier League clubs and specifically the rules prohibiting ‘dual ownership’ of clubs that could threaten the integrity of football competitions.
Since the allegations were made public, the Chair of the Football Supporters’ Federation, Malcolm Clarke, has suggested that changes may be necessary. Clarke commented in an interview with the BBC that “There’s plenty of other regulatory environments where there are very strict tests to ensure total independence and separation. There is a strong case for ensuring that people who have an ongoing and significant business and financial relationship outside football cannot both have a significant stake in football clubs which compete against each other.”
“In light of the Paradise Papers, more rule changes may be introduced in an already well regulated environment, particularly in relation to alleged ownership connections between clubs,” comments Paolo Lombardi, Managing Director at Lombardi Associates. “There have been calls for the rules to be changed to prohibit individuals who have a business or financial relationship with each other outside of football from owning stakes in two different clubs in the same competition. This is an understandable concern. However, as far as the relationship between investors is concerned, where would the line be drawn? This type of regulation could be very problematic for the regulator to implement and may be subject to legal challenge.”
The Paradise Papers, and the questions arising from them, are a reminder of certain controversial financial arrangements that have been used by British football clubs, explains Lombardi, for example, the Employee Benefit Trust (‘EBT’) scheme. “EBT payments were used as a vehicle to avoid tax and pay staff through interest-free loans. HMRC won a case at the Supreme Court, which ruled that EBT payments should be classed as earnings instead of loans, which would class them as taxable under PAYE. Vibrac Corporation was also the subject of scrutiny due to its practice of providing football clubs with cash advances on ‘guaranteed earnings,’” adds Lombardi. “In the case of Reading FC, the guaranteed earnings were related to parachute payments for relegation from the Premier League. Reading were fined for breaching Football League rules prohibiting any individual or legal entity from having an interest in more than one club (Vibrac also had an interest in three other clubs at the time). These examples, and the wider issues surrounding the Paradise Papers, show how important it is for football’s governing bodies to have stringent rules in place in order to regulate this area effectively.”