Football Governance Bill in second run for England could encounter legal challenges

A House of Lords committee is scheduled on 15 January to discuss the Football Governance Bill, which was originally introduced under the Conservative government. Now featuring updates from the Labour government, it aims to establish an independent football regulator to oversee the top five football tiers in England and scrutinise club decision-making.

The bill seeks to improve clubs' financial management, grant fans the ability to influence key club decisions and prevent clubs from taking key decisions without regulatory oversight and approval.

Some of the powers and regulations stipulated are likely to be welcomed by fans and clubs alike, but its contents are not without controversy and may face legal challenges if the regulator's powers are not carefully balanced.

The bill offers increased oversight and decreased decision-making powers for clubs. Although the Labour government has largely retained the content of the previous Conservative government's bill, it has put its own stamp on the bill's contents and made amendments that it claims "strengthen" the proposed legislation.

Directors and owners

The original version of the bill envisaged introduction of a new "owners' and directors' test" intended to determine the suitability of proposed club owners and directors. This would require clubs to consider factors such as the individual's integrity, honesty, financial soundness, and, for directors, competence to run a football club.

Labour's current version has removed the obligation for the football regulator to consider the UK government's "foreign and trade policy" when assessing ownership proposals. This can be seen as an attempt to distance the new regulator from central government and ensure it retains necessary independence.

'Parachute' payments

Cash injections that the Premier League makes to relegated clubs in order to compensate for the loss of future income this causes, "parachute" payments have been a cause for concern for some time among groups in the football world. The bill gives the football regulator the power to intervene in these payments, which are already subject of an ongoing dispute between the Premier League and the English Football League. The latter claims that these payments distort competition in the lower-tier league.

The Labour government has removed the  previous carve-out for parachute payments. This means that the regulator will be able to assess parachute payments when determining how much money the Premier League should redistribute, as well as should be able to reduce the level of these payments if it decides it is appropriate to do so.

Regulator or fan approval

The bill also introduces new requirements for clubs to gain the approval of either the regulator or fans for certain types of decisions. For example, the football regulator must approve any attempts to sell or relocate home grounds.

It also stipulates that "reasonable steps" must be taken in order to ensure that a majority of fans approve material changes to a club crest or main home shirt colour. Fans should also be consulted on ticket pricing and home stadium relocations.

Government intervention and competition rules

There are possible legal challenges to the proposal to block English football clubs from joining a breakaway new European Super League, which raises potential competition law concerns.

Direct governmental intervention to stop clubs from joining alternative leagues could be seen as anti-competitive and might violate principles of free market competition, raising the possibility of legal challenges under UK and EU competition law. 

The somewhat controversial FIFA and UEFA regulations the prohibit the organisation of football matches without prior authorisation have already been the subject of fierce litigation before the Court of Justice of the European Union demonstrating that these prohibitions are liable to challenge as being anti-competitive.

Premier League teams' future challenges

It is likely that Premier League teams will dispute regulatory decisions which they perceive as unfair or overly restrictive. These challenges could be based on competition law principles, such as questioning whether the regulator's actions are proportionate and justified. Clubs may also argue that restrictions limit their commercial freedom.

Similarly to previous legal battles concerning future of sports governance, it is likely that competition law will be used as the main tool in any future legal proceedings. This conviction has been further strengthened by the government appointing David Riley, a former legal director of the Competition and Markets Authority, to take up a role with the football body, where he will head up the legal team in a shadow phase while the bill is being established in parliament.

Practical implications for clubs

• Club ownership and financial governance. While the strengthened owners' and directors' test is a positive development, regulations should not be too stringent as this could deter potential investors and impact clubs' financial health.
• Fan engagement and protecting club heritage. Increased fan engagement in governance of football clubs is a long overdue and welcome development. However, this must be balanced against the commercial realities of running a club and given due consideration for its commercial freedom.  Any fan consultation processes must be meaningful, fair to all stakeholders involved and not simply a box-ticking exercise.
• Stadium sales and relocations. Requiring regulatory approval for stadium sales is vital to protect historic grounds, but at the same time a cautious approach ought to be taken so the process does not slow down necessary developments and investments. Again, the new regulator must balance the need for oversight of proposed sales against football clubs' need to modernise and expand facilities.

Osborne Clarke comment

The Football Governance Bill is a significant step forward aimed to improve the governance and financial stability of football in England, but it is not without its challenges. The establishment of an independent regulator must be carefully managed to avoid overreach and ensure that any decisions are compliant with relevant laws and regulations,  as well as do not undermine football's independence.