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What Can We Learn From Bury FC’s Expulsion From The Football League?

Bury Football Club’s recent expulsion from the English Football League (“EFL”) was a very sad day for football. Bury was founded in 1885, had won two FA Cups and had just been promoted to EFL’s League One.

The club’s financial problems escalated in recent months, leaving staff, players and creditors unpaid. Steven Dale bought the club for £1.00 in December 2018, putting it up for sale only five months later. Dale proposed a Company Voluntary Arrangement (“CVA”) in July, which is a scheme that enables a company with debt problems to reach a voluntary agreement with its creditors regarding the repayment of its debts. As a result of a moratorium granted as part of the CVA, the High Court dismissed a winding-up petition issued against the club, meaning it could continue operations.

However, under EFL rule 12.3.1, a CVA is an “Insolvency Event” punishable by a 12-point deduction. This meant that Bury started the new season, having been promoted to League One, on -12 points.

Bury was then unable to prove sufficiently to the EFL that it could satisfy the CVA and continue operations as a financially viable football club. Bury was, therefore, suspended from the EFL, meaning its fixtures would also be suspended.

At the same time, Bolton Wanderers FC was facing a very similar situation. Bolton, however, was not suspended from the EFL and continued to compete in League One. A deal was agreed for the Football Ventures consortium to purchase the club, saving Bolton from possible liquidation and expulsion from the EFL.

On 8 August, the EFL granted Bury fourteen days to present a plan on how the club would pay off its outstanding debts, with talk of a takeover fuelling cautious optimism amongst Bury fans. Unfortunately, as the footballing world anxiously waited, Bury’s 134-year history came to an end. A last minute deal between Dale and C&N Sporting Risk to buy the club fell through, and Bury was expelled from the EFL on 27 August 2019.

It was a devastating day for all those involved with the club. But it was also a day that provoked questions in some quarters as to what procedures and safeguards could be introduced to ensure this does not happen again. So, what can be done in future to prevent such a tragedy occurring again?

Salary caps

Sports Shorts has previously discussed the viability of introducing salary caps in football, taking inspiration from the structures of sporting franchises in the NBA, NFL and MLB in the USA.

A club’s primary expense is, typically, wages. Paying the high wages players and staff have come to expect can be difficult, particularly for lower league clubs. This, coupled with rapidly rising transfer fees, means that the financial sustainability of the model followed by certain lower league clubs has been questioned by some commentators. A report by the financial data firm Vysyble found that on average, in League One, a club’s outgoing wages were equivalent to 94% of the club’s revenue. This level of expenditure is unlikely to be sustainable, given the other operating costs associated with running a football club. A salary cap could help to keep clubs’ expenditure at manageable levels, decreasing the risk of insolvencies.

The owners and directors test

The oft-discussed owners and directors test permits an individual to become an owner or director of an EFL club, provided they do not have a disqualifying condition, as outlined in Appendix 3 of the EFL Rules.

A disqualifying condition includes, but is not limited to, (i) being involved in the administration or ownership of another EFL or Premier League club; (ii) being subject to disciplinary matters by a sporting or professional body; (iii) having been subject to insolvency proceedings; (iv) disqualification as a director of a company; and (v) having certain unspent convictions (based on dishonest behaviour) in England and Wales.

The test has been criticised in some circles for its relatively low threshold with one commentator calling for an independent regulatory scheme to be established in its place. The EFL could consider making the test broader and/or establishing an independent body to assess prospective purchasers of football clubs. This may help to prevent unsuitable owners taking control of football clubs.

Proof of funding

The EFL requires prospective owners to prove their financial capability to own a football club. This involves proving the owner has the funds to takeover and operate the club on a long-term basis. Dale, however, bought Bury Football Club without completing this process.

EFL Regulation 16.21 provides that new owners must submit future financial information to demonstrate their capability to operate a football club within 10 days of the takeover event. Bury’s demise would appear to demonstrate Dale did not have the funds to ensure that he could operate Bury as a professional football club. The EFL could consider the possibility of making future takeovers contingent on their satisfaction that the owner has the funds necessary to sustain the club’s operations on an ongoing basis. Introducing this step in the takeover process could help to ensure that only suitable owners, with the requisite funds, are able to take control of football clubs.

Conclusion

In 2017, Vysyble warned that the financial status of football clubs indicated an increased risk of insolvency. Vysyble found that clubs winning promotion to the Premier League were losing £300,000 per week on average. Figures such as these illustrate the scale of the potential issues facing clubs outside of the top flight. Bury’s fate has sparked a renewed focus on financial governance in the Football League. Indeed, in the aftermath of Bury’s expulsion from the Football League, the EFL has commissioned an independent review into the regulations and procedures governing its member clubs’ financial sustainability. Whatever the outcome of this review, it is in the interests of clubs and fans for robust structures to be put in place to safeguard lower league clubs going forwards.

Authored by Jake Blakey

© Copyright 2019 Squire Patton Boggs (US) LLP

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