Challenging football's special status
21 May ~ This winter should see the end of one of football's longest unbeaten runs. November 28 has been set as the date for the High Court to hear HM Revenue & Customs' case against the so-called "football creditors rule", and there is a good chance it will succeed. HMRC mounted a challenge to the rule at the time of Wimbledon's insolvency in 2004 and has objected to it in virtually all of the insolvencies since, but so far without success. The way the rule works when football clubs become insolvent was summed up as: "If a club is owed money for a player [it] has a higher claim than a local supplier of meat pies."
Or, to put it another way, if Plymouth Argyle are able to strike a deal with their creditors, players wages, outstanding transfer or agents fees will be paid in full, while Plympton's Friary Mill bakery (owed just over £2,000) will get just a few pence in the pound. St John Ambulance has regularly come out on the wrong side of the rule. The charity does not charge a fee for its services, but clubs make a regular donation. One estimate, a few years old now, is that the organisation was owed more than £35,000 from football insolvencies and had been compensated at 10p in the pound.
Just seven years after so many supporters had perished in the Valley Parade fire it was a bitter irony that Bradford City's list of creditors included just over £5,000 owed to St John. More recently, Portsmouth owed £2,700 and Plymouth had outstanding donations in excess of £8,000. In both cases reports suggest that fans covered the clubs' debts with direct donations to the charity.
In normal cases of insolvency, the law expects a company going bust to treat its creditors equally. But football has tried to make itself a special case. When a club leaves administration it has to follow the Football League or Premier League's rules. One part of those rules is that clubs must pay football creditors in full before they can rejoin the League. The cost of meeting these creditors falls on the incoming owners and can act as a serious barrier. When Bradford City were looking for new owners in 2002, the local paper reported that there were as many as nine groups interested – but all had serious concerns about the scale of the football creditor liabilities.
It is the League rules that HMRC now plans to challenge. It argues that there is no legal basis for giving football creditors a "super creditor" status and that forcing clubs to adopt the Leagues' insolvency rules is a restrictive practice. But the Leagues think that they too have a strong case. Although Manchester United's David Gill believes the rule has "had its day", Premier League chief executive Richard Scudamore, never one for understatement, predicts "chaos" if the rule is overturned.
Their arguments go something like this. The rule protects fair competition by ensuring that clubs cannot just build up huge debts in unpaid transfer fees or player wages and then continue playing in the league, if they become insolvent, without paying those debts in full. And because, as Scudamore puts it, "[football] is a closed system, we trade on a closed basis between each other", to abandon the rule could create a domino effect. The Premier League argues that the existence of the rule protects the smaller clubs. With leveraged buyouts and unsustainable levels of investment from the back pockets of some clubs owners, it is a bit rich to use an argument based on fair competition, but it's easy to see how in the skewed morality of football the argument has some supporters. There are better ways to protect fair competition.
For the rest of us, it seems hard to justify rules that allow clubs to default on the full payment of debts to local charities and small businesses, at the same time that millions of pounds owed in transfer fees and inflated wages are paid in full. Brian Simpson
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