plc - The business of football

Companies in Football

Rule 34

The first football clubs were formed by friends, workmates or existing sporting associations, and were simply a way to enjoy playing the game and competing. With the onset of professionalism and larger crowds, the first football grounds began to be built. Larger clubs became limited companies so as to protect their members from the liabilities of wages and ground development. However they remained clubs in spirit, and fast became the focus of local communities. Inevitably the popularity of the professional game attracted entrepreneurs who were interested in the game as a commercial profit-making exercise, and clubs such as Liverpool, Chelsea and Portsmouth were formed in this manner.

Businessmen who tended to own clubs at this time presented their activities as a form of public service. Their task was to keep the clubs in good health, rather than to make money. Indeed The F.A. had safeguards to protect the game from commercialism. It's Rule 34 stated:

• No member could draw a salary as a director of a football club. (In 1981 this was amended so that a single director could be paid, and today there is no restriction on the number of paid directors, but they do have to work full-time at the club)
• No member could derive an income from owning football company shares; dividends were restricted to 5% of a shares face value
• If a club was to be wound up, any surplus assets had to be distributed to local sporting benevolent funds or local sporting institutions. This protected football clubs from 'asset striping'

Directors often described themselves as custodians - as putting something back into the local communities, but in many cases such a role was very useful. Their enhanced profiles allowed many self-serving businessmen to receive perks, do deals and make money illegitimately. Many have argued that these amateurishly run clubs, combined with the class system, created poorly run businesses with owner-directors having little regard for supporters and their comfort and safety.

However the rules preventing clubs becoming businesses ensured the game remained affordable and accessible to all. Admission for children was free even at the big clubs and clubs saw their support passed down from generation to generation, with the game becoming a big part of popular culture.

Floatation

Although Alan Sugar's Tottenham Hotspur became the first club to float on the stock market in 1985, it wasn't until the mid 90's that the rest of football's chairman saw this as a new way to make money. Sugar (left) managed to by-pass The F.A. Rule 34 by creating a holding company - Tottenham Hotspur plc - with the club merely a subsidiary whose assets were transferred to the holding company. This model was used by successive clubs.

These were the first tentative steps towards turning football from a sport into a business - and industry within the entertainment sector. Supporters were no longer seen as fans, merely a 'captive market' whose support was 'inelastic' as the more a club charged for tickets, the more they would pay. For the bigger clubs, with national (and international) fan bases, such conversions into business became successful. In 1997 Manchester United had 3.29 million supporters, Liverpool 2.18 million and Newcastle United 1.42 million. This audience would happily buy into a clubs various aspects of merchandising, and being 'brand loyal' meant clubs such as Manchester United could more or less get away with releasing three replica versions of their kit within one season.

Rule 34 was still in existence, and yet even though it was fully aware that clubs had found a loophole, The F.A.'s allowed this practice to continue, believing 'market forces' should be allowed to do their work. The F.A. had by now abandoned its role of protecting football from the forces of commercialism - indeed it practically encouraged it in its blueprint. With the floatations, the 90's saw massive growth in the game, new and improved stadiums, imported foreign players and a game that appealed to a wider (more affluent) audience. It also saw inflated players wages and transfer fees, increasing ticket prices and abandonment of the game at grassroots. Those who made the greatest gain were of course the chairman, making massive personal fortunes from the sale of their shares.

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