Achieving Renewal through the Fans' Corporation
- 27 September 2012
From Dundee to Stirling to Paisley to the shadows of Ravenscraig, Scottish football has started down the path trodden by some clubs in the English game where the idea of the fans’ corporation – football businesses owned by fans and run in the express interest of fans – is now a reality. The growth of fan Trusts as potential ownership vehicles for football clubs more often than not is a response to a period of financial distress suffered by a more traditional investor-owned structure (limited companies, plcs). Sound familiar?
The current situation at Rangers, as always it seems at the moment, provides some timely context for these thoughts. A clear objective of Glasnost is to provoke non-partisan discussion of the issues affecting our game. So as author of this piece, let me make my allegiances clear. I write these words as lifelong Rangers fan and season ticket holder. I’m still here and my club is still here. But the debacle (and, who knows, criminality) of the Rangers insolvency, now followed by the beginnings of renewal, bring out very squarely some of the critical issues on fan ownership. The Rangers situation – unique and not unique at the same time – just helps focus the mind.
But this article is about much more than the Rangers situation. There is a bigger picture about how many of our football clubs have been hijacked by the sporting equivalent of the carpet-baggers and how the interests of ever too loyal fans have been abused (none more so than the legions of Rangers fans) and dismantled. Restoring the faith in our game will require some fresh thinking about how are clubs are owned and governed. And some of the questions I pose are directly relevant to the developing situation at Rangers.
The businesses that survive and prosper are the ones that deliver what their customers want. Well, that’s what we get told in Economics 101. But, as previously observed in “Returning Football to the Fans”, football clubs are funny businesses. Football fans aren’t made – they are born. This creates a bond and affinity that takes the relationship between fan and club way beyond that of business and customer. That is both good and bad. Good in that many football clubs that would otherwise disappear (because they lack scale, success and, yes, even financial prudence) just don’t. Unfortunate examples such as Gretna only serve, if anything, to endorse this rule. Bad in that the love of our clubs blinds us to the fact that we don’t always get what we, the fans, want. Owners of football clubs have a particular market power that they just wouldn’t enjoy in any many other types of business.
This doesn’t mean that owners have it all their own way. Rangers is a good example of this. In recent weeks, we have seen the beginnings of a ‘Charles Green Appreciation Society’ emerging down Edmiston Drive. And, in some respects, it is deserved. Reduced prices for season tickets offered before any fan pressure or public reminders about the SFL price cap, the appearance of a squad being rebuilt (but where are the defenders, Ally?) and now even the chance for a lucky (no, incredibly lucky) True Blue to walk away with a million big ones. All very promising after the depression of the early summer. If Charles Green has shown one thing it is that he might just understand the business of football.
Priority no.1 was to ensure RFC fans did indeed not walk away – i.e. to keep the market (cashflows). And, so far, he has probably exceeded most observers’ expectations on this. Green may have been tempted to rely on that truism of the footballing business that fans (unlike customers) just don’t leak away to the competition. In long-established football markets like Scotland you just don’t nick customers from your competitors – I’ve experienced the products of rival competitors a number of times and it just isn’t the same (and will never be so). In football only new clubs attract new fans. Old fans, like the teams they support, just don’t disappear - but Green, as the only knight in shining armor left standing, has still seen it as necessary to galvanise those old fans. While his methods have lacked a certain – to put it mildly - subtlety, they have certainly proved their worth in terms of bums on seats.
But once the doubts of most are dealt with, once some faith is restored, then Charles Green truly will have gained power over his market. What then? And with a degree of fan ownership (perhaps) on the horizon, is that the answer for Rangers (and others)?
The limitations of fan ownership
A likely next step for Rangers appears to be a share flotation. City advisors have been appointed and it is known that discussions have been held between RFC management and fans groups. How quickly things proceed on this particular next chapter for the club will depend on a number of things, not least how long the cash pile from season ticket sales will last. There does seem a certain irony that a new Rangers plc could emerge even before the old one disappears into the corporate history book. Bear in mind that BDO have yet to commence their work and investigations.
With fan ownership within an investor-owned structure, the basic idea is that somehow the misalignment of interests between owners of football clubs and customers of football clubs (fans) is resolved by simply turning those customers into owners. I would say that is wishful thinking. In investor-owned businesses, management are first and foremost accountable to those that invest in the business. But experience suggests that investors are not always to able to get the outcomes they might desire or expect.
First, UK plc is awash with examples where ownership of a share in a business is no guarantor of any significant influence on that business. Bob Diamond earned a very tidy sum at the expense of the owners of Barclays and was, in the end, only held to account after the misdeeds of a handful of city traders. Secondly, even where the customers of a business are encouraged to become its owners – the UK utility privatisations of the 1980s spring to mind – it still requires a system of regulation to protect the interests of those share-owing customers. And, thirdly, back to Rangers: no sadder sight could there be of ‘ordinary’ Rangers fan shareholders trooping out of Ibrox on the day the CVA was rejected. This was fan ownership as existed at Rangers, but those fan shareholders were still powerless in the face of corporate abuse and business incompetence.
Ownership per se is not what aligns interests. It is how the rights that are conferred through ownership are defined and exercised that determines whether interests are indeed aligned. With football clubs, notably those with large followings, it is also unrealistic to expect a certain uniformity of opinion and interest. My twitter timeline is testimony to that, in the case of the Rangers following. Hence, governance and legitimacy is critical – how decisions are made and how checks and balances are established and enforced.
John Kay – the much respected economist and FT columnist – has often observed that business behaviour is the product of the structure of corporate organisation in which it takes place. The seeds of the Rangers calamity lie here, but an investor-owned Rangers that happens to have many fan-investors (as opposed to a few mystery investors) will still not be guaranteed to produce business behaviour that accords with the interests of fans. The ethos of the club – any club – has to shape and define the objectives of each football business and the task for the business is to deliver on those objectives.
Going beyond fan ownership - to mutualisation
Is there a business structure that is better suited to our football clubs than fan ownership? As ever, the answer is a maybe. The 'mutual corporation' is one of the alternative structures that might achieve better governance and alignment of interests.
The purpose of any business is to create value – to produce or supply something that earns more than it costs. However, it is how ownership is defined and structured that determines what happens to that value. At present, it could be argued that many of our football clubs – at least at higher levels - are a strange hybrid of the investor and employee controlled business. Financial investors in football clubs can lay claim to the value that is created, but in the era of TV money, investors have largely consented to the capture of most of that value by the people they employ – the players.
The essential idea of the mutual corporation I have in mind here is the one that emphasises the claim of its customers (i.e. the fans) in the distribution of the value that is created. The Co-operative group of companies is perhaps the best known mutual on our High Street today. Applied to our football clubs, fan ownership would be a necessary part of establishing a mutual structure. But it would not be sufficient. The distinguishing characteristic is that a mutual football club would be owned by, and run for the benefit of, those who share the joy or pain of each and every 90 minutes (or each and every 120 minutes and penalty kicks when required). In other words, the group of people for whom the football club was founded to serve not the group of investors – whether fans or not – that happen to own the share capital. It is this feature of the mutual corporation that takes it beyond simple fan ownership. It is about defining that those who run our football clubs are accountable first and foremost to those that support our football clubs.
The idea of football clubs being run as mutual corporations is itself not particularly new. And mutuals – often mistakenly described as 'not for profit' businesses – themselves are far from new. But the relevance to football is best captured again by John Kay:
“There is a niche for customer focused mutual businesses. There are specific customer needs that a competitive market does not provide for or does not provide for well – because the customers alone have knowledge that is specific to the businesses, because there are community as well as individual benefits from the activity, because the service is a local monopoly, or simply because the competitive market has missed an opportunity.
That is how many railways and water companies, insurance businesses and building societies, schools and hospitals, came into being; why tennis clubs are organised on mutual lines, and the customer corporation is perhaps the best way of managing these activities even now.”
(John Kay “The recipe for a mutual success”, Financial Times, 9 August 2000).
More recently, the “Ownership Commission” chaired by Will Hutton – in part as a response to current financial distress and economic crisis – has advocated the benefits of the mutual business structure as:
"The starting point for a mutual business is a group of people who do not have access to something individually, there is nothing they can do about it; but collectively, by pooling their interests, they can create a sustainable business. By doing so, they create a business operating for the benefit of anybody who wants or needs access to its goods and services."
(“The Ownership Commission, Plurality, Stewardship and Engagement”, The Report of the Ownership Commission, March 2012)
These sound like ideal objectives for encouraging innovative thinking on football ownership - a renewal in how our football clubs are owned that is both faithful to their founding aspirations and ideals and the hopes of those who support them. How it could be make to work in practice, and what the challenges would be, are important issues that I will return to in the second part of this series of articles.
Scott Reid is a regulatory economist by training and Director in an Asset Management and Economics consulting business. Originally from Glasgow he now lives in the Midlands. More importantly he is a Rangers season ticket holder. Follow him on Twitter: @thecroakgang
This article originally appeared on www.glasnostandapairofstrikers.wordpress.com