29 May 2024
In the previous article, we looked at what it takes to reach a point where sale documents begin to be prepared, provided the due diligence has been successfully conducted to the buyer’s satisfaction.
We will now look at what it takes to get the purchase over the line. How a Share Purchase Agreement (SPA) or Asset Purchase Agreement (APA) is different in a football club sale to a standard corporate transaction, what the applicable football regulations should be considered and how the newly introduced independent football regulator may impact future transactions.
Agreeing the SPA or APA
This step is standard in most conventional corporate transactions. Depending on the type of transaction that has been agreed, will determine the type of agreement that requires drafting.
Up to this point, the buyer will have relied on the seller’s disclosure of information (through due diligence) to determine the purchase price and terms of the agreement. However, the buyer will be able to further protect its investment by inserting adequate protections into the sale documentation such as indemnities, guarantees, and warranties to seek recourse from the seller.
Warranties are assurances provided by the seller to the buyer and serve to provide contractual liability to the buyer of the accuracy and completeness of the information provided by the seller and their advisors. This can also be used as a remedy if any information is later found to be inaccurate, typically through compensation or indemnification from the seller for the resulting losses. Warranties should encompass various football-specific aspects, including the club’s operations, financial status, contracts, and safeguards against any historical regulatory compliance issues, plus cover any issues unearthed by the due diligence.
Owners and Directors Test
Once the transaction is all but completed, all new owners and directors must be approved by the governing body of the respective league of the club, therefore the agreement should always be subject to this approval. The test differs slightly between the Premier League, English Football League and National League but the process remains largely the same. Any person who owns more than 10% of shares in the club must be listed as part of the application. The club will submit the application to the respective body who will then review the application and decide whether to approve or reject it. There are grounds for rejection where an applicant is subject to any of the Disqualifying Events listed below.
The following criteria constitute a Disqualifying Events:
- Exerting influence over another league club’s management or holding a stake exceeding 10%.
- Disqualification from serving as a company director.
- Holding an unspent criminal conviction resulting in a prison sentence of 12 months or more, or any conviction for dishonesty.
- Bankruptcy status or involvement with a club during an insolvency event.
- Listing on the sex offenders’ register.
- Disqualification or suspension by a sports governing body or professional organisation.
- Violation of football betting rules.
The Premier League further broadened the scope of Disqualifying Events, now encompassing individuals subject to government sanctions, implicated in human rights abuses, or involved in offences related to violence, corruption, fraud, tax evasion, or hate crimes.
The New Independent Football Regulator
The government’s White Paper proposes an independent football regulator (IFR) to oversee the major governance issues that are currently in place, including reforms for financial fair play, club ownership transparency, fan engagement, and competitive balance. It aims to enhance transparency, ensure financial stability, and promote fairness across football. Some of the key aspects target a reform relating to the purchase of football clubs in the UK. The IFR seeks to include increased scrutiny of potential buyers, stricter financial regulations, and potential shifts in investor profiles towards long-term sustainability.
The IFR will introduce new regulations and processes that clubs in the top 5 leagues in England will have to adhere to, many of which will impact a prospective buyer or could diminish the value of the club as it currently stands, they include the following:
1. A New Owners’ and Directors’ Tests: Prospective and incumbent club owners and directors will undergo fit to serve, source of wealth, and financial planning tests to ensure suitability and protect fans from irresponsible ownership.
2. Financial Regulation: Enhanced regulations are to be introduced with the aim of improving clubs’ financial resilience, with the IFR overseeing financial plans and intervening when necessary.
3. Fan Engagement and Heritage: Clubs will need to regularly engage with fans and comply with heritage protections, including seeking fan and FA approval for significant changes like altering crests, shirt colours, or club names.
4. Stadium Sale or Relocation: Clubs must seek approval for stadium sales or relocations, considering the financial and heritage preservation implications. There are number of previous examples, including most recently Derby County, where the owners unilaterally sold all or part of the stadium in order to raise capital for the club, a new authorisation process by the IFR will be implemented to prevent this in future without approval.
5. Breakaway League Prevention: English clubs will be prevented from joining unlicensed or breakaway leagues like the European Super League as was attempted by the Premier League’s top 6 teams in April 2021.
6. Broadcast Revenue Distribution: The IFR will have powers to intervene in broadcast revenue distribution to address financial sustainability issues across the pyramid if it cannot be agreed by the top 5 leagues in the first instance. This is part of a further review of the drip-feed funding (that is currently in place) beyond the Football League.
Although implementing the White Paper’s proposals could face challenges such as resistance from stakeholders, legal hurdles, enforcement difficulties, unintended consequences, balancing different interests, and global coordination. Considerations of these new regulations should be taken into account throughout the process of purchasing a football club as it is likely they will shape the future of English Football.
In summary, acquiring a football club in England presents a multifaceted journey, intertwining business acumen with the rich tapestry of fan engagement, regulatory compliance, and certain financial intricacies unique to the football industry.
Each phase of the purchase of a football club, requires careful consideration and expertise. As the landscape of English football continues to evolve through the new Independent Football Regulator, successful club acquisitions require an understanding of the game’s complexities and a steadfast commitment to upholding its heritage, whilst mapping out a course towards sustainable growth and success.
Blaser Mills has extensive experience in dealing with an array of corporate transactions, including those involving football clubs. Please do get in touch if we can assist your business.