Football club ownership rules: the view across Europe
In a welcome development to the sport’s stakeholders, football leagues across Europe are beginning to restart following the disruption caused by COVID-19. The action is not only kicking off on the pitch: in the boardroom, M&A and investment activity across the sports sector is picking up again. Private equity houses and financial institutions are scouting investment opportunities across Europe in both clubs and leagues.
In this context, the differing ownership rules in football across Europe may prove vital in guiding investment decisions. We compare the ownership rules of three of Europe's big leagues: the German Bundesliga, France’s Ligue 1 and the English Premier League (EPL), and consider what's next for investment across European football.
Germany: 50 plus 1
Fan ownership lies at the heart of German professional football. Historically, German football clubs were prohibited from being privately owned and run as profit-oriented corporations. Clubs were structured as registered members’ associations (eingetragener Verein or e.V.): these non-profit organisations are owned by their members, the clubs' fans, with executive decisions taken by a member-elected board.
In 1998, the German Football Association (DFB) adopted the current ownership regulations, informally known as "50 plus 1". These regulations allowed football clubs, as member’s associations, to restructure so that their teams could be operated separately as public or private companies (AG or GmbH), provided that the majority of a club’s voting shares (i.e. 50% plus 1 share) are retained by the clubs' e.V. (members association). Compliance with 50 plus 1 is a condition to obtaining a licence from the Bundesliga and participating in Germany's top leagues. By way of example, FC Bayern Munich's e.V. retains a 75% shareholding with sponsors Adidas, Allianz and Audi each holding 8.33% respectively. Borussia Dortmund's e,V holds only a 5.53% shareholding, but crucially it retains majority voting control. Meanwhile some clubs, such as FC Schalke 04, remain wholly fan owned with its e.V. retaining a 100% shareholding.
Exceptions to the 50 plus 1 rule are possible, albeit sometimes controversial. The regulations permit an exception where an investor can show that it has "supported the sport of football within the parent club substantially and continuously for more than 20 years". Exceptions were granted for the so-called "works clubs" Bayer 04 Leverkusen (started by workers of the Leverkusen-headquartered pharmaceutical company Bayer in 1904) and VfL Wolfsburg (started by workers of the car manufacturer Volkswagen in 1945). The only other exception granted to-date is for TSG 1899 Hoffenheim and its now majority owner Dietmar Hopp, founder of software company SAP. Hopp has invested over £300million into his local "village" team since the late 1980s and helped propel the club from local village leagues into the Bundesliga. Hopp was granted an exception on the basis of the 20 year rule in 2015 when he became majority shareholder.
In the case of RB Leipzig, an exemption has not been granted. Nonetheless, RB Leipzig is 99% owned by the energy drinks company Red Bull, with the remaining 1% held by the e.V. The e.V. retains 100% of the voting rights but it has a closed membership of only 19 voting members, all of whom are either directly or indirectly employed by Red Bull. Furthermore, despite league restrictions on the use of company logos and names, the club and Red Bull have been careful to stay within the regulations: for example, the RB in the club's full name stands for "RasenBallsport" – nevertheless, the club remains synonymous with Red Bull.
The maintenance of 50 plus 1 is seen as essential to the Bundesliga, both in the pride of place it gives to the democratic control of clubs by fans and as a wider expression of fan culture as the beating heart of German football. Nevertheless, the adoption of 50 plus 1 has aimed to strike a balance between the central importance of fans on the one hand, and to the attraction of external investors on the other. Both play their role in enabling the Bundesliga to remain competitive in the rapidly commercialising world of football – indeed German fan culture is often seen as a key attraction for investment into the German league. With investors taking a greater interest in the Bundesliga, it remains to be seen how stringent an approach the DFB will take in defending the letter, if not the spirit, of 50 plus 1.
France: a flexible approach
In France, a sporting entity is first and foremost an association: a non-profit entity formed primarily for non-commercial purposes. However, the French sport code requires, under certain circumstances, that the associations incorporate a dedicated commercial company to operate professional football activities. To protect against conflicts of interest, the code includes a prohibition on the same legal person controlling, via its shareholding or otherwise, more than one club, irrespective of the competitions those clubs participate in (with an exemption for interests in different men and women's clubs). Failing to comply with such rules can lead not only to sporting sanctions, but also criminal or civil penalties.
In addition to the general French law requirements imposed by the code, the football league has increased its oversight of professional football clubs through the Direction Nationale du Contrôle de Gestion (DNCG), which monitors the financial management of clubs. Since 2017, the DNCG has been able to evaluate the prospective purchase of French football clubs. Whilst the DNCG cannot block a potential transaction, failure to comply with its requests for information can lead to fines of up to €250,000 and/or sporting sanctions (such as bans from cup competitions). Further, once a transaction has completed, failure to comply with the ongoing financial requirements of the DNCG can result in fines or other sanctions, such as bans on recruiting players, budgetary restrictions or even relegation to lower leagues. These sanctions have been applied regularly: cases of relegations to lower leagues have included SC Bastia, RC Strasbourg Alsace, Le Mans FC and AS Cannes. In 2014, the DNCG initially blocked RC Lens’ promotion to Ligue 1, though this was overturned on appeal.
The flexibility of the French rules has seen multiple investors flow into the top division of French football in recent years. Most famously, in 2011, Qatar Sports Investments, a sovereign investment fund of Qatar, acquired Paris St Germain FC. Over the last year, 100% of FC Girondins de Bordeaux was acquired by a US investment fund, King Street Capital Management and 80% of OGC Nice was acquired by the British petrochemical company, Ineos. An alternative approach is that of Olympique Lyonnais, which is the first and (for the time being) the only publicly listed French football club. For now, however, Lyon’s model remains the exception.
England: determining who is ‘fit and proper’
From its inception in 1992, the EPL has placed a strong emphasis on the commercial growth of the league. The result is that the EPL has consistently led the field as the largest revenue generating league in world football and is an attractive proposition for potential investors. Those interested in owning an EPL club are subject to the Owners' and Directors' Test (OD Test). The OD Test was introduced in 2004 to ensure that owners of EPL clubs are deemed fit and proper persons to run a football club by reference to certain detailed criteria, and has been incrementally expanded since then.
Any person "acquiring control" of a club must submit the Owners' and Directors' Declaration. Control is defined to include anyone (i) with the power to appoint/remove a majority of the board of directors and/or (ii) holding directly or indirectly 30% of the total voting rights of a club – thereby capturing even minority investors over this threshold. The declaration works as a pass/fail; if a "disqualifying event" applies to a prospective owner they will have failed the OD Test and are effectively blocked from ownership. As a result, passing the OD Test is often a condition to completion in the share purchase agreement for the shares in a football club. The disqualifying events are objective factual assessments, such as Rule F.1.2. prohibiting prospective owners with direct or indirect influence over another club, or Rule F1.5. prohibiting prospective owners with unspent criminal convictions.
Despite the essentially objective nature of the OD Test, over time the rules have been expanded to give the EPL greater discretion in the oversight of prospective owners amidst concern regarding foreign ownership of EPL clubs. In 2017, further disqualifying events were added, which include an assessment by the EPL board of whether it has been misled or whether a prospective owner has engaged in conduct outside of the UK that would be considered a prohibited offence (including offences of dishonesty, betting offences and broadcast piracy) in the UK, even where such conduct has not resulted in a conviction. A further constraint under Rule E.16. is that the EPL board requires evidence of the source and sufficiency of the funding for a prospective acquisition.
While the ownership rules now grant more discretion to the EPL board in determining compliance with its rules, they are a far cry from allowing a subjective moral assessment of whether a prospective owner is a fit and proper person. Even though the OD Test remains one of the more detailed ownership criteria in world football, it has certainly not stopped significant commercial success and high-profile investments such as, Manchester City FC, ultimately owned by an Abu Dhabi sovereign wealth fund, receiving a $500m investment from US private equity fund, Silver Lake in 2019. As noted previously, Newcastle United FC is subject to ongoing takeover speculation from an investor group led by Saudi Arabia's sovereign wealth fund, the Public Investment Fund and PCP Capital Partners, a UK-based venture capital fund.
Ownership rules across world football are consistent in seeking basic safeguards, protections against criminality and the maintenance of sporting integrity, yet significant differences remain. Whether it is the flexibility of the French approach, the more prescriptive nature of the EPL test or the outright prohibitions imposed by Germany's 50 plus 1 rule, potential investors will need to be mindful of the subtle differences across ownership regimes in shaping their ambitions for acquiring equity in Europe's top clubs. Picking a winner rather than playing the field is also important. Regional rules can be just as important as the national rules: European football's governing body, UEFA, has common ownership controls in place limiting clubs that have the same common ownership from competing in its competitions (which includes the highly lucrative UEFA Champions League) at the same time.
As more and more investors seek to acquire a slice of the lucrative football pie, these rules will likely come under renewed scrutiny. Arsène Wenger’s (former Arsenal FC manager and FIFA's Chief of Global Football Development) recent warnings of the perils of foreign investment in top French clubs, and proposal for a "club purchasing ethics commission" in French football may well be an indicator that football leagues could seek greater control over ownership changes. Investors with an eye on the bounty of increasing global broadcasting rights who are looking to cash in at a time of uncertainty for the industry will need to take note of these developments and the structural changes to come in the post-COVID world of football.
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