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THE LEGALITIES INVOLVED IN COMMON OWNERSHIP OF CLUBS AND THIRD-PARTY RULES

Written by Kartik Tripathi



Introduction

 

Ownership of clubs has often been a debatable issue across the footballing world. A club is usually defined by its glorious past and its honours. This means the club with a more prominent reputation has more honours and awards. Further, it is also integral to note that one's perception of a club may change with changing ownership. There has to be someone who has to be at the helm to control and regulate the activities of the club. Further, many ownership models have been introduced, like the 50+1 Model followed in the German Top Tier League, the Bundesliga. Ownership models help regulate the current Financial Fair Play Rules established by FIFA. The whole concept revolves around the point of fair and equitable ownership. 

 

Nature of Ownership

 

The term ownership revolves around the notion of power and authority. In a general or usual scenario, every club has a Board of Directors or a set of people who help the club navigate the day-to-day activities. A general presumption is that the Board of Directors has absolute and complete control over the decisions made on behalf of the club. Here, it entails the concept of sporting directors. These are often retired players who had once associated themselves with the club in the form of a player or coach. The notion is that having people with a footballing background makes it easier for the management to make and pass decisions that favour the club. The role of a Sporting Director is majorly advisory. This means that the Sporting Director can aid and advise the club's Board of Directors on transfers, transactions, acquisitions, sponsorship deals, etc. Thus, a Sporting Director is integral to a club's ownership model. 


There have been many views, opinions and suggestions regarding the nature of football clubs' ownership. The role of a private investor must be considered here. To further elucidate, there have been many well-off individuals who have become joint owners in clubs. By doing this, they have some equity in the club and can influence the clubs' operations in the footballing world. Having some equity or some percentage of ownership means the private investor is not so private now. He or she can attend the club's A.G.M.s (Annual General Meetings). These are contrary to the Companies Act 2013, which mandates that a company have one General Meeting every Quarter. Unlike the working of a company, clubs function differently. A Venture Capitalist can also be involved as an angel investor.


An angel investor is a person who is highly well-off and directly invests in a company in exchange for equity. Both venture capitalists and angel investors do get some equity in exchange for their investments. These invest in big and well-established and smaller clubs that need help competing financially with other clubs. A contemporary of this is the famous Hollywood actor- Ryan Reynolds, who, along with T.V. actor Rob McElhenny, acquired stakes in Wrexham A.F.C. in 2020.

 

Changes in Ownership Pattern

 

There has been a drastic change since the advent of the Saudi Arabian sheikhs came into the picture. A distinct and relatable example is the rise of the City Football Group, which Sheikh Mansour owns. The City Football Group was formed in 2014 by Sheikh Mansoor. This is where the concept of a Holding Company and a Subsidiary Company comes into play. City Football Group has 100% ownership in Manchester City, Melbourne City and Montevideo City Torque. This means that the club has complete control over these clubs regarding matters of substantial decision-making. City Football Group is the parent company; the others are its subsidiaries. A sudden change in ownership can have adverse consequences for any club. Chelsea FC of the English Premier League are a classic example of this. The club was under stable ownership of Roman Abramovich from 2003 to 2022.


This was a successful spell since the club ended up winning a total of 18 honours. In May 2022, there was a change in ownership, and now the club is a consortium of investors led by Los Angeles Dodgers part-owner Todd Boehly and private equity giant Clearlake Capital own Chelsea FC. Behdad Eghbali and José E. Feliciano are the co-founders of Clearlake Capital. There are multiple owners involved here. There have been many opinions on multiple owners having control over a club. More owners eventually mean more people are involved in the club's ownership. This could have its pros and cons. Often; substantial decisions are to be made regarding transferring players and staff hiring.


A plethora of ideas may be good since different perspectives are being considered, but at the same time, not all ideas can be implemented. Further, reaching a consensus is integral to facilitating faster decision-making. This would lead to quicker action taken by the club. Other subjects may include hiring and firing of employees, investment in infrastructure, formulation of transfer strategies, etc. Since then, the club has gone through a difficult period. 

 

Contemporary Developments and Evolution Of Laws

 

About two-thirds of the national football associations in Europe have domestic regulations that "directly limit or restrict" multi-club ownership. However, when cross-ownership links between teams are more prevalent in European evenings and tournaments, the floodlights glow brightest. The UEFA Champions League's Article 5, which addresses the "integrity of the UEFA club competitions," was prompted by the governing body's worries in the late 1990s about ENIC's control over three teams—Greece's A.E.K. Athens F.C., Italy's L.R. Vicenza, and the Czech Republic's S.K. Slavia Prague—all of whom were in the 1997–1998 Cup Winners' Cup quarterfinal draw. Joint ownership is governed by Article 5, which forbids any person or organisation from exercising "control or influence" over more than one club participating in the same UEFA club championship.


The capacity to "exercise by any means a decisive influence in the decision-making of the club" is one of the critical components of "control or influence." The European Commission determined in its denial of the complaint that the rule aimed to "ensure the uncertainty of the outcome and to guarantee that the consumer has the perception that the games played represent honest sporting competition" when ENIC challenged the original form of Article 5 in the early 2000s for an alleged restriction of E.U. antitrust law. The rules regulating the competition of two clubs under the same ownership structure were most prominently questioned in 2017 following the Champions League qualification of RB Leipzig and Red Bull Salzburg, two teams’ members of the Red Bull group.


After an investigation, UEFA decided neither club could qualify because no individual or legal entity had a "decisive influence" over the other. This decision caused some observers to question the efficacy of the rules. Initially, UEFA had determined that the clubs could not compete because of their ownership links. The Bundesliga's "50+1" rule, reportedly brought up anytime politics and power intersect with sport, is the domestic law that appeals to European supporters the most. The German Football Association (DFL) instituted it in 1998. It mandates that clubs and fans have fifty per cent plus one voting right in the limited businesses that manage their professional teams. This stops private investors from imposing their will and priorities over the team's and its supporters' desires.


 Beyond UEFA's rule, the English F.A. declares that an owner of a Premier League team cannot have shares in another English club of the same value. It would be feasible for an investor to compete in the same competition with 100% ownership in one team and 49% ownership in another under UEFA regulations. Something similar happened when AC Milan and Lille squared off in the 2020–21 UEFA Europa League. UEFA approved it despite looking into Elliott Management's (the Italian club's owners at the time) role as creditors inside Melvyn Partners (the Lille owners). In the end, no anomalies were discovered by the UEFA Club Financial Control Committee. Whether or not Girona and Manchester City can compete in the 2024–25 Champions League is still up for debate at UEFA.

 

CONCLUSION

 

"Connected clubs" will wish to avoid regulations that forbid sharing commercially sensitive information (C.S.I.) or private information shared between competitors in the same market. Tactical data, scouting expertise, player transfer plans, and contract negotiations are examples of C.S.I. in the context of football teams. Competitive issues may surface if these types of information are exchanged between "connected" rival clubs. While corporate governance practices like "clean team" arrangements can help reduce these risks, mitigating the risk of merger control enforcement is more challenging when merger filing thresholds are met, or competition authorities can obtain the authority to examine multi-club investments. Beyond the plethora of other regulatory systems to manage, prospective multi-club dealmakers would be well aware of the long arm of competition law should any expected issues be significant enough to warrant negotiations about remedies.



*The Author is a legal Scholar from India




(The Image used here is for representative purposes only)



References

1) Honigstein, R. (2021, April 29). Explained: Germany’s 50+1 ownership model, the benefits and the problems. The Athletic. https://theathletic.com/2545146/2021/04/29/explained-germanys-501-ownership-model-the-benefits-and-the-problems/.


2) Manchester Metropolitan University. (n.d.). Sporting directors need to be in the football boardroom to be successful, says research  · Manchester Metropolitan University. https://www.mmu.ac.uk/news-and-events/news/story/?id=16133#:~:text=Usually%20football%20sporting%20directors%20are,offer%20existing%20players%20new%20contracts.



4) Ostlere, L. (2023, June 26). Wrexham FC: How Ryan Reynolds and Rob McElhenney came to buy a club they’d never heard of. The Independent. https://www.independent.co.uk/sport/football/wrexham-fc-ryan-reynolds-football-league-b2336288.html.


5) Reporter, G. S. (2022, October 19). Man City takeover to be completed on Tuesday. The Guardian. https://www.theguardian.com/football/2008/sep/21/mancity.statement.


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7) Alencar, M. (2023, November 27). Who owns Chelsea now? How much did Todd Boehly and Clearlake pay Abramovich in 2022? CityAM. https://www.cityam.com/who-owns-chelsea-now-how-much-did-todd-boehly-and-clearlake-pay-abramovich-in-2022/.



9) Linklaters LLP. (n.d.). Football’s multi-club ownership model: are competition authorities curious? https://www.linklaters.com/en/insights/blogs/sportinglinks/2023/june/footballs-multi-club-ownership-model.


10) Multi-club ownership trends: Governance and regulation. (n.d.). Global Law Firm | Norton Rose Fulbright. https://www.nortonrosefulbright.com/en/knowledge/publications/331a41be/multi-club-ownership-trends-governance-and-regulation.



12) Fuentenebro, P. M., & Roche, C. (2024, February 10). Could Girona and Manchester City both play in the Champions League? Diario AS. https://en.as.com/soccer/could-girona-and-manchester-city-both-play-in-the-champions-league-n-2/.


13) Linklaters LLP. (n.d.-b). Football’s multi-club ownership model: are competition authorities curious? https://www.linklaters.com/en/insights/blogs/sportinglinks/2023/june/footballs-multi-club-ownership-model.

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