Mutuality Ownership Form and Professional Sports: Football
By Sara Ward1, Thomas J. Scanlon1, and Tony Hines1
Over the last three decades, the increase in media and sponsorship revenue has been the key contributing factor for the widespread commercialization of sport.
Subsequently, sports clubs have strengthened their squads and player ability, increased their global exposure and economic fortunes, and increased the professionalism within their organizations (Ferkins, Shilbury, & McDonald, 2005; Szymanski & Zimbalist, 2005).
It is perhaps this concern with the interests of ordinary people, emotional ties, and accountability that has led fans of football clubs to want to own their club, building on the foundations of the principles of mutuality discussed in the extant literature. In some respects mutuality in a football club context shares some similarities with faith based mutuality where volunteers and paid staff need to do what is necessary to get things done coping with fluid roles and ambiguous expectations (Netting, O’Connor, Thomas, & Yancey, 2005).
Football is arguably the most popular sport in world
Football clubs playing a vital role in sustaining the fabric of local communities.
The financial problems in the football industry cannot be solely credited to a lack of income, with the Premier League experiencing rapid rises in revenue and the Football League also experiencing moderate increases (Lago et al., 2006). Lago argued that financial problems can be attributed to poor corporate governance procedures and unsustainable financial management strategies.
In recent years, several academic studies have stressed the advantage and relevance of fan and mutual ownership in football (Brown, 2008; Emery & Weed, 2006; Michie, 1999; Morrow & Hamil, 2003). The vast majority of clubs in the highest levels of English football are structured as companies limited by shares.
“In an ideal world football clubs would be legally structured and governed in ways that prioritise sporting objectives above financial concerns. Moreover, all clubs would be controlled and run by their members according to democratic principles” (Union of European Football Associations [UEFA], 2005, p. 10).
Wilkesmann and Blutner’s (2000) study of German football argues that it has become evident that the crucial factor for the successful development of a football club (based on collective decision-making processes) into an efficiently organized company, is the way in which the dilemma of representing a broad range of interests and the efficient achievement of objectives is solved. (p. 21)
Hirschmann (1970) analysed how over time when organizations become less efficient, customers have two options: either exit (leave or choose an alternative product) or voice their dissatisfaction (try and change the organization). In football, the fans’ emotional attachment and inelastic demand to their football club means that even when the team is not performing they do not often exit or leave, at least not permanently.
Under normal market conditions were dissatisfied consumers often leave a failing organization, which in turn can result in the company “going out of business,” does not often apply to the football industry (Conn, 1997). Instead, due to the importance of the club’s community standing and perceived “public good,” fans will do all they can to ensure the club does not go out of business. This unique emotional attachment is arguably conducive to mutual ownership as fans’ interests are protected and their loyalty can be guaranteed even in the context of an underperforming club (Brown, 2008).
What mutuality offers to these members (fans) is the capacity as owners to have an equal say (voice) in what the football club does. As a result, the fans benefit from a community-focused football club where they help shape the decisions their club makes to ensure good corporate governance and sustainable financial management practices.
1. Benefits of Mutuality
“Mutuality provides stability and keeps the club within its community.”
“Promotes ownership and affinity with the club and commitment.”
“More community focused.”
‘Benefitted from local businesses, community and council support.”
2. Limitations of Mutuality
“Some tensions between the Club and the Trust Board.”
“The skill of managing the large membership database.”
“Can be unnecessarily bureaucratic resulting in slow decision making.”
“Constant need to identify alternative revenue streams.
3. Financially sound without affecting expectations on the pitch
“Live within their means, evolved as their challenges evolved. Came out of CVA to a debt free, sustainable financial model.”
“Sustainability key in the early years over sporting performance.”
“Success on pitch has arguably come from the organisational platform created by the Trust.”
4. Mutuality under the current regulatory structure
“Competing in an unfair football context.”
“No benefits from governing bodies operating as a mutual.”
“Current regulation geared to private companies.”
“Needs to be tighter regulatory control on financial mismanagement of football clubs
5. Meets fans expectations
“The club is the fans.
Some tension between fans wanting success and those committed to the trust model.”
“Want to expand membership and embed trust ideals more.”
“Some fans expect to know every business detail because they own the club.”
6. Operational Implications
“Have set up two Boards from the beginning with clear roles for each.”
“The Club Board are responsible for the day to day running of the club and the
Trust Board responsible for the engagement of fans.”
“All decisions made democratically.”
The main advantages found were promotion of democracy, keeping the club linked to the community, creating stability and confidence, empowering fans and creating mutual empathy, allowed the club to exist continue at all and created business advantages with local businesses.
The principal disadvantages highlighted were in relation to decision making, sustainability, and finance. These were ineffective due diligence at the outset of taking over the club, overly bureaucratic and slow decision-making processes, attracting outside expertise on a voluntary basis, tensions between “fan” ambitions and “trust” principles, and raising finance through alternative revenue streams.
Over recent years, the football authorities have taken steps to improve standards of corporate governance at football clubs. These have included introducing a “fit and proper persons test” to clubs directors (Holt, 2003), improving the transparency of agent dealings through an annual report, and establishing sporting sanctions for clubs in administration.
The Football League advices clubs to introduce a 60% players’ wage bill of their turnover but this is not a legal requirement with financial penalties if not adhered to (Emery & Weed, 2006).
Holt (2003) states that clubs that have been owned and/or run by the fans through Supporter Trusts have generally shown themselves to be more prudent and have developed better business practices.
The mutual model helped develop a community base for the club and provided corporate governance benefits, particularly by not allowing the club to be run by a single “benefactor” (Brown, 2008). By recruiting outside expertise and continuously reassessing and evolving their key personnel they have been able to tackle the club’s changing problems and issues.
Ownership and control has been central to considerations of corporate governance.
Mutuality as a form of organization, despite the claim that it is outdated, has a number of advantages over the joint stock company when the purpose is to serve the needs of stakeholders rather than simply shareholders (Michie, 1999).
Property rights, income streams, and regulation characterize differences in arrangements. An organization run by members for members has the advantage of ownership and control being reunited and embedded in the stakeholder group that benefits from the arrangement (Adams & Armitage, 2002).
This benefit is beyond a pure financial interest, which is central to the joint stock company. Many people own shares where the main interest is purely financial reward. Rather than a dated concept, as it is sometimes portrayed, mutuality in its revised form for football club ownership affords the opportunity to replace economics with “emotionomics” bringing back into focus the social basis for existence.
In practice, however, there remains a duality of interest between the club and the trust board and that is still one source of possible conflict and tension that is not widely discussed in the extant literature. The shareholder register is replaced with a more democratic membership register prioritizing equity over efficiency and this in turn can lead to bureaucratic decision making adding to tension through delay (Lohmann, 1992).
The “Bundesliga” is recommended due to German clubs operating under the “50 + 1” rule,which requires clubs by law to be set up as membership clubs. Their experiences documented in full could help research undertaken in lower league clubs in the United Kingdom to move to the next level.
* The 50+1 rule in German football means that at least 51% of a club must be owned by its supporters. This ensures investors looking to earn quick money without any concern for the consequences cannot gain overall control of the club, but money can still be pumped in if necessary.