A football club is not a football club without players

Football pitch

A football club needs players.  FIFA’s laws of the game are quite clear.  Law No 3 states ‘a match is played by two teams, each consisting on not more than eleven players, one of whom is the goalkeeper’.  Clubs in the industrialised north were the first to begin paying working class players wages in the late nineteenth century, largely recorded as compensation for missing time at work.  The registrations of the most talented players were soon traded between clubs, with individuals being ‘transferred’ with the consent of the governing body.  Compensation was paid by the ‘buying club’ to the ‘selling club’ to cover any financial losses that may result.   Football may have changed, with increased media coverage and the commodification of the game, the clubs have become limited companies, the value of contracts increased dramatically, but the principle remains.

Coventry City definitively have players.  They haven’t performed to the expectations of most fans recently, but even so, they have turned up, put the shirt on and importantly been paid for the privilege.  One of the limited companies in the group that control the Sky Blues is in administration, Coventry City Football Club Ltd (CCFC Ltd). The administrator’s report stated that

Sisu have maintained that the footballing activities have been conducted through [Coventry City Football Club] Holdings [Ltd] and that the legal and beneficial interest in both the Football League and the Football Association shares is held by Holdings.

CCFC Holdings Ltd is part of a complex structure in a group of companies which owns 100% of the shares in CCFC Ltd via an investment company named Otium Entertainment Group Ltd.  But which of these companies effectively ‘puts the team out on the pitch’.  Who actually owns the players registrations?  Whoever does is surely the football club.  The administrator is unsure.  I envisage there are in total five possible scenarios.  The contracts are between the players and either a) CCFC, as a club and ill defined, b) CCFC Ltd, c) CCFC Holdings Ltd, d) a combination of the previous three, or finally e) were held by CCFC Ltd but have been transferred to CCFC Holdings Ltd.  The answers must be in the files.

Who are ya?  Who are ya?

If the contracts are simply between CCFC, as a club, and the individual players, we must question why a legal document was filled out inappropriately.  The document should be between two legal entities – the player and one of the limited companies in the group.  The club does not exist in legal terms without the incorporated bodies – the limited companies. The contracts are legally binding documents and as such should be completed accurately. Once the agreements have been finalised and completed, they then have to be submitted to the FA/FL for processing.  In whose name were these documents submitted on behalf of – CCFC Ltd or CCFC Holdings Ltd?  This may be unclear, but the letterhead and signatures contained on the documnents should offer certain clues.

CCFC Ltd own and pay the contracts?

If the contracts and correspondence between the club and the governing bodies are between CCFC Ltd and the player, it suggests that the nature of CCFC Ltd is the playing activities of a professional football club.  The hedge fund which controls the club, SISU, dispute this, yet this appears to be one of the most commonly held view, particularly amongst fans.  All of the financial reports submitted since SISU took control of the club, up to the end of May 2011, clearly shows evidence of transactions involved with the ownership of player’s contracts.  The players registrations are shown as Fixed Assets on the Balance Sheet and the devaluation of these assets are included in the profit and loss accounts for that company.  Any profits and losses on the purchase and sale of registrations have also been included. CCFC Ltd also incurred the costs of the players wages and in the notes to the accounts clearly state that the 104 employees of the club are all ‘members of the playing staff and management.’ The company also purchased analytical data on player statistics and team performance from ProZone, a useful tool for a football club.

CCFC Ltd pay the contracts, but CCFC Holdings Ltd own the contracts?

Alternatively, if the agreements are between CCFC Holdings Ltd and the players, we must question why CCFC Ltd appear to have been honouring contracts that they are not legally bound to.  CCFC Holdings Ltd’s last set of submitted accounts do not show any assets or payments made in relation to players contracts, nor list any playing or management staff as employees.

If contracts are found to be owned by CCFC Holdings Ltd and indeed funded by CCFC Ltd, the club could face serious repercussions on the playing field.  The ‘Tevez affair’ in 2007/08 resulted in the FA changing their regulations to outlaw the practice of third party ownership.  Both Carlos Tevez and Javier Mascherano economic interests were retained by Media Sports Investments rather than the club they played for that season, West Ham United.  A points deduction may be imposed in future, in addition to any relating to the administration which may result in relegation next season.  Alternatively, immediate relegation may be imposed for such breaches.  Will the FL take a more sympathetic view as the companies are part of the same group?

You don’t know what you’re doing…

The fourth scenario involves a combination of the two – contracts set out and agreed on behalf of by both CCFC Ltd and CCFC Holdings Ltd.  This presents a problematic grey area, which will be complicated to unravel.  The administrator would obviously have difficulty in clearly stating which of the two company’s main activity is that of a professional football club.  As the two companies share directors, serious questions should be raised of the individuals concerned, as to their lack of attention to detail and suitability to hold such positions of responsibility.  If this scenarios proves to be the case, how did no-one at the FL query such shoddy submissions.  The FL has a legal department in its management structure.  It needs to act.

You what, you what, you what…

A fifth scenario involves the wholesale transfer of player’s contracts from CCFC Ltd to CCFC Holdings Ltd.  SISU have repeatedly stated in the press that they consider CCFC Holdings Ltd to be the professional football club.  As shown previously, the accounts for CCFC Ltd have historically shown that this company incurs all the proceeds and outgoings that relate to the players wages and registrations.  Has this situation changed recently and if so, when?  The accounts were signed off by one of the directors, Tim Fisher, on 19 June 2012.  Both the directors and auditors of a company have a duty to inform of any significant changes in the structure and activity of the company after the date of the balance sheet.  There are no notes in the accounts that suggest such activity had occurred.

It has been reported by the administrator that management accounts for CCFC Ltd in the year to May 2012 show an income of £9.4 million and total expenses of £12.6 million, which is largely consistent with previous reporting for the company and suggests continuity in reporting procedures.  It looks likely that all of the wages were again paid by CCFC Ltd for that year.  In this scenario, the transfer of assets must have taken place somewhere between the previous years accounts being submitted in the middle of June 2012 and entering administration in March 2013.  However, player’s registrations can only be transferred during official ‘transfer windows’.  This suggests that the transaction would have to have taken place between 01 July 2012 and 31 August 2012 or in the month of January 2013.  It is also worth noting that ACL, the landlords of the Ricoh, had started legal proceedings against CCFC Ltd at the High Court in December 2012, applying to issue a statutory demand for payment for the outstanding rent.  Once this process had started, it would restrict any radical change in the structure of the business.  Should the directors have transferred assets during this period, without informing the courts and without informing interested third parties, in particular ACL, the consequences of interfering with due process could be very severe.  So I would deduce the transfer had to take place in July and August 2012, otherwise the transfers would not comply with FL, FA and FIFA’s regulations.

At what level were CCFC Ltd compensated for the transfer of these assets? How was this process established and conducted, with particular reference to the fact that both CCFC Ltd and CCFC Holdings Ltd have directors in common.  When was the fee paid and when did CCFC Holdings Ltd begin to fulfill the obligations under the new contracts and on what date did the company actually start to pay the wages of playing and management staff?

Was the Football League informed of these changes?  If so, why did they see no reason to publicise the fundamental changes that had taken place.  There is a duty of care for the League to inform its members of such changes, as a club could be directly affected by changes in ownership when negotiating transfer deals.  Furthermore, large transfer fees can be paid in installments.  Would these changes comply with UK corporate law? If the football league was not informed, what do their regulations state about such activity and what action will be taken?

If the contracts are the assets of CCFC Holdings Ltd as Sisu suggest, one would expect the administrator to pay close attention to any breaches of employment legislation that may have occurred in the day to day running of the club.    If CCFC Holdings Ltd have always been the party that made the agreements but these contracts have been paid for by and represented in CCFC Ltd accounts, as highlighted, Mr Appleton will need to highlight the sections of legislation that allows companies to act in this way.  Maybe subsidiaries are able to act in this way?  The standard way of reporting this type of activity is recording the transactions as inter-company loan.  Why was this not compleyted as such?  If the contracts were recently transferred as suggested in the final scenario, were the players informed and was consent given?  Employment law exists to protect the rights of workers and this scenario would suggest that the companies are in breach of such legislation if the agreement of all parties have not consented.  Players are represented by agents, lawyers and accountants during contract negotiations and so this process would inevitably incur additional fees which could be substantial.  How much did this cost and which company paid for such transactions?  Which, if any, of the professional staff refused the new employment terms and what was the resulting action by the companies involved and the club?  Professional footballers these days regularly use social media to keep fans and followers up to date and yet no tweets or status updates were recorded on this matter.  Were confidentiality agreements made and if so, how much did this cost and which company paid for such non-disclosure documents?

It is far from clear which of the companies owns the registration of the players contracts.  I would expect the administrator in his role as an impartial party in this process to ensure that the legally binding agreements have been dealt with correctly over a period of time and in a way that complies with the laws of the state and of regulations set down by the governing bodies of English football.  The contracts and the paper trial must be maintained to comply with the record keeping one would expect from a corporate body and so should form the basis for clearly establishing which of the companies in the group main trading activity is that of ‘the playing activities of a professional football club’.  These agreements must made available for investigation and the details must be contained clearly in the final report.

I am not an expert in employment law.  If anyone with any experience in this field would care to leave comments that may assist, they will be very much appreciated…  In fact, any comments are always welcome.

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