Carl31 posted this as a comment on a piece earlier this week. Unaccountably I missed it when going through comments and thought others might have done so too.
Carl started by quoting a section from my post, shown in bold below, before adding his own comments.
“One of the perennial issues about penalising football teams relates to what happens after a change in ownership. The argument goes that, if the team is sold off, why should the new owners and the innocent fans pay for the wrongdoing of the incompetents or worse who formerly owned the club?
That however simply ignores the nature of corporate entities. If that interpretation was allowed to prevail, then a football club could commit the most heinous rule breaches, and then have its assets sold to another company before the disciplinary process concluded. Thus the “club” would be innocent and all the fault would lie on the old owners. This would be the case even where the assets were sold by one company to another owned by exactly the same people!”
In the commercial world, this happens and doesn’t seem to be an issue for most. When a company folds, unable to pay its creditors, the new company that takes on the assets is not held responsible for the misdemeanors of the previous owners. If the new owners are the same owners as the old owners they fall foul of laws on ‘phoenixing’.
Why should some new application of rules be applied for football clubs? Why not just simply apply these insolvency rules in a similar fashion instead of the legal-ish semi-logical acrobatics of the authorities in the football world?
Lets say, just as a for instance, that the ‘Extinctionist’ argument is followed by the footballing authorities in a way that mirrors company and insolvency law, and under the powers available from the existing rules … (in brief)
1. Once the Club goes bust, then that is the end of that Club. A separate financial/commercial side to the club (a Clubco) from the sporting side (clubFC) is a fallacy. The Authorities then officially recognise the end of the insolvent Club. They would also be free to also recognise, if applicable, the new Club as the ‘inheritors’ of the history of the old Club, and praise the continuing loyal fans as the true carriers of the ‘spirit and ethos’ of the old Club. This would incentivise club boards that care about the long-term wellbeing of their Club (consider, in the Rangers scenario, guys like John Greig or John McLelland) taking an active role on the board in protecting the ongoing sustainability of their Club.
2. New owners are not responsible for the actions of the owners of a different Club – the old Club. They are responsible for the actions of the new Club. That seems fair enough to me. The new owners of an undertaking that trades/operates as a recognised entity that traded previously are not responsible for misdemeanors of the previous incarnation.
3. The fans are penalised by the end of the Club they hold dear, which acts as an incentive for them to properly ‘police’ those who run the Club in the first place. If the consequence of spending at unaffordable levels is the ultimate demise of the Club, and this is anathema to the fans, then it is up to the fans to pressurise those in charge to act responsibly. This would be better for the long term stability and continuing life of the Club, as well as better for the long term good of the game in Scotland, since it incentivises that fans be on guard against irresponsible owners.
It seems fair to me for fans, who are happy to bask in the associated glory of success of their Club (gained whilst it spends too much and racks up heavy debts – spending far more than opponents) without enough concern for its long term wellbeing, to have to face the consequences that might arise. If a blind eye is turned by the fans to financial mismanagement, then they will ultimately suffer, as will their Club. Fan power is genuinely a powerful actor in events such as this. They are not toothless.
This is not only fair, IMO, it incentivises proper diligence of fans via their organised groups such as supporters’ trusts.
4. The owners of the old club ‘get away with it’. Well, as I see it, this mirrors the commercial sphere. Financially they could get away with it, but their reputation is damaged. Is this enough? IMO, in the football world – especially the world of football in Scotland (and to an extent the UK) this reputational damage is greater since there is a greater public/media focus. This greater focus compared with the commercial sphere generally, is even greater still for the high profile Clubs. If the profile of the Club is high enough in UK terms, maybe Uefa terms, then a reputation could be severely damaged – and that reputational risk could extend to the general commercial arena. So, despite maybe financially ‘getting away with it’, they would be far from scot free – reputational damage would be severe.
5. “This would be the case even where the assets were sold by one company to another owned by exactly the same people!”
Whilst this could be true, it can be guarded against and prevented. The footballing authorities have powers to impose sanctions on individuals. They have done so with Craig Whyte. This could extend to a ban sine die on involvement in any football Club (as not a ‘fit and proper person’). This would preclude those who might have committed ‘the most heinous rule breaches’ from being the owners of the new Club – but agreed this would require the extraordinary occurrence of the footballing authorities simply applying their own rules in both spirit and letter. Cooperation of various countries’ Associations would see Clubs protected against the unscrupulous across Europe and beyond, depending on how far the cooperation went.
Only 5 steps to pretty much cover off the issues that face such an insolvency situation … relatively simple compared to … the ‘Alternate’.
The Alternate is something akin to the almighty omnifuckupcarcrash (copyright Carl31 ) where:
• the football authorities deem it wise to make rules on the hoof,
• they try to perpetuate the fallacy of the continuing Club (IMO, for commercial reasons) – even though they apply a number of their rules (such as those re ‘cup entry stage’) as though the Club were new,
• they state strange and perverse interpretation of existing rules as part of an inadequate Commission charging the perpetrators under the, at best, legally cloudy premise of a separate Clubco and clubFC
• consequently, rulebreaking is incentivised, since retrospective ineligibility is deemed not allowed for in the rules
• similarly, concealment of any rulebreaking is also incentivised
• Financial fair play is disincentivised, since despite running the ‘Clubco’ into the ground, the ‘clubFC’ continues unscathed – history and all intact but creditors stuffed via blatant debt-sheddery
• As an addition to this, non-payment of social taxes during the death throes of the old Club may also be incentivised in some way (since the ship is going down anyway)
• Further issues are stored up, via various precedents, for the future and how other SFA Clubs should be treated should they become insolvent
(all of which is pretty much the current situation).
The actions of the current football authorities is driven by commercial imperatives. This is evidently damaging the game of Association Football in Scotland. Should the ‘Extinctionist’ ethos and argument be applied by the Scottish Football authorities, using existing rules both in spirit and letter, then there would be adequate or satisfactory justice applied to the whole saga, and the integrity of the sport in Scotland would be protected. The long term interests of the game would also be protected since proper, not perverse, incentives would be applied pour encourager les autres.
Posted by Carl31