Football Clubs as Social or Financial Institutions?
from The Football Governance Research Centre, February 3, 1999
This is just an extract from a longer article, it's only a selective extract in as much as the rest of the article has nothing to do with Newcastle.
The consequences of the attack on fan equity
Investors [in football clubs] may find themselves clashing with shareholder fans who are interested less in making money than in seeing the club do well.
In this sense, football clubs provide an interesting example of a stakeholder-led company - one in which the financial interests of shareholders are seconded to the wider interests of other groups.
The fans feel they emotionally own the club and this entitles them to certain normative moral rights.
Even the most commercially-minded of owners acknowledge their central role.
The 1998 Newcastle United PLC Annual Report & Accounts (1998, page 8), under the heading 'NUFC - The Supporting Cast' comments: It would be unthinkable not to comment on our fans, including those who cannot attend regularly. Most informed observers recognise that they top the premier league of supporters because of their unswerving loyalty and affection for this great Club... We readily acknowledge the fans' major contribution...
But in reality the controlling, financial, ownership is firmly located elsewhere and precludes any assumed moral obligations, as the scandal involving Douglas Hall and Freddie Shepherd, the two Newcastle United directors who made disparaging remarks about the club's fans and retain controlling interests in the club, illustrates.
Both directors were able to have themselves comfortably re-elected onto the board of the club despite significant small shareholder opposition, as the Financial Times (Tighe, 1998, 22 November) reported in its review of the company's 1998 annual general meeting.
Perhaps a truer measure of the Newcastle United directors commitment to their local community is the figure for the total value of cash charitable donations (one potential proxy measure of community involvement) disclosed in the 1997/98 Annual Report. The figure was £1,368, from a turnover of £49,177,000 (Newcastle United PLC, 1998, page 15).
The benefits of football as both a community and financial asset (in terms of overall industry size) are in danger of being squandered.
It is a fact that the flotation of most football clubs have brought significant windfall profits to controlling directors, and that this process has raised significant corporate governance problems.
The money raised has often initially come from small shareholders, who buy out of a sense of fandom, and therefore are likely to pay more than conventional institutional investors.
An implication, as Conn (1998, pages 164-176) explains, is that owners are simply cashing in some of their capital at inflated prices while retaining control. The financial experience of the fan-shareholder has so far not been good.
The starkest example is the case of Newcastle Utd where the directors have agreed to sell their controlling interest in the club (subject to the result of the Monopolies & Mergers Commission enquiry into BSykB's attempt to take over Manchester Utd), at a price, 111.7p, significantly below the original flotation price of 135p.
While this may have represented good business for Newcastle's major shareholders, the Hall family and Freddie Fletcher, who had originally bought the club at a fraction of this price, it was decidedly bad business for the small army of mainly fans who had bought shares in the club at the original flotation price.
The Financial Times reported the following exchange at the company annual general meeting: "Newcastle United football club has been sold down the river by Cameron [Hall] Developments [the Hall family's holding company] to suit themselves,"... Freddie Fletcher, chairman and chief executive responded by pointing to the fall in value of other listed football clubs. "There's not a shadow of doubt the football sector isn't as frothy as 18 months ago." (Tighe, 1998, 22 November).