A legal challenge against the FA’s Football Creditors rule by HMRC was dismissed in court this week on a point of law. The rule specifies that a club in administration can only be readmitted to competition if their creditors in football have been paid in full. This leads to a situation where new owners pay large sums to players in outstanding wages and to clubs for transfer fees in arrears, yet may pay little to non-football creditors such as HMRC and local suppliers. The creditors have no choice but to accept this situation, as without the opportunity to compete no new owners will pay anything at all. On face value, this benefits those involved in football to the detriment of those who are not. From the viewpoint of football, it prevents the problems spreading to those clubs owed money in an insolvency event. In reality however, the existence of the rule helps no-one and can even be said to contribute to clubs getting into trouble in the first place.
Because clubs know they will receive all of the money owed in a transfer eventually, even when the purchasers are in financial trouble, they are happy to allow payments to be made in instalments. This allows the financially troubled club to buy players for fees they are unable to pay for at that time. This suits both clubs in the short term as a sale goes through which otherwise may not have. Evidently though, this is also to the detriment of the long-term financial situation of the purchaser.
Ditching the football creditors law is an important step towards stabilising football finance in general. Clubs will be far more reluctant to allow clubs purchasing their players to pay in instalments if they aren’t certain they’ll get the money in the end. Clubs buying players will therefore be forced to pay the full price up front or not at all, so without being able to spread payments into the future are less likely to get into trouble. That is to say, frequently they won’t be able to raise the money to buy the player at all, preventing their debt growing.
There is of course also a moral case for small local creditors not being paid even less than they would in an ordinary insolvency event so that multi-millionaires can receive this week’s appearance fee after a late substitution. It would seem though, that if legal challenges are unsuccessful and moral rectitude goes ignored, the best way to have this rule dropped is to point out how damaging it is to those who it is supposed to benefit.