Last week, we considered media reports that Premiership Rugby restricted a proposed investment by Mohed Altrad’s investment in Gloucester RFC to just 20% and the desire of stakeholders in European Rugby Union to ensure and maintain confidence in the integrity of its competitions.

In this second instalment, we will consider how common ownership is regulated by UEFA, European football’s governing body, and how the issue of common ownership is addressed by the key stakeholders in English football.

How is common ownership of football clubs dealt with by UEFA?

European football has long had to wrestle with issues of common ownership.

In August 1999, the Court of Arbitration for Sport (“CAS”) published its seminal decision on the common ownership of football clubs in the case of AEK Athens and SK Slavia Prague v UEFA (“ENIC”).

In ENIC, the CAS was faced with the following facts:

1. An investment vehicle called ENIC had purchased stakes in clubs around Europe, including AEK Athens and SK Slavia Prague.

2. Given the inherent risk that two or more of the clubs controlled by ENIC may, at some point, qualify for the same club competition held under the auspices of UEFA, European football’s governing body introduced a rule which would prohibit clubs under common control from playing in the same UEFA club competition (the “Common Ownership Rule”).

• After AEK Athens and SK Slavia Prague both qualified for the 1998 UEFA Cup competition (now the Europa League competition), AEK Athens was prohibited from competing pursuant to the Common Ownership Rule.

The CAS upheld UEFA’s Common Ownership Rule, stating that its purpose was to maintain the integrity of its competitions rather than to restrict competition between European clubs and found that a conflict of interest does exist in multi-club ownership situations.

In reaching that finding, the CAS considered various ways in which the integrity of competition may be threatened by the common ownership of football clubs.

For example, the CAS noted that, in purely economic terms, it would be a waste of resources for a common owner to invest in precisely the same way, and to the same extent, in two or more of its clubs which are participating in the same competition.  Instead, it would be wise to focus its investment towards a club in one of the top European leagues, where the revenues and rates of return on investment were greater.  Indeed, it may even be regarded as a duty of the directors vis-à-vis the shareholders of the controlling corporation to do so, a situation when the “economic interests of the multi-club owner…are at odds with sporting needs in terms of the public perception of the authenticity of results”.  Fans of commonly-owned teams would be inclined to doubt whether any transfer of players, or other management and investment decisions, were being made solely in the interests of their own club, rather than for the benefit of the other club controlled by the same owner.

The CAS also considered the interest of “third clubs”, for example, a club which finds itself sharing a qualification group with two commonly owned clubs. There would be a possibility that the commonly owned clubs could conspire to obtain results that were mutually beneficial to them, at the expense of other teams. In this regard, the CAS obliquely referred to a match between West Germany and Austria at the 1982 FIFA World Cup, which was later christened the “Disgrace of Gijón”.  Going in to the final group game, both West Germany and Austria would qualify, at the expense of Algeria, should West Germany win by 1 or 2 goals. Amid much opprobrium, both sides went through after West Germany won 1-0 in a game of markedly few chances for either side.

Following CAS’s decision, the European Commission subsequently rejected ENIC’s complaint about the same UEFA rule in a decision published in June 2002 and supported the findings of the CAS, stating that the object of the Common Ownership Rule was not to distort competition. Instead, its main purpose was to protect the integrity of UEFA’s sporting competitions and “ensure the uncertainty of outcome and to guarantee that the consumer has the perception that games played represent honest sporting competition between the participants”.

As such, the Common Ownership Rule is currently enshrined at Article 5 in UEFA’s respective sets of Regulations for its Champions League and Europa League competitions, which seek to ensure the integrity of competition by delineating what amounts to “common ownership” and what should happen if two commonly owned clubs simultaneously qualify for UEFA-run competitions.

How is common ownership of football clubs dealt with in England and Wales?

As would be expected, efforts have been made to ensure that the regulatory framework for football in England and Wales has similar measures in place to guard against the dangers posed by common ownership.

This protection currently takes the form of the Owners’ and Directors’ Test (formerly the “Fit and Proper Persons Test”), which the Football Association’s website states is to ensure that “the owners, directors and officers of clubs in those leagues to meet standards greater than that required under law so as to protect the reputation and image of the game” and which  applies to all clubs in the English Premier League (“EPL”), English Football League (“EFL”), and the top tiers of “non-league” football.

For example, the Owners’ and Directors’ Test for EFL clubs  – which is nearly identical to the test adopted by the EPL – is set out at Appendix 3 of the EFL’s Regulations, the preamble to which confirms that the intention of the Test is to “protect the image and integrity of The League and its competitions, the well-being of the Clubs, and the interests of all of the stakeholders in those Clubs, by preventing anyone who is subject to a ‘Disqualifying Condition’ being involved in or influencing the management or administration of a Club”.

As would be expected, the disqualifying conditions in the EFL Regulations – which are referred to as “Disqualifying Events” in Section F.1 of the EPL Handbook for the 2016/17 Season (“EPL Handbook”) – include if an individual has a criminal conviction or is a registered bankrupt.

In addition, an individual is prevented from becoming a director of an EFL or EPL club (or being granted powers usually associated with the powers enjoyed by a director) if they are associated with another EFL or EPL club. The condition “Associations between clubs” is defined in the EPL Regulations as follows:

“(a)    either directly or indirectly being involved in, or having the power to determine or influence, the management or administration of another Club or Premier League Club…

(b)    either directly or indirectly holding or acquiring any Significant Interest in a Club while at the same time either directly or indirectly holding any interest in any class of shares or securities of another Club…”

Both the EFL Regulations and the EPL Handbook define “Significant Interest” as holding and/or possessing the legal or beneficial interest in, and/or the ability to exercise the voting rights applicable to, shares or other securities in a club which amount to 10% or more of the total voting rights exercisable in respect of the shares of any class of shares of a club.

The manner in which the Owners’ and Directors’ Test has been framed by the EPL and EFL shows the importance that is attached to maintaining the integrity of competition, preventing any individual from simultaneously holding a 10% or more stake in two clubs, in addition to being able to “determine or influence” the management or administration of other clubs, regardless of whether they hold any shares.

The EFL’s 2013 decision to place limits on loan transfers

What the Owners’ and Directors’ Test does not contemplate is a situation in which an individual or company has a Significant Interest and/or is able to influence the management and administration of both an EPL/EFL club, whilst enjoying similar influence in another European club.

Whilst UEFA’s Common Ownership Rule would bite should those two clubs qualify for either of its competitions, there are other ways in which the common ownership of clubs competing in different European leagues has led to noteworthy results.

The most obvious example is that of Watford FC, currently owned by the Pozzo family.  Whilst the Pozzo’s also own the second oldest club in Italy, Serie A side Udinese Calio, the Italian businessmen also previously owned the Spanish side Grenada FC, prior to its sale to Chinese businessman Jiang Lizhang in June 2016.

During the 2012/13 season, Watford FC made good use of its owners’ controlling interest in the Italian and Spanish sides, loaning 10 players from Udinese and 2 from Grenada, to assist with its push for promotion to the EPL.

Whilst Watford FC was well within its rights to do so, the influx of such a large amount of players from the two European sides which were also under the control of the Pozzo family prompted a change to the EFL’s Regulations. In advance of the 2013/14 season, the EFL clubs (including, it should be said, Watford FC) voted in favour of a rule change which meant that only 5 loan players (whether from overseas or from other domestic clubs) could be named in a match day squad and just 4 could be from a single club (of which only 2 could be over the age of 23).

The bolstering of Watford FC’s squad from overseas clubs during the 2012/13 season was a prime example of how two clubs, which compete in different European leagues, can still reap the benefits of being commonly owned by virtue of being able to more readily facilitate the transfer of players. The subsequent decision of the EFL to impose limits on such transfers showed that EFL clubs considered this practice to be inappropriate.

The steps taken by the EFL in 2013, and Premiership Rugby’s recent decision in respect of Altrad’s proposed investment in Gloucester RFC, shows that the principles on common ownership established in ENIC are as relevant today as when they were first promulgated by the CAS in 1999, and will continue to be so.