“The problem with experts is that they do not know what they do not know.”
Nassim Nicholas Taleb – The Black Swan: The Impact of the Highly Improbable
EPISTEMOLOGY. Not a theory of skiing, annoying someone or drinking too much, but the study of knowledge, writes DAVID PHILLIPS. More specifically, it concerns questions of how we know, what we know, what can we know, and what are the limits to that knowledge. Moreover, are some things unknowable? Do we not know as much as we actually think we do? Hosts of post-match football phone-in shows, people with a substantial number of Twitter followers, and moderators of below the line comments on websites are probably among the most keen to answer that last question in the affirmative.
In responding to the earlier post on TAW by the Manchester City supporter who considers that his club possesses the best owners and best executives in European football, and the overall idea that Liverpool FC should consider adopting the financial methods utilised at the Etihad, think firstly of Donald Rumsfeld’s otherwise evasive rejoinder to a question asking for evidence tying Saddam Hussein’s government and weapons of mass destruction to terrorist groups:
“… there are known knowns. There are things we know. We also know there are known unknowns; that is to say we know there are things that we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know”.
Rumsfeld, surprisingly epistemological in response, provides a useful tool in discussing those football fans who take issue with Uefa’s Club Licensing and Financial Fair Play (FFP) criteria and sanctions (things we know), why sanctions were imposed (things we do not — fully — know), and events and outliers which may affect FFP as we currently know it (the things we don’t know we don’t know).
While acknowledging from the outset that there are certain things we don’t know we don’t know, the history of Manchester City and FFP, and the behaviour of its owners and executives towards Uefa’s regulations, afford some insight as to whether their model is a useful one and if their staff can really be regarded as the best in the game.
Deloitte, and particularly its Sports Business Group, played a fundamental role in creating Uefa’s FFP regulations. Alex Byars and Martyn Hawkins, then Senior Consultants with the Sports Business Group, were seconded to Uefa for 18 months to work on financial projects, including FFP implementation, and were subsequently hired by Manchester City, starting work for the club in January 2012. Hawkins is now the organisation’s Financial Controller, while Byars became Everton’s Director of Strategic Projects at the beginning of 2015. Byars, in a page now scrubbed from its website but helpfully still available on the Blue Moon forums, was described by Deloitte as:
“… a leading expert on sports finance and worked on Uefa Club Licensing, where he helped develop the revised financial criteria for their club licensing system. [His] work involved technical advice with particular emphasis on international financing reporting and auditing standards, issue resolution, drafting regulations and providing football business expertise.”
While perfectly legal, and what would then have been assumed to be the kind of clever hire that would leave other football clubs asking themselves why they didn’t take the same approach, it isn’t too dissimilar to those working in government leaving for a private company position directly related to their previous role. This so-called “revolving doors” practice is one with which the public is uncomfortable, and in general terms raises questions of possible conflicts of interest. Nevertheless, despite Manchester City hiring two Deloitte staffers who would have been wholly familiar with the system and its mechanics, who collectively spent three years at Uefa and are senior audit professionals, one of whom was directly involved in drafting regulations and well versed in its intricacies, together with Paris Saint-Germain it suffered among the most severe sanctions imposed by Uefa’s Club Financial Control Body (CFCB) on any football club to date for breaches of its Club Licensing and FFP Regulations.
PwC conducted the FFP audit, Uefa having appointed two independent firms including Deloitte to verify compliance, with PwC’s allocation to the Etihad likely the result of Uefa being mindful to avoid any suggestion of a conflict of interest. Moreover, after the club was given multiple extensions to an original deadline for agreeing a deal, those sanctions were contained within a settlement agreement, one that enabled the club to negotiate for a reduction to a prospective penalty and effectively put the club on probation to put its finances in order. This settlement also ended the possibility of further action on Manchester City’s part at the Court of Arbitration for Sport, and in so doing also ensured the possibility of revelations of the true extent of the club’s non-compliance were contained. Any appeal created a higher risk of the club’s exclusion from the Champions League.
What is a “known unknown” in this regard is the fullest extent of Manchester City’s non-compliance in monetary terms, and whether Everton and/or Arsenal, as “directly affected parties” sought advice to challenge the settlement, and if so, whether such advice was acted on to any degree. However, it is likely reasonable to conclude that the settlement itself only narrowly precluded expulsion, given the several sanctions imposed in combination still comprised the strictest available to the CFCB listed in Article 29 of Uefa’s Procedural Rules, including as it did a fine (c), withholding of revenues from a Uefa competition (e), a limitation in the number of new players it could register in Uefa competitions (f), and a restriction on the number of players that a club may register in Uefa competitions and a financial limit on employee benefit costs (g). Only sanction (h) (disqualification or exclusion) remained of the most severe restrictions available to Uefa given Manchester City’s lack of success in the competition (i). Indeed, the Field Fisher Waterhouse & BDO guide to Financial Fair Play in Football suggests that a club merely €200,000 outside the break-even Acceptable Deviation could be excluded from the competition, and given that Uefa excluded from its calculations revenues from the sale of assets within its group structure, and related-party commercial deals were also judged to have contravened the regulations, it is probable that Manchester City significantly exceeded that figure.
It is also known that in 2010, the European Club Association — the body created in 2008 to replace the disbanded G-14 group — succeeded in delaying the full implementation of FFP regulations until 2015, an extension of three years from the originally proposed 2012. Further, as Michel Platini, Uefa President and perhaps best described as the moral conscience of FFP said in 2009 when the regulations were first signed off:
“The owners are asking for rules because they can’t implement them themselves, many of them have had it with shovelling money into clubs and the more money you put into clubs, the harder it is to sell at a profit … They asked me to do something — Roman Abramovich asked me, the owner of Manchester City agreed — and I think it’s very moral. And it’s not just the biggest clubs — it’s all the clubs”.
Accordingly, what makes Khaldoon Al Mubarak’s complaint regarding Uefa’s sanctions and that “history will judge what was right for football” little more than ill-judged sanctimony is that not only did Manchester City’s executives willingly accept the regulations when initially agreed, but they gained an additional three years to comply in full — with two people on its staff who were among the most educated on the topic — yet remarkably still failed to do so.
FFP issues aside, we also know of the bemusing tale of Frank Lampard’s non-transfer to New York City FC, with the club’s website proudly announcing that he had signed a two-year contract commencing 1 August 2014, only for it to later transpire that no such agreement had been concluded, with repeated statements and subsequent clarifications only serving to confuse the matter further.
Already distrustful NYCFC supporters were further angered by the decision to extend his stay in Manchester, and Lampard only this month began training for his new side in the United States. There is also the creative approach to staffing, removing 135 employees from Manchester City’s books, only for most to appear elsewhere in its group structure, with the staff at Eastlands suggesting that the most logical explanation for a number of accounting errors was that they were simple mistakes. For a club sanctioned for breaches of FFP it is somewhat surprising that accounting errors continue to be made.
As Hovemann and Lammert identified, fans typically strongly support the objectives of the FFP concept, but it is unsurprising that such support can vary relative to a club’s position, success and model. Manchester City’s fans are particularly opposed to the regulations, many of whom are doubtless influenced by the vast sums being injected into the club in a short period of time and that they subsequently fell foul of FFP criteria.
Ironically, despite football’s propensity for remembering, romanticising and eulogising times past, fans can nonetheless be affected by a collective amnesia regarding a club’s changing position in the hierarchy. While FFP was described in the piece as a “quagmire of bullshit”, it’s not unreasonable to be suspicious of such a view, and thinking it principally, if not wholly, being held due to Manchester City’s place in the current order, and if circumstances differed, to suggest that the view would differ also.
If, for example, Manchester City were the financially troubled organisation of 2008, especially one without a new stadium effectively being gifted to the club — an outlay of just £20m being required for the conversion to a football arena, together with ticketing and naming rights deal payments to the city council now totalling roughly £4m per year, with the naming rights payments themselves enabling the £350m Etihad deal to be sealed — it’s almost certain that substantial investment would be needed in the playing squad, and given the very limited footprint at Maine Road and the difficulties of expansion, bound as it was by residential streets on all sides of the ground, a costly, entirely new arena would likely be required.
Furthermore, unlike Arsenal’s former ground, Maine Road’s location would have curtailed the possibility of property sales providing a substantial proportion of any funding, the difference in price in a three-bedroom property at London’s “Highbury Stadium Square” and Manchester’s “The Maine Place” being as much as £751,000. As such, the club would have been a significantly less attractive purchase proposition, with its financial status and league position affected accordingly.
Would Manchester City fans really be so discontent with FFP with the club in such a position, or as is most likely, would they at the very least be more neutral on the proposition given one of the aims of FFP was to ensure clubs were run on a stable footing, an objective which the regulations have gone a long way to achieving? For example, in 2011 losses of top-division clubs in Europe totalled €1.7bn, whereas by June 2015 they had been reduced by over 75 per cent, and yet there is still much to be done — a Uefa report in 2014 revealed auditors at approximately one in seven European clubs expressed uncertainty about the financial future of those clubs.
As has been discussed at great length excellently here and elsewhere, FSG certainly has a great deal of work to do if it is to match the ambitions of fans, the singular mission of whom is for the club to be restored to its position as the leading club in England and Europe — Liverpool FC’s “key performance indicator” of regular participation in Uefa’s Champions League unrecognisable to many.
For a significant number of fans it was remiss that the club didn’t take the opportunity to seek the services of one of two leading managers on the continent with an abundance of silverware between them, but instead hollowed out Brendan Rodgers’ coaching staff while leaving him in situ. Confusion abounds regarding the club’s executive structure, and particularly what roles Ian Ayre now performs, given little has been done to disabuse supporters of the notion that Michael Gordon has become a quasi-CEO, and commercial activities are largely Billy Hogan’s remit.
It would be helpful if the club could provide evidence of what action, if any, has been taken to limit the resale of season tickets through non-official channels, so often can stewards be seen coaxing fans from overseas unsure of how they work through the turnstiles.
A lengthy article could be penned on the complexity of ticket pricing and affordability for “local” fans, given how laws over indirect nationality discrimination would affect any attempt to ring-fence tickets for geographically located supporters, even while understanding that Liverpool FC’s most passionate matchday fans are the club’s backbone and most recognisable image, and are in growing danger of being lost.
Ticket pricing questions often also ignore the issues of revenue and outgoings on transfer fees and wages being directly correlated to performance, which in turn must be balanced against hostile atmospheres and attendance directly influencing referee behaviour, opposition performance and results.
The club’s executives might also seek the counsel of those versed in crowd behaviour, dynamics and psychology when inserting a whole middle tier of corporate hospitality into what is already the quietest stand at Anfield, and how this might further negatively affect atmosphere in a ground which provided little evidence of its historic reputation last season.
There are plenty of other issues aside to be addressed. However, to suggest that Liverpool FC, a club deemed by Uefa to have complied with FFP, should take as a financial model a club which arguably attempted to game and subsequently failed to comply with FFP regulations and was heavily punished for doing so, despite hiring staff intimately familiar with the concept and its mechanisms is risible — a known known.
Pics: PA Images/David Rawcliffe-Propaganda Photo
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