The EFL’s review into the expulsion of Bury last August has recommended that the league strengthen its financial fair play rules, blaming the club’s collapse on the current system that allows owners to fund players’ wages.
The review, conducted from the EFL’s own Bury files by Jonathan Taylor QC, details the dramatic increase in spending on wages after the Lancashire property developer Stewart Day took over the club in 2013. Just four years later, wages had increased threefold to £4.5m, while the club’s revenues grew by less than 50% to £3.2m, so Bury were spending 140% of their entire turnover on wages alone.
Under Day, the club were persistently late paying other clubs and loan players’ wages, but he did put £11.5m into Bury. However, when his property companies began to collapse into administration – owing millions to investors and creditors – the club was “effectively insolvent”, the review states.
Reviewing Bury’s calamitous demise under the ownership of Steve Dale, who bought the club from Day for £1 in December 2018, Taylor questions whether the EFL’s owners’ and directors’ “fit and proper persons” test is itself “fit for purpose”, and recommends changes to the takeover rules. However these are “moot”, he says, because the core cause of the collapse was the reliance on funding from Day, which was then lost.
“The real problem is that the EFL’s Salary Cost Management Protocols [its financial fair play rules] do not require League One and Two clubs to pay player wages out of normal operating income, but instead permit them to fund much higher spending through cash injections from the club owner,” the review concludes. “That means the club becomes entirely dependent on the owner remaining ready, willing and able to sustain that level of funding, and if the flow of funds is cut off, the club is immediately plunged into financial crisis.
“I do not see how this furthers the stated objectives of the EFL’s financial fair play rules (to introduce more discipline and rationality in club football finances; to encourage clubs to operate on the basis of their own revenues; to encourage responsible spending for the long-term benefit of football; and to protect the long-term viability and sustainability of EFL football).”
Recommending a tightening of the rules, suggesting that owners should invest in long-term club development and be prohibited from bankrolling wages, Taylor concludes: “The demise of Bury FC therefore highlights the need for a review of the financial ecosystem in which the League One and League Two clubs operate. The EFL and its clubs need to consider again what they want to achieve in terms of financial fair play, and whether the regulations currently in place are fit for that purpose.”
SCMP rules limit League One and Two clubs to spending 60% and 50% of their turnover respectively on players’ wages, but classify cash from owners as “football fortune”, which can all be spent on additional wages. When Bury won promotion from League Two last season despite being unable to pay the players’ wages, Taylor notes: “Other clubs expressed significant frustration that Bury had achieved this success while failing to meet its financial obligations.”
That resentment was partly why clubs voted not to allow a reformed Bury automatic readmission to the EFL next season.
Dale defaulted last month on the company voluntary agreement (CVA) he agreed to pay football creditors in full and other creditors 25p in the pound, and Bury, formed in 1885 and a Football League member for 125 years, is now expected to be put into liquidation.
Of the owners’ and directors’ test, which is identical to the Premier League’s, Taylor notes it is limited essentially to barring people with unspent criminal convictions involving dishonesty, and those who have been involved in two football club insolvencies. Dale has been a director of 30 companies which have ended up in liquidation, the review states, but a person’s business career is not considered relevant. EFL officials themselves only looked at Dale’s company record after he had taken over and failed to provide evidence that he had £3.6m needed to fund it for this season: “On 11 December 2018, the EFL executive searched the information filed at Companies House relating to companies associated with Mr Dale, and found nothing that would help to support the required funding commitment.”
The review also notes the gap in the rules that do not require a new owner to provide proof of funding before a takeover, but up to 10 days after, which has been highlighted again this week by the unfolding chaos at Charlton Athletic where evidence of funding for a takeover has not been provided. At Bury, Dale never did show satisfactory funding, and the review chronicles his various assurances, including proposing to sell properties in Glasgow which were not specified, and a provisional loan offer from a finance company which was ultimately withdrawn.
The EFL, whose engagement with Bury was evidently professional and prompt within the limitations of its rules, is emphasising that its board and clubs are now working on improvements to the financial regulations, owners’ and directors’ test and other rules.
In a statement on publication of the report, the EFL – whose executive, Taylor concluded, could not have done anything more that “would ultimately have made any difference” to the Bury outcome – said: “Working in conjunction with clubs, the EFL’s board of directors has established a number of processes to examine potential changes to ensure that problems similar to those at Bury FC do not occur in the future.”
Dale responded to the review by insisting that he had in fact fulfilled all required criteria before the club was expelled, and said he is “proposing a new CVA to prevent liquidation”.
Bury supporters working on a new “phoenix club”, Bury AFC, have had their application to join the semi-professional North West Counties League next season provisionally accepted by the league’s board.
David Conn gave evidence to the EFL’s review, having been asked to do so based on his reporting of Bury FC’s collapse.