IFR: what’s changing in the new Owners, Directors and Senior Executives Regime

Interpreting individuals in scope

A key distinction between the IFR’s ODSE test and previous OADTs applied by the Premier League and EFL is that the IFR now has the power to determine the suitability of any “Senior Managers” at a football club. OADTs have historically only applied to owners and directors.

The ODSE Regime sets out certain specific “senior management functions” that are automatically within scope (i.e. Chair, CEO, CFO, COO and/or director). However, the scope also extends more broadly to include all key decision-making roles, defined as any role with “a significant influence on the management or conduct of one or more aspects of a regulated club’s affairs in relation to its regulated activities.”

Whilst a plain reading of the rules suggests a broad range of individuals could be brought in scope, ultimately, we expect the IFR to focus only on those senior managers who have a direct ability to influence financial sustainability and/or risk management of a football club.

For example, a sporting director who has delegated authority to control and deploy transfer budgets is likely to fall in scope of ODSE however a sporting director whose ability to deploy a transfer budget is subject to strict board supervision is unlikely to fall in scope.

Similarly, a club’s general counsel who advises and influences board decision making in relation to financial and legal risks, as well as deploying a legal spend budget, may well be in scope of ODSE, whereas, a club communications officer who implements a strategy determined and approved by the board is unlikely to be in scope.

Exercising IFR discretion

Currently, OADTs set out specific “Disqualification Events” which, if triggered by an owner or director, will result in that individual automatically failing the test and being disqualified. Under the OADTs, an owner or director cannot be disqualified unless and until they trigger one of the specific Disqualification Events.

Conversely, under the ODSE Regime, the IFR has ultimate discretion to determine whether an owner or director is suitable or not (albeit by reference to pre-determined criteria). This scope for discretion affords the IFR greater flexibility but creates far more uncertainty for clubs and prospective owners/directors on whether their application will be deemed suitable.

In exercising its discretion, we expect the IFR to focus on factors which influence whether or not the applicant will be able to support the financial soundness and sustainability of the relevant club going forward.  For example, if an applicant has been subject to civil court proceedings which involved financial impropriety or dishonesty, we would expect the IFR to factor this against the applicant, however, if the proceedings did not bring into question the financial honesty or integrity of the applicant, they are unlikely to be used against that applicant.

Assessing ‘competence’

Under the ODSE Regime, Senior Managers (but not owners and directors), must be deemed by the IFR to be sufficiently “competent” for their role. Previously, OADTs have not applied such a consideration.

To determine whether an individual has the necessary competence to take on a Senior Management function at a regulated club, the IFR will have regard to the individual’s qualifications, experience and training. The IFR will also consider factors such as the complexity of the role in question (e.g. by reference to the scale of the club’s operations), which will influence the level of competence they are required to possess.

We expect the IFR to assess competence by reference to its statutory objects, namely in the context of running a club in a financially sustainable way, safeguarding its heritage, and engaging appropriately with fans. The application of this will inevitably vary depending on the nature of the Senior Manager’s role which is being assessed.

Corporate ownership

The increasing prevalence of sophisticated financial investors has changed the structures by which football clubs are purchased. Novel (and often complex) corporate ownership structures are becoming increasingly commonplace, with jurisdiction and tax-driven structuring key to a deal. Investors structured as a fund, often from the US and further afield, are becoming  increasingly commonplace.

OADTs have always endeavoured to look beyond corporate and fund structures to assess the suitability of the specific individual human beings with control. However, the ODSE Regime leaves this in no doubt whatsoever: the Act specifies that only “individuals” (or registered societies) can be considered owners for the purposes of the ODSE and guidance accompanying the ODSE Regime clarifies that “applications to become an owner must therefore identify an individual (or individuals if there is more than one applying) as the prospective owner… even where a corporate entity is making the acquisition”.

Investors should therefore be conscious from the outset that their corporate structures will be scrutinised robustly and that there will be an increased emphasis on identifying those individuals behind the corporate structure exercising actual control.