A Few Reactions to the Council of Europe's Draft Report on Sports Govenance

UPDATE: FIFA is quick out of the blocks with a response to the report here.

Today, the Council of Europe released a draft report titled, Good governance and ethics in sport (PDF, and first discussed on this blog here). The report is a welcome addition to the attention being devoted to good governance in international sport. At the same time the report highlights many issues which are problematic and difficult to resolve. Here are a few reactions.

On so-called financial fair play in European football the report singles out Manchester City FC as an example of how the rules can easily be circumvented:

Care will have to be taken to prevent any circumvention of the financial fair play rules in this way. A case in point is Manchester City, which has entered into a contract estimated at £400 million (over €450 million) with the airline Etihad. Etihad belongs to the Abu Dhabi royal family, and the Abu Dhabi United Group, which is led by Suleiman Al-Fahim, owns Manchester City. In order to avoid improper transactions of this kind, UEFA should prohibit clubs from sponsoring themselves or using associated bodies to do so. There is also a need to monitor the “purchases” of sponsors, who should not overpay for the rights they acquire.

Stefan Szymanski of the University of Michigan has warned that such rules may fail if challenged under European law, as reported by the New York Times last fall:

Any attempt to nullify the sponsorship deal may fail in court, said Stefan Szymanski, a British economist and co-author of the book “Soccernomics.”

“How do you determine what is the fair value of a corporate sponsorship? In essence, it’s arbitrary,” said Szymanski, who teaches at the University of Michigan. “It comes down to what people are willing to pay.”

The financial fair-play rules may also face a legal challenge for arbitrarily restricting what is considered allowable income on team balance sheets, Szymanski said. “If a wealthy owner wants to put his own money into his own business, how is that not money devoted to football?” he said. “When I go to a game, I take my money and buy a ticket and it becomes football income. When it transfers from the bank account of an Arab sheik, why isn’t that the same thing?”

The CoE report suggests that the middle eastern sheik's with deep pockets are not the only route to avoiding the strictures of financial fair play:

This poses the question at which point competition between clubs can significantly be distorted, and some clubs enjoy an undue advantage, as a result of the financing of sports infrastructure, its sale to sports companies or placing on loan to teams, the granting of subsidies, loans, tax breaks or other financial benefits, gifts, the purchase by public authorities of advertising space or, indeed, facilities belonging to clubs, or other measures to support sports companies. For example, in the early 2000s Real Madrid was able to sell its training ground back to the city for more than €400 million.

The CoE report also weighs in on controversies involving FIFA governance, explaining:

The aim is not to condemn. But FIFA's image is deteriorating, and action is urgently needed to prevent further abuses. Furthermore, other sports are experiencing similar problems. So the question is what to do to improve governance and financial transparency in the sport sector in general. . .

If we are turning our attention to FIFA here, this is not because it has the worst governance machinery, but more because it is better-known (and also – praise should go to FIFA where it is due – because the quality of information on its official website is very high) and because that institution is incomparably more important than any other sports federation, with the exception of the IOC.

I guess one should expect that if the best thing that can be said about FIFA is that it has a nice website, then what is to follow will be hard hitting. And it is. The CoE characterizes FIFA as unaccountable, not transparent and awarding high compensation to its employees. It makes the following recommendations:

The Assembly specifically calls on the Fédération Internationale de Football Association (FIFA) to take the necessary steps to cast full light on the facts underlying the various scandals which, in recent years, have tarnished its image and that of international football. The Assembly insists that FIFA, inter alia:

6.1. speed up the process of reform of its internal governance and, in this context, significantly increase the investigative powers of its Ethics Committee;
6.2. publish in full any judicial and other documents relating to the ISL/ISMM case which may be in its possession;
6.3. open an internal investigation in order to determine whether, and to what extent, during the latest campaign for the office of President, the candidates, and particularly the successful candidate, exploited their institutional positions to obtain unfair advantages for themselves or for potential voters.

While the call for FIFA to open an internal investigation is likely to garner the most attention from observers, it is a toothless recommendation, as the CoE has no authority over or control of FIFA. The best result that might occur is that FIFA's "good governance committee" takes on some of the advice of the CoE, none of which however will be new.

The bottom line is that the CoE report helps to elevate issues of sports governance and in doing so helps to focus attention to various important issues within that theme (some of which are covered in the report but not discussed here). Securing effective reform however will be a long and difficult process.