I thank the joint committee for its recent support. We were before the committee five or six weeks ago talking about the funding of sport. The correspondence of the committee with various Ministers and the Taoiseach has resulted in the retention of the Ministry and a reduction of only 4% in the funding of the Irish Sports Council. On behalf of everybody involved in sport, I thank the committee for its help in this regard. I also thank it for its correspondence with the president of FIFA. The cross-party support we received, including from this committee, was great in terms of expressing our disappointment at the result of the game between Ireland and France. Not only were those in football disappointed, everybody else was also.
I will now make my presentation, which will be followed by that of Mr. Richard Fahy, director of club licensing. He will give a short presentation on the improvement in the infrastructure of the League of Ireland in recent years.
At the end of the 2004 season, League of Ireland clubs were in serious difficulty and the future of League of Ireland football was hanging in the balance. The FAI and the clubs invited Genesis Consulting Ltd. to conduct a review. The ensuing white paper called for radical action, the most significant proposal being a merger between the league clubs and the FAI to facilitate a stricter regulatory environment in which clubs would operate.
It was always envisaged that this would be a five-year process, particularly in terms of cleaning up the financial performance of some clubs, because this type of change would require a significant cultural shift. Midway through this five-year merger agreement, annual club losses have been reduced to a four-year low of €2.7 million from a high of €6.9 million. Clubs in Ireland are not unique in facing financial difficulties. In recent times, some high-profile cases of well-known clubs that have had significant financial problems include those of Portsmouth FC, Valencia CF and Leeds United.
The FAI took the strategic decision to merge with the League of Ireland for a five-year period because a strong and vibrant senior game is for the good of the sport. At senior level, the League of Ireland represents an important part of the development pathway for players.
Today the FAI cross-subsidises League of Ireland competitions with revenue raised from leveraging sponsorship linked to the senior international team — for example, from Eircom — and associated television deals. RTE would have given an extra €4 million to the FAI but instead we created a Monday night soccer programme showing highlights and live matches. Those are a few examples of how we leverage sponsorship linked with the senior international team to assist the League of Ireland in terms of sponsorship and coverage on national television.
Let me refer to the Genesis white paper of 2005, the merger in 2006 and the League of Ireland review of 2009. The analysis conducted by Genesis in 2005 resulted in the following conclusion: " ... against all major performance indicators the league is under-performing". Genesis showed that this very important part of our game was failing according to the performance indicators used to measure success in a football context. Most of the clubs were deemed by Genesis to be unstable financially, with players' costs estimated to be in excess of 80% of turnover. One does not have to be an accountant to figure out that spending 80% of turnover on wages causes difficulties.
The management and administration of clubs was assessed as unprofessional, with little evidence of longer-term business strategies, marketing spend or community programming. Prize money for 2005 was a paltry €18,000 for the winner of the top division. Facilities in some clubs were deemed to be “inadequate and outdated” while attendances, linked to poor quality facilities, were deemed to be “too low to provide sufficient income for sustained growth”. Our UEFA European co-efficient was 40th of 52 member associations for the 2006 season.
With regard to the role of the national league, the league was deemed to be operating “in isolation” and “dislocated” from the rest of football. As identified by Genesis, football development in Ireland needs “the league to be the top of an integrated structure for the domestic game”. It was against this backdrop that the FAI and the league clubs engaged in merger discussions. At the time of the merger, the FAI made clear that significant change was vital within the area of club governance and set about addressing this by incorporating UEFA best practice into its licensing requirements. When the clubs merged with the FAI in late 2006, the FAI committed to bringing about ten key changes. A status check of those actions has been circulated.
We committed to a mid-term review with the clubs halfway through the merger. It was conducted independently and the survey findings were audited independently by Grant Thornton. It is very much at arm's length and it is health checked. The first recommendation was to merge fully with the FAI, the second was to change the management structure running the league, and the third was to revamp league structures. These tasks have been completed.
The creation of mandatory participation agreements and the introduction of wage controls were completed. Other objectives which are still in progress included the prioritisation of investment in facilities development, a step change in approach to marketing, the improvement of club administration, the creation of clear development structures and the investment in community links. During such changes there would be pain and some casualties as clubs and their directors adjusted to a more regulated environment.
The FAI has invested considerable resources in the change programme between 2007 and 2009. Many clubs have adjusted quickly to the changed governance environment, managing their businesses well off the pitch and playing a positive role in the sport.
However, a minority of clubs have failed to adjust to the new regulatory environment and have experienced significant financial difficulties. Overall, however, the level of losses has been reduced from their highest level of €6.9 million to €2.7 million in 2008. Despite continuing challenges, not least of which is the deteriorating economic environment, many of the underlying indicators are now pointing in the right direction.
Notwithstanding the progress made, there is no underestimating the damage that is done each time a club is a party to legal proceedings involving Revenue or any other creditor. Club mismanagement of finances, as exemplified by high profile cases such as this season's disappointing incidents in Cork City FC, undermines the integrity of the competitions, weakens the credibility of the regulatory processes and reflects poorly on the sport overall. Each participant club must appreciate the impact of mismanagement where it fails to meet its obligations not only on its own club's stakeholders but also on the overall image of the League of Ireland.
The FAI's commitment to continuing to insist on stringent governance arrangements as laid out in the FAI's participation agreement is evidenced by the difficult but necessary decision to terminate its contract with Derry City FC in 2009.
An outline of the football landscape is important to provide a context for the success of many League of Ireland clubs in continuing to compete and to understand some of the challenges faced by clubs in terms of the industry in which they operate.
Clubs competing in the League of Ireland must operate in a business-like manner to ensure revenue is generated, creditors are paid, debts managed and so on. In most businesses, operating in this fashion allows the company to measure its success on the level of profit generated and dividends issued to shareholders.
Football, however, is different and the metrics of success are also different. The UEFA European club football landscape benchmarking report 2009 stated, "Generally the raison d’être [of football clubs] approximates to being as successful on the pitch as possible while ensuring the continued existence of the club”. It is clear directors and decision-makers in some clubs have made poor financial decisions, while others have struggled to overcome unforeseen circumstances such as a major sponsor going into liquidation mid-season. It is disappointing that such publicity is generated by a small number of clubs who find themselves in difficulty. The media coverage brought to bear on difficulties encountered by a minority of league clubs far outweighs the recognition of positive results generated by clubs.
Notwithstanding the fact that it is the nature of media coverage to focus on the negative rather than the positive, the improvements brought about by many clubs in an increasingly difficult business environment should be acknowledged. In addition, it is important the scale of the business is put in its correct context. We are grouped by UEFA with the following leagues as our peers because of the financial size of the League of Ireland clubs: Azerbaijan; Bosnia and Herzegovina; Hungary; Iceland; Latvia; Lithuania; Luxembourg and Northern Ireland.
On the European stage our clubs have performed exceptionally well since 2005. Wins over teams from Russia, Sweden and Finland, added to regular wins in the first round of the European competitions against clubs from leagues with similar UEFA rankings, has improved our European co-efficient from 40th in 2006 to 29th for the 2010-11 competitions.
The official 2009-10 table, circulated to the committee, illustrates on-pitch success in moving 11 places, making Ireland the best performer among its UEFA peer group. European success has returned increased prize money to League of Ireland clubs and is a result of the change of playing season from winter to summer, a move to full-time football by several clubs, investment in coaching education and improved playing facilities.
The most up-to-date figures taken directly from the 2008 audited financial statements, provided by clubs as part of their licensing obligations, show turnover of €27 million compared with €15 million in 2006. The turnover in the premier division stood at €22 million compared with €11 million in 2006. Now, premier division player salary costs as a percentage of relevant income are 54% as opposed to 86% in 2006. Players' salaries are dropping; this is the key to resolving the financial issues of the clubs. In the first division, player salary costs as a percentage of relevant income stand at 34% compared with 56% in 2006.
As a result of these developments, there is a 17% reduction in salary costs to total income ratio, which is the second best reduction in Europe of the 53 member associations. Further reductions are expected in the coming season as 90% of players are out of contract at the end of the 2009 season. This provides a terrific window for clubs to get their cost base of wages into place.
Clubs' expenditure is primarily driven by salary costs. Since the introduction of the salary cost protocol, total salaries as a percentage of total income has decreased from a European-wide high of 96% in 2006. We were the worst in Europe in 2006. Driving these costs down has been a particular emphasis of the FAI's financial regulation regime and so player salary costs expressed as a percentage of relevant income stands at 54% in 2008. The figures presented are a sample of those compiled for the 2010 financial review to be published in the first quarter next year. At the end of 2009 season, nearly 90% of players are out of contract, which presents a further opportunity for clubs to reduce their costs in line with projected income.
The lack of comparative expenditure in areas such as youth development, infrastructure, advertising, marketing and promotions represents an imbalance in investment priorities which should be addressed by each club's leadership.
One of the most notable outputs of the merger is the 118% increase in League of Ireland prize money since 2005. This level of funding has formed part of the overall increases in league income in the review period. Corporate and private sponsorship is the single largest area of income for League of Ireland clubs. The terms of the salary cost protocol ensure directors, benefactors and investors who wish to cover the cost of expenditure can do so only by providing income in the form of corporate and private sponsorship. This is non-refundable and once it goes into clubs it cannot be taken out under the terms of the protocol.
This effectively means that club directors and owners are keeping the clubs afloat from a financial perspective. These are the same directors and owners who authorise the budget within the clubs' financial budgeting process. It is not ideal that directors have to fund clubs but at least if they put their money in, they do not have recourse to taking the money out.
The most significant aspect of the merger was the undertaking by the FAI to impose tighter regulatory controls. The impact of those controls could be properly assessed in 2008. Total losses in 2008 are down to a four-year low of €2.7 million from €6.9 million. Imposing the salary cost protocol, SCP, has helped to reduce overall losses. It was common practice here, and indeed still is across Europe, for directors, benefactors and investors to put money into clubs in the form of soft interest-free loans with recourse to cover losses. This practice is not allowed under the FAI's financial regulations. Wage controls in the form of the SCPs have the benefit of increasing the funds available to the clubs for other priorities such as administration, youth development, infrastructure investment and community activities, and improving the balance sheet position.
In terms of financial regulation, while recognising the complexity of the issue, with each case likely to have unique prevailing circumstances, an additional range of options will be available to the FAI and the club licensing processes to further strengthen regulatory powers from 2010.
The improvement in the financial management practices in clubs must be acknowledged. A number of clubs have completely overhauled their financial controls and reporting has improved. This is to be welcomed. There are clear examples, such as Shamrock Rovers, Sporting Fingal and UCD, to name just a few. In recognition of the FAI's work in this area, UEFA has invited the FAI's internal compliance officer, Padraig Smith, who is with me, to join its club licensing working group as it looks to improve the effectiveness of financial regulations and controls across European and domestic competitions. Indeed, UEFA's CEO at the time, David Taylor, is on public record as commending the FAI's work on good governance, especially in the area of financial regulations and commending its success in running licensing across each of the national league divisions. This work is held up as a benchmark for other member associations, as currently Ireland is among only 20 of the 53 members which license all their national league clubs. It is up to the national association whether to adjust the licence for teams that will play in Europe or in premier divisions. We license all our clubs.
Significant progress has been made in professionalising the administration or organisation of League of Ireland clubs. This has been achieved in a number of ways. For example, the enforcement of criteria within the club licensing process requires clubs to retain personnel with relevant and appropriate qualifications in specified functions in order to secure their licence. In addition, a training and education programme for key personnel such as event controllers, groundsmen, match stewards, financial officers, media officers, etc., is facilitated by the FAI.
In terms of technical development under the stewardship of our technical director, Packie Bonner, there is a strong link in business between the achievement of qualifications and success. The link in football is equally demonstrable. Good players are the result of good coaches and good coaches are the result of a good coach education system. In terms of the qualifications of managers and coaches working within the league, significant progress has been made in the past three seasons. This has been as a result of the FAI's drive to increase the quality and quantity of coaches through the implementation of its technical development plan. Today we have 23,000 coaches countrywide all the way through to pro-licence level, the highest possible European qualification, and the 2,600 clubs that play under our jurisdiction. The strict enforcement of club licences requires those working as premier division managers to achieve a pro-licence by the 2011 season. The progress in this area is highlighted by contrasting the current figures with the 2004 season, when 11 of the 22 managers operating within the League of Ireland had no coaching qualifications whatsoever. In 2009, 12 had the pro-licence, one had the youth certificate and one a recognition of competence, which demonstrates the extent of the improvement in that area.
In terms of communications and marketing, the Genesis white paper was scathing of sponsorship, attendances and marketing in its review conducted in 2005-06 and investments in this area have been a key part of the FAI's change programme. Three years into that change programme a number of successes in a very competitive market are noteworthy. Attendances at premier division matches are up over 30% since the merger in 2007. These figures are being independently audited by Grant Thornton.
The FAI has won a number of national awards for its marketing of the league including the Irish Direct Marketing Association's best integrated campaign and best responsive broadcast. A customer service programme has been rolled out in line with best practice across leading European leagues. The League of Ireland brand has been aligned with large brands such as the National Dairy Council and An Post, which boosts national awareness and supports community-based campaigns. The League of Ireland website is highly regarded, securing an average 28,000 hits per month — and there is a one-hour prime-time show on RTE every Monday night to showcase League of Ireland soccer.
The FAI is investing considerable resources in encouraging League of Ireland clubs to focus still further on the communities they serve. Under our club promotions officers, CPO, programme, the FAI co-funds full-time CPOs with premier licence holders — 15 in 2009 — to build links with local schools, underage clubs and community groups using initiatives such as our "Fans of the Future", healthy eating campaigns, "Show Racism the Red Card", anti-smoking and road safety messages. Visits to schools and community groups by CPOs are supported by players' visits and invitations to attend matches.
The FAI's work with clubs on this community development strategy is designed to build interest, awareness and attendances. This is obviously a long-term project but early successes have been encouraging and feedback from key stakeholders engaged with the clubs in their efforts has been very positive. Some simple examples of using football as an effective vehicle for community-focused initiatives include the following: last year, Shamrock Rovers won an award for best community business in the South Dublin Chamber of Commerce awards; last month, Finn Harps's CPO programme won an award in Donegal for its seat-belt awareness campaign on school buses; UEFA has commended the FAI's "Show Racism the Red Card" campaign, which saw more than 70,000 Irish children receive educational literature on anti-racism and player visits to reinforce the anti-racism message; and the national healthy eating campaign in conjunction with the National Dairy Council promotes a school milk scheme in around 500 schools, many of them already in receipt of free football equipment to encourage healthy physical activity from a young age.
As evidenced by our partnerships with local authorities in co-funding more than 40 development officer positions, football is recognised as enormously effective in generating social capital. Football-related initiatives have proven their value in projects tackling childhood obesity, alcohol and other substance abuse and getting girls active in sport. Football as a sport has played its part in providing opportunities for children to enjoy themselves on the playing fields rather than at their playstations.
Fingal County Council recognised the power of football in promoting local identity by working with local football agencies to establish a national league club called Sporting Fingal in 2008. The success of this project means that the community can express pride in its identity by associating with the football club while local schools and community groups are energised by the club's various initiatives. I do not have to remind the committee that Sporting Fingal won the FAI senior cup last month. It is only two years old but is already competing at European competition level. This is largely to the credit of Mr. David O’Connor who is a superb county manager, and his team.
In a similar vein, Shamrock Rovers has become an anchor tenant at the new Tallaght Stadium and enjoys enormous support from the local community. Just as important, South Dublin County Council has recognised and supported the potential of the club by co-operating with its community animation activities.
In tandem with these types of partnerships, local authorities continue to work closely with League of Ireland clubs to improve facilities. Improvements in facilities have brought the added benefits of introducing special events to areas, with the hosting of underage internationals at venues such as the Regional Sports Centre in Waterford, home of Waterford United, a club well known to me, I can assure the committee. I can assure Deputy Ring that we shall get one in Mayo yet.
In summary, the FAI has largely achieved what it set out to do at the beginning of 2007 in terms of changing the governance structure, professionalising the administrative structure supporting the League of Ireland and reshaping the competition structure to allow a clear pathway for those seeking to perform at the highest level of the domestic game — players, managers, coaches and clubs.
In recognising the progress made by clubs in areas ranging from facilities to the strengthening of administrative functioning, the actions of a minority of clubs continue to publicly undermine the impact of this progress. The introduction of financial officers at some clubs is a significant development and the FAI will continue to support their work to continue to strengthen this aspect of each club's performance. The ability of clubs to dictate the salary market in the 2009 off-season — around 90% of players are out of contract — is an opportunity for each club to take the necessary financial measures, which the FAI will monitor closely, in the interests of encouraging a real and required correction to expenditure levels at some clubs.
The improvement in our UEFA co-efficient, down from 40 to 29, the improving standards of facilities, the improvements in events management and control, the work of the CPOs in generating excitement within schools and local communities about the League of Ireland and the continuing success of partnerships with local authorities are all welcome developments. The senior game must be the benchmark for all others in term of administrative excellence, financial management, commitment to promoting the sport, involvement in and support for all of the association's initiatives and so on.
While some League of Ireland clubs have failed to play their part in setting and maintaining those standards, the majority are contributing to the positive results and improving trends have been reported. These achievements should be acknowledged in the context of a very challenging economic environment and they will be the basis for the clubs to take advantage of future upturns in the economy. Similarly, the more stringent regulatory environment in which our clubs operate means many League of Ireland clubs will be in a very strong position to maximise any competitive advantage when corrections brought on by European football governance conditions take effect in the market.
I would like to invite Mr. Richard Fahy to make a presentation.
