Building Australia's Football Community—review into the sustainability of football
Context and Summary of RecommendationsAs part of the review into the sustainability of football in Australia in the lead up to the Asian Football Confederation (AFC) Asian Cup 2015, the Minister for Sport, Senator the Hon Mark Arbib, has asked for advice on appropriate governance arrangements to support the Asian Cup. This report is provided in advance of the outcomes of the full review to enable Asian Cup governance arrangements to be established as a priority.
Australia was announced as host of this event in January 2011 and governments have committed up to $61 million towards the establishment of the Asian Cup Local Organising Committee (LOC) and organisation of the event. It is important that project planning, LOC recruitment and early LOC operations get underway as soon as possible. Critical to the release of government funding is government confidence in the leadership established for the event.
Below is a summary of the key recommendations in this report.
It is recommended that:
1. In relation to the LOC Board it is recommended up to 12 directors be appointed as follows:
a) Governments collectively nominate three board members
b) FFA nominate three board members
c) Governments and FFA jointly agree three board members
d) AFC should be given an opportunity to appoint 3 members in accordance with the Bidding Agreement.
2. In order to satisfy AFC requirements, FFA appoint the Chair in consultation with governments.
3. Governments be invited to send two observers (one Commonwealth, one State/Territory) to all Board meetings.
4. The Minister consider establishing a roundtable or advisory arrangements to ensure maximum leverage from the Asian Cup and other sporting events in 2015, including the ICC Cricket World Cup.
5. Governments consider the ways in which the LOC can be incentivised to run the event efficiently, such as retaining any surplus that is generated.
Benefits of hosting the Asian Cup 2015The Asian Cup is regarded as the premier sporting event in Asia. It is a contest between the sixteen best teams in Asia, which include a number of highly ranked nations comprising world class players. As the Asian region continues to develop its football credentials the tournament continues to increase in quality. AFC has ambitions to see the event take its place amongst the most prestigious of tournaments in world football. Australia is a new member to the confederation and has established itself as a regional powerhouse on the field, although is yet to win the event in two attempts.
Against this backdrop, 2015 is excellent timing for Australia to host the event. Australia has a track record of delivering outstanding major events and, with respect to previous editions staged throughout Asia, will no doubt set a new standard for the tournament. It also enables FFA, as a new member to the Confederation, to cement its place in the Asian football community and it will provide a much needed boost to the game domestically.
While there is clear benefit to the AFC and FFA from hosting this event in Australia, the question must be asked what broader benefit – for the Australian economy and community – is derived. In addition to major international exposure through television audiences that could be up to one billion, headline figures from a PricewaterhouseCoopers cost-benefits study1 suggests:
- the creation of between 500 and 1,000 new, full time equivalent employment positions
- up to 500,000 spectators
- GDP impact from hosting the Asian Cup estimated at up to $23 million
There is also an opportunity to use the event to contribute to the government’s social policy agenda, in particular increased grassroots participation and social inclusion. For example, there may be opportunities to link with other government supported initiatives such as Street Soccer.
Why governments have an interest in governanceIt is for the reasons outlined above that Governments have a strong interest in the leadership arrangements established for the event. The Asian Cup 2015 is being backed by the Commonwealth, New South Wales, Victorian, Queensland and Australian Capital Territory governments (‘participating governments’). This support was critical to a successful bid and required these governments to sign a series of agreements and guarantees detailing the operational support governments will provide for the event, as well as a significant financial contribution towards organising costs.
It must be recognised that despite the potential benefits, governments are taking a risk on this event. The commercial rights are owned by the organisation World Sports Group (these having been sold by AFC). However the costs of organising and running the event rest with the host federation (in this case FFA and its subsidiary LOC) and the only revenue streams the host federation is entitled to is a share of ticket sales, which have historically been underwhelming.
It ultimately falls to the participating governments to fund the shortfall, which in the case of the 2015 edition, has been estimated to be up to $61 million.
If governments are going to make this sort of commitment they will want to ensure that the LOC:
1. Is equipped to use the funding appropriately, efficiently and in a manner which supports a first class event while also delivering on promised economic benefit
2. Through the event, supports government objectives around trade, tourism, social policy and other identified strategic objectives
Governments will want to partner with a dynamic and strategic LOC Board to harness the full potential of the Asian Cup and maximise benefits.
Factors influencing recommendations on governanceIn developing a recommended approach to LOC governance, the views, preferences and requirements of the FFA, AFC and participating governments have been examined.
FFA and AFCThe FFA position in relation to governance is largely driven by requirements stipulated by AFC. In particular, the Bidding Agreement signed by FFA as part of the bidding process includes the following requirements (full extract at Attachment A):
- The FFA must ensure that it at all times retains (to the extent permitted by applicable law) the practical ability to adequately influence, direct and control the decisions and activities of the LOC with respect to the organisation and staging of the AFC Asian Cup 2015
- The AFC shall also have the right to appoint a minimum of three (3) representatives to the LOC board of directors, with the right to receive appropriate notice of, attend, and vote at, all meetings of the LOC board of directors
- The FFA agrees to use its best efforts to ensure that, its national government remains publicly and privately supportive of the LOC. The FFA shall offer the national government of Australia, the opportunity to appoint government representatives with suitable experience of professional sports and/or sports politics to participate as non-voting observers on the appropriate LOC committees or board or directors
Participating GovernmentsGiven the level of government investment in the organising and hosting of this event, the key factor for governments is the ability to appoint a fair proportion of members to the LOC board. Governments understand that the Corporations Act 2001 will impose certain duties on the directors of the LOC, including that they act in the best interests of the company, and that government appointments are therefore distinct from government representatives. However, governments nonetheless consider it important to be able to influence the skill set and experience of the board through the appointment of board directors.
Key requirements for governments include:
- equitable approach to board appointments
- in line with standard practice, quorum will be 50% +1. This reflects the responsibility of Directors to make decisions in the best interests of the LOC rather than the best interests of individual stakeholders
- governments will be consulted when committees are formed under the LOC and will be offered the opportunity to ensure governments have an opportunity to appoint members if appropriate
- in addition to their involvement in Board appointments, governments be granted observer status for all LOC board meetings
Recommended approach to governanceTaking into account the requirements and preferences of the FFA, AFC and governments, and recognising that the first priority of the LOC Board is to take decisions in the best interests of the LOC and event, the following approach to LOC Board appointments is recommended:
1. Governments collectively nominate three board members
a) It is recommended that these appointments not be made along jurisdictional lines, but rather reflect a skill set, experience and knowledge that governments consider are in their collective, and LOC’s, best interests. While ultimately a matter for governments consideration could be given to:
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i) major event experience
ii) knowledge and understanding of government priorities
iii) links to other areas of government interest – for example tourism, trade, social inclusion
2. FFA nominate three board members
3. Governments and FFA jointly agree three board members
4. AFC should be given an opportunity to appoint 3 members in accordance with the Bidding Agreement
Under this model, FFA would have a hand in the appointment of 6 from a possible 12 board members. As the Bidding Agreement requires FFA to retain practical ability to adequately influence, direct and control the decisions and activities of the LOC, in order to meet this requirement it is recommended that FFA appoint the Chair, but in consultation with government.
It is further recommended that governments collectively nominate two observers (one Commonwealth, one State/Territory) to attend board meetings and who would receive all board papers. These observers, most likely existing senior government officials working on Asian Cup matters, would have no formal status or voting rights but would, at the invitation of the Chair, be able to participate in and contribute to board discussions. Given the level of government investment and responsibility for delivering key aspects of the event, this should be considered a fundamental requirement to ensure government remains fully aware of the activities and strategic direction of the LOC. This is also in keeping with the requirements of the Bidding Agreement.
Meeting broader objectivesThe year 2015 will be a significant one for Australia. The following major sporting events will be hosted on our shores:
- The Asian Cup
- The ICC Cricket World Cup
- The World Netball Championships
Use of government fundingWith commercial rights to the Asian Cup owned by World Sports Group – including all broadcast and sponsorship – the LOC’s capacity to generate income from the event is essentially limited to ticket sales, which have historically been modest. At an estimated cost of $80 million to stage the Asian Cup, government investment is critical – particularly given constraints on FFA’s ability to bankroll the event, as will be discussed in more detail in the full report. Participating governments have committed to collectively contributing up to $61 million towards the cost of organising and hosting the Asian Cup with 50% of the cost to be borne by the Commonwealth.
Government officials have already commenced negotiating the details around the provision of this funding, and it is a matter for these officials to set up this arrangement to ensure appropriate accountability for and reporting against the use of tax payers’ money, in accordance with usual practice. However, in an environment where the viability of football has been heavily reliant on financial support from government, and in the context of the broader review into the sustainability of football, there is some comment to be made about how the LOC is incentivised to run an efficient event.
The current commitment of funding ‘up to’ $61 million includes a caveat that any funding that is not required to support the event must be returned to governments. This is problematic for a number of reasons:
- It creates an incentive for the LOC to ensure all the government money is expended
- It creates a disincentive to run the event efficiently and maximise revenue
- It will be very difficult to administer for an event that will cost in the order of $80 million, in particular determining, monitoring and approving which of the thousands of expenditure items should be attributed to government
- This administrative burden (for both FFA and governments) would reap a relatively small return:
– Without an incentive in place to achieve this, the surplus is likely to be eroded
It is therefore recommended that governments consider the ways in which the LOC can be incentivised to run the event efficiently. Allowing FFA to retain any surplus is the simplest way to achieve this, however government way wish to also include stipulations around the use of the funding, such as requiring its reinvestment into grassroots football. Governments could require FFA to seek explicit approval for how the funds will be used.
This approach has a number of advantages:
- it provides an incentive for the LOC to run an efficient event
- it encourages creative marketing to maximise ticket sales, with a broader flow on benefit to the community and economy
- it provides an incentive for the LOC to negotiate hard with AFC and World Sports Group to establish creative additional revenue streams – for example establishing local partnerships that might be unique to Australia, participating States and Territories or participating cities, which would not be on the radar of Word Sports Group
- it provides for investment into grassroots football (or other investment stipulated by governments) that would not otherwise have existed
1PricewaterhouseCoopers, June 2010, Football Federation Australia AFC Asian Cup 2015: The economic impacts on Australia, Addendum, Sydney NSW.
Attachment A - Bidding Agreement Extract: Establishment of LOC
- The FFA agrees to formally establish the LOC, and to deliver a copy of the LOC Registration Certificate to the AFC, prior to 8 May 2009. The FFA undertakes to ensure that, if Australia is selected as the host country for the AFC Asian Cup 2015, the LOC will perform the hosting and staging obligations under the Organising Agreement, with no changes to the legal capacity or nature of the LOC being required
- The LOC must be a wholly-owned subsidiary of the FFA, in the form of a company limited by shares
- The FFA must ensure that it at all times retains (to the extent permitted by applicable law) the practical ability to adequately influence, direct and control the decisions and activities of the LOC with respect to the organisation and staging of the AFC Asian Cup 2015. Representatives of the FFA shall therefore serve as members of the LOC board of directors (or similar body) so as to enable the FFA to ensure that the LOC can adequately fulfill its responsibilities under the Organising Agreement
- The LOC shall, unless otherwise approved by the AFC, be presided over by an individual approved by both the FFA and the AFC who, for the duration of his/her appointment must not authorise any third party or brand to associate itself with his/her position, personality and/or image
- The AFC shall also have the right, subject to the counter-signature of the Organising Agreement by the AFC, to appoint a minimum of three (3) representatives to the LOC board of directors (or similar body), with the right to receive appropriate notice of, attend, and vote at, all meetings of the LOC board of directors (or similar body)
- The FFA agrees to use its best efforts to ensure that, at all times until the conclusion of the AFC Asian Cup 2015, its national government (as may change from time to time) remains publicly and privately supportive of the LOC, and the performance by the LOC of its obligations under the Organising Agreement. The FFA shall offer the national government of Australia, upon any announcement of Australia as the host country of the AFC Asian Cup 2015, the opportunity to appoint government representatives with suitable experience of professional sports and/or sports politics to participate as non-voting observers on the appropriate LOC committees or board or directors
- The FFA shall ensure that the LOC has, and continues to have, throughout the term of any LOC appointment, sufficient liquidity to enable it to perform its obligations under the Organising Agreement