A Provocative Proposal For Fan Ownership at AFC Wimbledon

The Purpose Foundation & Dons Trust Accountability within a New Future-proof Structure

By Dave Boyle, with input from Graeme Price, Charlie Talbot, Damian Woodward & Xavier Wiggins.

A) Initial Thoughts

The benefits of being fan-owned are long-term. 

The purported benefits of significant cash injections are short-term. Football, especially in the second tier and upper echelons of the third tier, has normalised clubs spending way beyond their means, with the rewards accruing to those who can pull this off with the most aplomb. 

This creates a disconnect in fan discussions around this subject. In the short term it can result in a largely negative perception that fan-ownership is largely what is holding the club back, eg losing out in signing a player, or being out-bid on a player’s wages by a rival prepared to spend more money now. On the other hand, the benefits of club ownership over a long-term basis offer a more distant sense of satisfaction and long term stability. 

B) German Lessons – why can’t we just copy them?

The 50%+1 model prevalent in Germany is consistently cited as an ‘ideal’ position on which to settle. It balances the long-term fan ownership for current and future generations, but also allows commercial/private influence to augment the club’s finances.

It is hard to overstate the central importance of the fact that the Bundesliga rule is a rule. It is enforced by the league and breaching it carries significant penalties – this means no-one breaches it.

This in turn creates a level playing field which means since no club is stealing a march on you by selling equity, you don’t have to match them. Furthermore, since no club can sell equity, each club must acquire funding from third parties on the basis of those parties’ funding being treated as revenue, not capital. 

Since we don’t have that rule in English football or English law, if we simply vote to allow the trust to move to a 50%+1 ownership rather than 75% it will simply move similar debates to the ones we are currently having to a new battleground. Namely, from those prepared to chase immediate success on the pitch right now above all else, there will be a clamour for more investment through any means necessary, even if it means dropping the ownership percentage down further. Since the minority shareholders will have more ability to try to force changes through any PLC votes, eventually this debate will be be lost (or won, depending on your preference) and the club will cease to be fan owned. 

Furthermore, in doing this, the individuals who have provided the money will have bought a long-term asset – equity in the plc – when we simply needed short and medium-term money. We sold a one-off for something we need every year. This need to repeat also creates a further pressure to have to keep on selling equity.

But could we achieve something like this in our own way?

C) Systemic alterations

We contend that any system at AFCW that sought to guarantee the majority ownership of fans/the DT would be worthless unless it was genuinely beyond debate that this could be changed. In other words, even if fans of a German club want a magic oligarch to come in and buy their club, there is no way it can happen. The strongest weapon in the hands of would-be club purchasers – the biddability of the club’s fans – is taken off the table as a weapon. 

Taking sale of shares off the table removes the ‘easy’ way out for the plc and Trust to fudge the issue of how to generate value, as any board can always go to the cupboard, have a rummage and find some shares to pass over. We saw this with our own board with regard to the funding shortfall in late 2019 – selling control was presented as the only sensible way out (a unique solution to a unique problem, if you will). 

Indeed it is precisely this inability to “sell out” which makes German clubs comparatively more commercial, more aggressive and more innovative. So, taking the shares off the table preserves something the majority want, whilst also making the club leaner and hungrier and more innovative. 

D) How could we do this?

Clearly, the FA or respective leagues we play in will not perform the same role that the Bundesliga performs. So any mechanism to put the sale of the club’s shares beyond use must be found in the corporate structure, rather than the operating environment of English football.

E) The Purpose Foundation

The Purpose Foundation is an organisation based in Berlin with a brief to promote and support ‘steward ownership’. This is broadly defined as the ownership of an enterprise in the interests of the longer-term interests of its core stakeholders, usually employees. Some employee-owned firms have determined that if the immediate financial interests of employees can be served through accepting an offer for a company, then the company can and should be sold, regardless of the impact on the future employment conditions of those employees. The short-term interests of the employees trump their longer-term interests.

The Purpose Foundation has therefore created a Trust based in Switzerland which has a single mandate: to always act in defence of the continuation of steward ownership in any company in which it has been given rights. 

Steward-owned enterprises create a separate class of shareholding which acquires certain rights over the company’s constitutional and governance arrangements. It operates as a silent party, taking no active role save that at any general meeting, should a proposal seek to dilute or otherwise reduce the steward ownership of the company, it will vote against it.

The board of the Purpose Foundation is elected from members of the Foundation who comprise the various organisations who have consented to have the Foundation operate in it. 

F) AFCW and the Purpose Foundation

The Purpose Foundation would be issued shares in AFCW Plc which gave it rights to block any issue of equity beyond a number that preserved the DT at 50%+1 of voting power, and block any transfer of shares from the DT to another body. 

We then need to decide how to preserve or adapt the DT’s role and the question of how to ensure the ability of fans to be involved in certain decisions through the DT or Purpose Foundation oversight committee. 

G) Existing share classes and minority stakes

A shift in structure utilising the steward ownership of the Purpose Foundation would also enable the club and Trust to address some of the confusion arising from the two classes of shares available in AFCW plc currently. Currently there are shares with three votes attached and others that grant only a single vote: clearly the three vote shares are more valuable although not on a linear basis. The Purpose Foundation would potentially allow us to also tidy up this mess and confusion: any voting equalisation could sit outside the holding of the Foundation.

Thus far many of the current Dons Trust Board appear relaxed about diluting the DT shareholding in AFCW plc below 75% (though most want to keep it over 50%) but it’s worth a small aside looking at the potential future threats from aggressive minority shareholders, as between 75% and 50% is the killing zone of complacent shareholders. 

Any acquisitive investor can leverage their position massively once in situ. Ask any private equity investor and they will tell you that you do not need to hold the majority of shares to control a business. Control comes in a variety of forms: one classic example is the lending of money to a business, which when repayment difficulties emerge is then turned into equity, either directly or via an insistence on a rights issue under the guise of protecting pre-emption rights of existing shareholders. When not all of them take up their allotment, the individual (or entity) with the debt can act as the underwriter and hoover up all the rights to new shares that are not taken up.

The other method to exert control is to block progress – namely to utilise restricted actions in reverse of how we currently envisage them being used. If an acquisitive individual or individuals have over 25% in total, these tactics can be deployed to gain extra seats on the board or to block what may be necessary to keep everything in its agreed format. In this example think of in property a ransom strip or someone buying a property and allowing to fall into disrepair to increase their chances of getting change of use planning permission.

In short if we were to stay with a purely UK company structure, we would need to be comfortable not only with our investors now, but also certain about who might buy or accumulate shares in the future – especially as the votes allocated through the Seedrs share issue are a single voting block wielded by Seedrs itself. And we would also need to be certain that we had a sufficiently robust structure to ensure that we will remain fan-owned even after an initial drop below 75%. This is fraught with potential future problems – all removed if we switch to the Purpose Foundation model. 

H) Raising finance for the club within a new structure 

In tandem, the club would have to seek to develop a system where individuals who wished to make significant injections into the club were awarded some rights but those rights were not transferable. Our imagination needs to be expansive here in designing this. 

For example, it could be that people buy the right to sit on the (plc) board for 10 years for a certain price, and that should they wish to give up this right, the club can sell it on to a third party, but the person to whom it is sold firstly can’t be introduced by the current owner of the right, and secondly, must be reimbursed in full for their amount paid, but the surplus on top of the sum paid is distributed 25%-75% to them and the club. 

So, individuals would purchase a right which had value, and could see the value returned to them, but they couldn’t be the person who did the identification of their replacement. They could suggest, certainly, but the club would be forced to undertake a beauty contest, rather than enter a sweetheart deal. 

Alternatively, the value of the right might degrade by 10% per year, so that by year 10, it’s worth 1/10th of the original value, meaning the replacement of them as a leading light gets easier as time goes on, and they can’t hold out for a certain value as a form of ransom.

The remaining equity would sit outside with the DT to be sold to whomever fits the bill, with the profits on subsequent sale to be split in the agreed portion with the DT and the seller of the shares. The DT would have first refusal to purchase and at the point of sale should make offers to small shareholders to enable them exit at the agreed price if they so wished. 

There are doubtless other ways we could do this. All start from the recognition that firstly, we have a scarce supply of, and therefore a market price for, the right to be involved in decision-making at the club, and secondly, that this right must not supercede the overall ownership structure of the club that places the DT in the box seat. 

I) Final thoughts – Changing Role of the DT Board

The Purpose Foundation taking on ones of the current core tenets of the DT’s existence and externalising it for protection of fan ownership would remove all threats to club ownership in the future.

There is then a second crucial question around who we want to sit on which boards and by which means we want our club and Trust to be run and governed. 

As a club, we have three levels of governance – the club, the plc and the DT. This is two more than most clubs, and one more than most fan-owned clubs. If Bayern Munich get by with two boards, then we can too. 

To continue the German model, the DT could be the Supervisory Board, which is needed to approve revenue plans each year, and oversee things like intellectual property (club colours, crest etc) and signed off on all exploitations of these, and would also undertake to provide advice on season ticket prices etc. 

In this scenario, what the Purpose Foundation would be defending is the right of those fans who are decision-makers to veto and make certain decisions that affect their experience of the club – to ensure the club’s spending plans and player budgets aren’t fantastical or threatening medium and longer-term sustainability. That the club was not neglecting the AFC Wimbledon Foundation, nor pricing itself in such a way as to make the club unaffordable to its community.  

There is still a debate to be had around exactly what role the DT Board takes in this and, more importantly, how it consults and reflects the views of its members. And, to look at how club growth and financial support is provided by increased Dons Trust membership (akin to how Australian clubs have grown their membership bases). This is a topic to which we will return. 

The crucial point is for us to decide what we want fan ownership to mean, and then, what is the best way to make that fan-ownership deployed in the pragmatic and messy set-up of the club. Once we have defined what that is, we then get the Purpose Foundation to stand behind it. 

Comments welcomed below and a copy of this proposal has been sent to all DTB, AFCW plc and AFCW Ltd Board members. 

By Dave Boyle, with input from Graeme Price, Charlie Talbot, Damian Woodward & Xavier Wiggins

7th August 2020