Reading exemplifies the rogue owner problem

The recent travails of Reading FC, founded in 1871, have been held up as a case study as to why regulation of football is needed, after an ambitious owner overspent and underdelivered, leaving the club with unpaid bills, points deductions, relegation and the threat of collapse. “Football is currently organised as a casino and it attracts gamblers,” Greg Double told the Financial Times speaking as, part of the campaign group Sell Before We Dai, which has been urging a sale of the club. “We got a bad one.”

Perhaps unintentionally, his reference to a casino echoes Susan Strange’s famous book Casino Capitalism which was one of the founding documents of the study of international political economy, suggesting from a non-Marxist perspective that risky speculation was endemic in capitalist economies.

Reading was acquired in May 2017 by Dai, who made his fortune in China turning air-raid shelters into shopping centres, and his sister Xiu Li Hawken. The paperwork was signed just days before the play-off final between Reading and Huddersfield Town. Victory would have taken Reading back to the Premier League, football’s richest competition, but the team lost the game on penalties. 

Dai’s purchase came near the end of a short-lived wave of Chinese investment in European football. The Chinese government later changed policy and discouraged these investments, concerned about outward capital flows. 

Spurred on by Beijing, Chinese investors bought or took stakes in several clubs, including top Italian sides AC Milan and Inter Milan, Atlético Madrid in Spain, and a number of English teams such as Manchester City, Aston Villa and Wolverhampton Wanderers. Many of those investments have since been unwound.  After Reading lost the 2017 play-off final, Dai poured money into the chase for promotion to the Premier League.

The heavy spending drew the attention of football’s governing bodies. In November 2021, the English Football League (EFL) docked Reading six points for breaching financial rules. At the time, the club’s annual £32mn wage bill was more than double total revenue. Reading has been barred from buying new players almost ever since.  Reading posted an annual pre-tax loss of £17mn in its most recent set of accounts covering the year to June 2022. It lost £36mn the year before.

Deloitte estimates that the club’s £220mn net debt is the biggest in English football outside the Premier League. Yet Reading’s grim finances are in keeping with the broader landscape in English football, where most clubs rely on wealthy owners to cover consistent shortfalls. Football finance guru Kieran Maguire  estimates that, based on earnings before interest and tax, teams in the Championship, England’s second tier, typically lose almost £500,000 a week, while the league’s average wage bill has exceeded average revenue in all but one of the past 10 seasons. “Clubs are losing money before they turn the floodlights on. It’s not a sustainable business from a traditional viewpoint,” he said.

At Reading, more punishments for late payments have followed, contributing to the club’s slide into English football’s third tier at the end of last season after two decades in the top two divisions. In February the club was deducted two more points after it failed to pay money owed to HMRC, while Dai was fined £100,000 by the EFL and ordered to deposit funds sufficient to cover the club’s monthly wage bill. The EFL has instructed Dai to “provide his club with the appropriate resources needed” and accelerate “his efforts to sell his majority shareholding to new owners.

However, the league has no power to force a sale, and can only impose more fines and dock more points, or take the nuclear option of kicking Reading out of the league. “As a fan what’s happening here is devastating,” James Sunderland, the Conservative MP for nearby Bracknell told the Pink ‘Un. “It’s clear that we need to better protect football from rogue owners — and if you want the perfect test case this it, right here.”

Dai’s problems are not confined to Reading. Two other football clubs he owned — Beijing Renhe and KSV Roeselare in Belgium — have been liquidated.  Meanwhile his main business, China Dili, has run into trouble. The company’s Hong Kong-listed shares have been suspended since October 2022 after facing litigation from lenders related to overdue payments on bank loans. The company said in December that bank deposits worth Rmb612mn (£67mn) had been frozen. 

Following cost cuts, Reading no longer has a media relations team. The club declined to comment. Efforts by the FT to contact Dai for comment through the club and at his registered address in Hong Kong have been unsuccessful.

Despite an affluent fan base, proximity to London and a highly rated youth academy, Reading’s prospects are uncertain. Supporters have been told that the club has a shortfall of £1mn for this month and there is no clarity on whether Dai will deliver the necessary funds.

Some fans have suggested an emergency fund raising, others hope that failing to pay bills might finally push the club into administration and accelerate a sale. The greatest fear among Reading supporters is that assets could be sold off, leaving the club with little apart from a name and a badge to offer any new owner. Liquidation remains a real threat.

The 24,000-seater Select Car Leasing stadium used by the team is owned separately by Dai. The club recently agreed to offload its Bearwood training ground to local rival Wycombe Wanderers but the deal fell apart this week after Reading fans discovered a clause in local planning documents that bar any other team from using it. 

For now, all hopes rest on Dai reaching a deal to sell the club. Talks have been held with potential buyers in recent days, according to people familiar with the matter, but the club has said nothing in public. 

While the new football regulator will be tasked with addressing some of the issues affecting clubs such as Reading, legal experts doubt it will really bring about change. Simon Leaf, head of sports law at Mishcon de Reya law firm, told the FT that the new regulator’s powers on ownership were “headline-grabbing”, but that “in reality it would be very difficult to effectively nationalise a football club” if an owner was deemed to be problematic. As to whether it might alter the behaviour of club owners, the dream of reaching the Premier League is likely to endure. “The one thing I’ve learnt about football is that football learns nothing,” said Maguire.