There was once upon a time Reading Football Club (Reading) were seen as the poster child for the well-run, sustainable management of football clubs in the English leagues during the mid-2000s when they were in the Premier League. Safe to say, a lot has happened since then which has led us to the recent announcement from the English Football League (EFL) that should there current owner not sell the club by 4th April 2025, then the club could be expelled from the EFL, due to their current owner, Dai Yongge (DY), being disqualified under the EFL’s Owners and Directors Test (ODT). In this blogpost, I will look to explain the history of the current situation, what the relevant parts of the EFL ODT say, and what are the potential outcomes.
History
Reading were owned by local businessman John Madejski from 1991 until 2012. During this time, the club were by and large, seen as a stable, well-run, and sustainable club, and relatively successful on the field, culminating in multiple seasons in the Premier League and an 8th-place finish in the 2006/2007 season before being relegated the following season. Madejski sold 51% of the club in May 2012 to Russian businessman Anton Zingarevich. Whilst the deal worked in the immediate short-term as Reading were promoted from the Championship as champions, it turned into a disaster as money that didn’t exist was spent on extravagant transfers and wages. Reading didn’t look like staying in the Premier League, and they came straight back down with a bump. Following Zingarevich, came a consortium of Thai owners who then in 2017 sold to DY, the present owner.
Who is Dai Yongge?
DY, a Chinese businessman, has been involved in football club investments since the early 2000s. His interest began when his sister, Dai Xiu Li, lived in England and watched Chinese defender Sun Jihai play for Manchester City. In 2007, they acquired the Chinese club Shaanxi Baorong Chanba, relocating it to Guizhou in 2012 and then to Beijing in 2016, where it became Beijing Renhe. The club later folded after competing in China League One.
In August 2016, the siblings attempted a £130 million takeover of English Premier League club Hull City, but the bid was unsuccessful. Subsequently, in May 2017, they purchased a 75% stake in Reading Football Club after receiving approval from the English Football League (EFL). As of the time of writing, he now holds 98% of the club.
Throughout his involvement in football, DY's investments have been marked by financial difficulties and regulatory challenges, leading to significant consequences for the clubs under his ownership.
What happened at Reading?
Under DY's ownership, Reading FC faced significant financial challenges. The club breached EFL Financial Fair Play rules, reporting pre-tax losses of £146 million over five years, far exceeding the EFL's annual limit of £13 million. In 2021, Reading spent 234% of its revenue on player wages. These financial issues led to multiple points deductions and transfer embargoes. In May 2023, Reading was relegated from the Championship after a six-point deduction for financial irregularities. The club also faced charges for failing to pay players on time and in full during the 2022-23 season, resulting in further points deductions.
In early 2024, with the club still in dire financial trouble, but managing to keep competitive on the pitch in League One, Rob Couhig, an American lawyer and former owner of Wycombe Wanderers, had agreed to purchase Reading FC for £30 million. As part of this agreement, Couhig's company, Redwood Holding Ltd, lent Reading £5 million to cover operational costs during the transition period. However, the deal collapsed when DY's company, Renhe Sports Management, allegedly breached exclusivity agreements by entering negotiations with another potential buyer. Consequently, Couhig filed a lawsuit seeking over £12 million in lost potential profits. The court ruled in favour of Couhig, determining that he was not required to return securities associated with the loan. This decision effectively acknowledges the financial losses incurred by Couhig due to the failed transaction.
During the proceedings, it was revealed that the EFL disqualified DY under its Owners' and Directors' Test, giving him until April 4, 2025, to sell the club. Failure to do so could result in Reading's suspension from the league.
EFL ODT summary and powers
The EFL Owners and Directors Test was first introduced in 2004 and has evolved to closely align itself with the FAPL version of the ODT. Section one contains the relevant definitions and in that, it contains all the same disqualifying conditions as the FAPL ODT including the subjective element pertaining to conduct outside of the United Kingdom which could be considered to constitute an offence under English and Welsh law. The EFL ODT refers to owners and directors as ‘Directors’, as defined in section one, to include directors, shadow directors, and persons who have ‘control’ or the powers of a director over the club. ‘Control’ is defined in the EFL Regulations as anyone who owns or controls 25% or more of the voting shares of an EFL member club, or has the power to appoint or remove members of the board. Another important requirement is that any individual or entity with a 10% or more stake in an EFL club would also fall under the ODT regulations and be required to adhere to the requirements of the regulations.
Section two outlines the various ‘Disqualifying Events’, which directly mirror those in the FAPL rules. It is believed that the reason for is to ensure that clubs which move between the FAPL and EFL face minimal regulatory disruption as they move between the respective leagues. Key disqualifying conditions include:
2.1.8 – 2.1.9 - Criminal Convictions: Unspent convictions resulting in imprisonment of at least 12 months, particularly for offences involving dishonesty, corruption, or perverting the course of justice. This also includes offences under the Offences Against the Person Act 1861, which includes offences such as assault and battery, ABH, and GBH among others.
2.1.6 - Director Disqualifications: Individuals disqualified from acting as directors under the Company Directors Disqualification Act 1986 or equivalent legislation in other jurisdictions.
2.1.11 to 2.1.16 – Insolvency: Undischarged bankrupts or those involved with clubs that have entered insolvency events, especially if multiple insolvencies have occurred under their tenure.
2.1.4 – Multiple Club Interests: Holding a significant interest (typically over 5%) in another football club that competes in the same competition, to prevent conflicts of interest.
2.1.18 – 2.1.22 – Sanctions and Bans: Individuals subject to bans or disqualifications by sports governing bodies or professional bodies, including suspensions related to betting offences.
2.1.17 – Unsatisfied court orders or judgments. This means failing to pay any court-ordered sums arising from litigation proceedings of any kind, anywhere in the world and not just in the UK.
In DY’s case, reporting of the court proceedings by Matt Slater revealed that he has been disqualified by the EFL based on debts and court rulings in China, which falls under the disqualifying condition in section 2.1.17 of the EFL ODT.
Any disqualification order issued by the EFL, as per section 5.1.3 gives the disqualified owner or director 28 days to take all steps as necessary to ensure that they are no longer a director. In effect, this means that they need to sell their shares in that club within 28 days and resign any roles in the club that they may hold.
Should they fail to do so, then section 7.1 kicks in, which gives the EFL the power to suspend the club from the league, in any competition, including the FA Cup, and even European competition where applicable. Should the club comply with the disqualification order after any suspension is applied, then the EFL have the power to remove the suspension and allow the club to resume playing again.
What it means for Reading
The EFL has given DY a deadline of 5th April 2025 to sell the club, which when applying the 28-day time frame mentioned in 5.1.3, means that the EFL issued their disqualification order on 8th March 2025. The EFL have stated as follows:
“The disqualification requires Mr Yongge to divest his interests in the Club, and in the event that he fails to do so within the agreed time frame, the League will consider all options available within its regulations to bring the matter to a conclusion.”
Given DY’s recent withdrawn attitude to the club and failure to comply with order EFL orders and sanctions, it remains to be seen whether DY will comply with this. Despite multiple bids to buy the club from him, many negotiating parties have complained that he has regularly shifted the goalposts and is generally seen as difficult to deal with. Despite this, it is one thing to be seen as an absentee and uncaring owner, it is another entirely to be responsible for killing a club under your watch. The suspension of the club from the league is likely to be catastrophic for a club like Reading, and should they be suspended from the EFL.
The knock-on effect of this would be that it could allow Reading’s players to unilaterally terminate their contracts with the club so that the club would be unlikely to receive a transfer fee for the player. This would come under the FIFA Regulations on the Status and Transfer of Players (RSTP), principally Articles 14 and 15. A fuller discussion of these can be found at my blog posts on the Diarra case, and here.
Article 14 allows a player to terminate for ‘just cause’, usually meaning that the club breaches their contractual obligations to the player, normally by failing to pay them for 3 months or more. In Reading’s case, if they are suspended from the EFL, and are unable to play games, then their primary form of revenue generation would be lost, and it would be likely that they would struggle to pay their players on time, or at all. If this happens, then this may create an Article 14 right for the players to terminate their contract. This was one of the underlying themes of the recent Diarra decision on the transfer system.
Article 15 relates to ‘Sporting Just Cause’, which allows a player to terminate their contract if they have played in fewer than 10% of their club's official matches that season. It is a rarely activated clause, and may not be directly applicable to Reading players in this instance, but may be an option for some of the other players in the squad who may fall within the criteria of playing less than 10% of their official matches.
Furthermore, the suspension of the club could potentially mean that the club could potentially follow the same fate as Bury, who was expelled from the EFL in 2019 for essentially failing to satisfy the ODT in place at the time by failing to demonstrate how the new owners could fund the club's operations. Although there are differences in the details, the substance of the issues affecting both clubs are strikingly similar in many respects.
Conclusion
When DY bought Reading back in 2017, he appeared to have breezed through the iteration of the ODT in place at the time, and to be fair, had invested significant sums into the club. But once he decided that either he no longer wished to play an active role, or was no longer able to, then it is difficult for any set of regulations to force any recalcitrant owner out of the club they own. No set of regulations can deal with every situation, and can only deal with those who are incompetently dishonest. Those who are competently dishonest often manage to outrun any regulatory regime. As a result, the club sits perilously on a cliff edge if a sale is not completed by the 5th of April 2025 as any suspension could be catastrophic.
Since 2022/23, that appears to have been the case with DY and Reading, as the EFL was unable to effectively enforce their rules to remove DY as an owner until they could point to a particular breach under the ODT. Now that they have been able to, it gives the oft-forgotten stakeholders in any club, the fans, hope of a new dawn. But even with the current Disqualification order in place, it still relies on DY doing the decent thing and selling the club. Thankfully, there appear to be willing buyers such as Rob Couhig and other consortia who are ready to step in and stabilise the club and get it back onto a more even keel, so a sale seems a very strong possibility.
For Reading fans, and for all of English football, it is time for a new dawn, so that this nightmare can end for the fans and the local communities that the club lies at the heart of.
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