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1) Order the kick to be re-taken. As soon as
the goalkeeper moves off his line you must be ready to act. Base
your decision on the outcome of the kick. If the kick is scored,
award the goal. If it is missed, as in this scenario, award a
re-take.
2) His team now has only two substitutions
remaining. They could have replaced the striker immediately, before
you signalled for kick-off, in which case they would have been
allowed to nominate another substitute. But they left it too
late.
3) Award the goal, and tell the home manager to
cool down. Explain clearly that the law has not been broken. The
assistant is allowed to run inside the touchline. However, they are
advised not to, because it looks untidy and can interfere with play
– it's not good practice, so you should also have a word with your
assistant and agree on where he should run.