Manchester City face a legal bill running into millions of pounds if their unprecedented challenge of the Premier League’s financial rules fails.
Details of City’s action against the Premier League’s associated party transaction (APT) rules, first reported in The Times, have sent shockwaves through the English game, laying bare the fissures between rival clubs ahead of Thursday’s Premier League AGM in Harrogate.
It has been claimed that a victory for City – who also face a tribunal relating to 115 charges of breaching financial fair play rules which starts in November – will change the landscape of football forever, although football finance experts have told i that the prospect of a Premier League “Wild West” with no spending controls remains “highly unlikely”.
Rules governing APTs were tightened in February to put the burden on clubs to prove their sponsorship deals reflect “fair market value” – a move that sources have told i targeted state-backed teams Manchester City and Newcastle as well as Chelsea, who faced scrutiny for their sponsorship deal with Infinite Athlete.
City’s challenge – which will be heard by an independent tribunal over a fortnight and is due to start next week – is being led by heavyweight lawyers from Blackstone Chambers and Freshfields, including Lord Pannick KC, who is also leading their defence in the financial fair play tribunal.
The Premier League has assembled its own highly-qualified legal team from leading city firms Slaughter and May and Brick Court Chambers, as, once more, action off the field dominates the headlines.
It is a potentially expensive strategy for City, whose chairman Khaldoon al-Mubarak criticised “the levels of regulations that have come into place [in the Premier League] over the last 12 months” in his end-of-season address published on club media channels on Wednesday.
“If City lose, they probably do have to foot the bill for both sides and it’s not an insignificant amount of money,” former City financial adviser and corporate lawyer Stefan Borson told i.
“Given it’s a two-week hearing and this has been going on for six months, and there’s so many barristers involved, I wouldn’t be so shocked if it was a few million on either side.”
Here’s how the case could play out – and what experts predict will happen at its conclusion:
What are Associated Party Transactions?
Associated Party Transactions were introduced in December 2021 to stop clubs signing disproportionate or inflated commercial deals with companies who have direct links to their owners.
This was a response to concerns around the Saudi-led takeover of Newcastle United, outlining that all sponsorship and commercial deals must be independently judged to be of “fair market value”, ensuring they are not artificially inflated.
Currently, three Premier League clubs have APT sponsorship deals – Man City, Newcastle and Chelsea.
Newcastle are sponsored by Saudi company Sela to the tune of £25m per year, while Chelsea’s front-of-shirt deal is with Infinite Athlete, an American company Todd Boehly and Behdad Eghbali have invested in.
Both of these deals have been signed off as being of fair market value, which was not the case for City’s long-term agreement with Abu Dhabi-owned airline, Etihad.
In 2011, Man City signed a £400m, 10-year deal with Etihad to sponsor their shirt and stadium. At the time, this was the largest sports sponsorship deal ever made, more than quadrupling the similar £90m, 15-year deal Arsenal had signed with Emirates in 2004.
The 2009-10 Premier League champions Chelsea had attempted to find a similar deal at the time for between £10m-£15m with little success, yet City – who had just won their first title and had never previously played in the Champions League – signed a contract for significantly more than that.
In their current legal case, City argue they should be able to make deals as large as they are able to secure, even if these are with companies also owned by Abu Dhabi United Group or City Football Group.
Three possible outcomes of Man City suing the Premier League
There are two obvious outcomes to this case – either Manchester City win or they don’t. Winning would entail a judgement that the Premier League’s financial regulations are unlawful and anti-competitive, effectively allowing clubs to spend as much as they like by inflating sponsorship payments.
“The absolute worst outcome for the Premier League is that City win the case, throw financial sustainability regulations in the bin and launch a free-for-all,” Wilson tells i. “I really don’t think that’s going to happen, but it is a conceivable outcome.
“That would mean if the Saudi Public Investment Fund want to tip £1bn into Newcastle, then they can sign whoever they want, pay whatever they want and become very, very successful.
“For the Premier League, it would destroy any competitive balance and could ruin it as a product and a UK export. City have won the last four titles, they’re already dominant. If you take leave of these regulations, then they can pretty much operate as they want. The only backstop is that you still have Uefa regulations to comply with.”
But victory for the Premier League would give it a mandate to strengthen its financial regulations. Legally confirming it has the power to enact and enforce profitability and sustainability rules (PSR) would support the current push to introduce a squad-cost ratio and “anchoring“, which would limit Man City and Newcastle’s spending power in the long term.
There is also a third option here – that part of City’s case is accepted and part is rejected. For example, it could be judged that Nielsen are not independent, but not that APTs are unlawful. This would still be a boost to the Premier League, but would equally strengthen City’s own case against the 115 PSR breaches they have been charged with.
Borson argues that some of the Armageddon scenarios if City win their case may be overblown. “The worst-case scenario is that the rules revert back to what they were in December 2021 and you don’t have a concept of what are now known as associated party transactions,” he said.
“But what would almost certainly remain is the powers they have around good commercial rationale. There are plenty of rules that give the Premier League discretion to block sponsorship deals if they don’t believe in the commercial rationale of them. What is likely to happen is some new rules will likely come into place.”
How will Man City’s legal action impact their 115 charges?
It could be argued that Manchester City are bringing forward this case to support their defence against their 115 charges.
As Wilson explains: “It’s the last roll of the dice to try and prevent the legal challenge on the 115 charges by getting to the root of the regulation and saying: ‘These are not lawful, and therefore you can’t enforce them’.
“It smacks to me of somebody that’s running scared. My lawyer is better than your lawyer, and my bank account is bigger than yours, so I’m going to spend more money and try and get out of this so you can’t take me to court. That’s what it feels like.”
If City are successful, it could fundamentally undermine the Premier League’s 115 charges against them. Victory would also cast doubt on Nielsen – the organisation tasked with assessing their financial dealings – and declare the regulations they have allegedly breached unlawful.
Yasin Patel, a sports barrister at Church Court Chambers, tells i: “If Man City are successful in the arbitration hearing over the next couple of weeks, then their chances of success in the 115 breaches hearing in November will be increased significantly.
“Part of Man City’s argument is that they do not accept that Nielsen Sports, the data analytics company instructed by the Premier League to determine the fair market value of sponsorship deals have acted independently, nor that their calculations are correct.
“If this is proved correct, then supporting evidence to prove that Man City have breached the financial rules will be as useful as a chocolate teapot.”
Why Newcastle, Chelsea and Man Utd could benefit
The Premier League is understood to have the overwhelming support of most of its member clubs over APT rules, although the league has declined to comment on the case.
i understands that Newcastle have no intention of being drawn into the battle – at least not publicly – with club chiefs happy to let the situation play out, even if loosening APT rules would be a potential game-changer for the Saudi-owned Magpies.
While between 10 and 12 Premier League clubs have reportedly provided evidence for this case, some in support of City, they will all be watching on with heavily vested interests.
Newcastle would be the obvious beneficiaries of financial regulations collapsing, with Chelsea and Manchester United also able to take advantage if afforded the opportunity. Equally, other clubs are likely to be terrified by what could arise, given this would threaten not just their standing in the Premier League but their existence as a football club.
“It could wipe financial regulations off the rule book,” Wilson explains. “That would be a disaster for the competitive balance of the league and the financial sustainability of clubs, it would distort the transfer market. Player wages would spiral out of control and you would see loads of clubs go into administration and insolvency measures.”
On the other hand, he continues: “Those clubs with healthy bank balances and access to capital and liquidity will be rubbing their hands together if City win the case. Talking purely financially, because they’ve got the resources, you put Newcastle and probably Chelsea into that bracket. If Jim Ratcliffe wants to chuck in money from Ineos then Manchester United could benefit.”
And beyond this, City winning their case would seriously undermine Uefa’s wider financial regulations and ability to enforce them.
Wilson says: “All European leagues will be looking at this case, because if they’re successful against the Premier League, it would mean that European clubs could then launch a legal challenge against Uefa regulations and probably have those thrown out as well.”
This case could therefore fundamentally alter football globally, allowing clubs across Europe to spend as they please with no concern for sustainability or stability. That would lead to a number of clubs folding having made poor decisions and the continued stratification of European football between a “Super League” group of haves and have-nots.
It could also have a devastating impact on clubs lower down the football pyramid.
Premier League clubs are currently expected to agree to £900m of extra EFL funding over the next six years, a deal The Times has reported is in jeopardy due to fears over City’s case and the potential financial implications.
Without this funding, the EFL’s scope to grow and secure its own financial future will be severely limited.
‘Anchoring’ vote shelved
Meanwhile, i understands plans to put the new financial fair play system, known as “anchoring”, to a vote of Premier League clubs have been shelved.
Anchoring would limit teams to spending a multiple of what the bottom club takes home in broadcast and central payments revenue and has broad support.
But the Professional Footballers’ Association opposes it and so anchoring will be trialled next season before a possible vote in 12 months time.
