The multi-pronged legal battle between the Premier League and Manchester City boiled over into a damaging media briefing war this week, as both sides attempt to shape the narrative around the outcome of City’s challenge to the league’s Associated Party Transaction (APT) rules.
A 175-page verdict published yesterday (Monday) detailed City’s challenge to the Premier League’s APT rules, as well as the opinions and conclusions of three retired judges. The judges awarded no “injunctive relief or damages” to either party, rejected the majority of City’s challenges and upheld that the APT rules themselves are, in all but two instances, fit for purpose.
The tribunal declared that one aspect of the APT rules is unlawful: the exclusion of zero-interest shareholder loans. It also said that a particular aspect of the Premier League’s procedure and application of the rules is unlawful: the league has not allowed clubs to “comment upon the comparable transaction data relied upon” for its ‘fair market value’ (FMV) rulings, which the tribunal declared “procedurally unfair”.
The Premier League is likely to amend its APT rules accordingly.
The tribunal also stated that the Premier League’s assessments of two potential Manchester City sponsorships – one with Etihad Airways and another with Abu Dhabi Bank – as not representing ‘fair value’ must now be set aside. It rules that the league did not give City an opportunity to comment on the analysis and data that underpinned its ruling.
Those deals will now either be reassessed through a more collaborative process or, should those deals no longer be available for Manchester City, could result in the club claiming damages from the league in a separate, subsequent litigation.
In all, legal experts and analysts broadly agree that the decisions offered something to both sides: the Premier League’s APT rules were largely upheld as being fit for purpose, while City secured some key victories relating to particular sponsorship deals rejected by the league.
The Premier League put out its own statement emphasising that the foundations of its APT rules been upheld. However, City has used its victories to go a few steps further, briefing key media outlets that the result was an unmitigated victory for the club.
This last element is not wholly unrelated to the much larger, ongoing legal proceeding between the two sides: the Premier League’s allegation that City has breached the league’s broader financial rules on 115 separate counts. With more serious legal battles to come, City is keen to create a picture that the Premier League lacks the ability to uphold and apply its own rules in a lawful fashion.
The league spent £45m ($59m/€53.7m) on legal bills in 2023, and 2024 is unlikely to be much cheaper. Meanwhile, Manchester City general counsel Simon Cliff once wrote of the club’s chairman, Khaldoon Mubarak, that he would rather spend “£30m on the 50 best lawyers in the world to sue Uefa for the next 10 years” than pay a fine in City’s previous legal battle with European football’s governing body.
Now, whatever the outcome of those 115 charges, the seeds of doubt have been sown and this unedifying fallout between a league and its reigning champion can only get worse.
It is not a fight either side is expected to give up easily.
Hard-fought draw
According to Andy Korman, partner at The Sports Consultancy Legal, the ruling is the equivalent of the two organisations fighting out a two-all draw. Stretching the analogy, he said: “It’s kind of the opposite way that City play as a team when they dominate a game and wear people down; it’s almost as though the Premier League have retained the bulk of control, and City have scored two breakaway goals.”
Korman added: “So the Premier League’s position is okay, great, APT as a concept is accepted, we just need to tighten up on a couple of things, while City can claim that the rules as drafted have been found to be unlawful. They can point to some success in this instance, but this decision doesn’t directly relate to the 115 complaints against the club regarding the Premier League’s financial rules.”
Why the Premier League claims it won
The Premier League stated that Manchester City “brought a wholesale challenge to the legality, design, framework and implementation of the APT rules” and that “the club was unsuccessful in the majority of its challenge”.
In its statement, the league said that the tribunal “endorsed the overall objectives, framework and decision-making of the APT system” and “found that the rules are necessary in order for the league’s financial controls to be effective”.
The statement further reasoned: “The decision represents an important and detailed assessment of the APT rules, which ensure clubs are not able to benefit from commercial deals or reductions in costs that are not at Fair Market Value (FMV) by virtue of relationships with Associated Parties. These rules were introduced to provide a robust mechanism to safeguard the financial stability, integrity and competitive balance of the league.”
Nevertheless, the league acknowledged the tribunal did “identify a small number of discrete elements of the rules which do not, in their current form, comply with competition and public law requirements […]. These elements can quickly and effectively be remedied by the league and clubs.”
As an aside, the tribunal also rejected City’s argument that the object of the APT rules was to discriminate against clubs with ownership from the “Gulf region”.
Why Manchester City claims it won
In a statement following yesterday’s ruling, the club said it had “succeeded with its claim”, especially as it applied to the two major sponsorship deals with Etihad Airways and First Abu Dhabi Bank that were wrongly blocked by APT rules.
“The Associated Party Transaction (APT) rules have been found to be unlawful and the Premier League’s decisions on two specific MCFC sponsorship transactions have been set aside,” the club said.
It said the tribunal found that ”both the original APT rules and the current, (amended) APT rules violate UK competition law and violate the requirements of procedural fairness” and that “the Premier League was found to have abused its dominant position”.
As mentioned above, the rules, City said, were also found to be “discriminatory” in how they operate, because they “deliberately” excluded shareholder loans – a correction City may have insisted upon precisely because its ownership has not funded the club with interest-free loans.
As well as the general findings on legality, City highlighted that the tribunal had set aside specific decisions of the Premier League to “restate the fair market value of the two transactions [with Etihad and First Abu Dhabi Bank] entered into by the club”, which had been decided “in a procedurally unfair manner” and with an “unreasonable delay in the Premier League’s fair market value assessment”.
Shareholder loans
As a result of yesterday’s tribunal ruling, the Premier League will have to revise its practice of excluding shareholder loans – interest-free loans to clubs by their main shareholders – from its APT rules.
The practice of interest-free shareholder loans was ruled unlawful by the tribunal, which declared it to be an “obvious distortion of competition”.
Manchester City had argued that shareholder loans are not made at FMV and are “discriminatory, distortive, [and have] a differential impact on different clubs”. They are “at odds with the principle of PSR [Profit and Sustainability Rules]”.
The Premier League countered that shareholder loan exclusion is not discriminatory “because it is open to all club owners to provide loans on non-commercial terms”. It argued that the practice was important “to continue to encourage investment” by club owners.
However, the tribunal said: “We are unable to accept this argument.”
It added: “A difference of treatment between shareholder loans and other APTs is, in our view, an obvious distortion of competition as it permits one form of subsidy, namely a non-commercial loan, but not another, a non-commercial sponsorship agreement. Both are equally injurious to the objective of the PSR.
“In our view… to permit owner funding via shareholder loans that are not at FMV, while subjecting other forms of funding to the FMV test, is a clear distortion of competition between clubs.
“We conclude that the shareholder exclusion amounts to a sufficient degree of harm for it to be categorised as a restriction of competition by object. Shareholder exclusion provides an obvious way for the PSR to be circumvented.”
The tribunal also noted that that there is no similar shareholder loan exclusion in Uefa’s Financial Sustainability regulations, which replaced its Financial Fairplay rules in 2022.
Shareholder loans will now be treated as an APT in the same way as sponsorship deals with companies linked to club shareholders.
The league will now have to amend its APT rules to include shareholder loans – and clubs that have received shareholder loans could face retrospective action for benefitting from those loans.
Unless the loans are converted into equity, they will now have to be calculated at FMV going forward, with market interest rates adding a significant cost to some clubs’ PSR calculations.
Everton currently has the largest amount of shareholder loan, at £451m, but this is expected to be written off when the Friedkin Group completes its takeover of Farhad Moshiri’s majority stake.
Brighton & Hove Albion has the next biggest shareholder loan of around £371m from majority owner Tony Bloom. The finance was used to fund the construction of the Amex Community Stadium and training ground, as well as cover losses when the club was in the Championship. In 2022-23, the club made its first repayment on Bloom’s financial support since he started funding the club in 2007, reducing the loan balance from £406.5m to £373.3m.
Shareholder loans were used by Roman Abramovich to fund his investment in Chelsea, with the loans standing at more than £1.5bn in June 2021. However, the loans were written off when Abramovich relinquished control of the club following the imposition of sanctions against him.
Other Premier League clubs with significant interest-free shareholder loans include Bournemouth (£115m), Liverpool (£71m) and Brentford (£61m).
Clubs whose owners have recently converted shareholder loans into equity include Leicester City, Wolverhampton Wanderers, Crystal Palace and Nottingham Forest.
Next steps
Regarding next steps, the Premier League has said it will move quicky to address the procedural issues in the APT rules, while Man City can resubmit the two sponsorship proposals to be reassessed fairly.
Given that the tribunal did not explicitly object to the APT rules, the Premier League could once again deem the Etihad Airways and First Abu Dhabi Bank deals as above fair market value under an amended process that addresses the tribunal’s findings of unfairness.
Should the two Abu Dhabi-based choose to lower the values of their sponsorship agreements, Man City could seek damages from the Premier League, which could see both parties being ruled upon once again.
Manchester City posted record profits of £712.7m for the 2022-23 financial year, of which £341.4m was commercial revenue including sponsorship.
Additional reporting: Gavin Hamilton, Faaez Samadi