Frank Christian
Manchester City has emerged victorious in their legal dispute regarding the Premier League’s regulations on Associated Party Transactions (APT).
The APT rules govern the revenue clubs can receive from sponsorships linked to their owners. City is primarily owned by Newton Investment and Development, which is affiliated with Sheikh Mansour, the deputy prime minister of Abu Dhabi.
According to a statement from City’s official website, “The club has successfully challenged the APT rules, which have been deemed unlawful, and the Premier League’s decisions on two specific sponsorship agreements have been annulled.”
In response, the Premier League expressed a mutual appreciation for the ruling from a three-member arbitration panel that convened for two weeks in June.
“We acknowledge the Tribunal’s conclusions, which support the overarching objectives and framework of the APT system,” stated the Premier League. “The Tribunal recognized the APT system’s necessity and dismissed the majority of Manchester City’s objections.”
This raises questions about who truly benefits from this outcome and its implications for the ongoing case regarding City’s alleged 115 violations of Premier League regulations.
Did Man City win its case against the Premier League?
While City faced setbacks on most challenges from their extensive legal documentation, the wins they achieved hold significant meaning.
The APT regulations were established in December 2021, shortly after Saudi Arabia’s Public Investment Fund acquired Newcastle United.
Changes made in January placed the onus on clubs to demonstrate that their sponsorship contracts were valued fairly in the marketplace. The arbitration panel sided with City’s argument that some of these revised rules violated UK competition laws.
The panel made a ruling regarding City’s proposed sponsorship arrangements with Etihad Airways and First Abu Dhabi Bank, stating that these were unjustly hindered. However, this does not guarantee approval at the amounts City anticipated. The ruling favored City on procedural grounds rather than critiquing the Premier League’s financial assessment methods.
The panel’s consideration of shareholder loans was more unexpected and could have broader implications.
City successfully argued that the APT rules were unlawful because they overlooked interest-free loans from owners, a common method for Premier League teams to support their clubs. Typically, these loans are flexible and can be repaid at low or no interest. The key excerpt from the panel’s judgment highlights this issue:
The Premier League’s submission indicated that “owner funding, like state aid, is considered a subsidy, especially when other external funding sources are restricted.” We concur with this assessment.
The purpose of the PSR is to prevent any club from artificially inflating income or reducing costs. Not accounting for owner funding through shareholder loans not measured against FMV distorts competition among clubs.
This distortion exists whether it results from a non-FMV transaction with an owner or an associated party, leading us to conclude that the exclusion of shareholder funding constitutes a significant enough harm to be viewed as a competition restriction.
Everton recorded £451 million in owner loans for the 2022/23 season, followed by Brighton at £373 million, Arsenal at £259 million, and Chelsea at £146 million, according to Swiss Ramble.
If these loans were evaluated at standard commercial rates for the Profit and Sustainability Rules (PSR), several clubs could potentially violate regulations.
Did the Premier League win its case against Man City?
The Premier League’s acknowledgment of “a small number of specific elements” within their rules requiring amendments somewhat minimizes the significance of City’s success. However, their financial regulation system is not in disarray.
City’s claim that the Premier League’s process requiring 14 team votes for rule changes represents an oppressive majority created a “competitive disadvantage for minority clubs” was not upheld. Additionally, the panel did not support claims that the APT regulations were specifically aimed at Gulf-owned clubs.
The primary victory for the Premier League lies in the affirmation of the APT structural model. The judges did not advocate for its dissolution; rather, they noted a “substantial evidential basis” for the league and clubs to determine that existing PSR rules were inadequate in regulating APTs, underscoring the need for a proactive approach.
Despite concerns about potential consequences, the ruling does not open the floodgates for sponsorship arrangements for City and Newcastle.
UEFA maintains its fair market value assessments, which clubs must adhere to for European competition eligibility. Although associated partner sponsorships may become more lucrative, they are unlikely to jeopardize a club’s chances in Europe.
Regarding shareholder loans, it’s plausible that the Premier League will modify PSR thresholds rather than allow multiple clubs to remain in breach. Many clubs with shareholder loans could transition these into equity.
What does this mean for Man City’s 115 case?
Overall, the implications seem limited as these are two distinct cases. The ongoing inquiry into City’s alleged breaches of financial regulations over nine years commenced last month in London.
The 115 case pertains to accusations of City violating rules they agreed to, while the APT dispute involves efforts to establish more favorable regulations moving forward.
If City is found guilty of the violations, the APT ruling cannot lessen the consequences.
Nevertheless, the recent ruling offers a positive context for City’s situation. Lord Pannick KC is leading their legal defense in both cases, and securing a ruling that challenges certain Premier League rules could be beneficial for City.
The issue of shareholder loans also takes on significance in light of the more severe accusations against City—that ownership concealed equity funding as sponsorship, thus misleading commercial agreements. Given the successful arguments about shareholder loans being part of APT, City could question why ownership would inflate sponsorships when they could provide large interest-free loans instead.
Ultimately, speculation aside, it’s crucial to note that these are separate cases, and the one with the potential to seriously impact the Premier League champions is yet to unfold. Following their respective claims of victory in the APT case, neither side is inclined to retreat.
