Manchester City are opening a new front in their legal battle with the Premier League.
They are already due to defend themselves against 115 charges of breaching the Premier League’s profit and sustainability rules (PSR) — which they deny — but they have now turned the tables.
City have brought a separate legal case against the Premier League’s associated party transaction (APT) rules, which will begin on June 10. The implications, if City are successful, could reshape the division’s financial landscape.
With Premier League clubs set to meet for their AGM on Thursday, this will be the central topic on their representatives’ lips. What does it all mean? The Athletic explains.
What are the APT rules?
Rules already existed, but tightened-up regulations were first rushed into place immediately after the Saudi-led takeover of Newcastle United was eventually approved in October 2021. Rival clubs feared Newcastle’s new owners — Saudi Arabia’s Public Investment Fund (PIF) — could use their vast array of companies to strike a multitude of inflated sponsorship deals. This would drive revenue and circumvent PSR rules.
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The clubs initially voted for a temporary suspension but eventually agreed on a framework which would see all associated-party transactions subjected to a fair market value test. Essentially, teams would have to prove that any deal was financially justifiable to all parties based on the going rate.
For example, Newcastle’s sponsorship deals with PIF-linked events company Sela and e-commerce company Noon were both subject to this test.
A new version of these rules was then agreed in February of this year.
So what is City’s complaint?
City have always opposed or abstained when voting on the introduction of these policies in Premier League meetings — the club’s sponsorship network has historically been tied to figures who sit on the board of the City Football Group (CFG).
Etihad is the state airline of the United Arab Emirates (Justin Setterfield/Getty Images)
For example, title sponsor Etihad — whose name sits on both the club’s shirt and stadium — is the state airline of the United Arab Emirates. City’s owner — the Abu Dhabi United Group (ADUG) — is a private equity company with strong links to the UAE government. ADUG insists the two are separate. Nevertheless, until August 2021, Etihad was chaired by Mohamed Al Mazrouei — who sat on City’s board until January 2022.
The Athletic reported in 2022 that City receive in excess of £67.5million per year from Etihad for their sponsorship of the club.
City recorded Premier League record revenues in 2022-23, bringing in £712.8million, of which almost half — £341.4m — was commercial income. That is 13 per cent bigger than Manchester United, English football’s traditional commercial powerhouse. City’s commercial income is up 50 per cent since 2019 and now makes up 48 per cent of total revenue.
As an aside, City and Newcastle are not alone in this — Leicester City’s owners, King Power, for example, sponsor the club’s stadium, jersey and training kit. However, City and Newcastle’s close links to state investment offer them a far deeper well — which is why rival Premier League clubs mobilised to close the loophole.
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In February, new rules were agreed. At the same meeting, Premier League chief executive Richard Masters informed clubs that an unnamed club — named as City by The Athletic at the time — was threatening legal action in response, claiming the new regulations were in breach of competition law.
That has now come to pass — in a two-week hearing which will take place in private from next Monday. According to a source with knowledge of the situation, who like all those spoken to for this article asked to be kept anonymous as they did not have permission to speak, City deem the rules to have been rushed through — the first suspension of APT laws came just four days after Newcastle’s takeover was finalised — and believe the rules were applied in a targeted manner. That City source, however, stressed that the club does want some form of regulation to remain — albeit in a guise they would view as non-discriminatory.
According to a 165-page legal submission seen by British newspaper The Times, City have argued that they have suffered “discrimination” as a result of the new rules, alleging they amounted to a “tyranny of the majority”. The Premier League requires a majority of 14 clubs to impose new regulations.
The Times also reported that City will seek damages for losses they claim to have suffered since APT laws were introduced.
UEFA, incidentally, have their own fair-market value test. City’s legal case does not address those laws and the club will still have to comply with them in European competition. And according to a source, at least one European superclub is following proceedings closely, wary of the implications that a growth in City’s revenue could have.
How much support do City have?
Rival clubs are able to make their voices heard by providing witness statements or evidence in favour of either City or the Premier League.
In theory, Newcastle are natural allies with City — an end to APT rules would facilitate several further lucrative sponsorship deals with PIF-owned companies. Newcastle have been operating close to their PSR limits and may face the need to sell a prize asset in the summer, but increasing their revenue allows them to continue investing in their squad.
In theory, Newcastle would be natural allies (Stu Forster/Getty Images)
Sources with knowledge of the situation said other Premier League clubs are also considering supporting City due to their own potential abilities to take advantage of APT rules in future. Others, while they support the regulations in principle, agree with City that the rules were hurriedly implemented and could be improved upon.
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However, the majority of the league will still be hoping City lose their case — although as this matter will take place under competition law in private arbitration, rather than be subject to a Premier League vote, their voices ultimately carry limited sway.
Teams have always sought to maintain pressure on the Premier League over City’s ability to spend. This has included informal phone calls to Premier League HQ from owners and chief executives of its clubs, or even legal letters or requests for information that would land at the Premier League.
What will happen if City win?
At a basic level, teams such as City and Newcastle will be able to immediately strike several deals and enter this summer’s transfer market with renewed force. Other clubs may scramble to find related-party sponsorship deals of their own to circumvent PSR laws.
Last season, two teams — Everton and Nottingham Forest — faced points deductions for breaching PSR rules. A promoted team (Leicester City) are facing an identical charge. These regulations financially capped the majority of teams. Success for City has the potential to upend the league’s financial landscape.
There is a strong correlation between wage bills and finishing positions — clubs who can increase sponsorship revenue can put that money directly into player contracts without fear of a points deduction.
But the implications could be even wider.
“If a challenge to the legality of these APTs can succeed, then it is not inconceivable that someone might try to challenge the overarching profit and sustainability rules more generally,” says Daniel Gore, a senior associate at law firm Withers, who specialises in competition law and arbitration.
“This could reverse the moves made to ensure that clubs operate within their means — something people may argue has increased the overall competitiveness of the Premier League and reduced clubs going insolvent.”
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City’s objection to the Premier League’s ‘two-thirds majority’ framework — which they termed as “tyranny” — directly challenges the league’s democratic process.
“This is a common threshold for corporate procedure and means that there is a reasonable and transparent process,” says Gore. “It is hard to see how effective governance could take place without a threshold such as this, so Manchester City’s challenge could plunge the Premier League’s governance structure into chaos and make it harder for any decision to take place.”
What will happen if City lose?
Nothing, in a literal sense. The rules will remain as they are — though City always have the ability to attempt to table a vote to change the regulations in a Premier League meeting.
However, this is just part of City’s battle against the Premier League. Sometimes, it is easy to forget that the league’s dominant team — its victors for six of the last seven seasons — have been either investigated or in open dispute with the Premier League for almost the entirety of that time.
Some legal experts, who have advised on elements of the European Super League (ESL), have theorised that City’s ongoing dispute with the Premier League may be one way in which the competition may be reborn. Real Madrid and Barcelona are still pursuing the concept of an ESL. Italian club Juventus withdrew from those plans on Saturday.
A banner in opposition to the Super League (Clive Brunskill/POOL/AFP via Getty Images)
If City lose their challenge over APT regulations and are found guilty of breaching a number of the 115 FFP charges, relationships with the Premier League will be at an all-time low, raising the possibility of City entering open revolt by seeking to rejoin the ESL.
But speaking of those 115 charges…
Is this linked to the 115 charges?
Yes and no. On the one hand, the 115 charges relate to allegations of past financial breaches — essentially, disguising payments made to the club by their ownership as sponsorship revenue, with those sponsorship deals themselves inflated. In contrast, City’s APT dispute will govern what they are allowed to do going forward.
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However, if APT laws are found to be unlawful — and with City accused of leveraging them by the Premier League — City’s defence in the parent case will be significantly strengthened.
Progress in that has been lengthy and contentious, with City’s lawyers — led by Lord Pannick, one of the United Kingdom’s most expensive barristers — opposing the Premier League at every step.
In one email, published by German newspaper Der Spiegel in 2018, a City lawyer claims that Khaldoon al Mubarak, the club’s chairman, had said that “he would rather spend 30million on the 50 best lawyers in the world to sue them for the next 10 years” than agree to any financial settlement or penalty from UEFA — who had been involved in their own lengthy legal process against the English side.
City’s legal action here is another way in which the club can muddy the process and attack the Premier League.
How much of a problem is this for the Premier League?
The Premier League’s legal capabilities are already stretched — The Athletic has already reported on their need to recruit extra help to deal with the caseload at the end of last season. This will only add to their plate.
In a sense, they are also in a tough spot politically. Even if the Premier League wins this case, the shadow of City’s 115 charges still looms — with rival clubs insistent that City must be appropriately punished for what they view as a breach. A verdict is not expected until at least the spring of 2025.
If the Premier League lose, then clubs with links to state ownership will be even more empowered financially, which will lead to fierce questioning from rival sides over the division’s credibility.
Thursday’s AGM will be interesting.
(Top photo: Naomi Baker/Getty Images)
