Following on from our previous article on Manchester City's claim against the Premier League, we now have some clarity following the arbitration that took place. This case, which saw Manchester City challenge certain Associated Party Transaction (APT) rules, has resulted in both sides claiming partial victories, but with no outright winner.
Background to the Claim
Manchester City filed a claim against the Premier League, arguing that recent changes to the Associated Party Transaction (APT) rules were in breach of UK competition law. Specifically, City contended that the rules unfairly targeted clubs with Gulf-state owners by imposing more stringent financial scrutiny on their sponsorship deals. Manchester City believed that these changes were designed to limit their ability to compete by distorting the financial playing field. You can read our earlier article on APT rules here: Manchester City's Claim Against the Premier League Over Certain Rules.
The arbitration hearing, which took place in June 2024, examined whether the APT rules were unfairly discriminatory and assessed their compliance with UK competition law. The outcome, while mixed, has brought several important rulings.
Outcome
Both Manchester City and the Premier League have declared some form of victory. In reality, each party achieved small victories, but neither side secured a sweeping win. Below is a breakdown of the key decisions and their implications.
Manchester City’s Victories
1. Shareholder Loans
The Verdict: One of the most significant rulings in this case related to shareholder loans. Manchester City successfully argued that shareholder loans should fall under APT rules, not just sponsorship deals. The concern was that excluding shareholder loans from APT oversight could distort Profit and Sustainability Rules (PSR) calculations, giving an unfair advantage to clubs with wealthy owners.
Why It Matters: Many Premier League clubs, including Arsenal, have borrowed significant sums from their owners via interest-free loans (for example, Arsenal has borrowed £259 million). These loans artificially improve a club’s financial position by reducing liabilities, which in turn can make the club appear more financially stable than it is. The judgment recognised that this practice distorts competition, particularly when some clubs do not have the same access to wealth.
The Ruling: The panel agreed that excluding shareholder loans constituted a breach of competition law by object, which is more serious than a breach by effect. The ruling means the Premier League must update its APT rules to include shareholder loans. This change will require a formal vote by the Premier League clubs, and if passed, many clubs may need to rebalance their financial strategies to avoid breaching these updated rules.
2. Benchmarking Data
The Verdict: Manchester City also argued that clubs should have access to the data the Premier League uses to assess whether their transactions pass the "fair market value" test. Currently, clubs submit sponsorship and commercial deals for evaluation, but they are unaware of the specific benchmarks against which these deals are judged.
Why It Matters: Without access to benchmarking data, clubs are left in the dark when trying to defend or adjust their transactions. This lack of transparency can lead to unfair rejections of deals, as Manchester City experienced when two of their deals were rejected without the opportunity to respond.
The Ruling: The panel ruled in Manchester City’s favour, stating that clubs must be given access to the benchmarking data. The Premier League has agreed to amend this aspect of the APT rules. Additionally, the panel concluded that Manchester City could pursue damages for the losses sustained from the rejected deals.
3. Decision-Making Delays
The Verdict: The final area of victory for Manchester City was regarding delays in the Premier League’s decision-making process on APT applications. The Premier League has a 25-day guideline to respond to APT submissions, but in three cases involving Manchester City, the deadline was missed, potentially jeopardising the deals.
Why It Matters: Delays in regulatory approvals can cause deals to fall through, as uncertainty around compliance can make sponsors or commercial partners hesitant. Manchester City argued that such delays could have cost them financially, as the deals were time sensitive.
The Ruling: The panel found that the Premier League had breached its own rules by failing to meet its 25-day timeframe. The Premier League has been instructed to ensure it adheres to these deadlines moving forward to avoid harming clubs' commercial activities.
Premier League’s Victories
While Manchester City secured some key victories, many of their broader arguments were rejected by the panel:
1. Suitability of the Rules
The Verdict: Manchester City argued that the APT rules were "inherently incapable of capturing the specific features" of their transactions, and they went as far as to claim that the rules amounted to "price-fixing," thereby restricting their earning potential.
The Ruling: The panel dismissed these arguments, stating that the APT rules were necessary to maintain fair competition within the Premier League. The panel found that the rules were "clearly defined, transparent, and non-discriminatory." This was a significant win for the Premier League, as the ruling reinforced the legitimacy of the APT regulations, which are designed to prevent financial manipulation through sponsorship deals or shareholder transactions.
2. Regulatory Framework
The Verdict: Manchester City also contended that the Premier League’s financial regulations unfairly targeted them and other clubs with wealthy owners. They suggested that these rules were designed to limit their ability to generate revenue through commercial deals.
The Ruling: The panel rejected these claims, ruling that the APT framework was a necessary mechanism to ensure financial sustainability and prevent financial distortions in the league. The panel recognised that while some of Manchester City’s complaints were valid in terms of how the rules were applied, the rules themselves were not flawed or discriminatory.
Impact on the 115 PSR Charges
It is important to note that this arbitration outcome does not directly affect the ongoing case against Manchester City for the 115 PSR breaches. However, the publicity around this case may contribute to Manchester City’s strategy to paint a picture of ongoing conflicts with the Premier League, potentially influencing public opinion and media coverage as they prepare for their defence against these charges. It appears part of the club’s larger strategy is to highlight regulatory shortcomings as they seek to challenge the Premier League’s authority.
Conclusion
While both Manchester City and the Premier League have secured partial victories, this case demonstrates the complexities of regulating financial fairness in modern football. Manchester City’s successful arguments around shareholder loans and benchmarking data will lead to changes in the Premier League’s APT rules, which may require several clubs to reevaluate their financial strategies.
At the same time, the Premier League's defence of the broader APT framework has been upheld, reinforcing its legitimacy as a tool for maintaining financial sustainability across clubs. This case serves as an interesting lead up to the larger confrontation over the 115 PSR charges against Manchester City, with both parties leveraging these smaller disputes to strengthen their positions for the upcoming legal and public relations battles.
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