Manchester City and the Premier League are both claiming victory after a landmark ruling declared the top flight’s sponsorship and commercial regulations “unlawful”.
City had brought a case against the league over blocking two significant sponsorship deals linked to their UAE-backed ownership in 2023 – with Etihad Airways and First Abu Dhabi Bank – and are expected to seek damages for lost income.
The tribunal panel made up of three legal heavyweights also found that parts of the Premier League’s regulation on associated party transactions (APTs) breached competition law, although they largely ruled against City’s claim.
Why Man City’s victory isn’t as massive as they suggest
Manchester City said they had “succeeded” with their claim, which is technically true, although they also lost significant parts of it. If anything, this is a case which matters more to the losers than any supposed winner.
As football finance expert Dr Rob Wilson tells i: “You’ll hear about vitriolic victories at both ends of the spectrum.
“City are shouting that they’ve just defeated the Premier League, and those who want to see City done for financial doping will be saying the other thing. It’s really somewhere in the middle.”
City won two key elements of their claim against the Premier League. The first centres on the wording and execution of fair market value (FMV) testing within APT rules, where commercial and sponsorship deals are assessed as being in line with expected valuations.
While these are largely minor rather than fundamental concerns, it will still lead to a rewriting of the APT regulations, which were initially introduced in December 2021 after the takeover of Newcastle United by Saudi Arabia’s Public Investment Fund (PIF).
They were then updated earlier this year, and the tribunal found that parts of both sets of regulations were unlawful.
The tribunal ruling is clear that APT regulations should still exist and that they play a key role in competitive fairness and within fairly enforcing Profitability and Sustainability Rules (PSR). However, there were found to be key issues in the wording of the rules, most notably around the burden of proof on FMV testing and the use of the word “evidently”.
The burden of proof on FMV testing had been placed on the clubs as of earlier this year, yet this was judged to be “procedurally unfair” as clubs are not given access to the commercial data of their peers. City requested access to this, but that was rejected.
Alongside this, while the wider definition of FMV is also under scrutiny, a key decision was removing the word “evidently” from the regulation that deals cannot “evidently” exceed FMV.
Why the ruling could benefit clubs like Chelsea
The most likely outcome of this ruling is that clubs have greater power to sign sponsorship deals with associated parties closer to the upper limits of their potential earnings.
In practice, this only impacts a handful of clubs, most notably City, Newcastle and Chelsea. The latter pair, alongside Nottingham Forest and Everton, supported City’s claim during the tribunal.
As was the case when APT rules were first established, much of the concern centred on Newcastle’s potential ability to artificially inflate their revenue to fly up the Premier League. Yet even under the likely softer APT regulations, this is still very unlikely to happen.
Fair market value is judged against a club’s revenue and historic performance, meaning Newcastle – whose revenue was just shy of three times less than City in 2022-23 – can still not sign disproportionate deals.
Yet Chelsea could benefit from this much more, given they currently do not have a front-of-shirt sponsor and their revenue is over £500m.
“Newcastle United won’t benefit from this as extensively as they might otherwise have, because the fair market valuation calculation is still important,” Wilson says.
“It will be interesting to see what Chelsea do given their lack of shirt sponsor. Technically they could now bring in a Todd Boehly or Clearlake-funded company to put on the front of that shirt and pay the sort of value that they’ve been holding out for, which is reflective of what they’re probably worth.”
Why Arsenal, Brighton and Everton are the big losers from Man City’s APT case
The second key ruling in the case, and perhaps the more impactful one, is that the current regulations around interest-free shareholder loans are unlawful.
Currently excluded from the APT rules – a decision which was backed by Manchester City at the time – clubs often benefit from interest-free loans from their ownership.
Of £4.8bn borrowed across the Premier League, £1.9bn comes from shareholder loans, with Everton’s £451m the largest of these. Two other clubs who most significantly benefit from these “soft loans” are Brighton (£373m) and Arsenal (£259m).
As it stands, these loans are not considered within the Premier League’s Profitability and Sustainability Rules (PSR).
However, it has been ruled “procedurally unfair” that these deals are not considered part of APT rules as no interest is paid and therefore no fair market value is assessed.
City, who have borrowed no money from their owners, argued that these loans are a clear APT transaction as they are directly from shareholders.
One suggested solution is that commercial loan rates (around 5 per cent) are applied to these loans and that they are counted within future PSR calculations, which could have a massive impact on profits.
A 5 per cent interest rate on Arsenal’s £259m loan would add a potential £40m onto the balance sheet, but a more likely short-term option is that these loans are converted into equity.
While this will not mean points deductions given the rules are still so changeable and fragile and that interest on these loans will not be backdated, it could limit these clubs’ spending going forward and mean they have to sell to meet PSR in future, while also disincentivising shareholder loans.
What this ruling means for Man City’s 115 charges
This is just the first significant battle Manchester City have with the Premier League – a hearing ruling whether City have committed 115 breaches of PSR is in its third week of an anticipated 10, with a verdict expected in 2025.
This is another crucial case and although the two are entirely separate and unrelated, City exposing weaknesses in the current rules could undermine the entire regulatory framework.
“It creates a level of insecurity over the establishment of any rules that the Premier League have been applying over the last 30 years,” Wilson explains. “I find it deeply concerning, because the law is one thing, but the fabric of competition is another.
“In some ways, it creates a degree of uncertainty at the lawfulness of the Premier League rules, although they are completely different cases.”
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