As clubs prepare for the prospect of recouping compensation depending on the outcome of the hearing into the 115 charges against Manchester City, the fallout could be seismic – and expensive.
It emerged this week that four rivals – Arsenal, Manchester United, Liverpool and Tottenham Hotspur – had set in motion proceedings to seek compensation pending the outcome of the hearing.
But legal experts believe that many clubs will be awaiting the outcome with interest and preparing to take action.
“I find it very hard to believe only four clubs intend to claim compensation,” Stefan Borson, a corporate lawyer and former financial adviser to City, tells i.
“If you’re another club, you don’t know what the Independent Commission is going to say. It may be the commission has really interesting things to say relating to your club.
“All clubs will want to see what’s said first before establishing if they’ve got a claim and will have made sure they have protected their rights to be able to make that claim if the Independent Commission says things that give rise to a claim.”
Under Premier League rules, clubs are not permitted to sue each other directly in the courts. So in these unprecedented times clubs will, according to legal experts, have three routes to receiving compensation.
1. The established Independent Commission
The Independent Commission – the three-person panel which holds City’s fate in its hands – hearing the current case against the club has within its remit the scope to assess and deal with claims from other clubs, and has the power to award “unlimited” compensation, according to Premier League rule W.51.5.
2. Separate Premier League arbitration
Individual clubs, or groups of them, could commence separate arbitration hearings, under Premier League rule X, to make financial claims against City. A new panel would be established to make a ruling in each separate case, hearing arguments from both sides and based on the evidence from the original hearing.
“This would be a completely confidential process and we may never know anything about it, unless the result was disclosed later in a set of club accounts,” Borson explains.
“That might be one reason a club might chose not to go down W.51.5 route and have the Independent Commission decide and publish its decision. If I was a club, I might like the idea that none of the details would come out, except in the accounts a year later.
3. Football Association arbitration
Clubs can take separate action via the Football Association, under Rule K – for which there is precedent.
In the late 2000s, after a Premier League disciplinary commission fined West Ham for breaking third-party ownership rules which enabled them to buy Carlos Tevez – who scored the goals to help them avoid relegation in 2007 – relegated Sheffield United took a claim to a Premier League arbitration panel that they should have been docked points.
The panel ruled against Sheffield United, but the club took it to an FA rule K arbitration, which ruled in their favour. The clubs eventually settled out of court, with West Ham paying around £20m.
If option one is invoked, fans will learn about the outcome in the written reasons. If the latter two options are utilised, they are confidential processes and we may never know exactly what happened. Although some idea could be gleaned from the eagle-eyed football finance experts able to spot unusual payments in clubs’ annual accounts.
And option one may be problematic, due to the enormity of the fallout. The Independent Commission currently dealing with the 115 charges hearing could struggle to deal with a flurry of compensation claims if the substantial charges against City are proven.
“Theoretically it’s a massive can of worms,” Borson adds. And City could be on the hook for millions. “The numbers are potentially very big.”
City deny all wrongdoing. When they were charged in February 2023 the club released a statement saying: “Manchester City is surprised by the issuing of these alleged breaches of the Premier League Rules, particularly given the extensive engagement and vast amount of detailed materials that the EPL has been provided with.
“The club welcomes the review of this matter by an Independent Commission, to impartially consider the comprehensive body of irrefutable evidence that exists in support of its position. As such we look forward to this matter being put to rest once and for all.”
Many of the charges relate to the club failing to co-operate with the Premier League’s investigation. If these are the only ones proven, it will likely end the prospect of further action.
Compensation claims will come down to establishing and proving causation: what Team X did that was deemed a breach of the rules meant Team Y lost out on a Champions League place, or winning the Premier League title. That is, lawyers say, no easy task.
But if City are sanctioned for the more serious charges – of inflating sponsorship fees from companies linked to the club’s owner and failing to properly disclose payments to a manager and players – it will loosen enough of a thread to pull at, and clubs are preparing for that eventuality.
As well as proving causation, there is, Borson says, another line of attack. “In English law, there is also the concept of loss of a chance. If I was advising clubs I would be thinking about loss of a chance. It’s a potentially lower hurdle from a causation perspective.
“The other clubs may only need to prove it was a ‘real and substantial’ possibility of something happening – as opposed to a balance of probabilities – to win at least some of their alleged losses.”
The biggest losses would have fallen on clubs who missed out on winning Premier League titles or Champions League places.
During the time it is alleged City breached the rules, a season in the Champions League was worth around £30m-£50m per year.
Other losses could be established from sponsorship deals.
Even on the lower end of the scale, at the time in question Premier League places were worth around £1m-£2m more per place. So, technically, any team could argue they were due money in a particular season. That does not sound like something that will be sorted out overnight.
City, for a start, will almost certainly appeal if they are sanctioned for the more serious breaches.
“If the case goes against City, the claims process will take a very long time, it will be deeply complex, and it will be a real burden for the Independent Commission or Premier League arbitration processes, because they’ll have to deal with so many scenarios, disclosure exercises and assessment of loss,” Borson says.
“Each club is likely to need separate representation because all the claims will be different for each year – with a range of counterfactuals and pleaded cases on loss and causation.”
It will unleash an unquantifiable civil war, the like of which English football has never seen.
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