Report on Manchester City v Premier League Concerning Associated Party Transactions

Introduction & Background

The landmark case involving Manchester City Football Club (City) and the Premier League regarding the enforcement of rules governing Associated Party Transactions (APT) has significant implications for financial regulation in football. This report analyses the relevant legal provisions, the tribunal’s decision, and the broader implications for English football, while also integrating additional insights and sources related to the case.

It is important to note that the tribunal's findings were not heavily in favour of City, despite numerous reports that City had "won" their case against the Premier League. Rather, the tribunal added clarity to the APT rules and made a detailed assessment on its provisions regarding its compatibility with competition law. Both City and the Premier League have welcomed the tribunal’s findings, each focusing on the aspects that favour their positions. 

The dispute began when the Premier League alleged that City breached financial fair play (FFP) regulations, specifically concerning commercial revenue earned through associated parties. The league contended that City had inflated the value of sponsorship deals to hide losses and comply with FFP rules.

Inception of the APT's

The APT rules were first introduced in December 2021 and later amended in March 2024. These rules are designed to ensure financial fairness and sustainability within the Premier League by regulating commercial deals between clubs and entities linked to the respective club's ownership.

Key Points of the APT Rules:

1 - Fair Market Value (FMV) Assessment:

All commercial deals with associated parties must be submitted to the Premier League Board for a FMV assessment. This ensures that clubs cannot inflate their revenues through deals with entities linked to their ownership, which could give them an unfair financial advantage.

2 - Definition of Associated Parties:

Associated parties include entities within the same group of companies as the club, those with common ownership or board members, or those materially influenced by the same party.

3 - Purpose:

The rules aim to maintain a level playing field by preventing clubs from gaining an unfair advantage through inflated commercial revenues. They also promote long-term financial sustainability by limiting reliance on enhanced revenues from associated parties.

4 - Implementation and Amendments:

The initial rules were implemented in December 2021, following extensive consultation with Premier League clubs and external experts. Amendments made in March 2024 refined the rules to address evolving financial practices and ensure continued compliance with the Profitability and Sustainability Rules (PSRs).

The Premier League Handbook

The relevant provisions that had been alluded to are contained within in the Premier League Handbook and include:

1. Section C: Financial Fair Play

• Regulation C.1: Clubs must provide a true and fair view of their financial position. All revenue streams, including those from associated parties, must be disclosed adequately;
• Regulation C.2: Defines "Associated Party Transaction" and mandates that clubs must ensure that these transactions reflect fair market value; and
• Regulation C.3: Prohibits clubs from entering into arrangements that artificially inflate revenues through related entity transactions.

2. Section F: Reporting and Compliance Procedures

• Regulation F.1: Clubs are required to submit detailed financial statements annually, including disclosures on related party transactions; and
• Regulation F.2: Establishes the Premier League's authority to investigate any financial irregularities, mandating full cooperation from clubs.

3. Section G: Disciplinary Action

• Regulation G.1: Outlines sanctions available for clubs found violating FFP regulations, including potential fines and transfer restrictions.

Arbitration Proceedings

The arbitration proceedings took place before an independent tribunal, examining critical issues surrounding the burden of proof and the validity of the evidence presented:

1 - Burden of Proof

The Premier League bore the responsibility to demonstrate that City violated FFP regulations regarding APTs.

2 - Evidence Assessment

The tribunal evaluated both parties' evidence, focusing on whether the valuations placed on transactions with related entities conformed to FMV principles.

3 - Expert Testimonies

Financial experts were engaged by both sides to substantiate their claims regarding the legitimacy of the commercial agreements in question.

Tribunal Decision & Findings

On 7 October 2024, the tribunal reached its verdict, concluding that the majority of the APT rules were deemed fair; Albeit two aspects of the APT rules were indeed declared unlawful, as detailed below.

 The outcome can be summarised as follows:

1 - Overall Endorsement:

The tribunal upheld the majority of the APT rules, endorsing their overall objectives, framework and decision-making process. This includes:

• The requirement for FMV assessments of commercial deals with associated parties; and
• The definition of associated parties and the necessity of these rules to maintain financial integrity and competitive balance in the Premier League.

2 - Specific Challenges:

     City had some complaints upheld. Specifically, two aspects of the APT rules were deemed                unlawful:

• Shareholder Loans: The tribunal ruled that shareholder loans should not be excluded from the scope of APT rules; and
• February Amendments: Some amendments made by the Premier League in February 2024, which includes changes to the definition of FMV and shifting the burden of proof to clubs to show a transaction was at FMV were deemed to be non-compliant with competition and public law requirements.

3 - Rejected Challenges:

• The tribunal rejected the majority of City’s challenges, including arguments against the framework and implementation of the APT rules, to the effect that these were structurally unfair and that the Premier League had abused its dominant position under competition law; and
• It emphasised that the APT rules are crucial for the effectiveness of the PSRs. 

4 - Insufficient Evidence

The tribunal determined that, given the burden of proof was held to lay with it, the evidence presented by the Premier League did not sufficiently establish that City's transactions lacked fair market value. 

5 - Validation of Commercial Arrangements

City therefore successfully defended its commercial practices, showing adherence to the guidelines detailed in the Premier League Handbook.

Broader Context and Implications

The ruling has broad implications for both English football and financial regulations:

1 - For City

While the club succeeded in some areas, the overall decision was by no means a complete victory. The tribunal’s findings mean that the large majority of the APT rules and their underlying rationale remain in place, ensuring continued scrutiny of commercial deals.

2 - For the Premier League

The decision supports the league’s efforts to maintain financial fairness and sustainability. However, the Premier League will need to address the specific elements found to be unlawful as a matter of urgency.

3 - Implications for Other Clubs

Other Premier League clubs may now interpret the ruling as a precedent, allowing them to maintain business arrangements similar to those argued by City, provided they can demonstrate fair market value.

4 - Regulatory Changes Needed

The Premier League may need to revisit its regulatory framework to ensure that future investigations are built on more robust standards of evidence and clearer guidelines.

Sources and Reactions

Collecting information from multiple sources provides context for public and media reactions to this widely publicised case:

1. Premier League Official Statements: Following the ruling, both the Premier League and City declared partial victories. The league maintained the importance of financial regulations, while City celebrated the affirmation of its business practices (Mirror Online, Sky News).
2. Media Coverage: Comprehensive media reports suggest that the court's decision could reshape future financial oversight in football. As noted by BBC Sport and The Guardian, the ruling poses challenges for how the league enforces its regulations, raising questions about the effectiveness of current monitoring practices.
3. Legal Commentary: Experts have commented on potential future implications for football governance, emphasising that this case illustrates the need for transparent and consistent enforcement of financial regulations (LinkedIn article, Gardner Leader).

Conclusion

This case underscores the critical balance between financial regulation and the operational flexibility required by clubs within the commercialised sphere of English football. The ruling reinforces the necessity of rigorous financial oversight while also highlighting the importance of clear standards of evidence when proving violations of financial regulations. 

Recommendations

1. Review and Revise Regulatory Framework: The Premier League should consider updating its regulations to clarify how APTs are assessed and reported, potentially introducing a standardized approach to establishing fair market value; and
2. Best Practices for Transparency: Clubs should prioritise transparency and robust documentation of their financial dealings involving APTs to mitigate risks in potential investigations.

In summary, the verdict in this case serves as a partial and somewhat unsatisfactory victory for both parties and, perhaps more importantly, a pivotal moment for the wider Premier League.