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The 19 Premier League clubs that are not Manchester City have a big decision to make this week about whether to vote on a new set of financial control changes – measures that City have spent significant resources on to explain why their fellow clubs should reject this.
Another week, another letter from City’s legal counsel to his 19 fellow shareholders talking about fairness and strict legal requirements. City wants clubs not to adopt the changes to the rules for commercial transactions between clubs and companies with the same owner – related party transactions [APTs] – when all 20 meet again on Friday.
This is the current hot front in the epic legal battle between the league and the club, although 14 votes in favor of the new rules on Friday would certainly require a new strategy from City.
The legality of the APTs was the focus of the arbitration tribunal, which City reportedly won in September, although the three judges hearing the case rejected many more of the club’s challenges than they upheld.
In the weeks that followed, the Premier League proposed some changes to clarify the details. City, which could now be seen as a sort of independent republic operating within Premier League territory, have told all involved that they consider the entire APT regime broken.
City even say that the APT regime, which we now know blocked the club’s recent deal with Abu Dhabi’s main partner Etihad Airways, is currently unenforceable. We will find out on Friday whether another club believes them or not.
As for City, the threat is the same. Even more expensive legal action awaits. “Our strong desire is to avoid future costly litigation on this issue,” wrote Simon Cliff, the club’s general counsel, although on the evidence so far City do not appear to have a problem with costly litigation. A full-time litigator with a football business attached.
Of course, they are fighting the fight of their lives in the major regulatory case involving the Premier League involving more than 100 lawsuits, which is the backdrop to all these skirmishes over APTs. This is why the Premier League’s financial controls are under such persistent attack and why this week’s vote to change them is so important.
Premier League shareholder votes are not publicly known and can be unpredictable. City would need six allies to defeat the measures, but what would the six vote for? Unless the Premier League can fix the APTs, which is a relatively simple task, it has no framework for financial controls. If there are no financial controls – the profit and sustainability rules [PSR] – As it is now, clubs as wealthy as City can spend whatever they want.
The court also said in its ruling that APTs are crucial for the implementation of the PSR system. APTs prevent state-owned clubs, or those owned by the kings of non-democratic states, or even super-rich private equity bros, from pumping as much PSR-compliant money into the club as they want. If the commercial deals are worth more than the fair market valuation, the PSR is worth nothing.
City are banking heavily on their only win at the tribunal
City is primarily banking on its only victory in the tribunal – the requirement that shareholder loans be included in the APTs. It seems irrelevant that the club itself had previously voted against this provision. Never mind that subsequent analysis of Premier League shareholder loans over the relevant period since 2019 has shown that calculating interest at commercial rates would not have had a material impact on clubs’ PSR calculations. This has been used as leverage with City to expose the APT issue.
There were good reasons why shareholder loans were left out of APTs in the past. They can easily be converted into equity and are therefore excluded from the PSR calculation. They are unpopular with fans who do not want owners or directors to charge the club interest. They are necessary in a business where accounting profits are good but cash levels are a major problem. Their inclusion in the APTs, as City demanded and the court confirmed, does not contribute to the bigger picture in football. In this case, it merely gives City a foothold, not to mention a competitive advantage.
Even if the new APT rules are passed on Friday, it certainly doesn’t appear to be stopping City – and their general in this battle, Cliff, who represents the club at Premier League meetings. Once again one wonders at the pressure the club’s executives are under to protect Abu Dhabi’s royal owner and the state itself from a potentially damaging verdict in the main proceedings.
The city is fighting for its reputation and Abu Dhabi’s legacy is at stake. Unless the Premier League has voted to change its APT rules, there is always the possibility of clubs losing their nerve. They are exposed to the constant risk of higher legal costs, which have to be met from central payouts from broadcasting and media contracts. At least both sides, especially City, can be grateful that – as one suspects – legal costs are not included in the PSR calculation. They must be huge.
City says it wants to wait for the same judges who heard the tribunal to provide both sides with clarifications on their view of the APT rules. Meanwhile, Cliff tells City’s club colleagues that the APTs, as they have existed since 2019, are “void” and that the Premier League is currently in the unusual position of having no serious financial controls in place. That of course suits City better and we will find out on Friday whether the majority are prepared to tell them otherwise.
