Explaining Man City’s lawsuit against the Premier League

Manchester City have taken legal action against the Premier League over new rules, introduced in December 2021 and revised in January 2024, governing “associated party transactions” (APTs). An arbitration tribunal will hear the case on June 10, and a decision is expected within two weeks of that date.

According to The Times, which has reviewed a 165-page document submitted by Abu Dhabi United Group-owned City, the club is arguing that such regulations violate competition law in the United Kingdom. They are also reportedly seeking monetary damages on the basis that for years, they were forced to comply with these rules.

Should the arbitration tribunal side with City, the impact could be far-reaching, because club owners could be free to inject as much money as they like into their teams via sponsorship deals. Theoretically, you could acquire all the best players in the world if you were wealthy enough and didn’t mind bankrolling losses year after year.

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It would upend the European order, since many clubs are either some form of nonprofit member association (e.g. Real Madrid, Bayern Munich, Barcelona, Borussia Dortmund) or controlled by funds that, eventually, have to show some result to their investors or shareholders (e.g. Chelsea, AC Milan, Manchester United). Effectively, it would remove cost controls and make the business as a whole less attractive to investors, especially at a time when the trend is in the opposite direction, with most leagues as well as UEFA, the governing body of European football, instituting regulations aimed at fostering sustainability.

It would also be a massive blow to the Premier League’s case against City over the 115 alleged breaches of the league’s financial rules since many relate to allegedly inflated sponsorships, which would no longer be outlawed. Then there’s just the mere fact that the most successful member of the most successful league — not just in football, but in sports — is lawyering up to take on the very league they’re a part of.

That puts us squarely in uncharted waters, so here’s a Q&A to try to make sense of it.

Q: So what’s this “associated party transaction” business?

A: An “associated party” is an entity that has some kind of relationship with the club or its owner. It has become an issue since financial fair play rules — limiting the amount of losses a team can incur over a set period of time — came into force in 2011.

Let’s say Elon Musk owns Tottenham Hotspur and wants to spend huge amounts on players and transfers. Under the current rules, he’s limited in how much he can put into the club; if he wants to put in more, he would need to grow the club’s revenue. Well, sponsorship deals are part of revenue, and because he’s the CEO (and a big shareholder) of Tesla, you might think he could get Tesla to sign a $500 million-a-year sponsorship deal with Tottenham, which would double the revenue and allow Spurs to spend a lot more on players (maybe even bring back Harry Kane). Except, he can’t.

Why not?

Well, because Tesla and Tottenham would be considered “associated parties,” since a single person or entity (Musk, in this case) exercises “significant control” (as the Premier League puts it) over each of them. Therefore, they wouldn’t simply be making straight business decisions, but manipulating one business in an unrelated industry into helping their other business.

The hypothetical Tesla/Tottenham sponsorship would be an “associated party transaction” (APT), which means it would be subject to something called “fair market value.” Just like if Musk owned, say, Astana in the Kazakhstan Premier League as well as Tottenham, he couldn’t get his Kazakh team to sign Oliver Skipp for $100m in order to increase Spurs’ revenue. That deal would also be subject to “fair market value” and Skipp, with all the love in the world, probably isn’t worth $100m.

Who decides what is “fair market value”?

There are companies who specialize in this very thing and would benchmark the value of the deal against comparable deals at similar clubs. For example, if Arsenal — a club of comparable size to Tottenham in a comparable location — signed a sponsorship contract with Toyota (an unrelated party with no ties to the club or their owners) for $30m, they would use that as a benchmark to evaluate the Tesla deal. And they might conclude that it should only count for $30m when calculating club revenues for the purposes of financial sustainability rules, like the Premier League’s profit and sustainability regulations (PSR).

And City don’t like that?

Not according to the suit, as reported by The Times. They argue that even sponsors with ties to their owners — like, say, Etihad Airways, Abu Dhabi’s flagship airline — should be free to decide for themselves how much their sponsorship of the club is worth to them.

City also argue that the Premier League has a conflict of interest since it too has sponsors and competes with the clubs for their money, and they question the way fair market value is assessed. They also argue that the rules inhibit City’s ability to acquire talent and make it more expensive to run their business, which in turn (also reported by the Times from those documents) might mean they may have to raise ticket prices or cut spending on youth development, women’s football or community programs. That’s why they’re also seeking damages for lost revenue as a result of “fair market value” rules limiting how much they could get from their APTs.

(The basis is that if the fair market value principle is deemed to be unfair, then all those times in the past when City abided by fair market value, rather than signing bigger sponsorships with associated parties, resulted in lost revenue.)

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What would the Premier League say to that?

We don’t know, because it isn’t commenting and this whole process, like the one regarding City’s 115 charges, is shrouded in secrecy. That said, the league could point to the fact that these rules were approved in 2021 by a significant majority (19, with one abstaining) of Premier League clubs (rule changes require at least 14 of the 20 to vote in favor), that being part of the league is voluntary and that if you’re going to be a part of it you have to abide by the rules set by its members. (When tighter rules were voted on by Premier League clubs the following month, the vote was 18-2 in favor of those rules.)

If you join a golf club and the members vote to ban mobile phones on the course, you need to abide by the rules, even if you voted against them. (Unless, of course, they come up with rules that are illegal or discriminatory under national law, which is sort of what City are arguing here, based on UK competition law.)

The league might also argue that it’s hard to see how City are being penalised when they won six Premier League titles in the past seven seasons and made profits of nearly $100m last season and around $50m the year before.

Who’s on the arbitration panel, and how do you think it will go?

It will be a three-person panel of legal experts, one chosen by each side and the third chosen jointly, and I guess it comes down to how they interpret competition law. It does feel that if you remove the concept of “fair market value” from APTs, you give a huge competitive advantage to clubs with wealthy owners who are happy to bankroll losses via inflated sponsorships or dubious multiclub ownership deals. You also make it much tougher for everyone else to keep up and run a profitable, sustainable business, which is what the Premier League — and its 20 members — is trying to do.

On the other hand, while this could theoretically have a big impact on the Premier League, I’m not sure to what degree City — or anyone else — would necessarily abuse the system.

Why is that?

Well, if you want to play in UEFA competitions, you still have to abide by their rules. And they have “fair market value” principles to evaluate sponsorship deals. So even if City were to win, I doubt we’d suddenly get a billion-dollar Etihad sponsorship. (While this might mean they could be sponsored for $500m and sign Kylian Mbappé to play in the Premier League if such rules are removed, those same books would still be evaluated by UEFA as part of playing in those competitions. As such, they could still rule that these deals are inflated under their rules.)

More likely, this is aimed at the upcoming case in November, the one with the 115 charges. Many of them relate to sponsorship deals that were allegedly inflated beyond fair market value. And if that is no longer against the rules, it’s hard to throw the book at them even if the rules were in place at the time. That’s in essence what City are arguing here.

Either way, the implications are going to be far-reaching.

How so?

The Premier League is nothing more than an association of 20 member clubs, and now you have one of those clubs taking legal action against the others. It’s unprecedented on this scale.

Part of what enabled the league to thrive and become far and away the most successful in the world is that whatever disputes arose were resolved in-house, and the 20 clubs always presented (outwardly, anyway) a united front. Even when there has been tension — think of the points penalties incurred by Everton and Nottingham Forest for breaching financial rules — it has centered on how the rules were applied rather than on the regulations themselves, which were approved by all the clubs. Here, the language has become hyperbolic very quickly, with some media outlets calling it a “civil war” and, according to The Times, City calling the Premier League rules the “tyranny of the majority.”

What’s depressing about all this, as I see it, is the way this entire process — like the 115 charges — is all taking place behind closed doors. Sunlight is the best disinfectant, whether it be for the Premier League proving its case and showing its process is fair or Manchester City proving their innocence and that the charges have no merit.