The 19 Premier League clubs who are not Manchester City have a big decision to make this week about whether they vote through a new set of financial control amendments – measures City have expended considerable resources trying to explain why their fellow clubs should reject.
Another week, another letter from City’s legal counsel to its 19 fellow shareholders, thundering about fairness and robust lawful regulation. City want the clubs not to pass the amendments to the rules governing commercial deals between clubs and corporate entities with the same ownership – the associated party transactions [APTs] – when all 20 of them meet again on Friday.
This is the current hot front in the epic ongoing legal war between the league and the club, although 14 votes in favour of the new rules on Friday would certainly require a new strategy from City.
The lawfulness of the APTs was the centre of the arbitration tribunal that City claimed to have won in September despite the three judges that heard the case having rejected many more of the club’s challenges than they upheld.
In the weeks that followed, the Premier League proposed some amendments to fix the details. City, who might now be considered something of an independent republic operating within the territory of the Premier League, have told all concerned that they consider the whole APT regime is broken.
City even say that the APT regime, which we now know blocked the club’s most recent deal with prime Abu Dhabi partner Etihad Airways, are not currently enforceable. Whether any other club believes them or not we shall find out on Friday.
As for City, the threat is the same. More expensive legal action awaits. “Our strong desire is to avoid any future costly legal disputes on this issue,” wrote Simon Cliff, general counsel for the club, although on the evidence so far City seem fine with costly legal disputes. A full-time litigant with a football business attached.
Of course, they are fighting the battle of their lives in the major regulatory case with the Premier League encompassing more than 100 charges, which is the background to all these skirmishes around APTs. It is for that reason that the Premier League’s financial controls are under such sustained attack and what makes this week’s vote to amend them so critical.
Premier League shareholder votes are not a matter of public record and they can be unpredictable. City would need six allies to defeat the measures, although for what would the six be voting? If the Premier League cannot fix the APTs, a relatively simple task, it does not have a framework for financial controls. If it does not have financial controls – the profit and sustainability rules [PSR] – as it is currently, then clubs as wealthy as City will be able to spend what they like.
The tribunal said as much in its ruling – that APTs were critical to the implementation of the PSR system. APTs prevent state-owned clubs, or those owned by the royals of non-democratic states, or even super-rich private equity bros, pumping in as much PSR-compliant money as they want into the club. If the commercial deals are worth more than fair market valuation, the PSR is worth nothing.
City are pinning much on their one win in the tribunal
City are pinning much on their one win in the tribunal – the requirement that shareholder loans are included in the APTs. It does not appear to matter that the club itself had previously voted against this provision. It does not matter that the Premier League’s subsequent analysis of shareholder loans in the relevant period, since 2019, has shown that had interest been charged as commercial rates it would have had no material effect on the PSR calculations of the clubs. This has been seized upon as the lever by which City will prise open the APT question.
There has been good reason why shareholder loans had been left out of APTs in the past. They are easily converted into equity, excluding them from the PSR consideration. They are unpopular with fans who do not want to see owners or directors charging interest as a cost to the club. They are necessary in a business where the book profit may be healthy but cash at hand is a greater issue. Including them in the APTs, as City has demanded and the tribunal upheld, does not help the wider picture in football. It just gives City a foothold in the case, not to mention a competitive advantage.
Certainly, it seems that even if the new APT rules are passed on Friday, that will not stop City – and their general in this battle, Cliff, who represents the club at Premier League meetings. Once again, one wonders at the kind of pressure that the club’s leading executives are under to save its Abu Dhabi royal owner, and the state itself, from what could be a damaging verdict in the main case.
City are fighting for their reputation and the Abu Dhabi legacy is at stake. As long as the Premier League has not voted to amend its APT rules there is always the chance that clubs might lose their nerve. They have been subject to the constant threat of greater legal cost which has to be paid for out of central disbursements from broadcast and media deals. At least both sides, City in particular, can be grateful that – one presumes – legal costs are not included in the PSR calculation. They must be huge.
City says that it wants to wait for the same judges that heard the tribunal to make clarifications about its view on the APT rules to both sides. In the meantime, Cliff tells City’s fellow clubs that 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. That, of course, suits City more, and we will learn on Friday if the majority are prepared to tell them otherwise.
