How Manchester City case might have an impact on Chelsea PSR position

The Premier League moved to cancel a meeting of its 20 member clubs this week so that they could take more time to take stock and engage in dialogue with Manchester City over the recent legal tussle between the two.

Last week saw both sides come out and claim victory following a tribunal that came about through City, the current Premier League champions, challenging the rules and regulations around associated party transactions (APT) that exist in the Premier League at present. City had seen big-money commercial deals with Etihad and Abu Dhabi First Bank rejected due to them being deemed not to be at fair market value.

Of the 25 legal challenges, Manchester City found that the panel sided with the Premier League on 23 of them, but on what they did agree with City could well be impactful for other clubs in England’s top flight moving forward, not least Chelsea.

The ruling handed down by the tribunal panel found that the Premier League’s APT rules and amendments, which were introduced in December 2021 and in February of this year, are “unlawful” and in breach of UK competition law. The main reason for the decision was that City managed to successfully argue that shareholder loans, where clubs borrow money from ownership at either low levels of interest or completely interest-free with no maturity date, should be assessed for fair market value when it comes to APT and that they should be counted towards the Premier League’s profit and sustainability rules (PSR) calculations.

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The Premier League’s stance was that the panel had found that APT rules were necessary and not excessive, and that the rules could continue to operate and that the changes they felt needed to be made could be done “quickly and effectively” to fix the problem.

Manchester City don’t see it that way. They believe that the APT rules as they stand are unlawful, which the tribunal ruled, and that they should be “null and void”.

Speaking to the Athletic, Simon Leaf, a partner and head of sport at law firm Mischon de Reya, said: “Whilst the PL may try to carry on with the existing rules and rely on the “blue pencil test”, where essentially they would argue that the rules should be read so that they are automatically reinterpreted in a lawful way, it would appear that City would challenge this strongly.

“They would no doubt try to argue that until formal changes to the rules are voted on and agreed by the other clubs, including changes to address the shareholder loans point, the APT rules cannot be enforced.

“City may even try to suggest that the APT rules can only now work if the shareholder loan calculation applies retrospectively, which, again, is likely to be problematic for the league because several clubs are likely to oppose this, and may even try to challenge such a change themselves. In short, it is a mess.”

So what might this mean for Chelsea?

Chelsea’s heavy spending under Todd Boehly and Clearlake Capital hasn’t been secretive. They’ve paid huge amounts of money out for players, and while they have managed to recoup plenty through the door through the sale of many Cobham-produced players, which counts as pure profit from an accounting standpoint, the scales remain tipped very much in the direction of outgoings.

The club for the past 18 months has been mentioned as at risk when it comes to PSR, but the sale of players and of assets including two hotels at Stamford Bridge, allowed for them to keep themselves under the PSR threshold, with the transfer costs kept down initially after the club started to offer seven, eight, and nine-year deals to players to keep amortisation costs down on the balance sheet before UEFA and the Premier League stepped in to make a rule change to cap it to five years.

Chelsea’s financial accounts for 2023/24 are, like most clubs, in the process of being audited.

During the summer the decision was made to have a change of ownership of the women’s team internally, a deal reportedly worth ‘tens of millions of pounds’ as the club was sold to the Chelsea holding company, Blueco22 Midco Limited. That deal was done two days before the end of the financial year for the club.

Chelsea likely had little room for manoeuvre for PSR due to continued spending and a lack of income from European competition having missed out on the Champions League again, so moving around some of the pieces to ensure that they remained compliant could have been a motivating factor. The timing would hint at that.

But, like with the hotel deals, the sale of the women’s team would have to be assessed by the Premier League under APT, and it would need to prove that fair market value had been applied.

The problem for the Premier League is that given the bloody nose inflicted by Manchester City and the tribunal decision, will it know which APT rules it is supposed to apply? Previously, Chelsea have had to state in annual accounts that they could be subject to change depending on Premier League approvals or adjustments, and the same may have to be applied here given that time won’t be on the league’s side when it comes to assessing these deals, especially with the potential legal challenges that could arise from clubs.

There is also the possibility that the Premier League may seek to further scrutinise the deals that took place between clubs with PSR issues during the summer, with Chelsea, Newcastle United, Everton and Aston Villa all engaged in player trading of home-grown players for what seemed large fees given the relative lack of experience. It could be that the Premier League seeks to assess whether those deals were done at fair market value.

For now, though, clubs haven’t had the chance to grill the Premier League about what comes next as the league and Manchester City continue to have dialogue, and all this a separate issue from the 115 charges that the Premier League hit the champions with last year alleging breaches of financial controls over a decade-long period.

The Premier League will need to ensure that its regulatory issues are fixed and that they are robust, as they could end up being involved in more costly in-fighting with members, the clubs that make up the league’s shareholders.