Manchester City verdict imminent in legal fight vs Premier League

A verdict into Manchester City’s landmark legal challenge of associated-party financial rules, which have split the Premier League, is expected imminently.

City launched an unprecedented claim of “discrimination” over rules governing market value on sponsors and transfers in February and, while separate to the hearing over multiple alleged rule breaches, some Premier League insiders regard this case as even more important.

This is because it will crucially shape the future financial governance of the league and the potential competitive balance.

A two-week arbitration hearing was heard in private in June and, with a Premier League shareholders’ meeting of clubs on Thursday, the outcome is expected over the coming days.

City’s challenge was brought according to the league’s arbitration procedure, which does not contain any provision to publicly announce its findings.

‘Associated-party’ transaction (APT) rules were introduced in December 2021 shortly after the Newcastle United takeover and followed rules previously for ‘fair market value’ in respect of any ‘related-party’ transaction.

Proposals to update those rules were narrowly passed earlier this year after 12 of the 20 clubs voted in favour. Six clubs had voted against the changes and two abstained. The league argued that the amendments would “enhance the efficiency and accuracy of the system”.

Telegraph Sport immediately reported that a legal challenge was expected and, in a claim that was seen by The Times, City argued they were being affected by a “tyranny of the majority”.

City are seeking “damages for the losses which it has incurred as a result of the unlawfulness of the FMV [fair market value] rules”, their case says, adding that rival clubs are looking to “safeguard their own commercial advantages”.

The rules were “deliberately intended to stifle commercial freedoms of particular clubs in particular circumstances, and thus to restrict economic competition”, the claim reportedly says.

“There is no rational or logical connection between a club’s financial non-sustainability and its receipt of revenues from entities linked to ownerships,” City state.

Some rival clubs fear that defeat for the Premier League would weaken financial controls and damage competitiveness in a way that could have far-reaching consequences both for the league’s global popularity and incentives for other investors to stay involved.

According to page 135 of the Premier League rule book, the associated-party transaction rules seek to ensure, “the long-term financial sustainability of clubs by extinguishing reliance on enhanced commercial revenues received from entities linked to the club’s ownership; and fairness amongst clubs, so that clubs are not able to derive an unfair advantage over domestic competitors by increasing revenues or reducing costs via arrangements with entities linked to a club’s ownership.”

The Premier League and Manchester City have declined to comment both on the arbitration hearing into associated-party transactions and the separate hearing into 115 alleged rule breaches, which began last Monday and is expected to last another nine weeks. City deny breaking any rules.

Man City v Premier League: The key questions

In June, it was revealed that Manchester City had launched a legal challenge against the Premier League, with the Abu Dhabi-owned club challenging sponsorship rules, while claiming they are victims of “discrimination” from rival clubs.

It is an unprecedented action which could ultimately undermine the competition’s 115 charges against the champions.

Here Telegraph Sport delves into the exact nature of the legal case and whether City can win.

What are the Premier League’s associated-party transaction (APT) rules?

APT safeguards were originally introduced in December 2021 after the Saudi Arabia-backed takeover of Newcastle United. By then, it had already been alleged, initially via the Football Leaks dossier of private emails, that Manchester City had concealed payments made by their owner, Sheikh Mansour, through third parties and disguised them as sponsorship revenue. City denied this.

Protections were brought in by rival clubs with two key themes in mind: to stop clubs using inflated sponsorship deals with companies linked to their owners, and to ensure fair market value on player trading between teams under multi-club ownerships. The Premier League handbook states that the rules seek to ensure “the long-term financial sustainability of clubs by extinguishing reliance on enhanced commercial revenues received from entities linked to the club’s ownership; and fairness amongst clubs, so that clubs are not able to derive an unfair advantage over domestic competitors by increasing revenues or reducing costs via arrangements with entities linked to a club’s ownership.”

Last season, there were repeated attempts by other clubs – opposed by City – to further tighten the restrictions. Since the 2021 rule was introduced, Newcastle have secured major uplifts on sponsorship agreements, including a £25 million-a-year front-of-shirt deal with Saudi events company Sela.

Player dealing was also a source of concern. Eventually, in February, rules – which further restricted loans and purchases between related clubs – were passed on just 12 votes rather than the usual threshold of 14, reduced because of two rare abstentions. The key sticking point was understood to be around the personal liabilities directors have to assume for their clubs breaking financial regulations.

What are City arguing?

Within a 165-page legal document, City claimed that they are being unlawfully targeted by rivals to stifle their success. The club argues the league’s democratic system of 14 clubs being able to implement rule change gives the majority unacceptable levels of control.

City are seeking “damages for the losses which it has incurred as a result of the unlawfulness of the FMV [fair market value] rules”, the claim states. One potential target that could have been delayed as a result of the rule is winger Savinho, on loan last season at Girona, part of the City Football Group empire.

The rules were “deliberately intended to stifle commercial freedoms of particular clubs in particular circumstances, and thus to restrict economic competition”, the claim, first reported by The Times newspaper, says.

“There is no rational or logical connection between a club’s financial non-sustainability and its receipt of revenues from entities linked to ownerships.”

In his summary of the case, Daniel Gore, a senior associate at law firm Withers, says City are “challenging the contract which exists between the clubs themselves and the league”.

What do rivals fear?

Some clubs believe the first shots have been fired in a war that could ultimately lead to the end of all financial controls.

City will know they are not alone in seeking to loosen constraints. Chelsea and Newcastle both have shirt sponsors with close links to their ownership. Others are desperately hoping the Premier League is successful.

Gore warns the consequences for all clubs could be significant. “These rules provide a shield against an unrestricted sporting arms race between the most-wealthy owners, funnelling money into their club through parties they control and increasing the notional profitability of their club,” the lawyer says.

“If a challenge to the legality of these APTs can succeed then it is not inconceivable that someone might try to challenge the overarching profitability and sustainability rules more generally and this could reverse the moves to ensure that clubs operate within their means – something people may argue has increased the overall competitiveness of the Premier League and reduced clubs going insolvent.”

What does this mean for City’s 115 charges?

Launching the legal challenge could weaken the league ahead of the separate major legal battle into more than 100 alleged rule breaches.

Time and resources spent preparing for the case might have impacted the top tier’s legal team preparations for that hearing, which began last Monday. The challenge to the fundamental mechanism of a two-third’s majority vote could also prove significant.

“It is hard to see how effective governance could take place without a threshold such as this, so Man City’s challenge could plunge the Premier League’s governance structure into chaos and make it harder for any decision to take place,” explains Gore. “This move might be seen by some sceptics as Man City trying to manoeuvre the narrative and legal arguments in its favour, ahead of its own defence of the 115 charges.”

Dan Chapman, a sports lawyer and partner at Leathes Prior, said his “immediate instinct”, however, was that an unlawful verdict should “not be of major significance to the 115 charges”.

“If City thought that rules were unlawful to which they were subject over many, many years and were now, only in 2024, raising that, I do not see that would likely be a terribly attractive argument for any regulatory commission hearing the charges based on the laws as they then were,” he adds.

“I can understand if they establish the APT rules introduced in 2021 are unlawful that it would mean anyone charged post-2021 would have something to say about it, but I do not immediately see the direct link between this and the bulk of the 115 charges.

“That said, of course, symbolically, I suppose, if City were to win this case, it certainly gives them a significant moral high ground or PR footing to argue that a lot of the charges that they face, under the historical regulations, would not necessarily be brought under whatever amended regulations emerge from the outcome of these proceedings.”