In depth: who ACTUALLY won the Manchester City case

This week, both the Premier League and Manchester City are celebrating their win following a ruling regarding the legality of the Associated Party Transaction (APT) regulations. However, amidst all the posturing and accusations, who can truly say they emerged victorious?

In February, Manchester City, with legal support from Freshfields and a team of three senior barristers led by Lord Pannick KC, took legal action against the Premier League. The club alleged that the League, which is being represented by Slaughter and May, implemented APT rules that are unlawful and hinder fair competition.

The arbitration, which was fast-tracked to begin in early June, was conducted over a two-week period in private at the International Dispute Resolution Centre. A three-member panel oversaw the proceedings, consisting of former High Court judge Sir Nigel Teare, ex-Supreme Court Justice Lord Dyson, and Christopher Vajda KC from Monckton Chambers.

The current proceedings are distinct from the disciplinary case initiated by the Premier League against the club concerning 115 supposed rule violations, which started at the same location last month. There have been indications that a favorable result for City might influence some of the allegations they are facing.

The APT regulations dictate the maximum amount that companies associated with club owners can spend in agreements with the team. Any business transactions between clubs and these connected companies must be conducted at a "fair market value." Essentially, this means that the deal should reflect what it would typically be worth if the two parties were not related.

This is important because the regulations are designed to prevent the wealthiest clubs from excessively inflating transfer deals and overspending on players, which helps maintain competition in the Premier League. These rules were implemented after Newcastle was acquired by Saudi Arabia’s Public Investment Fund (PIF) in 2021. In February 2024, clubs voted by a slim margin to strengthen these regulations, which sparked controversy among several teams, including Manchester City.

In June, The Lawyer reported that Newcastle United, Everton, and Chelsea all offered their backing to Manchester City in different ways regarding their situation.

Perspectives from Both Parties

The Premier League, represented by Andrew Hunter KC from Blackstone and a team from Brick Court, expressed its approval this week regarding the ruling. The decision stated that the APT Rules were essential for maintaining the League's financial oversight effectively.

Manchester City released a statement declaring their triumph: "The Club has won its case: the APT rules have been deemed illegal, and the Premier League's verdicts concerning two particular sponsorship deals involving MCFC have been annulled."

The Premier League rejected these claims, stating that "a limited number of specific aspects of the Rules do not meet the necessary standards for competition and public law as they stand now."

In a surprising letter sent to clubs on Monday evening, Simon Cliff, Manchester City’s legal counsel, charged the Premier League with “misleading” the public by including inaccuracies in its announcement. According to the letter, which was reviewed by The Lawyer, Cliff claimed that the tribunal had ruled the APT rules as illegal. He emphasized that Manchester City believes this ruling renders all APT rules null and void, effective since 2021.

He cautioned that additional difficulties could arise if the Premier League decided to make hasty changes to the regulations. He didn't identify who might cause these issues.

The Premier League has, as expected, denied any allegations of misleading clubs and has confirmed that it stands by its earlier statement.

Manchester City aimed to get a statement saying that the APT rules are illegal. According to a report from The Lawyer in June, City contested the rules based on both competition law and public law. The club argued that the APT rules violated two sections of the Competition Act (sections 1 and 18) and claimed that the rules lack procedural fairness under public law.

City also requested that the tribunal overturn two earlier rulings made by the Premier League, which concluded that the club's related party transactions (APTs) were not conducted at fair market value. The first ruling concerned a sponsorship deal between the club and First Abu Dhabi Bank. The second ruling involved a sponsorship agreement with the Etihad Aviation Group, the parent company of Etihad Airlines.

The parties involved presented over 280 pages comprising case statements and defense documents, along with an additional 150 pages of overview arguments. Prior to the final arguments, they submitted a list of approximately 20 key issues to the Tribunal. Both sides leaned significantly on the ruling issued by the Court of Justice of the European Union in December regarding the suggested European Super League.

Manchester City raised several claims suggesting that the APT violated competition law. The tribunal ruled in Manchester City's favor on two specific points. However, it did not conclude that the APT’s regulations are fundamentally in violation of competition law.

The tribunal determined that loans provided by club shareholders should be included under the APT regulations, contrary to their current exclusion. Essentially, this means that shareholder loans ought to follow the same guidelines as other APTs. Interestingly, as highlighted by the Premier League, City had previously supported the exclusion of shareholder loans back in 2021, along with nearly all of the other 20 Premier League clubs, with Newcastle United choosing not to vote.

Secondly, the investigation revealed that several adjustments made to the APT regulations in February violated competition laws. These modifications were quite complex. Essentially, the changes to the rules would create obstacles for a club attempting to satisfy the fair market value requirement. However, these issues were specific to the APT rules implemented since January and did not pertain to the original rules established in 2021.

The court determined that these alterations violated competition regulations. However, Manchester City's other legal disputes related to competition laws were unsuccessful.

Manchester City raised several public law objections to the APT regulations, claiming they were not implemented fairly. They were unsuccessful in all but one of these objections. The exception involved how the League assesses whether a transaction reflects fair market value. During this assessment, the League looks at “comparable transaction data” to inform its choice. City argued effectively that it is unjust for clubs to be excluded from commenting on this data before the League reaches its conclusion.

It's important to mention that the club claimed the League was being biased against ownership from the Gulf region, but the tribunal rejected this argument.

The club aimed to reverse the Premier League's ruling that the Etihad Aviation group's sponsorship of the club was below fair market value. They contested this ruling based on four main arguments:

The tribunal sided with the Premier League on three out of the four points mentioned. Importantly, it determined that the Premier League had a valid reason to suspect that these transactions were not being conducted at fair market value.

However, it found that while the League generally maintained fair procedures, it failed to allow Man City a chance to address the assessment of the transaction. Additionally, the League should have shared specific data it had concerning certain elements of the deal with the club.

The initial transaction with First Abu Dhabi Bank

The tribunal reached a similar conclusion regarding the EAG deal. It determined that the League had violated the rules by delaying its decision on the transaction by approximately three months.

Manchester City had a third transaction that they chose not to contest, but they argued that the Premier League's decision process was excessively delayed. The tribunal agreed that the League took approximately two additional months to make this decision. However, they ruled that this particular decision would not be revisited.

The effect of the decision

Most of City’s claims did not succeed, and they only achieved a victory regarding shareholder loans and a few technical points about how fair market value is established. However, concerning these technical points, the ruling will simplify the process for clubs like City to demonstrate that their APTs reflect fair market value. Yet, it will merely restore the standards to the level they were at before the rules were changed in February.

The issue of shareholder loans may not give Manchester City any direct benefits, but it could put clubs like Arsenal and Liverpool at a disadvantage since they have significant loans from their owners. Nonetheless, sources indicate that the Premier League has no plans to modify the rules to retroactively account for loans that have already been issued. Changing the rules in this way could lead to additional legal challenges from those clubs, arguing that it would be unjust to apply new regulations to them after the fact. Whether Manchester City might question this stance, as some have hinted, remains to be seen.

The situation with public law challenges is quite alike. City had setbacks with nearly all its challenges except for one, where it successfully stated that it needs the opportunity to discuss "the comparable transaction data used by the Premier League" before establishing what fair market value is. This outcome will undoubtedly assist clubs like City in presenting their arguments to the Premier League regarding what constitutes a “fair market value” for transactions, as they can now highlight the significance of relevant comparable transactions.

The League has indicated that adjusting the APT regulations through a club vote to address the technical and procedural concerns raised by the tribunal will be straightforward. However, City contends that all these rules are currently not enforceable, and it is up to the tribunal to determine this in a future hearing, rather than the 20 clubs of the Premier League.

The Premier League will have to reassess the transactions involving both Etihad and First Abu Dhabi Bank. According to the League, this information has already been shared with Manchester City, which has been asked to provide its feedback regarding it. Following that, the Premier League will have to revisit its decision on the transactions. It could be challenging for City to persuade the League to alter its stance based on the new details provided, but there is a chance it could happen.

So, who came out on top?

The Premier League certainly secured the vast majority of points. Nevertheless, it's common for those involved in a dispute to put forth multiple arguments against their opponent, understanding that only a few need to be successful for them to achieve a victory.

The key question is: why did City decide to pursue this challenge? What were they trying to accomplish? The lack of transparency in the proceedings makes it hard to determine the exact motivations. If City initiated the claim to guarantee that shareholder loans are recognized as APTs, to reverse some of the rule changes implemented in February, and to establish a more equitable process for how the League assesses fair market value, then it can be said that the club succeeded.

Nonetheless, the prevailing story surrounding this case suggests that if City emerges victorious, sponsorship agreements might be reached without properly evaluating their fair market value.

In June, Matt Lawton from The Times noted that if Manchester City wins their case, it could allow the wealthiest clubs to determine the worth of their sponsorship agreements without needing an outside evaluation. This would significantly increase the money they can generate, giving them much larger budgets to invest in players.

City contends that sponsors associated with the club's owners should have the freedom to decide how much they wish to invest, without having to consider an independent assessment of value.

If Manchester City was expecting the tribunal to rule that the main idea behind the APT regulations is illegal, allowing them to arrange sponsorship deals without needing to evaluate their fair market value, then it seems they may not have succeeded.

However, this may not be the final chapter. The club could still contend that the identified violations weaken the integrity of the rules overall.

Simon Cliff's letter to the clubs on Monday night indicates that this is the strategy City seems to be following. He stated that because the rules are in some way illegal, they are completely “null and unenforceable.” It's likely that this will be included in their defense against the 115 charges. The Premier League, however, disagrees, claiming that these are separate issues that can be easily fixed and do not compromise the overall integrity of the APT rules.

The lawyer has consulted with high-ranking experts in competition and sports law regarding this issue. One of the experienced attorneys pointed out that the outcome will rely on what’s referred to as the “blue pencil test.” This means assessing whether the problematic sentences can be amended by simply crossing them out, in line with the tribunal’s ruling, without altering the core principles of the rules. Essentially, the question is whether the three points on which City was victorious are sufficient to render the entire APT rules invalid.

It's evident that City is likely to defend their position strongly. Since the three points in question don't seem to impact the main intent of the regulations and, according to the League, can be easily resolved, they may face a tough challenge. Some lawyers we consulted did not share City’s perspective, while others chose not to weigh in, suggesting that it ultimately comes down to a judgment call. This situation might require an additional hearing, and it's probable that the tribunal will determine whether it should make the decision or leave it to the clubs involved.

In situations like this, the true winner is usually revealed once the expenses are determined.

On behalf of the claimant, Manchester City Football Club.

Lord Pannick KC from Blackstone Chambers, along with Paul Harris KC, Rob Williams KC, and David Gregory from Monckton Chambers, were directed by Freshfields partners Deba Das and Rhodri Thomas.

For the party being accused, The Premier League

Andrew Hunter KC and Jason Pobjoy from Blackstone Chambers, along with Marie Demetriou KC, Daniel Piccinin KC, Max Schaefer, Tom Pascoe, and Alastair Richardson from Brick Court, were guided by Richard Swallow, Smriti Sriram, and Mark Zerdin from Slaughter and May.