Man City vs. Premier League over APT: What you need to know

Mark Ogden, a senior journalist at ESPN FC, reported on October 8, 2024, at 4:57 PM.

Manchester City's legal battle with the Premier League regarding the Associated Party Transactions rules, which oversee commercial agreements involving club owners, has come to an end. Both parties are declaring success after the arbitration panel issued its ruling.

This situation is distinct from the independent hearing currently examining whether City has violated 115 regulations set by the Premier League, which is expected to finish by the end of the year. It began when City initiated a legal dispute in June. The case is intricate and has been summarized by a three-member independent panel in a lengthy 175-page report. As a result, both City and the Premier League are working to present the story in a way that benefits their respective positions.

So, what does it all signify? Did either party truly come out on top? And how will this affect the upcoming significant hearing between these two groups, if at all?

Why Did Man City Take Legal Action Against The Premier League?

The city's case aimed to contest the legality of the Premier League's APT regulations. These rules are intended to assess if sponsorship agreements are financially just and truly represent their fair-market value (FMV).

The APT regulations were put in place in 2021 to stop clubs from making money through exaggerated sponsorship agreements with businesses connected to their owners. Since Manchester City is owned by Sheikh Mansour bin Zayed al Nahyan from Abu Dhabi, these rules are designed to make sure that any sponsorship arrangements with companies located in Abu Dhabi or the broader United Arab Emirates (UAE) are only set at prices similar to those struck by other clubs.

For example, according to the APT regulations, the sponsorship agreement between City and Etihad—Abu Dhabi's state airline—for their shirts and stadium, valued at around £80 million annually, would need to match arrangements of similar clubs. One such comparison could be Arsenal's partnership with Emirates, Dubai's national airline, which is estimated to bring in £50 million each year.

Why Did The Premier League Introduce APT Rules?

New regulations were established in December 2021 after the Saudi Arabia-backed acquisition of Newcastle United that took place in October of that same year. These changes were prompted by worries that clubs owned by state entities were gaining an unfair advantage through sponsorship agreements with firms linked to the same government or state organizations. For instance, Manchester City has a number of sponsors based in the UAE, such as Etihad Airways and Etisalat, along with others like Experience Abu Dhabi and Aldar. Similarly, Newcastle has secured partnerships with sponsors from Saudi Arabia since 2021.

The APT regulations, implemented after most Premier League teams supported their adoption, are intended to secure the financial stability of clubs over the long term. They do this by placing restrictions on the increased commercial income that comes from businesses associated with the club's owners. Essentially, these rules are meant to reduce clubs' dependence on the financial support and resources provided by their owners and to lower the risk of financial trouble if the owners face hardships.

Furthermore, the regulations were created to maintain a level playing field among teams, ensuring that no club can gain an unfair edge over its domestic rivals by boosting incomes or cutting costs through agreements with organizations affiliated with the club's ownership that are not at fair market value. This aspect aims to stop teams from profiting from deals that are artificially overvalued, allowing them to compete more effectively against clubs that don’t have similar benefits.

Hislop: Manchester City should consider themselves fortunate following their victory against Fulham.

Shaka Hislop thinks that Adama Traoré from Fulham had the chance to net a hat trick against Manchester City.

Why Do Both Sides Claim Victory In The Case?

On Monday, the arbitration panel concluded that the Premier League's APT system is an essential component of the competition framework and is a "well-designed plan," which the league views as a confirmation of its regulations. Additionally, the panel decided that Manchester City's claim that the APT rules unfairly targeted teams owned by individuals from the Gulf region lacked merit.

Nonetheless, the panel discovered that certain parts of the regulations are illegal and need to be revised.

"In the world of football, it seems like Manchester City has emerged victorious, while the Premier League has only managed to score a mere consolation goal," stated Christopher Allen, a partner at the London law firm Memery Crystal and an expert on football law, in an interview with ESPN. "I refer to it as a 'consolation goal' because the tribunal did not seem to determine that the existence of regulations governing associated party transactions (APT) is inherently illegal."

To put it differently, the intention and foundation for regulating advanced persistent threats (APT) is sound. However, the problem for the Premier League is that its two previous efforts to establish rules on this topic have been deemed illegal.

The illegal aspects of the existing APT regulations pose two main issues. Firstly, since Manchester City has made a groundbreaking move by being the first club to file a claim against the Premier League, this could encourage other clubs whose transactions were blocked under the old APT rules to pursue compensation. Secondly, a widely discussed takeaway from the Tribunal ruling is that interest-free loans from shareholders should potentially be included in any new APT regulations the Premier League develops moving forward.

As a result, decisions regarding two agreements involving Manchester City, specifically with Etihad and First Abu Dhabi Bank, have been put on hold and need to be re-evaluated to determine if they truly satisfied the criteria of "fair-market value."

The panel dismissed City’s claim that the APT rules were intended to target clubs owned by Gulf region investors. However, they agreed with City’s position that shareholder loans, which are essentially loans without interest, should not be left out of the APT rules. As a result, the Premier League will now include the evaluation of shareholder loans within the APT regulations to assess if clubs are gaining an unfair advantage from advantageous loan conditions.

The findings also indicated that the "APT Rules are illegal because they violate sections 2 and 18 of the Competition Act 1998, specifically due to the fact that they do not cover shareholder loans and for no other reason."

Simon Leaf, a partner and the head of sports law at the London firm Mishcon de Reya, remarked that the result could be considered "best characterized as a tie."

"It's not simply a matter of one side winning over the other," Leaf stated to ESPN. "Competition law mainly focuses on maintaining balance and fairness, especially when those in a powerful position, such as the Premier League, make choices. The Panel determined that the Premier League broke the law by failing to take shareholder loans into account within the APT rules."

Understanding Shareholder Loans: What Are They?

"Shareholder loans" refer to funds supplied to clubs by their owners or directors without charging any interest. Since these loans don’t carry the typical commercial interest rates, they can create an uneven playing field. If these funds had come from a bank, the clubs would be obligated to pay interest, which would be regulated under Profit and Sustainability (PSR) rules. However, because the loans are interest-free, clubs with these types of loans might be dodging the obligation to make repayment amounts that could reach tens of millions of pounds annually.

In light of today's discovery, the Premier League plans to include shareholder loans in its APT calculations, which is a win for City. Why is this significant? Because clubs that utilize these loans will now be evaluated on whether they are obtaining a financial edge from loans that lack standard commercial interest rates.

"We think that as many as nine clubs in the Premier League might be affected by this situation," Allen stated. "However, altering the league's regulations could prove challenging. Usually, changes need the approval of 14 member clubs, and it might be even harder now to get everyone to agree on a new set of APT guidelines."

"Leaf mentioned that these types of loans are quite common in football. They help clubs meet payroll and maintain their operations, so bringing them under the APT rules would be a major shift. This could create challenges for many clubs that depend heavily on this kind of financial support."

Looking ahead, it's hard to see how either side would have a strong case for appealing, as both parties can reasonably argue that they achieved some level of success from this situation.

It's important to mention that the decision to leave out shareholder loans from the APT regulations was made by most clubs aiming to promote clear and open investment. In fact, 19 clubs, including Manchester City, supported this decision.

What's Next For Man City? APT Charges Ahead?

No, this case was initiated by the City to question the validity of the APT regulations. While certain aspects of their argument were supported, the main takeaway is that the Premier League has the right to keep the APT rules in place, with only a few minor adjustments. As a result, there will likely be minimal changes overall.

The main update will involve taking into account shareholder loans in the revised APT regulations. City sees this as a way to level the playing field for clubs that rely on such loans for part of their funding. However, City won't face any consequences for this. They initiated the action themselves, rather than it being brought by the Premier League, effectively putting an end to the matter.

Does This Case Affect The 115 Charge Case?

In summary, the answer is no. The case, with independent hearings starting on September 16, revolves around claims that the City did not supply correct and current financial data from 2009-10 to 2017-18, which the City disputes. Additionally, the APT regulations were only introduced in 2021, meaning there is no connection to the earlier period.

If City had emerged victorious in the APT hearing, it could have undermined the Premier League, casting doubt on its effectiveness as a governing authority and harming its reputation along with the credibility of its rules and regulations. On the other hand, if City's case had been thrown out, it might have weakened the club's efforts to gain public support ahead of the decision regarding the 115 charges they are contesting.

However, both City and the Premier League have come out favorably from the APT findings released on Monday, and neither has experienced a significant hit to their reputation that would have negatively impacted them before the results of the other case are unveiled.

What Does This Verdict Mean For Us?

In truth, the importance of this matter is minimal, aside from the changes made to the APT rules that will lead to a closer examination of shareholder loans. When this point is clarified in the Premier League Handbook, the "unlawful" aspect of the APT rules will become consistent with UK competition law. There is no risk to the APT rules, and they will remain in effect.

The aspect of shareholder loans is simply an adjustment that won’t significantly affect clubs that utilize them. Why is that? If a club has an interest-free shareholder loan of £200 million and is required to start paying 6% interest, it would end up costing them an extra £12 million annually. While that’s still a considerable amount, it pales in comparison to the potential financial gains from sponsorship agreements that are valued above the fair market rate.

The ruling has sparked quite a bit of discussion, which works to City's advantage as some view it as a victory for the club and a setback for the Premier League. However, once things calm down, it's important to realize that this mainly involves making adjustments to align with competition law, rather than indicating how the 115 charges will ultimately be resolved.