Manchester City have claimed victory in their legal challenge against the Premier League's rules on Associated Party Transactions (APT).
The rules relate to how much revenue teams can bring in from sponsors related to their owners. City are majority owned by Newton Investment and Development, the investment vehicle of Sheikh Mansour, the vice president and deputy prime minister of Abu Dhabi.
A statement published on City's official website read: "The club has succeeded with its claim: the Associated Party Transaction (APT) rules have been found to be unlawful and the Premier League’s decisions on two specific MCFC sponsorship transactions have been set aside."
However, in its own statement, the Premier League echoed City in welcoming the decision of a three-person arbitration panel that conducted a two-week hearing in June.
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"The Premier League welcomes the Tribunal’s findings, which endorsed the overall objectives, framework and decision-making of the APT system," the Premier League said. "The Tribunal upheld the need for the APT system as a whole and rejected the majority of Manchester City’s challenges."
So who really won? And will this have any impact on the separate case that went before an independent panel last month concerning City's alleged 115 breaches of Premier League rules?
Did Man City win case against the Premier League?
While it is true that the majority of City's challenges from the 165-page document that their legal team brought forward were unsuccessful, their victories here are significant.
APT rules were first introduced in December 2021, two months after Saudi Arabia's Public Investment Fund completed its majority takeover of Newcastle United.
Updates introduced in January of this year put the burden of proof on clubs to show that their sponsorship deal represented fair market value (FMV). The panel agreed with the club's assertion that elements of these amended rules were contrary to UK competition law.
The panel comprised of Sir Nigel Teare, Christopher Vajda KC and Lord Dyson, ruled that City's proposed new sponsorship deals with Abu Dhabi's national carrier Etihad Airways and First Abu Dhabi Bank, were unfairly blocked. That does not mean, however, that these sponsorships will necessarily be waved through at the levels City hoped. The panel found against the Premier League in terms of procedural unfairness in these instances, rather than directly disputing its benchmarking analysis.
This aspect of APT rules were always expected to form a central plank of the case.
The element relating to shareholder loans is more unexpected and potentially far more significant.
City successfully argued that the Premier League's APT rules were unlawful as they did not take interest-free loans from shareholders into account. Several owners in the Premier League use this a means to inject money into their clubs. The loans typically have a flexible repayment date and are low-interest or interest-free. The relevant passage from the panel's verdict is below.
We refer again to the Written Opening Submissions of the PL which state that 'owner funding, like state aid, is subsidisation. That is particularly so when other sources of external funding are not permitted.' We agree with that statement.
The whole point of the PSR is to ensure that no club is able artificially to inflate its income or reduce its costs. In our view, having regard to the economic and legal context and the objective of the APT Rules, to permit owner funding via shareholder loans that are not at FMV, while subjecting other forms of funding to the FMV test, is a clear distortion of competition between clubs.
The distortion of competition occurs regardless of whether the distortion arises from a non-FMV transaction with an owner or a related party. Thus, we conclude that the shareholder exclusion amounts to a sufficient degree of harm for it to be categorised as a restriction of competition by object.
Everton led the way with £451m in owners debt in 2022/23 (as per the Swiss Ramble), with Brighton (£373m), Arsenal (£259m) and Chelsea (£146m) next on the list
If these loans were assessed at commercial rates for Profit and Sustainability Rules (PSR) calculations, it would leave several clubs potentially in breach.
Did Premier League win its case against Man City?
The Premier League's reference to "a small number of discreet elements" of their rules that will need to be amended does somewhat underplay the significance of City's success. But nor is its system of financial regulations in tatters.
City's headline-grabbing claim in its legal filings that the Premier League's voting procedure of 14 teams being enough to bring about rule changes represents the "tyranny of the majority" that can cause "a competitive detriment of minority clubs" did not pass muster, nor did the panel agree that APT rules were targeted specifically at clubs with ownership from the Gulf region.
The overall endorsement of an APT model is the Premier League's main success. The judges did not say the system should be abolished, on the contrary. The panel said that there was "sufficient evidential basis for the PL and the clubs to club to conclude that the ex post (after the fact) PSR rules were ineffective in controlling APTs, and that it was necessary to move to ex ante (before the event) regime. This was the objective of the APT Rules".
The evening that the ruling became public, City's general counsel Simon Cliff wrote to the Premier League's other 19 clubs and the league itself claiming that the positive assessment of the tribunal signed by Premier League chief executive Richard Masters was "misleading" and contained "inaccuracies".
The letter, seen by The Times and The Daily Mail also cautioned against the Premier League's suggestion that its APT rules "can quickly and effectively be remedied by the league and clubs", stating that this could lead to further oversights and legal challenges. Cliff added that City take the tribunal's verdict to mean all APT rules passed since 2021 are void. Cliff wrote:
When the PL consulted on and proposed the original APT rules in late 2021, we pointed out that the process (which took several weeks) was rushed, ill-thought-out and would result in rules that were anti-competitive. The recent award (conclusion of the panel) has validated those concerns entirely.
The tribunal has declared the APT rules to be unlawful. MCFC’s [Manchester City’s] position is that this means all of the APT rules are void, and have been since 2021.
In recent correspondence, the PL agreed with MCFC that this is an issue which will need to be resolved by the tribunal. It is therefore remarkable that the PL is now seeking to involve the member clubs in a process to amend the APT rules at a time when it does not even know the status of those rules.
An emergency meeting of the Premier League clubs is due to be held next week. Despite some of the inevitable scaremongering to follow, the verdict will not mean a free-for-all in sponsorship terms for City and Newcastle.
UEFA has its own fair market value test, with which City and other clubs need to comply in order to take part in European competition. Although associated partner sponsorships are likely to become relatively more lucrative, they will not do so to the extent that teams jeopardise their chances of playing in Europe.
With regard to shareholder loans, it feels more likely that the Premier League will redraw PSR thresholds than leave itself with the messy situation of several clubs being in breach. It should also be noted that many of the teams with shareholder loans should be able to convert to equity.
What does this mean for Man City's 115 case?
On the face of it, not a lot, given these are two entirely separate cases. The hearing over allegations City breached multiple financial rules over a nine-year period before failing to cooperate with the Premier League's investigation began in London last month.
The 115 case is about whether City brazenly flouted rules it signed up to, whereas the APT case has seen the club attempt to redraw current in future rules in a more favourable manner.
Primarily, if City have committed the offences the Premier League has accused them of, the APT ruling cannot feasibly soften the blow.
However, the recent verdict does apply some helpful mood music to City's situation. Lord Pannick KC is leading their legal challenge in the 115 case as he did for APT. Having a recent victory over the Premier League after proving some of its rules are unlawful is hardly an unwelcome development from a City point of view.
The shareholder loans element also feels interesting in this context. The most damaging allegations against City are that Sheikh Mansour and the ownership disguised equity funding as sponsorship, therefore unfairly inflating commercial deals. Given City's legal team have successfully argued that shareholder loans are effectively an APT, perhaps they could ask why Sheikh Mansour would inflate sponsorships when rules at the time allowed him to put in a vast interest-free loan.
Ultimately, this is all supposition at best. The bare facts are that these are two separate cases and the one that can inflict potentially seismic damage upon the Premier League's serial champions is yet to be decided. After each claiming their victories in the APT battle, neither side will want to take a backward step.
