Manchester City’s PL charges explained – Part 1

Accounts, sponsorships and related parties

It’s coming up to the first anniversary of the Premier League announcing it had filed charges against Manchester City and there’s still a lot of confusion and misinformation about them. I’ll try to explain, as far as I can with the limited information available, what they’re about, and what the outcome may be. In the spirit of keeping things shorter, I’ll split this into parts, with this article mainly focusing on the first group of charges as set out below.

The first thing to explain is the figure ‘115’. There’s an assumption in some quarters that the sheer number of charges alone is ample evidence of significant wrongdoing. This is a false assumption though and this is why. When the PL announced the charges, they were grouped under 5 headings. These were:

1)       Rules that require presenting accurate financial information that gives a true and fair view of City’s financial provision, This also mentions sponsorship revenue and related parties and cover the nine seasons from 2009/10 to 2017/18 inclusive. This is the group of charges I’ll be covering in this piece.

2)       Rules that require presenting full details of manager and player remuneration, the former covering seasons 2009/10 to 2012/13 and the latter from 2010/11 to 2015/16.

3)       Rules that require clubs to comply with UEFA’s FFP regulations, covering 2013/14 to 2017/18,

4)       Rules that require clubs to meet the PL’s own Profitability and Sustainability requirements (i.e., their own version of FFP) covering 2015/16 to 2017/18,

5)       Rules requiring member clubs to cooperate in any investigations and show utmost good faith to the PL. These cover the period 2018/19 to 2022/23.

Each of those headings also listed the individual rules alleged to have been broken in any specific season. For example, under heading 1, in 2010/11 we are alleged to have breached rules B.13, C.78, C79, C.86 and C.87. When you add up all the rule breaches across all the years in this heading, that makes 50 charges, so you can start to see where the ‘115’ figure comes from.

These are rules in the PL Handbook applicable to that 2010/11 season. What do these rules say?

·         Rule B.13 requires all clubs to behave with utmost good faith to the league and the other clubs.

·         The other four rules require submission of annual accounts prepared in line with appropriate accounting standards and submitted by the required timescale (March 1^st in each season) and the provision of future financial information.

City’s accounts for that 2010/11 season were signed off on 24^th February so it’s hard to believe they weren’t submitted on time, plus they were audited with no adverse comment from our auditors. The reported loss, by the way, was £95.3m. The same rules were allegedly breached in 2012/13 (although this time it the rules were numbered B.16, E.3, E.4, E11 and E.12, as the handbook changes most years). It’s the same for the nine years detailed under that first heading. That really doesn’t give us much of a clue, and you can’t imagine we were late submitting those accounts every single year.

The clue might be in the other part of the first rule breach heading in the full statement of the charges, where it talks about “providing accurate financial information that gives a true and fair view of the club’s financial position, in particular with respect to its revenue (including sponsorship revenue), its related parties and its operating costs…”. Sponsorship revenue, then, seems to be the issue. This makes sense as the core of UEFA’s case against us was that we had disguised owner investment via the Etihad and Etisalat sponsorships, which UEFA alleged were largely funded by Sheikh Mansour’s Abu Dhabi United Group.

The basis of their case regarding Etihad was that of the £60m per annum paid, only £8m of that was actually provided by Etihad themselves, with the other £52m coming from elsewhere, which they believed (on the basis of the Der Spiegel hacked emails) was ADUG. CAS though, demolished that allegation, by showing that the other funding had been from Abu Dhabi central marketing funds. So, it didn’t fall foul of FFP’s rules around allowable and non-allowable owner investment.

Etisalat was a different matter, as the initial funding had seemingly come from ADUG to cover sums due in 2011/12 and 2012/13, the first two years of FFP. Etisalat later reimbursed ADUG (in 2015) and continue to sponsor City to this day. While this was one of the issues time-barred by CAS, they still examined it, and accepted that Etisalat had fulfilled their obligations under their contract with City. I’ll talk about the PL’s position regarding time-barring in another piece. CAS found (and UEFA had already accepted) that this sponsorship, in their view, had no issues.

The charge also talks about ‘related parties’, and I’ll explain what these are. It’s part of normal accounting practice (and has been for as long as I can remember, having done accountancy training in the late 1970’s) that companies have to declare any transactions with ‘related parties’. The relevant International Accounting Standard (IAS 24) defines related parties, but this isn’t an exhaustive definition. Essentially, if a person, or close relative of a person, or a company, has control, influence or is a key member of management of another entity, then they’re deemed to be a related party. Therefore ADUG (now Newton Investments) is a related party to Manchester City, as it controls 76% of CFG, which controls 100% of Manchester City.

To give a couple of other examples, the wife of a director of one of the companies I used to work for was deemed to control a company that provided consultancy to our company. The two individuals, and therefore the two companies, were deemed to be related parties. As a result, any dealings between those two companies had to be explicitly reported in the accounts. So, the accounting notes would say that XYZ Ltd provided services worth £100,000 at market rate to ABC Ltd. Another example was when John Wardle and Dennis Tueart were on the board of directors at City, their use of the stadium hospitality facilities had to be declared, along with the fact that this was done at commercial rates (i.e., the rate we’d charge to a non-related party). This provision provides transparency of dealings with people who may be in a position to take advantage of that relationship.

The problem is that it’s difficult to be 100% definitive over who is or isn’t a related party. When City agreed a settlement with UEFA in 2014 over their FFP failure, that question caused a difference of opinion between the parties. UEFA’s accountants claimed that Etihad (and other Abu Dhabi-based companies) were related parties to Sheikh Mansour and Manchester City. City, and their advisors, took the opposite view and Etihad has never been classed as a related party in city’s accounts. It’s important to note that, whoever was right, UEFA accepted that Etihad’s sponsorship appeared to be at market value. In other words, what any other unrelated party would pay, and therefore not overstated.

It seems therefore that the PL is reopening the issue of:

(a)     Whether Etihad is a related party.

(b)     Whether the sponsorship was fair value.

(c)     Did Etihad fully fund the sponsorship.

This seems an odd battle to fight. The related party question was never settled by UEFA or CAS and is quite irrelevant if (b) is the case and that the sponsorship was fair value. Both UEFA and CAS were satisfied that it was, so it’s hard to see how the PL’s independent commission is going to take a different view. Part (c) was also definitively settled at CAS, with the various witnesses saying where the funds had come from and that no sums relating to the other funding of the sponsorship came from ADUG’s bank accounts. The commission would have to decide that the Abu Dhabi Executive Council was a related party, or even the owner of Manchester City. I can’t imagine they’ve a hope in hell of doing that.

I mentioned above that this first group of charges comprised 50 of the 115, so just under half of them. But I hope you can see from this that effectively it’s one charge, maybe two if you separate Etihad and Etisalat into separate issues.

In the spirit of brevity, I’ll leave it there and cover the other charges, and some legal issues around all the charges, in separate pieces.

To summarise:

·         There are just two substantive issues, rather than the 50 the charges imply.

·         The first group of charges appear to relate to the Etihad and Etisalat sponsorships.

·         The PL are, unless they have something new, covering the same ground that UEFA and CAS covered, and which ended with City being cleared of wrongdoing.

·         CAS found that both the Etihad and Etisalat sponsorships were properly funded, accounted for, and had delivered appropriate value for the money spent.

In the second part of this series I’ll cover heading (2) which consists of payments to managers and players. Watch this space.