12.11.2024
Background of the Dispute
On 25 September 2024, the Rule X Arbitral Tribunal published its decision in the dispute between Manchester City Football Club (MCFC) and the Premier League over the legality of the Associated Party Transaction (APT) Rules. The arbitration award highlights various aspects of competition law, procedural fairness, and the application of APT rules to specific MCFC transactions. The public release of the decision provides key insights into how financial transactions between football clubs and their associated entities are scrutinized to maintain the Premier League’s financial integrity. The dispute arose from Manchester City’s challenge against the Premier League’s APT Rules, which regulate transactions between clubs and associated parties to ensure they reflect Fair Market Value (FMV). FMV refers to the price at which a transaction would occur between willing parties in an open market, without any undue influence or advantage stemming from related-party dynamics. For instance, if a club like Manchester City enters into a sponsorship deal with a company owned by one of its shareholders, the APT Rules ensure that the deal’s value is not artificially inflated beyond what a similar deal would attract under market conditions. These rules aim to prevent clubs from leveraging their ownership structures to secure sponsorships at inflated values, which could potentially distort the competitive balance within the league.
Manchester City argued that the APT Rules were unlawful under UK competition law and procedurally unfair, emphasizing that the rules led to biased assessments that unfairly targeted the club. The Premier League, on the other hand, defended the APT framework, emphasizing its necessity for enforcing the Profitability and Sustainability Rules (PSR). The Premier League maintained that the APT Rules were crucial for preventing clubs from circumventing financial regulations and ensuring a level playing field for all participating clubs.
Issues
The Tribunal was tasked with addressing several key issues in the dispute, including:
Whether the APT Rules and their application to MCFC’s transactions violated competition law.
The legality of the exclusion of shareholder loans from APT assessments. Manchester City argued that excluding such loans was discriminatory, particularly because shareholder loans are a common method of financing in club ownership structures.
The procedural fairness in how the Premier League applied these rules, including delays in assessing MCFC’s sponsorship transactions. Specifically, whether the Premier League’s methods for assessing the FMV of transactions involving Manchester City met the standards of fairness and transparency required under UK law.
Judgment
The Tribunal’s findings were mixed, resulting in a complex outcome:
In favour of Manchester City: The Tribunal found that certain aspects of the APT Rules were unlawful. One major issue was the exclusion of shareholder loans from the scope of the APT Rules, which the Tribunal determined was discriminatory and did not align with the principles of competition law. By excluding shareholder loans, the Premier League’s rules created an uneven financial playing field that could hinder clubs with particular ownership structures, like those supported by significant shareholder investments. Additionally, the Tribunal highlighted procedural issues, notably finding that some amendments made to the APT Rules increased the risk of “false positives”—situations where transactions might be incorrectly deemed to fall outside of FMV, potentially leading to unwarranted regulatory actions. The Tribunal also set aside specific Premier League decisions regarding two of Manchester City’s sponsorship transactions. These transactions involved sponsorship deals with Etihad Airways and Etisalat, both key partners for the club. The Tribunal criticized the Premier League for procedural delays in assessing these deals, suggesting that the lengthy review process had resulted in unfair treatment of the club.
In favour of the Premier League: Despite the findings against certain aspects of the rules, the Tribunal upheld the broader APT framework. It acknowledged that the APT Rules serve a legitimate objective by ensuring transparency in financial transactions between clubs and their associated entities. The Tribunal emphasized the importance of these rules in upholding the PSR, which aim to prevent clubs from gaining undue financial advantages through related-party deals. It also rejected Manchester City’s claims that the APT Rules were specifically designed to discriminate against clubs with ownership from certain regions, such as those from the Gulf. The Tribunal found that the Premier League’s process for determining FMV was based on clear criteria, using independent assessments to avoid bias.
Potential APT Regulation Changes
The decision could prompt the Premier League to amend its rulebook to align with the Tribunal’s findings. One major area of change would be integrating shareholder loans into APT assessments, recognizing them as a valid form of investment that should be considered within the financial framework. This adjustment may ensure that clubs with significant shareholder backing are not unduly disadvantaged. Additionally, the Premier League may need to revisit recent amendments to the APT Rules to prevent an overly restrictive interpretation of FMV assessments, thereby reducing the risk of “false positives.”
The Tribunal’s decision also emphasizes the need for greater procedural transparency, potentially requiring the Premier League to provide more detailed information to clubs during the FMV assessment process. Such adjustments could lead to a more collaborative and transparent regulatory environment, balancing the need for financial oversight with the principles of fairness and competition law.
ConclusionThe judgment is a nuanced one, but it suggests that the Premier League’s approach to regulating club finances might have gone too far in certain areas. By identifying procedural flaws and setting aside key decisions, the Tribunal’s findings serve as a reminder that even well-intentioned regulations need to be applied fairly and transparently. For Manchester City, this represents a significant acknowledgment of their concerns about how the rules were implemented. It’s a step towards more balanced regulation, showing that while financial oversight is essential, it cannot come at the cost of procedural fairness.
From a broader perspective, this decision could open doors for other clubs to question the rigidity of similar frameworks, potentially reshaping the dynamics of financial regulation in football. The acknowledgment of flaws in the application of APT Rules might encourage clubs to advocate for more flexible and transparent approaches, especially when dealing with transactions that fall into grey areas. For Manchester City, while the judgment does not completely exonerate their stance, it underscores the need for checks and balances in the Premier League’s regulatory process. As the league moves forward to address these findings, it will be interesting to see how this reshaping of the rules impacts future dealings and whether it leads to a more equitable landscape for all clubs involved.
Authored By: Tarsh Khanna, Partner, Sensato Legal
Edited By: Anamika Shukla and Souniya Dhuldhoya
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