What has happened?
The verdict of an arbitration hearing between Manchester City and the Premier League over the competition’s associated party transaction rules (APTs) has been published. It is the first of two highly awaited rulings affecting the two parties and, more broadly, English football as a whole.
What does the arbitration relate to?
In February the Premier League tightened its rules on APTs. These are the regulations that apply to any deals or financial arrangements made between a club and people directly connected to their ownership. Such deals include those struck by Manchester City and companies such as the Etihad Aviation Group which, like City, has an ownership structure linked to the state of Abu Dhabi. When the rules were updated, City challenged them legally. City’s challenge was wide-ranging and disputed the league’s model of governance, arguing the voting rules, which require a two-thirds majority to pass, subjected clubs to the “tyranny of the majority”. This challenge was rejected, as were numerous others. City were, however, successful in disputing two aspects of the rules.
Where did City win?
The main success related to rules regarding loans made by shareholders to clubs. Under the Premier League’s rules these loans have not been subjected to fair market value assessments in the way a sponsorship deal would. This is because, the Premier League argues, any club could achieve such a loan and therefore the practice was not anti-competitive. City argued it was anti-competitive by object (ie not all owners have the ability to make loans) and distortive in its effects. The panel of judges at the arbitration agreed.
Why does this matter?
In terms of City’s own interests, it doesn’t matter much. But a number of other Premier League teams (perhaps as many as nine) have been subsidised by owner loans tendered at rates better than those available on the open market. These clubs will have to correct course and the question over whether these clubs could be the subject of legal action for their previous actions may raise its head. More broadly, this part of the judgment is important because it shows City landed a blow on its critique of the league as a rule-maker and governing body. The same applies to the second victory City won, over the need for improved disclosure from the league when making its FMV assessments. These failures in procedure, with the league found not to have given information to City in timely fashion, have meant two big City sponsorship deals, with Etihad and First Abu Dhabi Bank, which were rejected as not achieving FMV have now been “set aside”, meaning they must be appraised again.
Does this mean the end of APT rules?
No. A broad range of further City challenges were rejected. The judges on the panel found there was no evidence the rules lacked transparency (unlike Uefa’s rules relating to new competitions, as per the European Super League case). They found they did not distort competition or player trading. In fact the panel said there was sufficient evidence for the league to tighten its rules as it did. The Premier League believes its rules can be amended in short order to take into account the considerations of the verdict.
So who won this battle?
Both sides are publicly claiming victory and it may well be true, albeit for different reasons. City’s claims against the Premier League were wide-ranging and framed in the most serious language. They were largely rejected by the arbitral tribunal. The fundamental principles upon which the league has built this aspect of governance were also vindicated. So victory for the Premier League. But City managed to show that the rules have been unlawful, in however small a way, and that the league’s processes have not been managed properly. This last point is likely to be made again in the second, more important, case being heard relating to City’s 130 charges of breaking Premier League rules. A sense that the league is not on top of its brief and making unforced errors has been reinforced and will contribute to the sense of instability in and around the competition. For a serial champion that has straightforwardly said it does not believe the Premier League should have the control it does, this too is a win. As for what happens next, you can be fairly confident of one thing: lawyers will not be short of work.